If you’re like most, you’ve heard of Bitcoin, but probably don’t know much outside that it’s a digital currency and recently had a couple of high profile scandals associated with online exchanges and banks.
Bitcoin has been around since 2009 and is gaining traction with a growing market cap of $8 billion. It attempts to address one of the cardinal digital sins—the internet was architected with no unifying, international, and systemic commerce. I had the opportunity to see a session with one of the cofounders of Coinbase moderated by a technology reporter from the Wall Street Journal to try to debunk some myths, and level set on what the value of the Bitcoin network actually is.
Bitcoin is more than a currency; it’s an open network that allows an individual to prove and transfer ownership without the requirement of a third party (such as banks, credit card companies, or even sovereign nations). The Bitcoin network usurps the conventional model of multiple, geofenced middlemen (each taking high cuts) and processing arms (taking time) to create a fast, decentralized, borderless economic system. Just as the internet revolutionized publishing, Bitcoin is set to disrupt conventional notions of institutionalized commerce.
Sounds great, no? As with anything new, the exploits, abuses, and general pain points can be seen as enormous: money laundering, malware, ransomeware, price volatility via currency speculation, prospectively destabilizing sovereign currencies, and theft or incompetence at the exchange level to name just a few. Many early adopters have been fleeced. Further, due to the fundamentally deflationary structure of the Bitcoin economy (fixed/absolute maximum of 21 million potential Bitcoins that can mathematically “absorb” the existing world economies) there are legitimate concerns that both the majority of active Bitcoins are held by a relatively small group of individuals. Additionally, people will not have the incentive to walk away from their Bitcoin investments to treat it like a legitimate, high volume transaction currency.
With tens of thousands of online commerce sites accepting Bitcoin, major brand names subscribing this year, a growing/fledgling brick and mortar business acceptance, and high profile endorsements (e.g. Virgin Galactic), Bitcoin has started to gain the kernel of wider adoption. Regulators on the federal level are starting to implement governance protocols and consumer protections. Mature and established business practices (audits, accountability, transparency, etc.) are being put in play by the next generation of Bitcoin exchanges.
All this is good news on a philosophical and pragmatic systems level, but what’s in it for users of the Bitcoin network? First and foremost, a substantial savings in terms of processing time and overhead costs. Bitcoin transactions can be near-real time at approximately 1% (all-in) whereas sending money across borders can take several days and 10%+ to achieve. Low-margin, high-volume retailers can dodge the premiums charged by credit card processors and incentivize Bitcoin users, saving them hard costs. And given its programable nature, Bitcoins can be used for more advanced transactions than simple purchases—escrows, shares, and trusts for example. In short, as the Bitcoin network matures, it’s becoming increasingly viable and—especially in light of the invasiveness and scandals of current institutional actors—attractive.
After having participated in the session and done some targeted research (specifically on current generation security protocols), I’m pleased to say that I’ve setup a Bitcoin wallet. Now, it’s a just matter of seeing who wants to take my money.