As the bitcoin's popularity grows, so does talk about its standing as legal tender, but there are lingering issues that need to be sorted out before people start using bitcoin to buy everyday things, experts said on Monday.
Bitcoin has been described both as a store of value and a currency, but it's debatable whether it is either of those things. Its price can swing wildly from day to day, if not the hour, and its reputation has been tarnished by its connection to the sale of illegal goods and other illicit activity such as money laundering.
[ Also on InfoWorld: China bans banks from trading in bitcoin. | For a quick, smart take on the news you'll be talking about, check out InfoWorld TechBrief -- subscribe today. | Read Bill Snyder's Tech's Bottom Line blog for what the key business trends mean to you. ]
For those reasons and more, bitcoin has a long way to go before it becomes a mainstream form of payment. Here are three challenges that generated some discussion on Monday at The Future of Money and Technology, a conference in San Francisco.
1. Buyer beware
For starters, bitcoin transactions are designed to be irreversible. So if you buy something online from a merchant that accepts bitcoin and the transaction turns out to be a scam, or the payment is sent to the wrong place, or any number of other things happen, the buyer will probably lose that money.
"You're dealing with the honesty of the vendor," said Steve Kirsch, CEO of OneID, a startup that provides encryption services to protect people's data. "It's like giving people cash," he said during a panel discussion at the conference.
Other panelists, all bitcoin supporters, agreed that in 2014 more services could appear designed to address this problem, such as escrow accounts that could channel money back to the buyer in the case of fraudulent transactions. The bitcoin system is built using an open-source framework, so those types of developments could actually happen.
New companies could crop up next year to address this problem. Existing players such as bitcoin payment processors might also add new features to their services in this area, panelists said.
2. Keeping your bitcoins safe
Every bitcoin has a private key associated with it that, if decrypted, allows the bitcoin to be sent to another computer using peer-to-peer software. Because these private keys are often stored on people's personal computers or within Web-based services, bitcoins are vulnerable to theft.
"All of the existing mechanisms for security, including its [verification] signatures, are problematic," OneID's Kirsch said. Any kind of malware attack can be directed at someone's computer to steal their bitcoins, he said.
There are different ways of storing this private key. Coinbase and others offer digital wallets. Other companies have "offline" or paper-based wallets to put key ownership back into the user's hands, literally: The bitcoin addresses and private keys are printed on a piece of paper. And the Winklevoss twins of Facebook fame have even offered up a solution with so-called vaults.