Four years ago I tried to live on Bitcoin for a week and failed. It was too difficult to find companies that would accept this as a form of payment.
Bitcoin was trading in the $ 2,500 range at this point in 2017. Later that year it hit a record high of nearly $ 20,000. In 2018 it lost 80% of its value.
With Bitcoin up 2,220% since the days from $ 2,500 per coin – most recently over $ 58,000 – I’ve decided to put it to the test again.
Before embarking on my new adventure, however, I looked back at the things I could pay for with Bitcoin in 2017 and how much that amount of Bitcoin would be worth at last month’s record prices.
How much I overpaid
At that time I found a Bitcoin owner in a chat room who agreed to meet me at Penn Station and sell me a New York MetroCard in exchange for Bitcoin. In the end, I paid him $ 20 worth of bitcoin. If I had stuck to that $ 20 in Bitcoin, it would now have been worth $ 464.
That $ 10 salad I paid for with Bitcoin four years ago at a French restaurant on the Lower East Side would now be worth about $ 232.
Melt’s ice cream sandwich? It cost me $ 6.50 in Bitcoin in 2017. That amount of Bitcoin would be worth around $ 150 at its peak in February.
But that was then and that is now.
I cut my recent experiment down to just a few days because of the health risks during Covid, the city’s virus restrictions, and the closure of a number of restaurants due to the pandemic.
Apps now make it easier
In 2017, I found it difficult to buy coffee directly with Bitcoin. In 2021, this will be possible thanks to Bakkt Cash, a digital currency platform that Starbucks is testing through a limited program.
This is probably one of the biggest changes from four years ago, a growing number of third-party apps making Bitcoin easier to spend. Instead of putting a credit card in the apps, choose to pay with Bitcoin. In general, the apps display prices in US dollars and use your Bitcoin as a source of payment.
Flexa, which describes itself as the “most fraud-proof payment network,” said retailers like Nordstrom, GameStop and Lowe’s allow consumers to trade Bitcoin through their system.
However, Flexa told CNBC that the majority of transactions on its platform, more than 60%, are for coffee, tea, and other quick service items. There are no usage fees.
Similar to four years ago, there are workarounds, including gift cards that Bitcoin holders can buy with their Bitcoin. However, these websites typically have transaction fees that vary based on a number of factors. Currently, the average transaction fee on bitinfocharts.com is $ 15. Two weeks ago it was about $ 30.
Costly transaction fees are one of the many reasons Bitcoin owners have told CNBC they don’t consider this to be real currency. Based on a chain analysis report, only 1% of Bitcoin transactions in the US last year were for merchant services.
Using a popular service, I was able to purchase a $ 5 gift card that I could use on Amazon by plugging in my crypto wallet. The process was a bit time consuming and the service fee was not shown on the transaction page.
What could redefine how cryptocurrency enthusiasts see Bitcoin is PayPal’s success in adopting assistive technologies that would enable its customers to use Bitcoin as a means of payment with nearly 30 million merchants.
PayPal’s involvement should make it a lot easier for merchants to accept Bitcoin.
“PayPal’s involvement should make it a lot easier for merchants to accept Bitcoin, especially since PayPal essentially enables the synthetic acceptance of cryptocurrency. Ultimately, merchants will have fiat currencies on their books for their goods and services,” said Mark Palmer, managing director for Fintech and digital assets at BTIG, opposite CNBC.
David Grider, Director of Digital Asset Strategy at Fundstrat, said that lower bitcoin volatility, lower crypto-to-fiat exchange fees, and wider crypto usage in general are needed before cryptocurrency payments reach widespread adoption.
By then, most experts said that Bitcoin is widely viewed by its holders as a store of value versus a currency. It is often referred to as digital gold.
Regulation and Taxes
However, before you prepare your phone with apps to use your bitcoin with, there are two things to keep in mind: regulation and tax.
Just last week, Treasury Secretary Janet Yellen raised the alarm about the use of cryptocurrencies in illegal activity as a “growing problem” and raised some concerns about whether digital coins, which are by their nature decentralized, could somehow be regulated.
Regarding the issue of taxes with April 15th, investors should be aware that the IRS classifies Bitcoin as a property rather than a currency. Yes, capital gains taxes may apply.
Only time will tell whether in four years I will struggle to buy items with Bitcoin or thank my lucky stars. It depends on whether sky-high prices rise any higher.
– CNBC’s George Manessis contributed to this report.
Correction: Based on a chain analysis report, last year only 1% of Bitcoin transactions in the US were for merchant services. In an earlier version, the percentage was incorrectly specified.