If you’re like me you understand the concept of Bitcoin as a virtual currency, but not the finer points, you do not pay for anything with Bitcoins, nor would you know where to GET Bitcoins (it’s called mining, by the way), let alone would you invest in them.
According to the Wikipedia definition: Bitcoin as a concept and the network is spelled with a capital “B”, the actual currency “bitcoin”: no capital “B”. I’ll try to keep them straight…
TechCrunch wrote about a guy on February 28th, who was stopped for further search by the TSA looking for Bitcoins in his carry-on, which is beyond hysterically funny. And of course it’s not, especially if you, like me have been on the road so much you’ve slept less than half the time in your own bed for a year.
With the closing of one of the major Bitcoin exchanges Mt.Gox, last week, discussions about Bitcoins viability have been popping up in the news. A second post on TechCrunch talks about the mechanics of Bitcoin. Writer Brian Armstrong gives some interesting insights into the workings of Bitcoin and also explains why they have staying power and what their true attraction is. Brian is a co-founder and CEO of Coinbase, a leading consumer, merchant, and developer platform for Bitcoin purchasing, selling, and payment acceptance… meaning: great insight and a very vested interest in all things Bitcoin.
Bitcoins are not regulated – which is scary, but if you add on: not regulated by any Government: less scary. So; much like emails – and that is the analogy Brian uses – Bitcoins are an open network and that is its strength despite the growing pains, which are significant – we’re talking DDoS (distributed denial of service) attacks that have led to delayed transfers on several exchanges, not just Mt.Gox that went out of business . But with each attack, Brian maintains, the open network grows stronger, much like email providers that had to add layers to protect against phishing scams and hack attacks.
Going back a bit: emails are an open network with a standardized protocol and that is the reason why they are fast, free and work well worldwide. There is no single country or company that controls email protocol – just like Bitcoin – that means users around the world have choices and emails flow freely between different service providers. Bad providers go out of business and successful ones stay, but in competition with others’ and that keeps prices down (or free: see Google, Yahoo, etc.).
In contrast to Bitcoin our current payment systems through financial institutions are proprietary and limit the ability for consumers to switch easily, which stifles competition and innovation, i.e. ease, reach, speed and cost of transactions. If you’ve ever done a wire transfer continent to continent with your proprietary financial institution, chances are exceedingly high you will agree with me that it’s infuriating, on all levels.
So why are we not choosing from many different virtual currencies today? The issue is: without an ‘oversight’ entity to watch transactions (which is what the proprietary institutions do), who makes sure there is no duplicate spending? To go back to the email example: no one oversees or prevents you from sending the same email multiple times (sic: phishing, DDoS: scary). Brian maintains that with each attack Bitcoin, like emails before it, will become stronger and put better protocols in place.
Bottom line: New technologies take time to mature. He maintains that in the next few years it will become increasingly more difficult to disrupt Bitcoins as the Bitcoin wallet software and protocol become more mature and resilient. Brians second mayor point is: look at the TREND of how things are growing or maturing over time, not the state of technology today. To the later I would say “amen”, BUT: My hard earned money is not going to be the guinea pig for Bitcoin to grow on. Having said that – I might and probably will invest in a few Bitcoins (or decimal points there of depending on its exchange rate) just to see its mechanics work hands on and maybe buy a latte somewhere – with a double shot and skim milk please – but I think that’s it. What do you think?