Get Practical With Bitcoin: Will It Buy You a House?
NEW YORK (TheStreet) -- Could you buy your next home with bitcoin instead of dollars?
Sure ... well, maybe. But would you want to?
It's actually part of a broader question: What types of bitcoin transactions make the most sense?
The computer-based currency has been in the news a lot in recent months. Its value soared in last year from near nothing to about $1,200 per unit, then plunged to today's prices around $700. Like many new things, the value whipsaws as people try to figure out whether it's the next great thing, a flash in the pan or a boondoggle. The Chinese government's hostility to bitcoin, which in theory could someday undermine the domestic currency and currency controls, has much to do with the price collapse.Unlike traditional currency, bitcoin is not issued and backed by a government. Instead, it exists in computers that add and subtract from each owner's holdings as transactions are made. Various services allow people to convert dollars and other currency into bitcoin, and vice versa. Gradually, more and more businesses are accepting bitcoin payments, though many of these announcements sound like publicity stunts. crooks believeit also makes money laundering, tax evasion, drug deals and other illegal activities safer, but that's not necessarily so. Jack M. Guttentag, emeritus finance professor at the Wharton School, says: "The greatest potential seems to be those markets in which transaction costs are high relative to total transaction value. This would include credit cards and cross-border transactions that require conversion of one currency into another." And bitcoin can in theory offer a safe alternative in countries where the domestic currency is volatile or hard to convert to other currencies. As for buying a home with bitcoin, it could be done today if the buyer and seller agreed to it. But as a practical matter, the seller would have to own the home free and clear, because a lender would be unlikely to accept bitcoin to pay off a mortgage balance. For now, buyers can't get mortgages denominated in bitcoin, so a buyer wanting to use bitcoin would have to pay in cash. The title company and tax officials would want their payments in dollars, too, not bitcoin. website. Notice his qualifier "domestic." Because the dollar is a stable currency, bitcoin don't seem to offer any advantage for real estate transactions in the U.S. But maybe that retirement home you want in Central America could someday be bought with bitcoin. Perhaps bitcoin could reduce the headaches and costs involved in cross-border transactions. Time will tell. For now, bitcoin's practical uses are limited, and many buyers are just speculating on the possibility of higher bitcoin values in the future. But although a big rise in values relative to other currencies would be good for those folks, it would also mean the crypto-currency has not yet become the stable store of value it needs to be before it can really serve as an alternative to traditional money. Bitcoin is in the chicken-and-egg phase: It needs wider acceptance to become a stable currency; it must demonstrate more stability to get wider acceptance.
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