The most common questions we hear about Bitcoin, is 'What is Bitcoin?', and 'Why Should I use it?'. A consortium of Bitcoin insiders is attempting to answer these questions. The group, which includes BitFury, Bitgo and ChangeTip, has recently hired social media marketing secialists theAudience for a global campaign to educate the masses about Bitcoin.
It is hoped that the power of social media will help generate a large scale adoption of Bitcoin. Educating about the blockchain and all things Bitcoin, is an essential part of growing the cryptocurrency. Increased awareness and understanding can only lead to good things, but is it enough to generate large scale use of Bitcoin?
Along with the consortium, a brand new start up calling itself 21 Inc, has just announced that they have raised $116 Million in venture capital. It is the largest venture capital raising to date for investment in digital currency. There are no specifics about what 21 Inc intends to do with the money, but they say it will be used to develop both software and hardware which they feel will help Bitcoin gain main stream adoption.
Like many people, I first heard the word Bitcoin on social media. In late 2013, every time I discussed currencies, I would see very enthusiastic posts about Bitcoin. People were very excited about this new virtual money that they believed would 'disrupt' existing fiat currencies into obsolescence. I was skeptical, but at the same time interested enough to want to know more details.
Social media got me started on a year of learning about Bitcoin and cryptocurrency. Learning about Bitcoin has not made me an adopter. I understand how it works, and the internet is full of people telling me how great it is, but I have no reason to use it. For me, Bitcoin offers no benefit over normal fiat money. I'd like to share my streetonomic view on what Bitcoin is, and reasons I have not used it
What is Bitcoin
A simple definition of Bitcoin, is that it is a form of electronic money. It uses the internet to enable people who use it, to send amounts of Bitcoin around the world at high speeds with minimal costs. It bypasses middle men, such as banks, and lets people deal directly with each other. It is similar to how email enabled us to send letters without using a fax or the postal service. There are several digital currencies, or cryptocurrencies, but Bitcoin is by far the best known.
Bitcoin was first created in 2009, during the height of the GFC, by the mysterious Satoshi Nakamto, who published this paper about Bitcoin. Nobody is certain who he is, and some believe the name represents a group of people. Inspired by the financial crisis, Satoshi designed Bitcoin with the goal of creating a currency for the people, run by the people.
Unlike conventional currency, Bitcoin, like all cryptocurrency, is not underwritten by a central bank, and is not backed by any Government. It is supported by a Peer to Peer network of computers called 'The Blockchain', which is maintained by members of the Bitcoin community known as miners. handles both the transfer of Bitcoin, and the creation of new Bitcoin. This means that Bitcoin does not rely on trusted third parties, and can not be influenced by central bank or government policies.
The Blockchain is the underlying technology which, supporters believe, make Bitcoin an improvement to existing government issued cash. Below are a few of the basic features which differentiate Bitcoin from other money:
- It runs an open ledger - the Blockchain keeps a permanent record of every Bitcoin transaction that has ever occurred.
- It is open source - anyone can become a miner and gain access to the entire Blockchain. There is no central party who controls Bitcoin
- Transactions are approved through consensus - more than half the computers on the network have to agree before a transaction takes place. This prevents double spending and protects the currency from fraudulent activity.
- Bitcoin is anonymous - open ledger will only show Bitcoin wallet addresses, these are 34 character alphanumeric codes, which do not contain any personal information. Wallets can be created very easily and there is no limit to how many wallets one person can own.
- Bitcoin has a finite supply - At inception, it was decided that only 21 million Bitcoin would ever exist. The supply of Bitcoin can not be altered by simply issuing more at will. This, it is believed, will protect Bitcoin from devaluation, making it a 'deflationary currency'.
- Transactions are irreversible - Unlike credit card purchases, you can't cancel your transaction after it has gone through. All payments are final
How Can You Use Bitcoin?
First you need to own some Bitcoin. This is simple enough, you set up a Bitcoin Wallet, then go to an exchange and buy some Bitcoin. Spending Bitcoin is also quite easy, all you need is the wallet address of the person you want to send funds to. This can be sent to you as a link or QR code so no need to worry about remembering their 34 character code.
There are plenty of ways to spend Bitcoin, some of which we looked at in a previous article, here are some of the things you may find Bitcoin useful for:
- Sending money to friends and family - Bitcoin is a low cost option for sending funds to anyone in the world. If someone has a Bitcoin Wallet, you can send them funds. The fees are minimal, and do not change, regardless if you are sending to someone in the same room, or on the other side of the world.
- Support a Cause - Show some appreciation for a charity, a political party, or even an MMA fighter. Bitcoin is a great way to raise funds directly from supporters. Send as much or as little as you like, and it all goes directly to the cause. Companies such as Changetip, are making it easy for anyone to accept contributions online through sites such as Twitter and Reddit
- Buy Stuff from Merchants who Accept Bitcoin - The list of merchants is growing rapidly, and already has some big players you can buy from recognized brands such as Dell, Microsoft, and Amazon.
Why I Have Not Used Bitcoin
The price is too unstable - Today one Bitcoin is worth around $250 US Dollars. Over the past year, the price has ranged from a high of $675 to a low of $177. (see chart). This creates a financial risk, which makes holding Bitcoin unattractive. If I put in $1,000 today, then I need to accept that it may not be worth $1,000 for very long.
It is inconvenient - If I want to buy something with Bitcoin, then first I need to figure out how much Bitcoin I'd need, based on the exchange rate and price of what I'm buying. Then I'd need to buy some Bitcoin, and pay exchange fees.
Merchants do not have pricing in Bitcoin - If you look at Amazon or Dell, you'll see prices are all set in Dollars. If the value of Bitcoin goes down, then the same goods suddenly become more expensive to buy with Bitcoin.
There is no added value - I've been using internet banking for over 15 years, and have never had any problems with it. I can do everything I want to do using normal money. I've never wanted my spending to be anonymous or irreversible, and I don't care if I have to trust a bank. I'm perfectly happy with how things are, so why should I change to a system with more risk, and less convenience
It is no secret that I have a negative view on Bitcoin, and have even called it Enroncoin. Maybe one day I will be convinced to use Bitcoin. If there is some special offer, where I pay less if I pay with Bitcoin for example.
As always we appreciate all feedback. If you have used Bitcoin, and found it better than cash, then we'd love to hear about your experience. Who knows, maybe you can convince me to finally buy some Bitcoin :)