The Winklevoss twins – of Facebook fame – opened the conference with a surprising faux pas: A quote from Mahatma Gandhi that misspelled his name.
The quote – "first they ignore you, then they laugh at you, then they fight you, and then you win" – illustrates where Bitcoin is today: people are laughing.
The excitement at the conference is like a low electric current running through the crowd. People sense there could be something great and lucrative here. The most successful and listened to participants project an air of calm and certainty.
The value prop
Several themes emerged around the reason for Bitcoin and why it – or another cryptocurrency – will be successful. For merchants the advantages are obvious and compelling.
- Cheaper than credit cards. Several BTC payment processors were offering their services for 1%. Compared to the 2%-6% charged by regular credit cards this is a bargain.
- Non-reversibility of transactions. Fraud is one reason credit card charges are so high. But once a payment is made with Bitcoin the money is committed and there is no way for the fraudster to get the money back.
Compared to earlier forms of Internet currency - Flooz, Netbeans et. al. - proponents point to the decentralized nature of the infrastructure. There is no single ledger that can be corrupted, confiscated or bankrupted.
The software is open source as well.
Bitcoins are analogous to cash. Lose your digital wallet and the money is gone!
Let a 3rd party hold your Bitcoins and if they abscond your money is gone! If you lose your private key your money is gone!
Bottom line: you have to protect your BTC as if they were cash because they are.
That said, there are strategies for protecting BTC just as there are for cash.
- Put Bitcoins into multiple wallets. You can only spend them once, but if one wallet goes pff-ft, the others are still available.
- Put your private key on a USB thumb drive - not your Internet-connected computer - and lock it in a safe deposit box.
- Keep your Bitcoins close to your person. Don't leave them on exchanges or in pools.
- If you use a Bitcoin exchange, make sure they don't co-mingle depositor Bitcoins.
- While Bitcoins offer anonymity, portability and - through exchanges - exchangeability, you may not be able to get all 3 from a given service. Figure out what is vital to you and focus on that.
There are about 20 companies exhibiting at Bitcoin 2013 and more that are in formation that aren't public. They fall into various categories.
- Exchanges. These exchange fiat currency - what we know as cash - for cryptocurrency - Bitcoin primarily - for each other. BitInstant is an example.
- Merchant services. Bitpay, for example, is a cash register in the cloud: merchants can accept Bitcoin and receive fiat currency the next day for a low 0.99% fee. Bitpay works across 30 currencies and, combined with non-reversibility, makes it valuable for merchants working internationally.
- Consumer services. Gliph offers an IM-style app that makes paying with Bitcoin as simple as sending a text. Coinbase https://coinbase.com can hook up your bank account so you can buy BTC online and they provide merchant services as well.
- Investor services. Tradehill offers banking and trading services for accredited investors, traders and institutions. Bitcoin Fund is another.
The Storage Bits take
Crypto-currencies have real advantages over current fiat currencies. If you accept the idea that what we call "money" is a social construct - i.e. its value derives from its exchange and storage utility - then you may be ready to start holding Bitcoin assets.
But, like holding cash, crypto-currencies have risks too. Values are volatile; security is a full-time concern; most companies are young and thinly capitalized; government regulation is rapidly evolving. All we can be sure of is that crypto-currencies will look very different in 5 years.
Comments welcome, of course. I'd like to hear about experiences readers have had with Bitcoin.