How Bitcoin can go mainstream

Brian S Hall

Competition: Apple CEO Tim Cook recently claimed that his company has 800 million iTunes accounts, most of which are linked to a credit card. The opportunity to buy and sell using only an iPhone, linked to that iTunes account, has tremendous appeal for users. To no one's surprise, Apple is widely rumored to be working on a payments service; in the meantime, the company has banished Bitcoin apps from its App Store. (And that's just as well: Since one of Bitcoin's benefits is its removal of third party intermediaries, it can push transaction fees close to zero. That doesn't really square with Apple's take on micropayments, in which it commands a specific cut.) As for Google, it may decide that our uniquely personal, real-time, location-based purchase activity is so valuable that it will offer us financial incentives if we use the Google Wallet application instead of any competing option. Data is money, after all.

Personal risk: Your Bitcoins are a digital file. And digital files can be stolen. The Mt. Gox theft from earlier this year is just the most widely known example of this. Members of the Bitcoin Forum maintain a list of all known Bitcoin thefts, and it is depressingly long. To limit theft, private companies offer "cold storage: facilities where the owner's Bitcoins are securely kept offline. The recent Bitcoin theft at Flexcoin, where thieves nabbed every one of its Bitcoins not in cold storage proves the value of this method. But stashing your Bitcoins in cold storage means you can't access them immediately. Worse, there are no agreed-upon industry best practices and certainly no FDIC-like guarantees for these facilities.

Transaction speed: The very math that makes Bitcoin work regrettably slows down transaction volumes to glacial speed. Bitcoin transactions are cleared via "mining." Mining is the process whereby miners--people and computers--are incentivized to make sure that every single Bitcoin transaction gets faithfully added to Bitcoin's public ledger, ensuring no funny business. Already, the blockchain contains more than 38 million transactions. The Bitcoin mining network can only process around 7 transactions per second. By comparison, Visa can handle up to 10,000 transactions per second. Right now, this isn't much of a problem, but as more people use Bitcoin, transaction speed will be crucial. (There are several workarounds in development, including a Bitcoin wallet that allows transactions to go through more quickly, syncing transactions with the full blockchain every few seconds, but not in real-time.)

No credit: It's easy to envision Bitcoin as digital cash. Cash is king, right? Except Americans love to buy on credit. Credit card debt in the U.S. is $15,000 per household, nearly $1 trillion total. Credit will be hard for Bitcoin to dethrone.

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