Bitcoin is struggling right now to find its place in the traditional financial world. In a futuristic world made from whole cloth, decentralized currencies would be the obvious champion.
After all, bitcoin was created by the unknown entity Satoshi Nakamoto in 2008 specifically to circumvent and undermine the power traditional banking institutions held over their captive clients.1
The idea of a true peer-to-peer digital currency was intoxicating to cypher punks and freedom advocates, as it seemed to represent a path to breaking Big Banking's control over individuals' financial choices. Even more revolutionary, bitcoin held the promise of being a world currency, eroding the barriers between nations and peoples.
Sadly, however, bitcoin did not enter a blank-slate financial world, and it's had to face challenges from both established financial and established technological institutions since its introduction. The legacy of all that turmoil is relatively low global adoption rates a decade after the currency was created and a focus on holding bitcoin to reap its ultimate fiat value instead of using the coin itself as it was meant to be used - as a day-to-day digital currency.
As a result, fiat gateways serve as both the entrance and exit points for the bitcoin market, instead of peer wallet or merchants. This might change in the future as adoption grows, but for the time being, most folks think of bitcoin in terms of how many U.S. dollars or euros each bitcoin is worth, instead of its real-world buying power.
We're going to take a sort of state-of-the-market look at the ways fiat cash both enters and exits the bitcoin market. Then we're going to see if there's any chance of that paradigm changing in the near future.
Money Heading In
Since traditional banks have largely shunned bitcoin and other cryptocurrencies - at least, for now - there are few options available for turning fiat cash directly into bitcoin. Many credit card companies refuse to allow their funds to be used on cryptocurrency exchanges, and some banks have even cracked down on money transfers and debit card transactions to known cryptocurrency sites. This is ostensibly to protect investors and the bank itself from risky investments, but one gets the feeling that banks are merely retaliating against a potential competitor.
Nevertheless, it is still possible to use many debit cards or money transfers to change fiat into bitcoin at large, recognized gateways, like Coinbase. This route might potentially grow in popularity due to Coinbase's seemingly friendly attitude toward U.S. government regulation. The exchange has cooperated with the U.S. Internal Revenue Service regarding the tax liabilities of its users, and it is also in the process of becoming a bona fide exchange in the eyes of the U.S. government.2 Despite the outcry from crypto purists, this kind of gentle attitude toward U.S. regulation may convince or compel banks to treat Coinbase and other established fiat gateways with a freer hand. By removing some of the risks inherent in crypto investing, banks can be assured that they won't run afoul of U.S. law either from a regulatory or investment standpoint. Choosing to transfer fiat cash to Coinbase for bitcoin would be very much like buying traditional securities on the New York Stock Exchange in this future model.
For those who still don't entirely trust banks to act in good faith when it comes to moving money out of traditional markets and into cryptocurrency, there are several interesting alternatives.
LocalBitcoins is a service that promises bitcoin in exchange for cash deposits at certain physical banks or depositories.3 This is a peer-to-peer system, in which bitcoin holders offer to trade their bitcoins for fiat cash deposits.It stands as a reliable alternative to the traditional exchange system that places like Coinbase ape. A similar system is being set up by BitQuick. BitQuick offers a hybrid of traditional banking and systems like LocalBitcoins, hoping to take the best features from each to create a system that's fast and secure.
Finally, if you're in a lucky part of the world, you may be able to find a legitimate bitcoin automated teller machine. Coin ATM Radar boasts the locations of more than 3,000 bitcoin ATMs throughout the world with a searchable map, including the locations of more than 1,000 bitcoin ATMs in the Northeast U.S.4
Money Heading Out
Many of the same fiat portals for buying bitcoin with fiat can also act as portals for turning those bitcoins back into fiat dollars. Coinbase offers this service, and you can become a seller with both LocalBitcoins and BitQuick to "reverse" bitcoin transactions. The market is still a long way away from easy to crypto-to-fiat conversions, however, and there are comparatively few exit points for getting cash back.
A simpler system, and more in keeping with the crypto ethos, revolves turning bitcoin into goods and services rather than cash, directly. This is more in keeping with the Nakamoto's original vision of bitcoin as a catch-all global currency.
Merchant portals for bitcoin are growing by the day, and there are plenty of ways to spend bitcoin directly on flights, computer parts, hotels, and all manner of other goods.5
Since we're strictly talking about fiat portals, however, it's worth singling out one near-fiat portal in particular - buying gift cards with bitcoin.
Services like eGifter give you the option to buy gift cards with bitcoin to a variety of brick-and-mortar outlets. It's not exactly fiat cash, but it functions in exactly the same way for everyday purchases. Gift cards are available at eGifter for nearly every major outlet, including Amazon, Best Buy, and Walmart.
And there's a loophole, too, if you don't mind losing a little money in the exchange process. Gift cards purchased with bitcoin can be exchanged for fiat cash on services like CardCash.6 These services will buy your gift cards and then return fiat cash to you, essentially turning bitcoin into fiat.
It's not the easiest portal in the world, and it's more than a little convoluted, but it is theoretically possible to move your bitcoins during a panic moment into cash with relative ease through the internet without involving a major bank or exchange.
Widening the Gateway
As bitcoin adoption grows, there will inevitably be an increase in the number and availability of fiat portals. Simply put, money is money in the eyes of merchants and banks, alike. Once cryptocurrencies develop the kind of respectability and long-term acceptance that's currently enjoyed by less-than-traditional digital outlets like PayPal, there will be a mad scramble to provide quick and easy portal options to get your bitcoin into the hands of merchants and banks as quickly as possible. The major barrier in this field is the relatively low adoption rate, closely tied to concerns about bitcoin's regulatory future in the U.S. As this clears up, it will become increasingly easy to move bitcoin around as easily as digital fiat cash is moved around today. In fact, some services like LocalBitcoins may find themselves at the technological forefront one week only to be a dinosaur the next.
1) Bitcoin: A Peer-to-Peer Electronic Cash System, bitcoin.org. https://bitcoin.org/bitcoin.pdf
2) Coinbase Engages SEC about Turning into a Regulated Brokerage: Report, CCN. https://www.ccn.com/coinbase-engages-with-regulators-about-becoming-a-licensed-bd-report/
3) LocalBitcoins. https://localbitcoins.com/
4) CoinATM Radar. https://coinatmradar.com/
5) 13 Major Retailers and Services That Accept bitcoin, Lifewire. https://www.lifewire.com/big-sites-that-accept-bitcoin-payments-3485965
6) CardCash. https://www.cardcash.com/