It took 11 minutes, tops, after I pushed the button for the equivalent of $5 to travel across the Atlantic. For this service I paid less than a penny.
There were no banks involved. If there had been, it would have cost me at least twice the amount I was sending.
Whoa.
I sent the money using Bitcoin, the decentralized peer-to-peer network that's received a great deal of buzz over the past year or so. People usually think of Bitcoin as an alternative currency challenging the hegemony of government-controlled fiat money, which it is (and technically, the currency is bitcoins, with a small "b"). But Bitcoin is more than that. In addition to being a store of value, it's also a means of exchange, a payment system that can perform many of the same functions as banks and as financial services companies like Western Union, PayPal and Visa. And its efficiency as such is arguably a more important reason for bankers to pay attention to it.
The technology, powered by tens of thousands of users' computers across the globe, lets you move as much of your money as you want, to whomever on the Bitcoin network you want, whenever you want. It sends funds nearly instantaneously, and for almost nothing. Users are identified only by their Bitcoin addresses, a cryptographic string of characters (my receiving address, for example, is "1PFgAJWLJZGSaVDg2rX3XDfTcyd6CpXXXX"), and so can transact anonymously if they wish.
But there are catches. First, anyone you want to send money to or receive it from needs to be on the Bitcoin network also. Then, getting money in and out of Bitcoin is difficult, maddeningly so. Unless you're a "miner" with a ton of sophisticated computer gear, the main way to acquire bitcoins is to buy them for dollars or euros on an online exchange. The biggest is Mt. Gox, based in Japan.
"I tried once to install the software. It took forever and didn't do anything," says Robert Hughes, a senior vice president with the consulting firm Speer & Associates who's been studying Bitcoin.
Getting money to an exchange generally entails funding an account at a third-party service like Dwolla, which can then send your dollars or other government currency on to the exchange. You can cash out your bitcoins for fiat money on the exchanges, too, but sometimes the funds get held up before returning to your account.
Another disadvantage of Bitcoin is that there are few merchants that accept the digital money. Sure, you can use bitcoins to buy alpaca socks, or illicit substances, or T-shirts and baseball caps emblazoned with the Bitcoin logo. A few restaurants and bars take it. You can even donate bitcoins to WikiLeaks. (I'm not saying you should, so please don't tap my phone, Homeland Security.) But you can't spend bitcoins at Amazon or Wal-Mart or McDonald's or pay your electricity bill with them.
And Bitcoin is a risky place to store large sums of money. Fanatics will argue it's a better long-term investment than the U.S. dollar, because of the predictable and fixed supply – the algorithm that creates bitcoins is programmed to stop once there are 21 million of them – and who knows how many greenbacks the Federal Reserve will unleash upon the world if the economy keeps limping along. (There are currently about 9.8 million bitcoins in circulation, trading at $9.99 apiece. The last bitcoin is expected to be generated years from now.) But even if the devotees are right, the Bitcoin "wallets" that store the currency aren't FDIC-insured. You can keep your wallet on your computer, where security is up to you, or in the cloud – and like in the pre-FDIC banking days, you choose your cloud wallet provider based on trust.
Individual states give licenses to money transmitters.