While bitcoin is designed to be a currency, it is not yet a currency. It is rather a commodity. If it is to be a currency it must be able to be used to buy any commodity - in particular, dollars. If someone has to think about what they can't "buy" it may be useful to them but it's not as a currency. A currency has this property of universal exchange (and security, stability, ...) Bitcoin is questionable on many counts, thus is likely to remain a tradeable commodity only.
You hit the nail right on the head. I can buy some stuff on Newegg, and have someone in another country mail me gold. Or ship me oil. Or coal. That doesn't mean oil or coal is a currency, they're just a commodity. And I'm just engaged in trading.
Bitcoin is more like a currency than oil or coal, because it mechanically works a lot like one. But just because you say 'this is a currency', doesn't mean it actually is one. You are missing all of the higher level stuff. There is a reason a dollar backed by the US government is far more useful than a random coin 'backed' by a government of an island nobody recognizes.
My uncle is a mechanic, and has traded his time fixing commercial vangs for goods. We've had plenty of parties cartered in exchange for fixing the restaurent's delivery fan, or borrowed plenty of heavy equipment from contractors that need their truck fixed but don't have cash. Does that mean a tray of chicken marsala and a plate of bakery cookies are a currency? Of coruse not. Trade/bartering existed long before currency existed, and it still goes on today. Commodities existed long before currency existed. Being able to trade one commodity (bitcoin) for a good or service doesn't make it a currency.
We've learned this lesson over the last 200 years but a lot of people seem to ignore them. Most of the people pushing bitcoins harp on the fact that dollar keeps getting devalued, but they are ignoring the history showing that is a far better problem than a deflationary currency .
Bitcoin has greater fungibility than oil, coal or gold and can be exchanged electronically with anyone in the World.
Is bitcoin competitive with the Dollar, the Euro or the Yen? No, it isn't competitive with those currencies or many other currencies. If, however, you abandon a developed country centric viewpoint, there are plenty of secondary and tertiary markets where bitcoin is competitive with the domestic currency.
If you've ever lived abroad you know that you simply don't have access to the same goods and services that people in the US and Europe enjoy. It's a huge pain to purchase US goods and services from abroad. The transaction costs are very high.
Increasingly individuals want to be able to trade as if the world is flat and it's very difficult and banks siphon off lots of money with unnecessarily high fees. This makes some goods entirely unpurchasable because the fees become a significant part of the cost.
That right there is a great example of a buy-side willing to spend bitcoins.
For bitcoin to gain traction in the US you need a buy-side here. This is where the US War on Drugs makes bitcoin attractive. Drugs will always be in demand. Always. Anyone who tells you otherwise is full of it. You now have a medium of exchange which makes trade much much safer for individuals involved in clandestine activities.
Personally, I'm neither for or against these activities. I'm just making an observation. I actually and for a Portugal-style approach that treats drugs as a social problem and not a criminal problem. So long as drugs remain a criminal problem you will have a buy-side here in the US.
Now, if those at the top of the drug pyramid start seeing significant benefits from trading in bitcoin, they will start adopting it. Bitcoin is safer because it eliminates the money laundering risk from their business, which is pretty much the only activity that is truly centrally observable by a government. On top of that, money laundering is a significant cost of doing business and AFAIK is probably comparable to the fees Apple charges developers for in-app subscriptions.
If bitcoin demand moves down the drug distribution pyramid it only becomes a matter of time before dealers are going to start wanting to collect at least a portion of their costs in bitcoin.
As I said, I'm neither for or against these activities, but this is a sufficiently large and stable market to eventually help stabilize the value of bitcoins and make it tradable in other contexts in other countries.
If Square can be successful in helping individuals transact with other individuals, then so can bitcoin ... eventually.
The moment you abandon a Dollar or Euro centric viewpoint it become far more obvious how bitcoin can gain legitimacy in other contexts. As far as the US is concerned the bitcoin will probably remain a currency for illegal activities until it becomes so commonplace for those activities that it starts crossing over to the mainstream among drug purchasers. Keep in mind that 47.1% of the US have used illegal drugs.
