Craigslist is now allowing its users to accept Bitcoin as payment in the online marketplace.
But does that mean Bitcoin, and other cryptocurrencies, are here to stay? Not exactly, according to some experts.
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The new feature, which was first reported by blockchain news website Blockexplorer News, allows sellers to check a box indicating that they are able to accept cryptocurrencies as payment.
On the other hand, buyers have the option of filtering their search to include only sellers who will accept digital currencies.
Despite a handful of well-known online retailers, including Expedia, Microsoft, Etsy and OkCupid also accepting cryptocurrencies as payment, stores in the non-digital world that do so are still few and far between.
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Despite Bitcoin’s recent market surge, experts argue that there are still several obstacles before the cryptocurrency can be a popular payment method – namely the transaction fees associated with using them, and the volatility of their current value.
Andreas Park, professor of finance at the University of Toronto, explains that transaction fees pose a major roadblock for cryptocurrencies on their path to common use.
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The transfer of Bitcoins is facilitated through a blockchain platform, which is like a digital ledger where transactions are recorded chronologically.
These records are called blocks, which are linked and secured using a secure online messaging system called cryptography. Each transaction must be recorded by a physical person, called a miner.
Park describes transaction fees as a “tip on your transaction,” as the fee goes towards the miners who process the payments.
“The major problem with most cryptocurrencies is that there are some very significant scaling issues. There are too many people wanting to do transactions at the moment. Seven transactions per second is what they can handle,” Park explains.
Because miners are able to collect the fee, they usually prioritize the transactions with the highest fee per byte. Bitcoin fees range in amounts because of several factors, including the size of the block in Bitcoin’s blockchain, which limits the number of transactions that can be processed at any time.
He goes on to say that while no one is obligated to include a transaction fee with their Bitcoin payment, it’s possible that it may never get picked up otherwise – especially during periods when the network is congested.
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“The very real problem is the capacity of the network. the capacity of the network is too small . The Bitcoin blockchain is like blockahain 1.0,” said Park.
Joshua Gans, a professor with the Rotman School of Management at the University of Toronto, adds that in addition to the transaction fees, the platform is currently too volatile to pass for mainstream currency.
“The exchange rate is bouncing around from minute to minute. Bitcoin is valuable at the moment but we don’t know what that value is,” he explains.
Over the course of the past 10 years, Bitcoin has become prone to booms and busts. Fortune reports that in 2013, the cryptocurrency rose to over USD$1,100, only to fall back to USD$700 in a few short months.
Again in 2015, Bitcoin sunk even further to USD$200. While the value of one Bitcoin currently sits at over CAD$21,000 Gans predicts that “what comes up, must come down.”
“It’s basically an unregulated casino that anyone can get into regardless of age,” Gans explains.
“Everybody’s going to learn a big lesson and then maybe it’ll sort itself out.”