Bitcoin: It’s Not Real Money

The website for EZ2Drive, a used car dealership on Federal Road, boasts, “EZ2Drive is the ONLY DEALER IN THE NORTHEAST to accept Bitcoin, Ethereum, Litecoin and cryptocurrency as payment.”

According to the Danbury News-Times, owner John Fieschi believes, “in the next five or 10 years everyone will be using digital currency,” which is purchased by consumers using real money but lacks the backing of any government or bank.

Cryptocurrency is referred to as such because it uses cryptography to regulate and verify the generation and transfer of units of currency. Units of currency are generated by “miners” and entered into a network that tracks the movement of units of currency between the “wallets” of individual users, using encrypted keys to verify their authenticity. The balance of each wallet and a ledger of every transaction within this network are publicly available -- this is how cryptocurrencies operate in the absence of a central authority.

It is no coincidence that with Fieschi’s decision, EZ2Drive has become one of a handful of businesses in the northeast to accept cryptocurrency as payment. Transaction fees, the volatility of cryptocurrency, and the very nature of cryptocurrency itself all stand in the way of its universal acceptance.

When businesses use electronic payment methods like PayPal, they pay a fee for each transaction. Businesses pay this fee because making transactions more convenient for consumers yields long term benefits that outweigh the relatively minor cost. When paying for something using cryptocurrency, however, the consumer pays the fee, which is markedly higher than that charged to businesses by services that use real money. Thus, cryptocurrency makes transactions more costly to the consumer and serves no purpose to businesses as a result.

Furthermore, the value of cryptocurrency fluctuates too often and at too varying a degree to be used in the same way as real money. Bitcoin, for example, began 2017 with a value of around $1,000. It peaked in December at just over $20,000, fell as low as $6,000, and recovered to around $10,000 on Feb. 14.

Cryptocurrency is not the currency of the future- for all practical intents and purposes, it is not really currency at all. Buying a car using cryptocurrency like Bitcoin is no different than buying a car with a financial instrument like a stock. Consumers purchasing cryptocurrency have no guarantee that it will retain its value until it is spent, just as businesses have no guarantee that the the cryptocurrency they receive as payment will retain its value until it is exchanged for traditional currency.

To date, no one has purchased a car at EZ2Drive using cryptocurrency. Its move to accept cryptocurrency is not ahead of its time -- it is a marketing ploy attempting to capitalize on a trend that nobody really understands.

This article was originally published in the Danbury News-Times on 20 March, 2018.