Bitcoin eh?

It sounds great. Bitcoin, the new currency free from the stress of banks. The principle is very tempting, especially in the current climate of bank troubles. The reality is a little more of a pain.

See, the thing about bitcoin is, if you take a bit of care, you can have your bitcoin account on your very own computer, with all the account details securely backed up. That's the appeal right?

So...

Why is the bitcoin market becoming flooded by people wanting to make money out of processing bitcoins in exactly the same way as exchanging any other currency?

Fundamentally, all you need to do is give someone your bitcoin receive address (it's a long jumble of letters and numbers), and they can directly transfer money to your very own wallet. It's the electronic equivalent of "Here's some cash", "Thank you".

Many in the bitcoin community will tell you this is a VERY BAD IDEA. For two reasons as far as I can see:

First, it's possible for anyone to scan the bitcoin network history and see exactly how much money has been paid in to that bitcoin account.

Yes ... but .. Do I care? For one thing, who is going to bother to do that? Fine. Let's assume we don't want snooping. All I have to do is click one single button in my bitcoin wallet software, and hey! A brand new code I can give people. It pays to the same wallet of mine and it's not linked to the old one. So... If you're worried. Just change the code you give out once in a while maybe?

The next reason is to do with transaction safety. In theory, some clever con artist can keep scanning the network, see a bitcoin payment and claim they are the one that made that payment. The argument is, that if you give out a new payment address every single time, then you've tied the transaction back to the one person you thought was paying you. Yup. True. But for those of us not handling a lot of transactions, it's honestly not that big an issue. It's an argument to say "If you're doing something weird, or expecting a bit of trouble, give them a new payment number".

Anyway. Having scared the pants off you if you DARE NOT do these things ... Guess what? You can use merchant services at a very reasonable % or two of each and every transaction.

I'm calling bullshit on this one. This is people basically making money out of a need that doesn't exist for a lot of people to safely use bitcoin.

It gets better ...

If you go down the "Ok I'll use a cheap bitcoin merchant" route, virtually all the ones I've come across want you to open a bitcoin eWallet on either their website or one they are linked to.

Woah there Mr. I've got my wallet thanks. It's right here. On my computer.

And that's where you hit a major crunch with virtually the entire bitcoin community being created at the moment.

It is virtually impossible to buy bitcoin directly to your own wallet, and it's virtually impossible to receive bitcoin via online merchant services direct to your wallet.

To be fair. Once you've got bitcoin in to a wallet somewhere, it is usually free to transfer it to another bitcoin account. Note the usually though. Some do charge even for that.

Then we come to buying bitcoin, and ohhhh man is this one a pain?!

It just ain't easy. The main reason is. Nobody trusts anybody. Which is fair enough. If someone waves a credit card at you and buys bitcoin, they can then cancel the transaction via the credit card company leaving you stuffed. I also know that some companies like PayPal will delete your account if they find you using paypal to sell bitcoin. So there are genuine restrictions.

One way it could be done is Escrow. Escrow is a system where exchange is held until conditions are met. A lot of people do want to just buy some bitcoins with a credit card. The only way round it is let them specify the buy order in their currency. That money then goes on hold until no further claim can be made on it, and only then does it get exchanged for bitcoins at the time it clears. I've got a feeling though that you can cancel a credit card purchase up to 28 days later? Might be 14. But who is going to gamble like that? "Here's £500, whatever the exchange rate is for bitcoin in 14 days time, I'll have that much". Banks eh? They ruin everything.

This tends to lead you to international wire transfer or direct bank transfer. Fair enough. But the problem there is fees. There can be a fixed fee at either end of the transaction. There seem to be losses in currency exchange before you even get to the bitcoin if you're buying from an outfit outside of your home currency, and of course the bitcoin exchange itself will want to take a cut.

Sadly, as a result, it's not actually worth bothering with bitcoin for small amounts. It's not the sort of thing you can put in a few quid and pay for something on a one off. You'd quite frankly be crazy and end up paying an eyebrow raising bunch of fees in the process.

So .. I guess my pearls of wisdom are:

A lot of people are trying to scrape a few bitcoins out of anyone they can. Check your options and avoid them if you possibly can.

If you want to "play with bitcoin" you have to start with a fair whack of cash.

It all seems a bit disappointing given the potential. But then given the barriers to getting normal currency in and out of bitcoin for casual use, it's perhaps even more impressive how fast it seems to be taking off at the moment.