How can a bitcoin be used IRL?

Factual Questions
1

Okay, I read Cecil’s column on Bitcoins; the problem is that I can only comprehend the “in-,network” aspects. On Morning Edition today, a story was aired about Bitcoins being used in money-laundering. The reporter pointed out that it’s dangerous to transport a suitcase full of cash across the country or around the world. Transferring Bitcoins from one computer to another eliminates this risk. Granted, but here’s where I lose the string:

I presume that the junkies aren’t buying their smack with Bitcoins; they’re using cash. So the drug kingpin doesn’t start with a bunch of Bitcoins; he’s starting with a suitcase of cash. SO HOW DOES HE TURN THAT SUITCASE OF CASH INTO A VIRTUAL STASH OF BITCOINS?

I’ve never heard any explanation of how that happens, and a google search of the SDMB yielded nothing.

And we haven’t even begun to discuss what Wo Fat can spend his Bitcoins on. Let’s just leave that bit alone for now. Someone help me, PLEASE.

2

Through exchanges. You can both buy and sell bitcoins on exchanges in several countries. They can convert dollars (or many other types of hard currency) to bitcoins or vice versa. That is useful for money laundering because it means all you need if a plane ticket and a flash drive (or just an internet connection) rather than a suitcase full of $100 bills to move money from one place to another.

3

But the kingpin still has to get his suitcase of hundies to the exchange. Do they have exchanges in the seedy, crime-ridden parts of town?

4

But by that time, the money’s already laundered. You still need to carry your suitcase of bills to the bitcoin exchange.

5

Also, lots of people do or did buy drugs with bitcoin.

6

Yup, there is the issue of converting cash to bitcoins, which requires that you have an account at an exchange, which means there’s a money trail of sorts related to that account and getting the cash into it. No doubt there are a number of clever mechanisms to hide one’s identity in that cash-to-deposit step, but I wouldn’t have a clue.

However, once the money is in bitcoins, it’s pretty easily exchanged and transported.

And, of course, there’s the issue at the other end, in a different form. If you keep coming up with bitcoins to sell on an exchange, the Feds might wonder where you’re getting all these bitcoins, and why you’re not paying taxes on the income from selling them. (Gosh, Mr Agent, I’m taking a loss!)

But due to my 2nd paragraph above, even if the one cashing in gets caught with unexplained income, it isn’t easy for the Federales to tell from whence it came. So, they can bust him on something, but not the actual offense. Presumably … unless it’s the same guy, and they find the account he uses to convert cash to bitcoins. I suppose that would be too sloppy to be useful.

There’s a tangential issue I’ve wondered about. In theory, bitcoins would be a great way to get money out of a closed economy. For example, I knew a South African who was thinking of relocating to Australia, back in the 80’s. At that time, he’d have to leave his bank account behind, and as the owner of a successful small business, that wouldn’t be ideal. Would bitcoins have saved him? (Turns out the revolution he feared was forestalled by Mandela and DeKlerk, a much better save.)

As I see it, they’d help, but you’d get mauled by the exchange rate, in any situation where people are trying to get wealth out illegally. The demand for bitcoins would be much higher in that currency. But I suppose anything is better than nothing, so anyone in-country with a source of out-country currencies would reap the benefits.

7

Many people believe the rise in prices of Bitcoin from $200ish to $1000ish around Thanksgiving 2013 was driven by Chinese attempting to evade currency controls. Several of the drops thereafter were correlated with increasing restrictions on Chinese banks and exchanges.

Economist Tyler Cowen on Bitcoin and China.

8

I find it interesting that retailers are starting to be willing to take the risk of accepting bitcoins. There have been days in the last few months where the value dropped by more that 10% in one day.

Has anyone bought from a large retailer using bitcoins? Do the retailers add a conversion charge, sort of like if I use my US$ based credit card to make a purchuse in Europe?

I was laughing yesterday, when public radio was running a piece on bitcoins, and they decided that they were a lot like, get this… cash. Anonymous, untrackable, untaxable.

9

If you live in Vancouver or Toronto, you are in luck! Both cities have actual Bitcoin ATMs :smiley:

10

I read an article a few weeks ago about one of the sellers caught in the crack-down of Silk Road. While turning a few hundred dollars from bitcoins to cash is easy, the process he had to go through to convert serious amounts of money sounded like it took more time, difficulty and co-conspirators then obtaining and moving the drugs he was selling did.

11

Silk Road

http://www.sealswithclubs.eu

Also, I hear that Amazon is accepting them (or will be soon). Also some electronics retailer whose name escapes me. They’re also accepted at a couple of Subway locations in either the US or Canada.

12

Overstock.com and tigerdirect.com allow you to buy things with bitcoins. I don’t think that Amazon has said anything about accepting them. There is speculation that they will start but I haven’t seen any reason to think that this is anything but people speculating that bitcoins will become mainstream and amazon will need to accept them because it will be the money of the web.

13

Tiger Direct is the electronics retailer I was thinking of, thank you.

14

All the retailers that I know of aren’t accepting any of the currency risk of holding bitcoins. They’re using something like Coinbase to convert from BTC to USD at the time of sale.

15

Where does a junkie get his hands on a bitcoin? Do they give them out in pawn shops to people who bring in stolen TVs?

(Actually, I suspect that the people who you’re referring to are buying truckloads of drugs, for resale, rather than dime bags for personal use.)

Somewhat related question: Can you buy a fraction of a bitcoin?

16

Bitcoins are not real things made of matter. You can never hold one in your hand, and you don’t go to any part of town to get one. It’s all done on the computer.

There are virtual “wallets”, which are just encrypted bits of code on your hard drive, which detail your entire transaction history. You can transfer bitcoins between phones, computers, and probably some newer POS systems.

You get your “hands” on a bitcoin by buying them at an (online) exchange, just like buying stocks at Sharebuilder. They are divisible to 8 decimal places, if I recall correctly, which is good because a single bitcoin is worth almost a thousand dollars right now.

17

My understanding is that it’s mostly the drug traffickers who use bitcoins, not junkies.

18

Devil’s advocate: for an overwhelming number of people, that’s also true of dollars or euros. “Cashless economy” isn’t here yet, but it doesn’t seem to be disappearing or becoming less likely either.

19

The Silk Road sells all kinds of drugs, in all kinds of amounts. You can buy a single Ecstasy pill (or a thousand), a gram (or a kilo) of heroin, a gram (or a kilo) of primo bud, etc.

And yes, you can buy a fraction of a bitcoin. Just bought .125 from a friend this morning. Not saying what I’m going to use it on…

ETA: You can buy just about anything cannabis-related that you can get in a dispensary in Colorado: hash, oils, topicals, edibles, seeds, etc. etc. etc. A, uh, friend told me.

20

Being the computer-geek-guy I’ve been getting asked about bitcoins a lot recently. The most important point I make to people is that right now, actual US Dollars are essentially ‘virtual’ currency, in that they’re just representative paper documents. They haven’t even been backed by gold in like fifty years. They maintain their value thru security (anti-counterfeiting measures) and universal acceptance (confidence in the US economy etc.) From this point of view bitcoins aren’t much different.

Although I’m still not quite sure what the point/value of those actual, goldish, capital B+$ emblazoned bitcoin ‘coins’ are. I get the feeling they’re little more than props for the media.