Ten Things I Believe About Bitcoin
Bitcoin is not anonymous. The sooner everyone accepts this and stops saying otherwise, the better. Bitcoin is like cash, except every person you ever do business with writes down the serial numbers of each bill in a ledger that’s available to everyone forever. That’s not what most people would call anonymous.
Bitcoin will not stick it to The Man. It’s romantic to think that Satoshi invented a parallel world where we can lead normal lives by day and rent nuclear-powered tax-free hookers at night. In the real world, MP3 singles are 99 cents, which represents 15 years of progress in the music industry. Bitcoin is probably the end of Western Union and money orders. It will lead to a day of reckoning for Mastercard/Visa, Authorize.net, and PayPal. It is not, however, the harbinger of your libertarian utopia.
The final number of Satoshis is numerically capable of representing the amount of all the wealth in the world, in U.S. dimes. It is also true that I can write a personal check for $999 billion if I write narrowly enough in the little box. These are useless facts. Stop repeating them. The currency has more than enough precision for any practical purpose. If it doesn’t, it’s easy to fix in code.
If Bitcoin represents just 1% of 1% of the total world’s wealth, each Bitcoin will be worth about $1,000. And if the novel I’m writing gets finished, then gets published, then makes it to the Amazon Top 100, I’ll make a pile of money. This is useless conjecture. Stop repeating it. For Bitcoin to succeed, it needs more time, more infrastructure, more acceptance, more smart people paying attention to it, and a huge amount of luck. This would be true no matter how big the world was.
Bitcoin will be responsible for at least one suicide in the next five years. This is an evocative way of saying that end users are not capable of managing private keys. Even users that are capable enough sometimes have shit happen to them. The penalty in either case should be something less than irrevocably losing their entire life’s savings. Solving this problem is possibly the largest Bitcoin startup opportunity today.
Bitcoin will be responsible for at least one murder in the next five years. This is an evocative way of saying that irrevocable transactions are not appropriate for every situation. Banks, credit-card companies, and many other entities in the financial industry exist in order to allow customers to choose risk allocation (other than the default choices of zero and all). If you’ve ever disputed a credit-card charge, or stopped a bill payment, or reset your bank website password, or had a stolen ATM card replaced, or paid a penalty for overdrawing a check, then you’ve used the services that the financial industry provides you. And any of these - even if the fees for them were outrageous - is better than handling the matter directly with the other party to the transaction, if that’s even possible.
Bitcoin is an interesting technology in the same way that TCP/IP is an interesting technology. The Internet could not exist without TCP/IP. Yet not a single Internet user in the world cares about TCP/IP. (Full credit to Brian Armstrong of Coinbase for sharing this analogy with me.)
The early miners are wealthy in the same way that early Internet domain squatters were wealthy. Some of the domain squatters made amazing amounts of money with almost no intellectual work, and back in 1998, it was easy to feel like the gold rush was already over. But as with the Internet, the real wealth in Bitcoin will be created by people who figure out the right abstractions on top of Bitcoin that make an economy available, usable, and better than what we have today. Very few people are even close to doing this today. Who will be the Google of Bitcoin? Who will be its Cisco? Who will be its Akamai? Who will be its Facebook?
If Litecoin or any cryptocurrency other than Bitcoin gains traction, then Bitcoin and all other cryptocurrencies will fail. No cryptocurrency today is sufficiently different from Bitcoin. If another of today’s cryptocurrencies succeeds, then smart people will realize that any modern cryptocurrency is subject to devaluation simply because it’s not the Flavor of the Week, and smart people will flee all cryptocurrency. Call this the weak version of the “Screw All This Coin Crap, I’m Selling” Theory. The strong version is that no cryptocurrency other than Bitcoin can succeed, because smart cryptocurrency believers will figure out the weak version on their own and avoid altcoins. This leaves only short-term speculators to put funds into altcoins, which means that altcoins are doomed to nothing more than spiky pump-and-dump cycles. Incidentally, this is at least one reason why Ripple will fail, which is too bad, because if they got rid of XRP and just made it a decentralized high-speed payment network and value store for Bitcoin, it might become an essential layer of the kind imagined in Things 5 and 6.
Bitcoin might never take off in the United States, but it can still succeed. My country is busy chasing its tail over national health care, intellectual property theft, and rendition of domestic-spying whistleblowers, all and more in the name of fighting terrorism. Meanwhile, the world needs a currency to match the power of the Internet and ubiquitous mobile phones. A borderless currency is an essential ingredient to a worldwide information economy. Bitcoin can be that currency, even without uptake in the United States.
In fact, that’s kind of the point.