Bitcoin 2013 conference: the future of money?

Bitcoin 2013 conference: the future of money?

Summary: I had many questions about Bitcoin (BTC) and how it works. Some of them got answered.

TOPICS: Storage, Legal, Mobility

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.

The zoo
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 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.

Topics: Storage, Legal, Mobility

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  • Miming process exclude from article... a good thing

    I'm happy to see a well written article that doesn't spend half the time to explain how to mine Bitcoin. First it's complicated and as we speak it's irrelevant for most users. The mining process is the creation of the Bitcoin (someone need to have the first coin). Over half of the total 21 millions are already in existence, big machine/server continue to mine, when solve a mathematical problem, they get some bitcoin in reward PLUS all the transactions fees since the previous block (about every 10 minutes). So in the far future, no new bitcoin will be created and the miner will live on fees only.
    Jean-Claude Morin
  • Why this is nuts, as implemented.

    As it is now, this "currency" is insanely volatile. If you exchange $30,000 for Bitcoin currency, it could be worth $8,000 later the same day. That's the last thing you want in a useful currency. This is really more like commodity trading or stocks than currency. In fact, it's volatile because it is being manipulated by traders exactly like commodities or stocks.

    The very fact that you can "lose a wallet" makes this unworthy of consideration. Your money can literally disappear because of bugs in their system. Plus, the entire scam is set up to benefit merchants over consumers, so why would any consumer want to use it? You get protection from being ripped off by merchants when using a credit card.

    I guarantee that I'll stop buying from any business that forces us to use Bitcoins to pay.
    • Substitute...

      "Cash" for "Bitcoin" in your rant above. There are differences, but not many.

      True story: was eating breakfast with a friend and he pulled out 2 $100 bills to pay for the meal. He had gotten them from the recent sale of something for cash, and when he tried to deposit them at the ATM machine, one of them got kicked back. He asked me to guess which one it was, and I did (something looked funny about the Franklin head when shining sunlight through from the back). As we left, the waiter spent a few min. talking with the manager about the bill, but then gave us the receipt and change. "What if it is fake?" I asked my companion, "Will the bank replace it?" "Doubtful..." was his reply.

      With bitcoin, that conversation would not happen. Does this make cash a bad thing to have & hold? No - but with a market cap of over $1 billion, and investors getting involved every day, bitcoin isn't bad either, just different. Yes - bitcoin can be volatile. So can USD, compared to other currencies (and gold). Is that something you stress out over? You should. Our president and his co-horts are intent on inflating the heck out of that which you hold dear.

      Bitcoin inflation? Other than the orderly, predictable creation of bitcoins through mining, impossible...

      Finally, let's agree on something. You will never be forced to use bitcoin, or any virtual currency; your last sentence will always be your right as a consumer. And you know what? That's good!
  • Clunkity, clunk, clunk, clunk ...

    “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.”

    What? It’s usually the payee doing the defrauding, not the payer; you must be thinking of the scams that some payers play via clunky operators such as eBay’s PreyPal; such scammers get short shift from the credit card companies and their retail bank partners …

    Other than for P2P transfers between acquainted persons, the Bitcoin system is as potentially troublesome as PreyPal is troublesome …

    Of course the Bitcoin system will be “cheaper”—you pay for what you get; with a payment via MasterCard/Visa/Amex you have a competent mediation process available, if need be, and that costs money …

    For the transactional security that I receive from the vetting of credit card merchants by their banker, I’ll stick with the bit of plastic issued by my retail banker, thanks …

    And, if for some inane reason you don’t like “plastic”, say “hello” to MasterCard’s new "MasterPass" digital wallet …

    Goodbye clunky PreyPal, it has not been nice knowing you ...
    Philip Cohen
  • value today?

    I'll stick top cash and credit cards thank you. Given the volatility of the value of bitcoins I would rather keep my cash in a more stable form and other money invested...properly.
  • Bitpay

    I've never found transactions easier than when I use Bitpay. It's commerce made simple. Bitpay truly is the Paypal of Bitcoin.
    Marcus Hayes