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If someone had told me in the early 1980s that I didn’t need the post office to send a letter to someone far away, I would have asked at that time what that person had been smoking. So with the claims I hear about Bitcoin as a currency that allows for the wiring of funds without banks, third party intermediaries and central banks, I take the usual Fear, Uncertainty and Doubt (FUD) articles with some grain of salt.
Bitcoin, for those who have been hiding under a rock in 2013, is, of course, a popular and upcoming digital currency and military grade cryptocurrency infrastructure that allows for peer to peer transfers of funds. There are two parts – the small “b” bitcoin refers to the currency portion, while the capital “B” Bitcoin refers to the infrastructure that supports it. The military grade cryptosecurity is comparable or even better than those of current banks and financial institutions (there is less handling of personal information that makes banking sometimes vulnerable), and no one is involved except the payer, the Bitcoin infrastructure, and the payee. Unless you lose your private key, it is supposed to be as safe as a typical wire transfer through a bank. Also, with the maximum number of bitcoins set at 21 million, this fixed number avoids inflation problems brought about when central banks print more money.
However, as with many new technologies, it is perception that often sets the tone more than the reality. For one, there is very little known about the developer Satoshi Nakamoto (said to be possibly a pseudonym). There is also a perception that the backers are not yet the big gorillas in the room like Walmart and Amazon, but relatively small traders, merchants and other parties. Another perceived weakness is its initial use by criminal syndicates, as evidenced by the shutdown of the drug website Silk Road by the U.S. Federal Bureau of Investigation (FBI).
However, the U.S. government is actually Bitcoin friendly as it considers the technology itself and the current speculation that abounds, to be more risky for criminals than laundering money through cash. A Bitcoin transaction actually leaves an electronic trail that investigators can use, unlike cash. Also, the cryptotechnology, based on open source and solid crypto-mathematics and supported by an open source community, is open to scrutiny. It is just as safe as the technology used by the credit card companies, which is often undermined by the number of people who store and have access to your personal information. That all goes away with Bitcoin as it is just the seller and the buyer who interact using the secure system – no one else.
Needless to say, with all the speculation (the price of bitcoin fluctuates wildly) and the relatively volatile situation with governments (especially central banks) who are not eager to sacrifice their fiat currencies (currencies whose value is guaranteed by governments and not backed by precious metal hoards) and currency control mechanisms, it may remain as a niche although slow growing form of currency and payment mechanism. It is especially attractive to merchants who have grown tired of the fees being paid to credit card companies like MasterCard and Visa.
Currency fluctuations are not really an issue if the intent is really to use the service to wire funds. If you, as a buyer, purchase a bitcoin for payment, and the seller of the goods/services upon receipt of the bitcoin immediately converts it, then the only difference is the conversion rate between the exchangers they are using. But if you hold on to bitcoins for speculation, that is where the problem starts.
At worst, Bitcoin represents an aspiration and an existing robust alternative to the established banking sector and fiat currency issued by governments. Whether it is the big game changer to the banks and government monetary institutions that everyone is waiting for is still up in the air, but having the masses of people adopting Bitcoin is possible if all the reputation and perception issues can be addressed.
Personally, all this talk about Bitcoin vs. traditional banks may actually be misplaced. I could feel comfortable buying a small purchase like a burger or a hotel stay with bitcoin (just like I can purchase small items with my frequent flier or hotel points) but leave my car purchases with a bank. My wallet can still contain cash and cards, but my phone can contain some bitcoins to purchase small items.
If it can iron out all the perceived issues, there can be a popular niche for Bitcoin to fill and not necessarily be embroiled in an all or nothing argument.
© Japan Today
8 Comments
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sengoku38
Nice opinion piece, but the author doesn't seem to know any of the details of the currency (it isn't just the buyer and seller that interact, but the entire networks works together to verify a transaction).
I suggest reading http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/
That being said, bitcoin is perhaps the biggest thing happening in technology in the world right now. Ignore it at your own peril.
Moondog
I like the idea of leaving banks out of the equation. However, I also have trouble believing bankers will be content to stand by and let Bitcoin take over a big chunk of their business without a fight.
It also seems likely that governments will at some point demand tracking info for funds going into and coming out of the Bitcom system. (Gotta fight those terrorists, criminals, and tax dodgers, you know!) I'm not sure how that will happen but it is probably going to be the point where banks attach hefty "transition" fees.
The trick will be getting to the point where bitcoins don't have to leave the Bitcoin system (i.e., pretty much every company and person on the planet is using the system). That may take a while if it's ever allowed to happen. Governments certainly never would have allowed to internet to develop the way it did (free of close government control) if they had had any notion of how big it would be. (Thanks, Senator Gore, for sneaking the enabling legislation through the congress!) I doubt they'll make that mistake again.
nath
How? Bitcoin has nothing to do with any banks, and does not go through any banks.
It would be like me standing outside a convenience store, and when you came out with a coffee you bought inside, telling you that you owe me a transaction fee for the coffee.
Moondog
StrangerlandJAN. 04, 2014 - 01:24PM JST
You tell me. If I earn a pile of bit coins and want to buy a house from someone who does not accept bitcoins, how do I do it? Or, to use your example, how do I buy the coffee if the convenience store does not accept bitcoins?
My point was that between now and when everyone/every business accepts bitcoins, the bankers/governments will be looking for a way to weasel their way into the system. I think it could be easy for them to do. They could, for example, make using the system illegal (money-laundering laws could do that). Or they could insist on attaching "monitors" to the transaction centers or set up their own alternative system.
If I'm misunderstanding some major point, please feel free to enlighten me.
nath
You convert your bitcoins to cash (they are even Bitcoin ATMs now), and buy your house. Of course, that's not likely at the moment, but my point is that bankers cannot get add their own transaction fees to bitcoin, as they are left entirely out of the loop. Which is great!
Well you are. Even if your examples happen, the fees will be attached outside of the bitcoin process. And I don't see banks being able to get in on it at all. Governments may be able to, through legislation, but banks are left out of the process. Which is great, anytime I can keep my money out of the hands of the legal thieves, I like it. Bankers should be lined up and shot. It would make the world a better place.
Moondog
Strangerland wrote:
Oookay ... and just how did the paper money (e.g., US Federal Reserve Notes) get into the machine? It it was from other people buying bitcoin, then that's wonderful.*
On the other hand, if the owner of the machine stocked it with cash from his bank account, then that is your nexus. All significant cash withdrawals (i.e., more than $10,000/month) are now scrutinized. The owner may be taxed or charged with money-laundering.
*"Wonderful" but practical only up to a point. As soon as I try to withdraw $200,000 to buy my house, there's going to be some sort of problem--I can just sense that!
The problem is the transition period. How to get "there" from "here." Now, if it happens very quickly, like the rise of the internet before "they" can figure out how to thwart it, fine, but I don't see that happening.
That seems highly likely to me unless the members of the government see it as a way to undermine the central banks. Right now they are constrained from doing anything positive such as passing legislation to reduce the power of the banks by the threat of, well, let's just say threats. But if they can achieve the same result by doing nothing, it may be a viable solution.
I appreciate your sentiment but I'm not sure the world ever gets better by lining people up and shooting them.
nath
I still don't see how this connects to the banks being able to get in on the deal as you originally stated. I can see how the government would/could. But the banks are still eliminated from the equation.
It's already happened. There are bitcoin exchanges where you go to change your bitcoins into cash. There are also bitcoin ATMs.
Of course it was hyperbole. But it expresses my sentiment about the banks and bankers.
Moondog
I know about the ATMs (still rather rare) where one can withdraw a bit of cash, but as for large sums, those are done by wire to banks. From a bitcoin exchange's FAQ:
How long do deposits and withdrawals take?
Execution times can vary, but typical estimated times are listed below for the various transaction types.
Bitcoin: ~60 minutes (6 confirmations required) Namecoin: ~60 minutes (6 confirmations required) Litecoin: ~30 minutes (12 confirmations required) Ven: Transactions are immediate, but require manual input at the present time, so can take up to 5 business days to process. Ripple (XRP): Immediate EUR SEPA: 1-4 business days EUR Bank Wire: 4-5 business days USD Bank Wire: 5-10 business days USD Bank Wire ABA: 5-10 business days USD Check by Mail (withdrawal only): 5-10 business days
See the problem?