> The key point here is that it is impossible for buyers to distinguish between the trustworthy vendors and those out to make a quick buck because of the very anonymity that makes bitcoin desirable.
The interesting thing is that today, you can have an online reputation and anonymity thanks to cryptography. Also decentralized escrow services further reduce the need for trust between parties.
These things work out. Used car salesmen may be shady, sure, but somehow they are still in business. People tread carefully when dealing with them, but used car sales do go through in the end. A combination of regulation and reputation systems makes it all work out.
And I'd say that that is only a sufficient condition, not a necessary one. While SR was up, it function on purely on reputation, and it worked. No regulation needed.
All the more so, real business with actual real world presence (who are thus subject to regulation) will survive, but even the online ones that are not accountable to any government... well, it is a lot harder, but we have seen successful examples in the past.
I like the point that aside from illegal activities and investment opportunities there are really not a lot of legitimate uses for bitcoins. Only site I know that accepts bitcoins is buyincoins and that sells chinese knockoffs.
Tons of online stores are accepting bitcoin, more and more joining every day.
Shopify[1] recently added support for bitcoin - making it easy for their 75000 merchants to accept payment.
Adafruit[2] (the hobbyist electronic store) as well.
You can even pay with bitcoin on some subways[3]..
Saving 3+% in credit card fees is good for buyers and sellers alike. There's always the option to pay 1-2% for voluntary escrow for eBay/Craigslist/etc, but for purchases from reputable companies (Amazon), it would be unnecessary.
There are other advantages to crypto-coins, but that one alone is non-trivial. I don't expect that fiat currency is going away, but if the price and perception of BitCoins becomes stable enough (a big if), we'll see more and more trade, probably with BTC discounts to account for its deflationary nature.
One of the more obvious things that stands out is that illegal drug purchases are /by no means/ a service unique to the Bitcoin economy. The major site for this type of transaction in particular also has a rather detailed feedback system.
The lesson to be learned from Sheep Marketplace is /don't leave your money in someone else's wallet/. There's no requirement that people use an "online" wallet. Also, it was named Sheep Marketplace. Someone's definitely having a private little laugh at that.
"In all three cases, note that the economic activity involves something that is either outright illegal or in a legal gray area"
I stopped reading right there. This is nothing more than just another article by somebody who doesn't understand bitcoin and couldn't be bothered to do even basic research. There's over 20,000 LEGAL retail merchants already accepting bitcoin, and this is just the beginning.
TL;DR: Troll article, author doesn't have a clue about bitcoin.
I would consider the implicit reason why a vendor might accept bitcoin. Accepting bitcoin is akin to free advertising for ones' company since bitcoin has so much buzz.
The business-logic-related reasons for accepting bitcoin are far and few considering how volatile it is and the non-instant transaction verification delay.
Promotional purposes notwithstanding, the best legitimate use cases for accepting BTC so far seem to be online services (web hosting, domains), where the transaction delay and risk of double-spend isn't a big deal; and charities, who risk little and potentially gain much by publishing an address for a donation wallet.
There's a couple others: No chargebacks, no international transaction fees, and as long as the volatility leans in an upward direction then $X in BTC that you sit on for a few days before converting to local currency generally turns out to be more than $X in realized revenue.
I wonder how many of those online merchants you can actually complete a transaction with? 25 external links on that page appear to be broken for starters.
The interesting thing is that today, you can have an online reputation and anonymity thanks to cryptography. Also decentralized escrow services further reduce the need for trust between parties.