The mass market doesn’t want anonymity, it wants privacy. Neither customers nor banks want transactions that are irreversible. And while many of us would like currency management taken away from governments, that doesn’t mean an unmanaged solution will be any better.
The conference was therefore an opportunity for me to learn more about Bitcoin and the Bitcoin community as well as to test my arguments with an informed crowd. It was most enjoyable on both counts. My attitude didn’t change – I still don’t think Bitcoin will crack the mass market – but I did think that there is a lot of valuable learning and experience to be gained from studying it.
I found it particularly valuable to hear from the wider Bitcoin community at first hand. Sergey Kurtsev from IMCEX set the tone in the very first presentation when he said that the central issue is one of trust (I’ll come back to this at the end of the post). He suggested that for Bitcoin to obtain widespread adoption they should target “regular people” and forget about banks etc. I’m sure that’s true, but it’s a mountain to climb. He also said that anonymity is misunderstood and that the public don’t need it. I was upset about this, not because he was absolutely correct about it, but because it was going to be the subject of my talk in the afternoon. So it led to some emergency last-minute Keynote acrobatics on my part!
Amir Taaki from the Bitcoin Consultancy gave a presentation that was quite wide-ranging so I will use his presentation as a peg to hang a few comments on. He is an evangelical proponent of Bitcoin but said, essentially, that there were three problems with Bitcoin: the marketplace, the technology and finance.
1. Marketplace. Consumers have no reason to use Bitcoin (which strikes me as a rather important and limiting constraint). The attributes that Bitcoin projects (such as that anonymity) are not valued by consumers and the merchants obviously don’t see enough value to drive consumers towards it. And many of the other factors that go to make up a marketplace—everything from help desks and brand adverts to chargeback procedures and dispute resolution—simply don’t exist in the Bitcoin space. In an age when the merchants are looking for “ID not IT”, this means that either Bitcoin focuses on some pretty thin niches or it has to change in some fundamental ways.
2. Technology. There are scale issues, as people much cleverer than me (e.g., Ben Laurie) have pointed out, but the key technology issue is that it’s hard to use. It has a heritage of geekdom and it needs a much more user-friendly front end.
The owner calculated the current exchange rate, which has fluctuated wildly in recent months amid rampant hype about Bitcoin. My lunch was $5.51 plus tax: I owed him 0.52 bitcoins. He held up an enormous laminated QR code the size of an entire sheet of paper, which I scanned on my phone yielding: bitcoin:1MTbKpYWnzqmsLvCjdTtwrvuX81g3HCgC. This was the address where I would send the money. Using my laptop, I opened up my account on the Mt. Gox Bitcoin exchange market, sent 0.52 bitcoins to 1MTbKpYWnzqmsLvCjdTtwrvuX81g3HCgC, and about three minutes later the restaurateur received an e-mail indicating that the coins had arrived.[From I Spent a Coin (and I Liked It) — How I Bought Lunch With Bitcoins—Daily Intel]
What could be simpler?
3. Finance. I thought Amir’s point about “compromising events” was perceptive. If you want people to hold Bitcoins instead of dollars or gold, they have to have real faith. Every time they read about exchanges crashing and money vanishing that becomes more unlikely. I’m not bothered if Barclays computer blows up, because my money is guaranteed (up to a certain level) by the government. If I hold more than that level in a bank deposit instead of storing it in mutual funds, fine wine or real estate that’s my problem. Compromising events actually increase people’s trust in the current financial system! On the other hand, early compromising events in the Bitcoin space have been undermining.
As I somewhat uncharitably posted on Twitter, “help I want my anonymous, untraceable digital cash back!”.[From Digital Money: Bitcoins and PCs]
I did try to make constructive criticism and when it came to my talk. I tried to highlight some areas of commerce where the existing mass market solutions might be vulnerable to well-crafted alternatives (e.g., social networking, games, kids) or where a significant improvement in security would generate value. I also said that any realistic mass-market solution must be mobile-centric. If there was some way to store keys in a trusted secure element that would make life much easier for the scheme designers.
So, in conclusion, I’m just some guy. But people whose opinion I trust seem to validate my initial responses to Bitcoin. Here’s what one of the world’s leading cryptographers has to say about it:
Stefan Brands, a former ecash consultant and digital currency pioneer, calls bitcoin “clever” and is loath to bash it but[From The Rise and Fall of Bitcoin | Magazine]
As I have explained previously, Bitcoin is not money. Bitcoin is a protocol.[From BLOGDIAL » Blog Archive » Why the quoted price of Bitcoin doesn’t matter]
Thinking this way does provide a route forward. A couple of the speakers at the event suggested creating a scheme on top of Bitcoin rather than use Bitcoin itself. I was involved in a couple of feasibility studies in the 1990s for international financial organisations who were looking at using Modex, DigiCash and the like in a similar way, making them the inexpensive, fast clearing and settlement mechanism within the scheme but not exposing them to the consumers.
Bitcoin is the first online currency to solve the so-called “double spending” problem without resorting to a third-party intermediary. The key is distributing the database of transactions across a peer-to-peer network. This allows a record to be kept of all transfers, so the same cash can’t be spent twice—because it’s distributed (a lot like BitTorrent), there’s no central authority.[From Online Cash Bitcoin Could Challenge Governments, Banks – Techland – TIME.com]
If the scale issues can be managed (it’s outside my envelope to asses a likelihood) then it is plausible that this low-cost distributed infrastructure could be a way to implement a global P2P solution. As one of the afternoon speakers, who was focusing on marketing, noted it’s better to think of Bitcoin as a means of exchange only. You take your money, change it into Bitcoins, send it to the recipient. I saw this idea picked up again recently.
While Bitcoin isn’t a very good currency, it has the potential to serve as a “metacurrency”: a medium of exchange among the world’s currencies. In this role, it has the potential to be a powerful competitor to wire transfer services like Western Union.[From Bitcoin’s comeback: should Western Union be afraid?]
This could be a decent business for some people.
He converts some of his income to US dollars, using sites like MtGox.com, which is run by Mark Karpeles in Tokyo, Japan. Karpeles charges a fee of 0.65 per cent, and is earning $2000 per day, along with the equivalent in bitcoins.[From Future of money: Virtual cash gets real – 06 June 2011 – New Scientist]
All of this, it has to be said, has almost nothing to do with the pervasive meme of the event, which was wether Bitcoin could form a new gold standard and smash fiat currencies, or the side topic of whether Bitcoins themselves make for a worthwhile speculative investment.
So far Bitcoin enthusiasts have been buying Bitcoins as the price falls, convinced that the price will go back up eventually. But as the hoped-for rally has failed to materialize, more have gotten discouraged or bored and cash out, pushing the price down further[From The Bitcoin Economy Is Collapsing With No Sign of Recovery – Nicholas Jackson – Technology – The Atlantic]
That’s no to the latter and personally i think it’s no to the former as well.
Bitcoin is different: It wholly replaces state-backed currencies with a digital version that’s tougher to forge[From Crypto Currency – Forbes.com]
To be honest, this is a little meaningless. Bitcoin may or may not be tougher to forge than US dollars, but that’s no why people hold US dollars. By amazing coincidence I’d just finished reading Detlev Schlichter’s “Paper Money Collapse” when I found out he was going to be on the programme in Prague and I enjoyed hearing him set out his (compelling, to my mind) case against nation-state fiat currencies.
Detlev, of course, recommends a return to a gold standard rather than the development of a Bitcoin standard but his talk did, I think help, to set out some of the issues and help the audience to disentangle them. During the Q&A session hosted by the incendiary Max Kesier, the “Financial War Reporter” from Russia Today (I’m sure we’ve all seen it in our hotel rooms by now), I tried to make the point that it might be better to have lots of different kinds of money rather than one, whether that one is gold or euros.
A final point. A number of speakers and delegates made an interesting point about developing trust networks, which is that there are no mechanisms for trust inside the Bitcoin network so some form of co-operation and self-regulation will be needed (sounds awfully like the Visa and MasterCard doesn’t it!). This is exactly right: the idea of a decentralised, no-one in charge, payments version of “Occupy Wall Street” sounds great, but in practice you need rules and regulations. Sorry to be dull.
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