With Bitcoin recently hitting a new all-time high and being compared directly to gold with regards to its pricing, it has taken a monumental step forward. And while we usually look at Bitcoin as a solid system for everyday payments, the system has some flaws that cripple it when paying for in-store purchases, something it is currently not designed for.
Confirmations Take Time
Before a transfer is seen as being finalized, it requires confirmations. Bitcoin has an estimated average block minting time of 10 minutes, but it can go way above or below that, as well. There have been many periods where a block takes an hour or longer to be found, and your transaction isn’t guaranteed to be in that one. This is a huge hindrance to paying someone for an in-person purchase. While you can send the transaction to them and it will show up, the simple fact is that transactions need at least one confirmation before they are truly trusted (note that some will require three or more, with each one giving more credibility to the payment). Imagine being in a store and having to wait an hour or longer before you can walk out, and it’s easy to see the issue.
Bitcoin is Volatile
Bitcoin is a lot like gold in that its price is forever changing. This becomes an issue if you don’t know how much your coin will be worth when you head to your local grocery store, for instance. You could have left the house with $300 and by the time you’re done shopping, it could be $100 or $800. This volatility makes it difficult to truly use it as a cash-based transfer. Your purchases could easily end up costing more than you have or were wanting to spend (with respect to the amount of BTC consumed), and not having this locked down becomes an issue.
It’s a Lot Like Gold
With both of these known, a big question becomes “why use Bitcoin?” The answer to this is simple: it is a great way to both store and transfer value when you aren’t dealing with a time constraint (such as making an in-store purchase). For example, if you buy something off Overstock, you can send your payment and it doesn’t matter if it takes a minute or an hour to confirm – you’re not stuck waiting for it regardless. Along with this, there are some services that will allow payments with zero confirmations, and will just retract the credit if it ends up being double-spent.
Its volatility can be both a positive and a negative aspect, but the general concept behind it is that it’s finite in number, and its value should rise with currency inflation. Gold, for example, is less about making a profit off holding it and more about retaining the same buying power you had before (which, by its nature, means it should increase in value). Gold isn’t something you take to the store to pay for goods and services, but rather held and converted as necessary – something Bitcoin does extremely well. As such, comparing it to gold in regards to the fundamentals is exactly what should be done. In essence, it is the new “digital gold.”