It’s been over week since my last post about Bitcoin Mania and since then the price has risen from about $700 to a new all time high of $1200 (although it crashed down again and is now hovering at $1k). Pyramid scheme you say? Tulip Mania? The market sets the price so nothing is guaranteed, but i don’t think it’s a house of cards and i’ll counter some of the arguments being thrown around…
It’s a pyramid / ponzi scheme
No it’s not. This is a lazy argument. Because the value of something increases exponentially in a short space of time doesn’t automatically mean that thing is a pyramid scheme or a bubble. Bitcoin is no more a pyramid scheme than shares in any company, commodity or currency.
Bitcoin is only few years old and still relatively unknown. The US dollar and gold have been around since before anyone of us were born. Of course they’re going to be more stable – it takes deep pockets to move their market price. Buy or sell a few million $$$ worth of bitcoin today and that will send the price up or down a great deal in comparison to buying or selling a few million dollars. Chuck in the fact that Bitcoin is, at its core, a revolutionary technology (in addition to being a currency) and if Bitcoin were to go mainstream, it will follow in the pattern of all great technologies… periods of rapid growth. Perhaps growth that has no precedent. It’s the nature of the beast with anything digital. I don’t even need to give examples because we’re so familiar with the story of many billion dollar tech companies that have emerged over the past decade.
A pyramid scheme by definition involves getting people to buy in to something that doesn’t supply any real value or service. Or the value / service isn’t really worth the amount people are buying in at. You’re getting them to buy in simply so you can get out at a later date, much better off than you got in at. Let’s be clear about this – that’s exactly why anyone invests in anything. Always has been, always will be. Everyone wants to make money. Nobody wants to invest in something that will lose them money. Bitcoin is no different – people invest because they feel its price will go higher.
They’re fully aware that if Bitcoin fulfills its potential, the price will go a lot higher than $1000 or $1200 or [insert hourly bitcoin price here]. The dollar can only fall in value by comparison if the US keep printing money. A lot of bitcoin owners don’t view dollars as the end game – but more of an inconvenience if they want to buy certain things that can’t be bought with Bitcoin…
If anyone thinks Bitcoin doesn’t have value, it’s fairly clear to me that they just don’t understand it. It would be like discovering a protocol like VOIP in the early 90’s and saying it doesn’t have any value… most people today don’t care what VOIP is and probably don’t know what it is. If you asked them to invest in VOIP in 1990, they’d give you the same response as Bitcoin today… what is it? why do we need it? what’s wrong with our existing phones? that sounds too complicated… why is the price of this complicated technology i don’t understand going up? Must be one of those pyramid schemes…
Yes it’s technical, yes it’s complicated but everything is when it’s in its infancy. Compare mobile phone cameras now -v- 10 years ago. Difference of night and day. What improved? “Fuck knows…” that’s the answer you’ll get from most people… they can’t explain the technical improvements, they don’t care about the technology, they care about the end result as do most people. Bitcoin is the technology that puts us on our way towards a polished, practical, easy to use end product. That’s why it’s a big deal to some people and not to others. Eventually, the people criticising it today, may one day live in a world where they can’t escape from Bitcoin.
Bitcoin may not be around forever, it may be replaced by an alternative that has legal status everywhere, but dismissing cryptocurrencies as pipe dreams or pyramid schemes suggests you’re not actually aware of how they work and the benefits they bring today and can bring in the future. Bitcoin is seen as the original cryptocurrency and is most widely accepted, with the biggest community behind it, so if people are speculating, it’s the best cryptocurrency to be speculating on, because it stands the highest chance of going mainstream at this moment in time. All other alternative currencies are currently just piggybacking off of it’s success & attention.
I was as skeptical as anyone
Once upon a time, I had zero interest in Bitcoin or any virtual currency because i associated it with farmville, world of warcraft, secondlife and gaming in general. Had i actually understood that Bitcoin was more like file-sharing than farmville, i wouldn’t have been so quick to dismiss the idea. But it took years for me simply just to do some research on Bitcoin. I was sick of hearing about it and seeing it clutter blogs & tech sites i frequent so i decided to see what all the fuss was about for myself…
It turned out i was wrong and that Bitcoin is in fact, revolutionary (to me anyway). Or at least i think it has the potential to be revolutionary. Again, it may be Bitcoin or it may be something similar, but i believe Bitcoin will have paved the way. Rather than talk in analogies and show excitement without really demonstrating solid examples of why it’s exciting, i’ll attempt to let my mind roam wild here to show how it can change things…
Let’s say you park on a street with paid parking. You realise you’ve no change, only notes. Common problem. This is how i’d solve it. Your car has an in built Bitcoin wallet. You can top it up as you please. It can be used to pay for petrol, insurance, tax, parking tickets, toll bridges, mechanics… anything car related.
All parking spots have sensors. Like cats eyes, connected to a nearby, good old fashioned ticket machine. If your car parks over the sensor, your car tells you to pay up for ‘x’ minutes. It knows you’re parking and you need to pay. You can pay for ‘x’ minutes by tapping on your inbuilt car screen, or perhaps your phone if you’ve got a non space age car. Once confirmed, your car’s wallet has a small amount deducted from it.
Let’s say you pay for 30 minutes but unfortunately fall down a flight of stairs, twisting your ankle while out shopping. All you can think about is how you’re not going to make it back to your car before the traffic warden pounces and gives you a fine. Easy. Whip out your phone, your phone connects to your car and you can again pay for ‘x’ minutes remotely. Or better still, you don’t have to do anything and the car could just keep paying until it’s driven away from the sensor… That’s a bitcoin world. Frictionless, effortless… tap a button to confirm something. Job done. The way working with money should be.
The technology benefits everyone and saves everyone time and money in the long run. That might be a “yeah, that’s possible although not very practical” example but some more normal uses might include ticket or vending machine payments (where you scan a QR code on your phone to buy something). Luas, bus, trains etc… even on an airplane it would be much simpler for the airline to ban cash and just use bitcoin. Want an overpriced sandwich? We’ll give you a barcode to scan and you scan it with your phone. Transaction complete. Quicker, cheaper, less staff and security needed… no fraud (you can’t produce counterfeit bitcoins). Using NFC, you could just tap or swipe your phone over something rather than use a QR scanner. I think that would make more sense myself although Apple have so far ignored NFC.
Want to split a bill 4 ways in a restaurant? Just get everyone to scan a QR code with their phone. You can’t easily split a bill 4 ways with 4 credit cards… (i’m sure it can be done but you’d need 4 pin codes, 4 receipts etc..) And the list goes on… these aren’t even great examples but that’s the easy, obvious stuff bitcoin can be used for… bitcoin is in a nutshell ‘programmable money’. That opens up a world most of us probably never even thought about before. Like anything programmable, it means we can instruct bitcoin to do something if and when certain conditions are met.
Let’s say you’ve got a family member in Australia and need to get money to them. Let’s also live in a world where bitcoin is accepted everywhere. How slow would it be to wire funds through a bank to Australia and how much would it cost? With my bank, even doing it online would take a minimum 2 days and cost €10 + 0.15%. With Bitcoin, it would cost nothing. It would also take a matter of seconds to transfer from the moment you click ‘send’ to the moment your family member can spend it.
Now let’s get all super complicated just because we can… say that family member needs more… but you’re worried you won’t get anything back… maybe they’ve a drink problem and you can’t quite trust them… but you can trust a family friend that’s out there to tell you the real story… so you can say “Ok, i’ll give you €500 more, provided you pay me €100 of the previous €500 you owe me within the next 7 days”. Also, “I don’t trust you with this €500, so i’m going to require ‘x’ gives it the ok before the funds are deposited to you”. X being a person you trust… a family friend. That’s the power of Bitcoin. Ask multiple people to confirm a transaction before it gets processed… think about how useful that is for businesses – it means that employees can buy things on the ground but the owners or finance guys have to ok it before the transaction will go through to prevent fraud… it could be automated so that if the cost of an item is greater than ‘x’, it has to be verified by a manager… That’s not easily done today, that’s the kinda stuff baked in to Bitcoin’s DNA… this is why it’s exciting (to those of us that understand the opportunities it creates)…
Better still, nobody needs a bank account at all to make payments. That takes time, you need all sorts of IDs and contracts. Plus you’re charged for virtually everything these days. I wouldn’t be surprised if there’ll soon be an account opening surcharge. With Bitcoin, all you need is a 27 to 34 character address. That can be created in seconds online using something like bitaddress.org.
Security Issues (or non issues)
Estimated time to crack the average 256bit password? 0.65 billion billion years. In other words, your account is bulletproof and your bitcoins will not be stolen *provided* you make sure only you have access to your wallet & secret key. The compromised coins and wallets you hear stories about don’t get compromised because some genius hacker has cracked a 40 year old unsolved mathematical problem, they get compromised for one of two reasons:
1. A 3rd party website was storing a user’s wallet. Server it was on got hacked, data was unencrypted or enough of it was unencrypted to piece together access to the coins.
2. The user did not store the coins in ‘cold storage’. They may have thought they did, but they didn’t. If more than one person knows or has access to your secret key, consider your coins stolen. That’s the best way to think of it. For example, if you’re logging in to your wallet on free hotel wifi, that ain’t gonna be secure…
This is why education is massively important. If you understand everything about Bitcoin, you’ll know that (a) Bitcoins *are* secure (b) they’re hugely valuable – and i don’t just mean their exchange rate as that will always fluctuate.
Let’s just recap here and spell out all the advantages of Bitcoin over any other type of traditional currency. It’s important to do this to show why Bitcoin is still seen as a worthwhile investment by many…
- Cheaper to transfer from a to b
- Faster to transfer from a to b
- No documentation / ID /signatures required for both parties to get set up
- Full, transparent, public ledger of all transaction to have ever taken place (although all wallets have anonymous owners you can see a history of all transactions within them)
- Fixed supply of 21m Bitcoins – meaning nobody has to worry about inflation
- Decentralised – meaning it can’t be killed or controlled by any one government
- Secure – don’t listen to the nonsense about security being an issue – it’s only an issue because people haven’t educated themselves on how to store their Bitcoins securely
- Ultra Portable – if you’re a billionaire, you can walk around with your entire wealth in your head if you wish (just need to remember your secret key). You don’t need to ship a planeload of cash from country to country and risk getting it seized by authorities.
- It’s programmable money – meaning that you can schedule it to be sent when certain conditions are met… i.e. on a certain date in the future or perhaps if 90% of committee members vote to buy something from a joint wallet… the possibilities are infinite…
- The blockchain can be used as proof of existence – undeniable proof something existed at a certain time.
Are these all the hallmarks of one big Pyramid scheme? No. Pyramid schemes don’t provide their owners with revolutionary technology that has the power to transform the global financial system. The reason for Bitcoin’s price boom is part speculation, part ‘discovery’… many people are only just discovering what Bitcoin is about and why it’s seen as a big deal in the tech world. As with anything, don’t invest in something you don’t understand and don’t take my word for it or anyone else’s word for it. Make your own mind up and look beyond the hype to see why there’s hype and whether it’s overstated.
To help people understand Bitcoin, i created BTCvideos.com – a site that archives all bitcoin related news reports, debates, conferences… many of which opened my eyes to the Bitcoin world and changed my views on things. If you watch the technical introductions along with the endless list of conferences and interviews / debates, you’ll probably see that everyone is either for Bitcoin or against it. It gets people fired up… the fact both sides won’t give up the fight shows you that everyone agrees on one thing at least – that it’s disruptive technology, so i feel that’s what gives Bitcoin a bright future…