Bitcoin has been hailed as "Gold 2.0" due to its revolutionary technology which combines currency with payment system. But there's a bit of a problem.
For a currency supposedly designed to prevent the little guy getting ripped off by the evil banks, buying bitcoin sure feels suspiciously like a rip-off.
Last week, as the cryptocurrency was marching towards a fresh record high of $US17,000, I figured I would join the Japanese housewives, North Korean spies and billionaire twins in buying a couple of these famous bitcoins, said news.com.au.
Or more accurately, 0.01298716 bitcoin. Three hundred dollars worth — because as it turns out, CoinBase, the world's largest cryptocurrency exchange, sets arbitrary purchase limits on international customers.
It also fails to mention, until after you sign up, that Aussie customers can only buy, not sell, on the platform — which one would think was a fairly important caveat. "Subscribe to our blog to be notified when we add support for your country!" the message read.
The cheerful tone didn't help to alleviate the feeling, as bitcoin's value plummeted by more than 23 per cent that weekend and the "sell" button remained cheerfully greyed out, that I had just made a small contribution to a very, very large Ponzi scheme.
Then there are the fees, fees and more fees. CoinBase charges eye-watering fees of nearly 4 per cent — on a $300 purchase, I paid $11.50 — although other exchanges are not much better.
Some charge a percentage for trades, others charge a percentage or even a set number of bitcoin when you cash out, but all of them are making an absolute killing on fees and arbitrage.
On bitcoin forums and message boards, one of the most common topics is fees — who has the lowest, how to avoid them. (Convert to ethereum, transfer to a local exchange, convert back to bitcoin.)
As one online commenter noted recently, "Like Levi Strauss during the California gold rush, a few 'smart' people are realising the real money to be made is in supporting services rather then bitcoins themselves."
And if you want to move your bitcoin from CoinBase to a local exchange where you can actually cash out — or even from one "wallet" to another — be prepared to pay even more in fees.
Over the past two weeks, the cost to complete a transaction has skyrocketed from about $US6 on average to $US26 last Friday, ArsTechnica reported, courtesy of the bitcoin network itself, which is struggling to process more than four transactions per second.
Bitcoin users can choose to add an optional fee to a transaction. The higher the fee, the more likely the transaction will be accepted by "miners" — the computers which continually verify and add to the blockchain — and so make it into the next "block".
It's possible to manually override the fee to zero, but that means the transaction will probably never go through, as miners will always choose transactions with the highest fees first. "This is a big headache for people trying to use bitcoin as a day-to-day payment network," ArsTechnica writes.
"In the network's early days, bitcoin boosters would tout the network's fast payments and near-zero fees. But now users sometimes have to choose between paying more than $US20 in fees or waiting hours — if not days — for their transactions to complete."
In a recent video, Wall Street Journal reporter Thomas Di Fonzo highlighted the problem when he attempted to buy a Domino's pizza for bitcoin — and ended up paying $US76.16, including $US9.47 in fees.
"I feel like I've been taken to the cleaners," he said.
RBA governor Philip Lowe also weighed in this week in a speech to the Australian Payment Summit. "In reality these currencies are not being commonly used for everyday payments and, as things currently stand, it is hard to see that changing," Mr Lowe said.
"The value of bitcoin is very volatile, the number of payments that can currently be handled is very low, there are governance problems, the transaction cost involved in making a payment with bitcoin is very high and the estimates of the electricity used in the process of mining the coins are staggering."
Since bitcoin isn't much good for day-to-day use as a currency and ridiculous exchange fees make day trading a "great way to whittle down your holdings", as one Reddit user pointed out, it seems like the only thing to do is hold on and ride the bubble.
Let's hope CoinBase fixes that "sell" button before it pops.