What can you buy with Bitcoin?

Many people are talking about Bitcoin as an investment: you buy some today, hold for a while, and sell later when the price suits you. But what if you want to buy Bitcoin and use it as an actual currency? What could you get with it?

At first glance, this looks like a simple question. However, the answer is not. And here is why.

Let's get the obvious out of the way first. Unlike fiat currency, like dollars and euro, Bitcoin is not widely accepted. A report from Internet Retailer says that just three of the top 500 online vendors that it tracks support Bitcoin, a figure which has dropped from five last year.

In practice, this means that you cannot just head over to your favorite store and pay for the product or service that you want using Bitcoin. Things may change in the future, but the latest evolution doesn't paint a nice picture. But, what's standing in the way?

There are a number of things, and the main problem is that Bitcoin is immature. It is also not officially recognized as a currency by most governments across the globe. It is also highly volatile still, as prices can fluctuate greatly within a short period of time. There is no official central authority that handles Bitcoin. You get the picture.

But what if a vendor accepts Bitcoin? This is where things get tricky. Why? Because of how much transactions cost and how long they take to process. To give you an idea of what I mean, let's talk about buying a cup of coffee.

Normally, no matter if you pay with cash or a credit or debit card, the barista will process your order right away. These transactions take very little time to process, especially with cash. It can take a few seconds with a card, but it is not something to fret over.

When you pay, you also do not have to worry about any fees, because, if there are any, they will be supported by the coffee shop. So, in the end, you get a cup of coffee about as quickly as it takes for it to be made and you only pay what the coffee shop charges for it (excluding the tip, if there is any).

This system is familiar to everyone, mainly because people have accepted it and it has been around for ages.

Bitcoin is similar, but the end results are not, because of the two reasons mentioned above. One coffee shop may choose to support the transaction fees, another may not, so you can never know how much that cup of coffee costs when you pay for it using Bitcoin.

There is no standard practice here, because, as I said earlier, Bitcoin is not mature enough for vendors and buyers to have settled on a system yet. And that is not even the real problem, as hinted earlier.

There is a strong relation between processing times and transaction fees in the Bitcoin space: the more you pay, the faster your transaction is processed. And, no matter how much you pay, processing times will be getting slower and slower as Bitcoin grows, which is yet another issue.

What this means is that, instead of waiting a couple of seconds for your coffee order to be processed by the barista, you can wait up to an hour or more for the coffee shop's wallet to receive the funds. And you will end up waiting more a few years down the road.

Because of the way the system works, the coffee shop cannot place a hold on the exact amount you owe it, like can happen with credit and debit cards, because no such feature currently exists. That would solve the problem with the waiting time, but one is unlikely to be added, because the power players in the Bitcoin scene like it when you pay -- the more, the better -- for transactions to be processed more quickly.

What is more, transaction fees -- their equivalent in fiat currency, more exactly -- are linked to the value of Bitcoin. As Bitcoin goes up in price, so will the cost of transactions. Right now, one Bitcoin is worth around $2,500, but in a year it could be $5,000. Even if the fee does not change, its equivalent in fiat currency would double.

To give you an idea what I mean, many major exchanges today have a transaction fee of 0.001 Bitcoin when you want to withdraw Bitcoin to a wallet. That would be $2.50 at today's price, and $5 next year, in the above scenario. As you can tell, this whole thing doesn't make much sense.

That is not a standard fee -- in fact, it is among the highest that I have seen -- so in practice you may pay a smaller one to move funds from a wallet to another. But this should give you a rough idea of the equivalent cost in fiat currency and how it can evolve over time.

But, and this is a big but, if we are looking at transactions that can take longer to process, like buying a laptop online or a house, Bitcoin starts to make sense. In these scenarios, you may be willing to wait a few hours for the transfer to be validated by the vendor or the seller, and even if you are the one paying the fee it will not amount to much anyway.

There are not many stores that sell goods that accept Bitcoin, but there is no reason why those that sell expensive products should not consider it. Because Bitcoin is a store of value, the vendors that can wait to convert it into fiat currency can make an even bigger profit from the sale of those goods -- assuming the price goes up, of course.

In conclusion, using Bitcoin as a currency only makes sense if we are talking about non-immediate purchases of more expensive goods and services. It has great potential here, as it can eliminate the middle man from the equation and give vendors and sellers much more flexibility. It is just not very practical right now.

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