Newsflash: Even Lawyers Can Buy Bitcoin!
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By now, almost all of you have heard about Bitcoin. Sure, it's been all over the web for a long time now, but over the last few months it has started making a big splash in the mainstream news as well. You might have even read some of the articles we’ve written about Bitcoin and virtual currency (here). But in case you happen to be a caveman or a lawyer, here's the quick scoop: Bitcoin is a virtual currency that dizzy supporters shout has revolutionized e-commerce and the global currency market, while gloomy detractors mumble that it is simply a speculative asset used to score illegal drugs without getting caught. As it currently stands, Bitcoin can be used to pay for an increasing amount of (legal) goods and services, both online and in actual stores, and to transfer money quickly and with minimal cost.
While there's been a lot of (virtual) ink spilled about Bitcoin, few have talked about two key issues we know every Luddite is really worried about: how do you actually go about buying a bitcoin, and (most importantly) can you use Bitcoin to buy pizza? During a recent snowstorm here in New York, we decided to investigate.
While Bitcoin ATMs are springing up in a few cities, we didn't see the point in going out in the cold to look for one, and decided to try buying a bitcoin using an electronic exchange. We used Coinbase, a San Francisco-based company that serves as both an exchange (to buy the bitcoin with funds from your bank account) and a wallet (to receive and store your bitcoin).
Here's how it worked. First we went to the website, www.coinbase.com, and created an account. It was pretty easy, even for a bunch of lawyers. We then received a confirmation email from Coinbase and were on our way. Emboldened, we clicked on the confirmation link, created a password, verified our phone number, and -- presto! -- we were signed on to Coinbase.
Now, here's the less fun part: to actually buy a bitcoin, we had to give them some money, which we did by linking to a bank account using a traditional router number off a check. Coinbase also offers the option of linking a credit card, which would have let us buy bitcoin instantly. We experienced technical difficulties with that option, but were undeterred.
Coinbase verified the bank account, and it now was time to actually buy bitcoins. At the time, one bitcoin cost $804.67. For the financially conservative, Coinbase also allows users to purchase bitcoins in increments as low as .0000001 of a bitcoin. In the name of research and all that is good, we laughed at the gloomy naysayers, threw all financial restraint to the wind, and bought a full bitcoin.
More success! Our single bitcoin was purchased. However, there is a delay until the bitcoin would be deposited in our account. Coinbase uses funds from our bank account to buy the bitcoin, and those funds are transferred through the standard ACH transfer protocol, which takes 4-5 days to clear. Our bitcoin was scheduled to arrive in our electronic wallet four business days after purchase.
And that's how we bought a bitcoin on Coinbase. Once the bitcoin is deposited into our account, we plan to buy some very real pizza, which we'll try to order from PizzaForCoins.com. We'll keep you posted.
We're lawyers, so we can't end without some words of warning: this still is a very volatile currency, and the infrastructure supporting bitcoin remains somewhat unstable. In the few days between the time of purchase and the time of writing, the price of one bitcoin has dropped from $804.67 to $704.86. The recent drop in Bitcoin prices is in part attributable to technical issues including those plaguing Mt. Gox, an electronic exchange and wallet like Coinbase. While we think the future of Bitcoin and other virtual currencies is promising, the present still involves challenges with volatility and stability. Proceed with caution. And enjoy the pizza.
© Arnold & Porter Kaye Scholer LLP 2014 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.