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Summary:

The Bitcoin trading floor that can be found in a New York City park offers a view of the currency in action. Here’s a look at how the trading works – and what it means for Bitcoin.

Bitcoin in Union Square
photo: Jeff John Roberts

People gather every Monday evening in New York’s Union Square to buy and sell the crypto-currency known as Bitcoin. Flashing cash and smartphones, men make trades worth thousands of dollars in a nook of the park they call Satoshi Square.

The scene is like an open-air trading floor and, indeed, participants liken themselves to the men who hatched New York’s first stock exchange under a buttonwood tree in 1792. Similar gatherings have taken place in London and an inaugural one will take place in Toronto next week.

What gives? While the economic appeal of Bitcoin is easy to understand — it’s not tethered to a central bank and can be traded at low or zero cost — it’s not clear if the currency has a place in everyday life. To get a better idea, I paid $96 this week to buy my first Bitcoin and went to Satoshi Square.

Here’s a short summary of what I saw, some pictures and three takeaways (if you need to catch up on what Bitcoin is, see our primer).

An hour at Satoshi Square

The first Bitcoin buy-up in Union Square took place in May, and now they occur every Monday from 5 to 7 near the Abe Lincoln statue at the north end of the park. By 6 pm, about 20 people — all men — had gathered to trade Bitcoins in the 95 degree heat and swap stories about software.

People called out sale prices and others, clutching envelopes of $100 bills accepted. In 30 minutes, I saw around seven transactions, the largest for $1500. None involved merchandise — it was all greenbacks for Bitcoins.

Bitcoin tradingI had hoped to spend my new Bitcoin on beer or a farmer’s pie. No luck. (It turns out I couldn’t have spent it even if someone at Satoshi Square was selling pie — the Bitcoin I bought earlier in the day takes three days to show up in my digital wallet).

The traders in the square used no single method for exchange: some pulled out phones to scan Bitcoin addresses embedded in QR codes, others used laptops or tablets, and one man used a gift card he obtained months ago at a Bitcoin event in California.

The vibe at Satoshi Square was a cross between a stock exchange, a religious revival and buying weed in the park. There was a lust for money tinged with a higher ideal. Here’s three totally subjective takeaways from the whole affair:

Bitcoin won’t be used in everyday commerce soon (if ever)

Every few weeks you hear a story about a cupcake store or a bar that now accepts Bitcoins. I’ve always suspected these stories are a marketing ploy cooked up by a business seeking media attention. Now I know for sure.

The reason is that the currency requires too much friction to be practical. Consider my experience of what it took to create a digital wallet and to put Bitcoins to put in it — and I chose the simplest path.

I used Coinbase because it’s the easiest on-ramp to the Bitcoin world — but look what I had to do: disclose my bank account information, enable 2-factor authentication by sharing my cell number, and then wait 3 days. The traders at Satoshi Square, meanwhile, use even more complicated wallet tools than Coinbase. (To clarify per comments below: the transactions in the park are near-instant). Bitcoin Union Square

All this is fine for a certain type of person. Most people, however, are too lazy, cautious or tech-averse to engage in this type of rigamarole. And before you write me off as a skeptic, consider Google: there’s a reason that the search giant, despite spending tens of millions, can’t persuade people to pay for things with their phones. People thinks it’s simpler to swipe a credit card or hand over a $20 bill than to pay with some phone-based thing called Google Wallet (most people also believe it’s safer).

If giant Google — whose Wallet is easy compared to Coinbase — can’t figure out the payment thing, how likely is it that anyone will use Bitcoin to buy pies in New York any time soon? Cash is still king, in accounting and on the street.

Only three types of people care about Bitcoin

My conversations at Satoshi Square confirmed my earlier impressions that there are basically three types of Bitcoiners: political idealists, geeks, and people who want to get stinking rich.

The first group include libertarians who worry the Federal Reserve and other central banks will debase the national currency and that Bitcoin — like gold — is an independent store of value. Others in this group just like the idea of a borderless, semi-anonymous form of money based on person-to-person transaction.

Another group attracted to Bitcoin are computer and math savants who relish the beauty of the Bitcoin blockchain and its unbreakable encryption mechanism. This group includes software developers who want to build cool features to use or enhance the currency (and perhaps make some extra cash).

The third type of Bitcoin enthusiasts are all about the money. These include bankers, hustlers and executives who just like the trading game — but also some unsavory types who hope to induce and profit from Bitcoin bubbles or to use the currency for criminal ends.

Overall, this is a problem: the people who care about Bitcoin are nearly all male (with some prominent exceptions) and represent just a tiny sliver of the population. You could say the same thing, of course, about people who trade oil or hog or yen futures — the difference is that everyone uses those things, but almost no one uses Bitcoin.

The upshot is that, in five years, we’re likely to look back on Bitcoin as a fad or a hobby, while treating the currency itself as worthless computer debris. Unless, that is, it catches on with a fourth group.

If Bitcoin has a future, it depends on the money men

In the best piece yet written on the Bitcoin phenomenon, the Financial Times in June described a growing schism between the idealists and the money men. The former don’t want to sell out to any government, but the guys with the money believe that playing nice with Uncle Sam and his money laundering rules is the way to go.

These money men include respected venture capitalist Fred Wilson, whose firm is an investor in Coinbase and who gave Bitcoin a recent shout-out on his blog. The FT says Wilson and his VC crew are treating the currency as a “just in case” investment — and that’s a good bet, considering the money they’ve put into Coinbase is small beer for these guys.

Satoshi Square

But the speculation doesn’t mean that Bitcoin won’t have traction in the long run. Even though typical Americans won’t (and probably never will) buy Bitcoin, there are plenty of people in other countries who would.

As Silicon Valley executive Wences Caseres explained at a GigaOM meet-up this spring, governments in places like Argentina have repeatedly wiped out the savings of ordinary people through economic mismanagement. Many of these people would jump at the chance to buy Bitcoin — as an alternative currency that won’t deflate, and that is hard for the government to confiscate.

It is in this role, for now, that Bitcoin has the greatest opportunity to flourish: as a currency traded through exchanges that are acceptable to America’s financial regulators, and that can become an established part of the world’s foreign exchange and remittance economy.

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  1. Your coins show up as unconfirmed in seconds and confirmations usually start within minutes and you can influence that with transaction fees if you want.

    You have any number of wallet options that don’t require anything more than a user name and password to set up. Coinbase need to verify you because you can buy coins directly thru their service. Just as you have to wait to be verified by your stockbroker if you wanted to buy shares.

    Bitcoin is a raw protocol and is nowhere near ready for mainstream use yet but you should look deeper into what the protocol is potentially capable of before dismissing it out of hand.

    It will have succeeded when people like you are using it without realising it but that will be some time away

    1. Jeff John Roberts paul Thursday, July 18, 2013

      paul, yes, you’re right that there are quicker wallet options .. But I chose the slower, verified Coinbase option because that’s what an average person (not an average Bitcoin devotee) would do

      And please read the last section of the story; I don’t dismiss Bitcoin overall.. I just don’t think it will catch on in the US as an everyday payment mechanism

      1. There are already some NFC enabled Bitcoin wallets. When NFC techonology is widespread on smartphones, paying with bitcoins will be effortless.

        1. Just as an example. Imagine you are in shop.

          The POS states the amount in bitcoins to pay. You just touch the POS terminal with your smartphone, the Bitcoin wallet opens automatically and performs the payment. In non-password-protected wallets, you don’t even need to touch a single key. The payment gets processed just when the smartphone touches the POS terminal. Direct and uncomplicated.

      2. Hi Jeff,

        Have you read my comment and would you like to address the use as an abstract payment network I explained? Cause it answers your questions as how bitcoin could be used as an everyday payment mechanism.

        There is already an exchange rate adjusted Bitcoin wallet in beta. It would not be trivial to issue a card that acts like a credit-card but uses the bitcoin network with all it’s advantages discussed in my previous comment to clear transactions.

        https://www.bridgewalkerapp.com/

        Yours,
        Peter

        1. Jeff John Roberts peter Thursday, July 18, 2013

          Hi Peter,

          Yes, thanks for your comment.. I agree that Bitcoin provides a cheaper payment network that, in theory, is appealing to merchants.

          The drawbacks, in America at least, are not technological but social. Most people are risk averse and won’t leave something they know and believe is working. This is especially true for something as fundamental as currency. See my point above about Google Wallet, which makes more sense than cash or credit cards but people still won’t use it.

          I think you’re right the currency has more of a chance in Russia or China or in Forex markets. It will only catch on in the USA if the dollar collapses as the world’s reserve currency — and if that happens, we might have bigger problems than debating Bitcoin.

      3. I just signed up for coinbase, I’m in the US.. Hope this thing really catches on and grows exponentially. I have two bit now.. Gonna wait a while.

  2. Haha another typical ignorant reaction by an uninformed observer. Kudo’s for taking the time to look into it, but next time at least do some research first ok? I don’t have time to even begin to explain all the misconceptions in this article.

    1. I actually found this to be a relatively well-written article. Maybe you *should* take the time to explain some of the misconceptions, because I don’t see any.

      I personally disagree with the assertion that mobile wallets are more complicated than using Coinbase, but that’s about the only point where I disagree. He even commented on the growing schism between the idealists and the “money men,” which indicates to me that he has at least done some thoughtful observation of the community.

  3. Thanks for this article. I am actually really excited to hear about this exchange in union square. I had no clue that people were doing this. Its a great idea. You mentioned that you bought bitcoin and it took 3days for you to get it. Why is that? Bitcoin transactions take up to an hour.

    1. bobbybushe, thanks for your comment.. see bob’s comment and my reply below; I could have funded my wallet instantly at the park but chose instead to rely on Coinbase for my first transaction

  4. How did the author manage to go to a park full of people buying and selling bitcoins for cash… and fail to realize that you can buy bitcoins in person with cash from any of them instantly?

    Coinbase is only ‘easiest’ if you want to use your bank account as your method of payment. If you do that, you have to wait for AML, which has nothing to do with Bitcoin and everything to do with the banks and banking regulations and the joys of reversible payment methods. If you buy bitcoins in person with cash, you get them immediately.

    This guy totally missed the most important takeaway of the open air exchange – any individual can buy or sell bitcoins with any other individual at will, without having to wait for any bank or intermediary.

    1. Jeff John Roberts bob Thursday, July 18, 2013

      bob, thanks for your comment but I think you misunderstand what I wrote.. I’m aware that the open air exchange allows instant person-to-person trades

      I included my experience with Coinbase (and AML) because that, in my opinion, is how a typical Bitcoin newbie would get on board.. Most people are not going to get their first Bitcoin by obtaining a wallet and then heading to the park to fill it

      1. Jeff,

        You really missed the point of reporting on open-air bitcoin trading. It doesn’t have anything to do with Coinbase.

        Many people do get their first bitcoin by meeting someone and paying for it with cash. Obtaining a wallet is as easy as creating a password at blockchain.info on your phone or laptop.

        Your statement that Coinbase is the easiest route into bitcoin is completely false. Satoshi Square may or may not be the easiest way into bitcoin but Coinbase certainly isn’t.

        It is clear from your article you haven’t a clue.

        1. You’re the one in the dark here. What is easier, spending 15 mins online linking your bank account and ordering some coins or arranging an in person shady (public’s perception, not mine) cash deal through local bitcoins. Coinbase is pretty freaking easy. Also, attacking the journalists who write more reasonable bitcoin articles is a great to look like a fanatic. Relax dude.

  5. Fully agree, people will be using bitcoin without knowing it and it has a good chance of succeeding because it has a fundamental lower cost structure than other payment networks. If exchanges get liquid enough you could easily have credit and debit cards or mobile wallets that are nominated in a fiat currency but use the bitcoin network with it’s reduced risk of fraud, lower fees, reduced risk of identity-theft, global coverage and minimal infrastructure requirements. Merchants would flock to it for all reasons mentioned above and consumers would mostly not even know because their balance in fiat currency would be kept stable trough short positions on exchanges. This on turn would stabilize bitcoin cause the market cap would rise and in the long run legitimize it as a store of value lessening the need to constantly liquidate to fiat. Apart from consumer adoption it can also be used to facilitate international trade bypassing the dollar. (Think Russia, China, Brazil,…)

    1. It’s too easy for people to merely gloss over your first sentence without giving thought to it, so I’m going to repeat it for posterity: people will be using bitcoin without knowing it and it has a good chance of succeeding because it has a fundamental lower cost structure than other payment networks.

      I think if MtGox’s withdrawal and deposit issues are of any indication, I wouldn’t rate the chance of Bitcoin succeeding at a level where it is as ubiquitous as Linux in banking architecture as “good” or even “reasonably obtainable”. Decentralized virtual currencies are at odds with the legacy banking paradigm, and no amount of fantasy will get us past that polarity. As such, I think Jeff’s article here is completely legitimate, and I say that as a long time Bitcoin proponent. The future of Bitcoin is much, much more likely to be shady deals in parks than ubiquitous integration with BOA. We’re incredibly lucky to have Coinbase at all.

      Just my 2c

  6. I guess you should have just brought cash and a smart phone so that you could acquire some btc at ‘satoshi square’.

    I agree with you that bitcoin has no real benefit over cash for in person transactions (cupcakes, etc.) However, any CC transactions (in person or over internet) see a huge benefit by using bitcoin.

    The technical nature and the ability for someone to accidentally send their funds to oblivion make bitcoin a scary choice for those uninitiated. A friend of mine, a long time apple store tech, did some work for me and I offered to pay him in btc, gc or cash. He was intrigued by the idea of bitcoin, but the fear of making a mistake made him choose cash instead. /anecdote

    I am confident that companies like coinbase, bitinstant and bitpay are all working hard on an ‘easy’ button for the masses, but, as you say, the greatest opportunity for these companies to flourish is not yet from average Joe America.

  7. and what could be better than a store of value that can be stored in your brain. thats what makes it far better than gold

    and all the other issues you mention are being addressed.

  8. I’ve found the easiest way to “buy” bitcoins is to provide goods and services in exchange for them. And the easiest way to sell them is to buy something.

    Coinbase is easiest? I think you are confused. Coinbase is nice, and is one way. But that’s like trying tell Europeans that the easiest way to get Euros is to go to a money exchange and exchange dollars for them.

    Silly article. Nice try, but maybe you’ll understand in a few years. Bookmark this for 2020.

  9. Jeff John Roberts Thursday, July 18, 2013

    Bob – see my other comment reply re Coinbase. As for your patronizing final comment, this type of sentiment also hinders the spread of Bitcoin — if Bitcoiners are regarded as a smug, tech-obsessed clique, that’s another barrier to mainstream adoption.

    1. If you can’t take feedback, you really shouldn’t write about something you know so little about, and express strong opinions. It was a silly article.

  10. Thanks for the article! I’m surprised that people still buy face-to-face, especially if you do get verified fully with Coinbase and can buy and sell immediately with no delays. The setup time for Coinbase is really not a concern as that’s true for anything including stock trading, bank accounts, etc.

    I’m not one of those apocalypse people and believe that fiat currency will ALWAYS exist, but I believe there is a place for Bitcoin. It’ll likely gain traction in countries with very high inflation and slowly migrate here. I think the key will be to find specialty purposes in the US. The problem is that its late to the game in many areas. If were back in the early days of the internet before e-commerce was common, it’d be a HUGE benefit. I’d love to see it used in vending machines, but even credit card swipe devices are common nowadays on them.

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