At this point, the benefits of accepting bitcoin are becoming obvious to many merchants (See "Five Ways Early Adopters Can Use Bitcoin, Part 2: Merchants). A wide range of new payment services from companies like BitPay and Coinbase have made it cheap and easy for companies to convert customer bitcoins to dollars, allowing them to attract new customers, drastically reduce the fees they pay to process online payments, and eliminate chargebacks, fraudulent purchases and price volatility.
Why would a consumer elect to spend a currency that may prove to be worth significantly more next week? In early 2013, bitcoin investors might have been able to buy a single album on iTunes. Yet if they had held onto that same bitcoin, they would be able to buy an iPad today. Given the clear incentives most investors have to save their bitcoin, who is most likely to use the currency for actual transactions? Let's talk about five use cases for today's consumers.
Diversification: Early purchases will be made by investors who have hit the jackpot as early adopters and can afford to be conspicuous consumers. (How about a joyride to outer space?) Rather than diversifying away from bitcoin by cashing out through an exchange, why not instead buy things from merchants that you already want, save the trading fees, and help demonstrate the utility of the currency to the broader market? Besides, that decision could in turn attract more speculators to pile into bitcoin and drive up the value of your remaining balance! (See "Are People Really Receiving Their Salary Through Bitcoin?")
International Travel: Anyone who has traveled internationally knows how high the fees can be to exchange money for a foreign currency - as much as 5-10%! (Not to mention, that you'll pay twice if you have anything left at the end of your trip.) With the emergence of bitcoin payment options and the massive international roll-out of Bitcoin ATMs, it is becoming easier and cheaper than ever to travel without incurring the exorbitant currency exchange fees you typically see at airports, and even banks, overseas. The travelers' bitcoin experience is perhaps the best microcosm for bitcoin's future potential as a true international reserve currency.
Remittance: Think international travel can be a pain? The fees associated with foreign exchange for travel have nothing on the costs services like Western Union charge migrant workers who send money home to their native countries via the $500 billion remittance industry. According to the World Bank, remittance prices average about 9% of the total value transferred, and often exceed 12% in sub-Saharan Africa. Instead of paying $20 to send $200 to a family member abroad, bitcoin offers the opportunity to make the same transfer at a fraction of the cost. While the infrastructure is still developing, there are already some services that facilitate this process, such as Kenya's BitPesa, which offer users the opportunity to transfer money for just 3%. In addition, the rise of "mobile money" in many developing nations suggests that many of their citizens may bypass their banking systems altogether once they services become more widespread.
Peer-to-Peer Payments: Whether you are settling up a dinner tab, buying concert tickets with friends, or even collecting money to pay for groceries or rent, bitcoin is easier, faster and cheaper than alternatives like PayPal, bank transfers or cash. Bitcoin's public wallets and QR code technology also make real-time gifts and/or donations much simpler. Want to send some spending money to a child who is away at college? (Especially MIT, which is giving each incoming freshman $100 worth of bitcoin in fall 2014?) With bitcoin, it's possible to send money that can be spent immediately, regardless of whether it's at the middle of the night or on a weekend. How about send a tip to a friend working on a new blog? Bitcoin's near-zero fees make micro-transactions such as gifts economically viable.
Online Transactions: Some people prefer to keep their online spending habits private. For better of for worse, there are large markets for "grey market" goods such as adult content, gambling, and pharmaceuticals with millions of customers. The bitcoin community also includes a large base of self-identified libertarians and crypto-anarchists who balk at the prospect of authorities having any ability to track their personal economic activity without cause. The pseudonymous nature of Bitcoin’s blockchain guarantees that consumers who put an emphasis on anonymity will be able to conduct their business privately.
Even consumers making more mundane online purchases may benefit from the stronger identity security inherent in bitcoin. In an era in which nearly 7% of online consumers face the prospect of identity theft, it simply doesn't make sense to share one's credit card information with dozens of different companies. Especially when even the largest and seemingly safest retailers have proven to be susceptible to data breaches (read: Target). Using bitcoin obviates the need to share any sensitive personal information with third-parties that are vulnerable to theft.
The Bottom Line
Make no mistake: the vast majority of demand for bitcoin in the near-future will continue to stem from its value as a speculative investment rather than a usable currency. But with the rapid rise in the currency’s public profile, growth in services geared towards simplifying the bitcoin consumer’s experience, and the major pain points that bitcoin can solve for travelers, migrant workers, online shoppers and other users, rapid consumer adoption seems to be right around the corner.