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Bitcoin: A Legitimate Digital Payment Method?

Most consumers wouldn’t use the virtual currency, but firms bank on future adoption

Bitcoin, an open and decentralized virtual currency launched in 2009, has evolved from a system used primarily by technophiles and dodgy characters in the dark corners of the web to a legitimate payment method accepted by a small but growing number of merchants.

In 2013, the bitcoin’s value soared and deflated multiple times, regulators across the globe investigated its viability, and venture capitalists poured tens of millions of dollars into companies trying to build sustainable Bitcoin business models to help shed its murky reputation to promote its use.

Some of Bitcoin’s proponents are attracted to its networked nature and resulting lack of central control over the currency and system, while others are interested in what that model enables: digital transactions at a fraction of the cost compared with using traditional bank or credit card payments.

Despite recent buzz, awareness of the bitcoin among US consumers remains low, as does the propensity to use it as a digital payment method. In a December 2013 Bloomberg poll of US adults, 42% of respondents correctly identified the term bitcoin as a virtual currency, although 46% weren’t sure what it was, and 12% misidentified it as either an iPhone app or an Xbox game.

A January 2014 survey of US adults conducted by research firm GfK and online financial publication TheStreet found even fewer respondents—just shy of one in four—were familiar with the virtual currency.

GfK and TheStreet’s research also found that just 18% had used or would consider using bitcoins or similar alternative currencies. Younger consumers were more bullish about this prospect, with close to one-third of 18- to 24-year-olds indicating past or potential future use, compared with less than 20% for each of the other age groups surveyed.

Awareness and other issues notwithstanding, some mainstream companies have started to adopt the virtual currency. One of the most prominent was online retailer Overstock.com, which started accepting bitcoin payments on its site in January 2014.

The retailer achieved $1 million in bitcoin sales during the first two months of the rollout and expects that amount to reach between $10 million and $15 million by the end of the year. That’s a drop in the bucket compared with Overstock’s 2013 revenues of $1.3 billion, but nevertheless exceeded the company’s initial expectations and also attracted new customers.

Companies like OkCupid, Virgin Galactic, WordPress and Zynga also accept bitcoins. While there is certainly a younger, tech-savvy demographic willing to pay with this burgeoning form of digital cash, it remains to be seen whether it will catch on among the broader population.

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