December 6, 2013

Bitcoin is completely misunderstood

I've been a Bitcoin advocate for a while now. Yes, the USD value rose 10x in the past two months. However, when Bitcoin goes parabolic, I tend not to report on it. The USD value has been stable for a short while and had a mini-crash today $1150 to $850, so I feel ok writing about it. The mainstream media puts out hundreds of articles when it rises. Much of the information is wrong and the writers lack basic understanding of what Bitcoin is.

Bitcoin is discussed incorrectly by the mainstream. They talk about Bitcoin as if it were a speculative stock. You trade some USD for Bitcoin and watch its USD value go up or down. This is not at all interesting. Usually the articles are about whether Bitcoin is a bubble, will it go up or down in value, will it replace the USD... who cares!? No one knows the future of Bitcoin. Bitcoin millionaires are just that, they own Bitcoin. If they trade their Bitcoin for USD and increase their fiat wealth, great! They are missing out on the glory of Bitcoin. What's more important is what Bitcoin does for commerce.

Bitcoin takes the third party out of the payment equation. Visa and Mastercard don't get a cut of every transaction. Governments still get the same sales taxes that they do when a business sells their products for USD. Transactions are anonymous (without your name attached) but not private (everyone who cares to look can see the transaction forever). This actually makes it easier for criminals to be traced than when cash is used.

Bitcoin is not to be hoarded with the idea that it is deflationary and will be worth more in the future, it is to be used for trade. I sell my labor to you, you pay me. I want to buy dinner from you, I pay you. A Kentucky police chief is earning his salary in Bitcoin. Why not? The city government found no illegality to this, so they approved it. Taxes are being taken out first, and his salary goes to his Bitcoin bank account rather than his USD bank account. No sweat.

Bitcoin the brand is not so important. Anyone can make a clone and call it whatever they want. At the moment, the network effects of Bitcoin hugely overpower any alternate coin (altcoin) so a new coin can't easily take over the market. The future of the Bitcoin technology is augmenations of Bitcoin which will be programmed into Bitcoin itself.

What is important is the technology behind Bitcoin namely:
(1) digital signatures
(2) peer-to-peer network connecting users
(3) distributed blockchain recording the history of all transactions
(4) proof of work to prevent double spending

Also interesting is what is possible to do businesswise in terms of contracts. Bitcoin can be used to program wills, escrows, notaries, payouts, and dividends which can decrease unnecessary middleman costs for individuals and companies.

No one in the mainstream understands any of this. They focus on Bitcoin in terms of currency, gold, or how much money you can make. Rather it should be understood as a system for programmable cash and financial transactions. Bitcoin is a concept to be built off of to improve and increase efficiency in commerce.

Governments should not be afraid of Bitcoin--it is simply a concept. If digital money with no central backing becomes more used than money with a government stamp, great. Progress should be embraced by everyone. Let's not let special interest groups try to prevent good ideas from spreading.

Bitcoin's adoption will spread if humans wish for the improvement of their society. It is superior to government money. What do you think?

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  1. I told a client from Germany that I was accepting Bitcoin as payment, and this was when Btc was just around $125. Too bad she wasn't using it then, I would have earned so much when Btc went up to more than a thousand!

  2. I guess I'm the perfect example of "those people" who don't fully understand Btc hahaha