It’s Easier to Build on Bitcoin than the Legacy Financial System

While everyone and their mother are busy crying “I told you so!” and “No, Bitcoin is the future, just wait!” after the 50% drop from this morning’s high, I’ll take a few minutes to explain why Bitcoin is relevant.

Accepting payment as a business

When I started my business, I had to accept payment from my customers. Few realize how hard it is to get paid. Notice I didn’t said ‘make a product’, or even ‘market the product’, no: getting paid is hard.

Cash

Cash? Well no, of course my customers won’t send money in the mail.

Checks

So checks perhaps? Some might pay this way. To do this, I need to open a new account at my bank, because they won’t accept that I make deposit with a check that isn’t to my name. Think about it; how dumb is it that we can’t deposit money as we want in our accounts? Well because banks must protect their backs and refuse to accept anything that could be a fraud. In this case, I could have stolen or intercepted the check and tried to deposit it in my account. Fair enough. However I still have to open a new account, with all the bureaucracy and fees that follow. Note that adding a pseudonym to my account would have done the same thing, security wise, as opening a new account. But for an unknown (surely justifiable) reason, I can’t just do that.

Credit cards

I offer a web service, so payment by credit card would make sense. Or does it? Adult middle-class occidentals like to think that everyone have a credit card. 14 years old? You’re out of luck in many jurisdiction. Perhaps are you even in the number of countries that don’t have them? There’s also no guarantee I’ll be able to accept all credit cards. (American Express, Visa, Mastercard…) But assuming that I didn’t just lost half of my potential customers, I still have to use a credit card processor service. This means fees. Oh and there’s also the risk of chargebacks. You know, this silly thing where anyone can call his credit card issuer and say “Hey, I didn’t buy this.” Not only will the merchant lose his sale’s money, but he must in addition pay another fee. Because, you know, it’s his fault.

Paypal

Paypal is like a horrible hybrid of all of the above. Can’t be used from everywhere, fees, and truly horrible stories. (And a horrible API by the way.)

Receive salary as a worker

Ever noticed that when you start working somewhere, they ask for your banking information? Want to work as an engineer? Good luck getting paid cash. It is assumed you have a bank account. You want to get paid where you work? How silly is that! It’s not as if you were going to work to get paid. Oh, wait…

This of course is just accepted as normal, because most people got their first bank account when they were very young, probably accompanied by their parents. In fact, let’s look at what the average Joe has done, banking wise:

• Asked for a bank account (sign many papers, personal IDs);
• Asked for a debit card (sign other papers, memorize PIN);
• Asked for a credit card (sign yet other papers, memorize PIN);
• Asked for checks (ok, nothing to sign here. Still a pain to write a check);
• Asked to open another account (papers…);
• Asked for web access (sign papers, create account, memorize password);
• Asked to register an account to trade stocks (sign papers, perhaps another password);
• Asked for a special retirement account (sign papers);

Then, when presented with an alternative, most people will only consider their current situation. “I can have something that is slightly better than my current situation? Meh…” (They would be wrong of course, it’s not just slightly better.)

It’s as if I had a magic machine that could teach me, in 10 seconds, the equivalent of a degree in my field. Then I would discard it as silly, because I have already studied it. Well, sure I have, but plenty of others didn’t!

Also, notice that for each step, you need to ask for something. You can’t do it yourself.

But what if you could be paid without having to deal with a bank? What if you could, with a single click, create a new account?

Building things

For the makers of this world, it’s also much more easy to work with bitcoins. Want to hack yourself a point-of-sale terminal in a few hours and try it live on your bank? Good luck with that…

How about building a casino in Minecraft? How would you hook that up with your bank?

And how about asking for tip? Now you simply have to leave your bitcoin address in a video description or a the bottom of an article and everyone can send you some bitcoins.

Bitcoin isn’t just perfect for the digital age, it’s also an environment where you can build and create things. HTTP isn’t great per se, but everything built with it gives us a rich world to explore. You can expect to have the same for the payment system. Bitcoin in itself isn’t great (it’s brilliant, but not great). It’s everything that will be built on top of it that will prove to be amazing.

This is why I’m a proponent of Bitcoin. Not for what it is now, but for what it will become. It just needs a little bit of love, and plenty of speculators! 😉

Bitcoin: may the value rise!

Bitcoin is like nothing that has ever existed on this world. Ever. It’s a way to protect wealth from any assault, while simultaneously being able to transfer it to anyone, anywhere in the world, without any interference. You could be a millionaire and no one has to know, not even a banker or a government.

This week, Bloomberg really shined by inviting someone who actually looked into Bitcoin before starting talking about it:

He sees the potential, but at the same time acknowledges that we are in uncharted waters.

Many are nervous with the rising price. With its unique characteristics, Bitcoin can be seen as a commodity. And as most commodities, a 1000% rise in value is often a sign of bubble.

Unless…

Unless… you are talking about monetization. This is a process by which a commodity becomes money. Let me cite Konrad S. Graf, as he explains it in a better way than I ever could:

(…) In the case of a monetization event, though, the practical use-value of the trading unit (not only its price in terms of other goods or monies) actually does rise with the number of people using it and the depth of the market. To imagine how different this is from a classic asset bubble, it would be as if not only the price of bubble-era houses were rising, but also that their actual sought-after qualities as houses were improving spontaneously at the same time. Such houses might sprout new rooms with no one building them, with new paint jobs appearing mysteriously overnight without any painters having visited.

(I highly suggest you read the entire article; the insights are brilliant. Hyper-monetization: Questioning the “Bitcoin bubble” bubble.)

For money, the more the value rise, the better it is!

Let’s try to see it with a big company viewpoint. Would Amazon even consider to use Bitcoin if the entire market cap is less than its own cash flow? Of course not! So the first users are necessarily the small ones. They buy, use it, increase the price, and then the market cap can go to a billion. This in turns allow for medium enterprises to join the movement. They start accepting payments in the new currency and building infrastructure around it. This activity makes the currency more valuable and the price rises again… and again and again, in a self reinforcing feedback loop.

Let me repeat this again: for money, the higher the value, the better it is! Is there speculators trying to make a quick buck on Bitcoin’s back? Absolutely. Many of them don’t even understand how Bitcoin works. And yet, whether they want it or not, they increase Bitcoin’s market depth. They increase its value, making it more and more powerful. Each additional dollar in the price legitimizes Bitcoin, makes it more trustable and more acceptable.

At 0.10$, it was toy money. At 1$, a weird currency for anarchists and drug addicts. At 100$, it’s a worldwide experiment about money. At 1000$, it’s an obvious investment.

Bitcoin revisited – bubble?

How to read a price chart (hint: logarithmic scale)

Ok, first of all, ‘journalists’ should stop showing the price of bitcoins in a linear scale. You should never-EVER look a price/time graph in a linear scale, because what is interesting here is the movement in terms of percentage. For example, if the price of bitcoins goes from 10$ to 20$, that’s a 10$ increase, but also a 200% increase. However, if the price goes from 100$ to 110$, it still is a 10$ increase, but a less impressive 10% in terms of proportions.

Let’s look at the chart most ‘journalists’ use:

OMG!!! It’s skyrocketing! It’s a bubble!

Now let’s use a decent logarithmic scale, shall we?

Boring!

A boring upward trend. And yet, this is much more helpful to anyone wanting to analyse the price movement. Notice how the last few months were in fact slow compared to previous years? But NOW it’s a bubble because NOW the mainstream media look at it. Yeah right…

Oh and they do a terrible job at it. They are completely and utterly clueless.

I cringed so hard watching this that my face hurts…

Bitcoin is more than a currency

Even those who get Bitcoin don’t seem to realize that it’s much more than just a currency. It’s a distributed public ledger. It’s an environment onto which you can bootstrap more financial tools. This is so important. I don’t know how to stretch this enough.

Smart properties

You can use Bitcoin as smart property. I’ve written on this subject in the past, and a there’s a bunch of more advanced theory available with a simple Google search. As a brief summary, imagine you could somehow attach a property/stock to a bitcoin. You could transfer the ownership to anyone, anywhere in the world.

Skipping a technological step

Most people don’t immediately grasp what it means to jump a step in technological evolution. Take the cellphones for example. For most occidental countries, there was the telegram and then the first phone lines. Operators needed to manually connect two wires together when people wanted to talk to each other. Eventually the system evolved and everyone had a phone in their home. This required physical phone lines to be installed almost everywhere and represented a huge capital investment.

Then came the cellphone. Slowly, people started to develop the technology and to use it, driving the price down. What did it mean for poorer countries? They could go, in their economic development, directly from harvesting crops to using cellphones without having to invest the huge capital necessary to install phone lines! They jumped a technological step and saved a fortune by doing so.

Now, imagine you could do the same thing, but for the whole property and stock market scheme. No need to erect a huge government adjacency to overlook every transactions. For virtual goods, you don’t even need to have a reliable court system in place! (Some don’t realize how developing a legal system in a country is a bewildering adventure. It takes an appropriate culture, a restrained government, peace…). And now the final touch: It’s also incredibly secure, because you have the security of the blockchain with you!

In summary, you have access to a market without borders, with low fees, with an incredible security, that cannot be frozen and that works 24h/24h.

Wealth is now force proof

For the first time in the history of mankind, force can’t be used to take wealth. How is that not the single most important evolution in all history?

Even if some people know you have 10 000 BTC, they can’t do anything about it. Sure they can torture you, but unless you give in, they have no way of getting to your wealth. Imagine that a government decides to take money directly from its citizens bank account (that would never happen, of course…). With Bitcoin, for the first time ever, they can’t.

You can transfer your bitcoins to anyone, anywhere in the world, without any 3rd party being able to stop or steal from you. Your wealth is now in your control.

“But I don’t like that it enables drugs, sex, and Rock ‘n’ Roll!”

Who cares? Bitcoin is here, it exists, it works and its resilient. Does it have all the necessary qualities to be a useful tool? Is it interesting for the wealth creators of this world? If so, your opinion really doesn’t matter. And that’s the beauty of it!

Oh, but of course, it’s a bubble!

Master Bitcoin – The Proof of Ownership

In case you don’t know what is Bitcoin, I’ll refer you to the main website, and to this excellent article.

This summer I’ve written a little paper explaining in part why Bitcoin has so much potential; much more than being simply a digital money system.

“The Bitcoin blockchain, by being entirely public, protected by a proof of work and redundant in every Bitcoin clients, is perhaps the most secure database in the world. By tying a meaning to a specific Bitcoin, it is possible to use the power of the blockchain with precise purposes, such as a proof of ownership.”

Here it is: Master Bitcoin – The Proof of Ownership