Bitcoin is rapidly moving beyond a speculative asset, suited for only storing and potentially building (or destroying) investment wealth. Since the beginning of the year, a number of prominent merchants have begun accepting the crypto-currency. Overstock.com now makes it possible to purchase items as diverse as furniture, appliances, fashions, jewelry, and electronics. Zynga now allows its mobile and social game players users to make in-app purchases using bitcoin. And just yesterday, the Chicago Sun Times newspaper announced an upcoming trial in which readers will be able to pay to bypass the publisher’s paywall an a per-article basis using bitcoin micropayments.

Today, the last bastion of dollar supremacy disappeared as snapCard announced a program to allow US taxpayers to pay the IRS using bitcoin. In a little over a week, this program will be extended to universal bitcoin bill-pay similar to that offered by most large banks, according to one of the company’s two co-founders, Ioannis Giannaros.

Since launching two months ago, San Mateo-based SnapCard has aimed to make it possible to “buy anything on the Internet using any virtual currency.” The company has built a browser bookmarklet that automates bitcoin checkout process on any ecommerce website. Users simply indicate the item they wish to purchase and snapCard handles the checkout and the payment behind the scenes. The user receives payment confirmation and a tracking number. A similar process will be used for IRS and other bill payments. Behind the scenes, snapCard automates the majority of the process but manually audits every transaction before actually submitting payment, according to Giannaros.

SnapCard has partnered with a third-party payment processor that already has relationships established with the IRS and other merchants (think utility, credit card companies, mobile carriers, etc.). The company also uses both CoinBase and BitPay to convert user bitcoin payments into US dollars for remittance to the payment processor and ultimately to the payment recipient.

Users have two options for sending bitcoin to the company. They can either connect their CoinBase accounts for auto-debiting or send one-off transfers for each transaction to snapCard using the wallet platform of their choice.

It’s not a flawless process, but one of the best available today. Potential problems include processing returns and warranty claims when the end purchaser (the snapCard user) is not on the contract

SnapCard has processed $300,000 in transactions from more than 2,500 users in the short time since launching its service. It’s a relative pittance in the grand scheme of things, but shows a growing trust in the brand within the bitcoin community – something corroborated by the chatter about the service on bitcoin message boards. The company has also processed several high-value purchases including a $90,000 Mercedes Benz through a dealership (that wouldn’t otherwise accept bitcoin) and a motorcycle through Craigslist.

Currently, snapCard collects a 2 percent fee on every transaction, but the company plans to move to a flat monthly fee model, which will fall somewhere in the $2 to $10 per month, according to co-founder Giannaros. Tax payments, for example, carry a $10 flat fee.

Along the way, the company has surveyed these users and the most common request among the several hundred responses was the addition of a bitcoin bill-pay solution (with some mentioning the option to pay the IRS specifically) as their most coveted feature.

Like other bitcoin merchants and service providers, snapCard is forced to grapple with currency risk. The company holds a portion of all payments in bitcoin, enough to enable several days worth of float, but converts the balance into dollars immediately to reduce its exposure to exchange rate fluctuations.

The company also faces the risk that users will attempt to “short” the company by attempting to return or reverse purchases after the price of bitcoin increases. This is made possible by snapCard’s policy of processing returns in the same currency that the original purchase was made in. Overture and other merchants have instead chosen to process refunds in store credit or in USD. Giannaros acknowledges the risk, but insists his company has not yet seen this type of abuse. He argues the customer service benefits of snapCard’s return policy outweigh the currency risks. Without the ability to hedge this bet, however, it could prove to be an expensive lesson in human nature for the young company.

In many ways, paying bills and even your taxes is still a novelty and offers little financial benefit. Merchants, on the other hand, may receive some benefit through reduced payment processing fees. Increasing the volume and value of bitcoin commerce is of primary concern to bitcoin enthusiasts who aim to create a more stable, more liquid market for the cryptocurrency. The market has averaged just 60,000 bitcoin transactions per day over the last year and generated just 102,000 transactions on its highest volume day. The more places there are to spend bitcoin, the better, and, conceivably, the less necessary it will be to ever exchange bitcoin into dollars or other fiat currency.

It’s been widely speculated that bitcoin will be used as a means of avoiding paying taxes – or sheltering wealth from the IRS, much as one would by dealing only in cash, only with no requirement that your transaction counterparty be complicit in the scam. While that may be true for some bitcoin users, it’s far from the only value of the payment protocol and alternative currency. For those who wish to see a vibrant and legal bitcoin market develop, paying the IRS in a currency other than dollars is a seminal moment, even if it is slightly ironic.

The biggest remaining challenge for snapCard is to drive awareness of its service and build trust in the notoriously skeptical and frequently victimized bitcoin community.

“What we’re doing is not difficult technically,” Giannaros says. “What’s difficult is making the process seamless and building the necessary trust within the community.”