Bitcoin as a currency is an ingenious invention – perhaps the biggest & best since the internet itself. Processing & managing money online is a *massive* problem for everyone excluding banks and credit card companies. A world without banks & credit card companies would be a better place. Conspiracy theorists often talk about a new world order and how the ultimate goal is to create a single, global government along with a single global currency, but if there is such an agenda I’m pretty sure bitcoin is not part of the plan.
Although as a consumer you may not realise it, handling payments online (for a business) is expensive and hassle. If you pay for something with a credit card, the credit card provider takes a % cut before the money lands in the seller’s account. What this means is that if you buy something for €100 online, the seller only gets about €96. However, there are other fees for sellers…
A merchant bank account starts from about €30/month in addition to a set up cost which can be hundreds of €€€. Businesses also have to worry about chargebacks… a chargeback is when a customer calls their credit card company to dispute a charge they don’t recognize. The problem with chargebacks is that regardless of whether the customer has a legitimate claim for a refund or not, the business incurs a hefty fee of about €15. No exceptions. So if i buy something today online from a business and initiate a chargeback with Visa or Mastercard, that business will get charged about €15 and there’s nothing they can do about it. Is that fair? Obviously not. But that’s the system… that’s the way things work.
For us individuals, we’ve been thrown under a bus by banks in recent years (particularly in Ireland) who are in effect ‘price fixing’. 5 or 10 years ago, free banking meant free banking. Now, free banking means that you must have €2000 in your account at all times and you’ll then get certain stuff free, maybe. If not, you get charged every time money goes in to or out of your account. Want a debit card? Fee for that. Credit Card? That’ll be €30 or €40 per year… not entirely bank fees of course as it’s the government who have their own fees on plastic cards. Transferring funds abroad? €10 minimum fee for a wire transfer. Plus a small % cut of whatever amount is being transferred.
The fees vary from bank to bank, but they’re all doing the same thing – squeezing. It’s a bad time to be a customer with no money – because ironically those who have less will pay more simply to use their bank account. All banks have quarterly or annual fees, which get waived if you’ve shedloads of cash sitting in to or coming in to your account.
Let’s face it, all of the above is great if you’re a bank or a government but for everyone else, there’s little to be happy about. The tables may be starting to turn however and recently Bitcoin has started to gain traction… so much so that it’s caught the eye of both the US and German hierarchy, both of whom have cautiously acknowledged it over the past week. “What is Bitcoin?” I hear you ask. This video explains it well:
I’ll tell you how I learned about it and my thoughts along the way…
I don’t remember when I first heard about Bitcoin, but I’m pretty sure I would have at least stumbled upon it soon after its inception. I’m not particularly interested in virtual currencies or economies but it falls under ‘technology’ so I read about that type of stuff all the time. I do remember either reading or hearing about this story so that’s when I can say for sure Bitcoin first appeared on my radar… June 2011. I would probably have dismissed it as a game or novelty idea that had a few hardcore fans but would eventually die. That is after all, how most online projects pan out…
It was only in March / April 2013 that i started to take Bitcoin seriously as a concept and did some research on it. What prompted me to do so was the whole Cyprus bailout situation… it was widely reported that Cypriots were investing in bitcoin because they couldn’t trust banks. At that time, bitcoin’s price was rising to record highs… it peaked at about $200 which I remember thinking was crazy. But it certainly got me interested and trying to understand why people were investing and whether Bitcoin was just one big bubble or whether it actually had a future.
The price of bitcoin has soared over the past month and sits at $700 as I write this. It did reach $900 a few days ago and fell sharply, with many people crying ‘bubble’… yet it’s risen from the dead yet again from a low of $500. It seems every time the writing looks to be on the wall, it rebounds and comes back stronger. Why is that? I think there are several reasons:
- Speculation – I’ve heard some people say a bitcoin will be worth a million dollars over the next few years. Others say it’ll be worth nothing and it’s all just one big speculative nonsense. Time will tell who’s right but I (like any others) have called it a bubble before and never thought bitcoin would be heading towards $1,000. Plenty of people have amassed fortunes already through bitcoin and I’m not going to say it can’t continue to happen… the stats continuously prove people wrong.
- Scarcity – Not only is there a limit to the amount of bitcoins that can be created, but buying bitcoins right now is a slow process… you generally have to get verified on an exchange and wire transfer money from a bank account (which can take days). So if you want to buy bitcoins right now, you’ll find it difficult. The more media attention bitcoin gets, the more people want to buy them… the fact they can’t instantly be acquired probably makes them more attractive.
- The Concept – if you spend the time learning about Bitcoin, how it works and the advantages / disadvantages, it’s difficult how you could come away thinking Bitcoin doesn’t have a future or won’t change the way people do business online. Bitcoin as we know it may not have a long-term future but the demand for a decentralised currency is there for all to see. The question on everyone’s lips is “how will banks and governments respond?”. Some could attempt to create their own Bitcoin, or they might try to collaborate on an alternative in order to retain some control over it. Or maybe Bitcoin will simply stand alone and get support from governments… if the latter were to happen, Bitcoin even at its current price could well turn out to be a sound investment.
So long as the average person on the street can’t understand bitcoin, it won’t be used. If they can’t easily transfer, store & secure their bitcoins, they simply won’t bother with them. Why would they? The technology & infrastructure around bitcoin has a lot of maturing to do before it can be used by the world on a large scale… the same way the internet in 1990 had a lot of maturing to do before it could be used by the masses. It’s every bit as revolutionary as the internet, but right now it’s difficult to plot its path to success. The path to success is ‘time’ and it’s inevitable confidence in bitcoin will rise and fall, as will it’s value.
We can’t forget Bitcoin is a currency, not a mineral or stock… a currency is only useful if you can use it to trade. So Bitcoin’s future hinges on getting more merchants to accept it. That *is* happening day after day but of course it’s happening because savvy merchants realise it’s a marketing opportunity. Being the first business in a town or city to accept Bitcoin is guaranteed headlines.
It does have benefits though for businesses:
- Zero fees
- No merchant bank accounts
- No chargebacks
- No limits on amount you can receive
Longer term, there’s also a whole bunch of stuff that can be done in Bitcoin that gets people very excited…
Bitcoin makes complete sense as an online currency. Banks and governments can’t control it, can’t profit from its transfer between individuals and that makes it instantly attractive to pretty much everyone apart from banks and governments. On the downside, its value is volatile and its anonymous nature makes it easy to transfer large amounts of cash without anyone knowing who it’s being sent to or even who it’s coming from. For example, you could walk through airport security with a billion dollars on your phone or scribbled on a piece of paper or even in your head… all you have to do is basically remember a password.
To someone who’s never heard of bitcoin, if you look at its price over the past 12 months, it screams “bubble”… but looking beyond the price (and that takes time because it’s fairly complex), it does hold *real* value… the type of value that can change the world, much like the internet has done… or even much like internet banking has changed banking.
This explains why, as time goes on, the price of bitcoin keeps rising. More and more people start to see this, believe in it and as it keeps going up, the media keep talking about it and so more people become aware of it… it becomes increasingly difficult to dismiss it as a novelty currency or something that will crash shortly – because quite simply it has more advantages than any other currency on paper. That doesn’t mean it will work and go mainstream, replacing dollars or replacing any other type of currency… but it can certainly co-exist and become the preferred choice of currency for online transactions in particular.