These days, you can purchase more stuff with bitcoin than ever before, from video games to new furniture. However, should you do so?
Markets for cryptocurrencies are typically unpredictable, and the amount you pay now may not be the price you pay tomorrow. Furthermore, many firms experimenting with crypto payments only take Bitcoin, which experts consider to be one of the worst cryptos to pay with.
Nonetheless, many are curious about how cryptocurrency may function as a payment mechanism. According to a recent analysis by PYMNTS.com, a news and research platform for payments and commerce, over 20% of all U.S. people think they’re likely to make a transaction using cryptocurrency. But, before you use your Bitcoin to fill up your Starbucks app’s balance, consider what experts have to say about buying with cryptocurrency.
Don’t use Bitcoin to Make a Payment
Bitcoin, the first cryptocurrency, was created with the intention of being used in the same way that money is. It was branded a “peer-to-peer electronic currency system” in its white paper. However, due to Bitcoin’s frequent and dramatic price swings, this is impractical in reality.
“It’s sort of worthless as an electronic cash system because of the price fluctuation,” says Ollie Leech, learn editor at CoinDesk, a popular cryptocurrency news source. “No one in their right mind would pay Bitcoin for a cup of coffee.” Let’s say you paid $3 for your coffee, and your Bitcoin is now worth $30. That’s a setback.”
Bitcoin’s worth was under $10,000 only a year ago, in June 2020. It has now risen to almost $64,000 and, despite a recent price dip, is still close to $40,000. Consider a video game that cost $50 in Bitcoin back in June. If you waited until today to purchase it, the identical item would now cost you $200 in Bitcoin.
According to Galen Moore, head of statistics and indexes at CoinDesk, people acquire Bitcoin “not because they anticipate to be able to walk to the shop and spend it, but because they want it to keep its value.”
Ethereum should be treated in the same way.
What About the Rest of the Cryptocurrencies?
Although Bitcoin failed to achieve its goal of becoming a new currency, experts claim there are alternative cryptocurrencies that are better for transactions.
According to Danial, Dash, Manero, and XRP are some notable cryptos that are expressly built to perform better for spending.
Because their values are related to actual currencies, stablecoins like Tether or USD coin might be preferable options for shopping.
Pat White, co-founder and CEO of Bitwave, a startup that assists companies with crypto tax reporting, adds, “There are currencies that are more like cash.” In principle, quicker processing and cheaper costs make these currencies a better alternative for spending. “They’re made to be spent and utilized as rapidly as possible.”
However, there is still a drawback to utilizing crypto to make payments that is designed to seem like currency. Take, for example, Bitcoin Cash (BCH). After the first Bitcoin proved to be too volatile to be employed as a new kind of internet money, BCH was created. A group of developers decided to break away from the original cryptocurrency and create Bitcoin Cash, which was intended to be a more stable version for transaction purposes. However, Bitcoin Cash is still quite volatile in reality. Its value has risen from roughly $250 per coin to over $1,500 in the previous year, showing the dangers of utilizing it to purchase anything at the wrong moment.
Another problem is taxes. While you are not required to record your bitcoin purchases to the IRS, you must declare when you trade a cryptocurrency for goods or services. You must monitor your cost basis, or the fair market value of the crypto when you got it versus when you used it to trade, and declare any capital gain or loss each time you make a crypto purchase.
Are There Any Other Real-World Applications for Cryptocurrency?
“There’s probably not going to be a solid incentive to purchase products in crypto for American people,” Danial adds.
This is due to the fact that the US dollar moves less than the overwhelming majority of cryptocurrencies. When a currency is less secure and reliable than the US dollar, however, the argument for cryptocurrency payments becomes stronger. Consider the Iranian Rial, which is a very volatile currency. “Every day it loses value,” Danial explains.
Would You Invest in Cryptocurrency?
While it may not be the smartest financial move, crypto payments may give an alternate transaction method for people who do not meet the criteria for establishing a bank account or who are unable to access conventional funding in a particular location. Unbanked individuals, for example, may use their crypto wallets to send money to others, even worldwide, or use applications like BitPay to make crypto purchases with participating merchants, all without having to go through conventional financial institutions.
Some users may prefer to purchase items using cryptocurrency to take advantage of the transaction speed. “A lot of agreements are being struck using crypto throughout the world,” Danial explains. “For example, suppose a royal in Dubai wants to buy a Lamborghini from Italy right now and doesn’t want to wait for deposits and bank information and all that, so they buy it with cryptocurrency.”
Because cryptocurrency transactions are generally anonymous, they have a reputation for being utilized by criminals to purchase and sell on online black marketplaces. The use of cryptocurrency as a means of payment for unlawful transactions continues to grow.
As Bitcoin and other cryptocurrencies gain in popularity, expect to see more companies eager to accept crypto payments. Some businesses may be hoping to profit on the newest trend or the novelty of a new payment method, while others feel bitcoin is the way of the future. Tesla’s recent decision to continue taking Bitcoin payments was motivated by an optimistic outlook on the future of crypto, despite the company’s announcement last month that it would halt accepting Bitcoin payments for automobiles due to worries about its environmental effect.
Although digital currencies may become more prevalent means of payment in the future, Danial believes that “we are not there yet” for the ordinary American crypto investor contemplating buying for groceries with crypto.