Why Bitcoin is failing

  • Previous
  • 1 of 7
  • View as single page

Bitcoin is arguably the single greatest invention of the new millennium. Its creation is so revolutionary that it almost defies logic. And like any inventive product, almost everyone I speak to has this automatic revulsion to the concept: "It can't be real!" they exclaim into my face. "It's for drug trafficking, contract killings, and money laundering," are the standard trifecta response of those who have heard about Bitcoin through the media. "It's unsafe, volatile, and risky," is the response from those who actually know a little more about it.

Why Bitcoin is failing

(Source)

Yes, as with anything speculative, it is risky. However, blaming illegal transactions on Bitcoin, which much of the mainstream media seems to do (with notable exception of The New York Times and Forbes), is like blaming the heroin epidemic on "cash." If we didn't have cash then people would have to use a traceable form of payment. Then we would be able to track them down, and the use and abuse of illicit drugs would end. Unicorns and puppies would rain down in celebration, and Jesus would ride his white horse in exultation.

Bitcoin attracts the same kind of logic argument: If Bitcoin did not exist, we would not have drugs or other illicit activities being sold online. The unfortunate reality is that people will find a way to get whatever illegal activity they want done. They'll barter, sell, or trade anything to make it happen. Bitcoin just makes it easier to conduct an illegal transaction online, and yet, it is also one of the most transparent payment methods that exists. There is a false sense of security to people who are using Bitcoin for illegal purposes in cases like this.

You hear politicians railing against Bitcoin and calling for its ban, as if it was the problem, and not the illegal activity. Janet Yellen, our current monetary mystic has said, "The Federal Reserve has no authority to regulate Bitcoin." She understands, and is intelligent enough to realize, that as it is outside the banking system, it is inherently hard to regulate.

Bitcoin has the potential to completely transform every aspect of the internet, marketing, content distribution, and third-world empowerment as we know it. And in the future, you will thank its mythical ghost creator, Satoshi Nakamoto, that it exists. However, before that time arrives, we must start with a question: What is Bitcoin?

 

Comments

Neal Palmquist
Neal Palmquist July 3, 2014 at 5:29 AM

Maybe Bitcoin won't fail if California hijacks the taxpayers and uses the United States Dollar harvested from taxpayers to weave Bitcoin into government contracts. Using government for sending the world reserve currency out of the country in exchange for absolutely nothing is just the kind of idea that makes California liberals have enlightened and illuminated smiles. Also, that would be another way California can make their budget problem even bigger than it has to be before they ask every other person in every other state to bail them out. Watch California governments, now.

Bitcoin is a sieve that would dry up without a source that is constantly poured into it. Also the valuation is a hot mess. The Bitcoin community will deny it to the death, but when USD has strength in trading against a basket of world currencies, it costs even more of those even stronger United States Dollars to buy a Bitcoin.

And then when the USD gives back that new found strength and more, Bitcoin crashes in sympathy to the United States Dollar. And the Bitcoin community finds a an obscure tweet from China or wherever to blame it on. Scam, pure and simple. When the price of gold jumps to new record highs, Bitcoin will be crushed and the Bitcoin community will throw every excuse in the book at us to throw us off.

Bitcoin is to the United States Dollar as Stuart Smalley is to his mirror: Bitcoin is an attractive currency. Bitcoin deserves it's fair share of happiness. Bitcoin refuses to beat itself up. And, doggone it, people like Bitcoin!

Kirsten Osolind
Kirsten Osolind July 3, 2014 at 1:23 AM

I still disagree, Sean. No matter how you attempt to color it, bitcoin is a monetary system, a social construct, akin to a decentralized public ledger, and hence a public good (even if now privately provided). We have to pay for it and protect it. Either we pay for it now, or we pay for it later. We'll have to wait and see. Let's you and me circle back in five years. Hard pencil today's date in. XO :-)

Barry Dennis
Barry Dennis March 27, 2014 at 11:51 AM

There IS huge potential ford isruptive change in a Bitcoin marketplace, IF and only IF it can generate real credibility, and most importantly trust. There are several important Investment Avisors all over the Bitcoin "opportunity, with trading programs, charts, and th like. The IRS has just regulated Bitcoin as an investment in regards to purchases and sales of Bitcoin "stock", and as reportable income when Bitcoin is used to pay a person for services like..."work."
Years ago, I wrote about a potential Digital Currency, capitalized in "bytes" a true international currency, a Great Equalizer in the wor,ld of internation currency trading-and speculation. Bitcoin is a step in that direction, but just an early step.

Sean X
Sean X March 26, 2014 at 11:53 AM

Kirsten,

A monetary system is a public good. However, in order to protect the public good that monetary system does not have to be "externally" regulated, as in a government, which is what I am taking your comment to mean. It can be internally regulated. The key is to have it internally regulated by a trust system, and not a hierarchically dictated one. Which is essentially what the block-chain in Bitcoin does. The regulation is built into the currency design. It is the first crypto-currency technical solution to the Byzantine Generals problem (aka Byzantine Fault Tolerance) http://en.wikipedia.org/wiki/Byzantine_Generals%27_Problem

We are just used to thinking of "regulation" as coming from an external enforced governmental system rather than the internal design of the system itself. It's one of the reasons why the block-chain in Bitcoin is so radical in concept. And also why it has so many anarchist and libertarian fans.

The US Government, or shall I say the IRS announced that they are viewing Bitcoin as property, and not a currency, because by definition "it does not have legal tender status in any jurisdiction” so they cannot consider it currency.

http://dealbook.nytimes.com/2014/03/25/i-r-s-says-bitcoin-should-be-considered-property-not-currency/

However, in a way, by declaring it property, it both gives some legitimacy to Bitcoin, while also regulating it in a sort of indirect way. They key here is what type of property they are going to define it as so as to not hamper the main reasons it is vital, the almost non-existent transaction fees in a digital environment, and it's pseudo-anonomity.

Regulation only works when the regulators are not in the pockets of the companies and the older systems they are trying to protect. As in our banking system. Now THAT is definitely NOT in the public good. Even though it is regulated.

Kirsten Osolind
Kirsten Osolind March 25, 2014 at 5:59 PM

Bitcoin lends itself to laundering in the system, subject to private interest. A monetary system is a public good. To protect a public good, it must be regulated.

Sean X
Sean X March 24, 2014 at 11:52 AM

I thought I'd add to the discussion with this...

Native American tribes adopt Bitcoin-like currency, prepare to battle US government
http://www.theverge.com/2014/3/5/5469510/native-americans-assert-their-independence-through-cryptocurrency-mazacoin

As with Philip I do not really view myself as an Anarchist, however, after we have gone from the Olympics back to the Cold War is merely three weeks, I am beginning to wonder why I am not one ;)

Philip Raymond
Philip Raymond March 21, 2014 at 4:23 PM

Sean X is among that rare breed of journalist who not only "gets it”, he can explain it with panache. He also appreciates the fundamentals and the realities of a disruptive technology.

Transformative -vs- Disruptive

The Internet was both transformative and disruptive. It's a stretch to say that Bitcoin is transformative, because we already had currency and even new-age currency (We all control a virtual balance at institutional accounts and in a gift cards. Just as with Bitcoin, we don't need to travel around with wads of cash in our pocket, and our wealth can easily be transmit from one "wallet” to another.

But Bitcoin is certainly one of those rare technologies that is disruptive. That's because the transmission of wealth is suddenly unchained. No central authority, no inflation, and very little cost. And for the anarchists among us: There is very little that regulation can do to halt its adoption and use.

I don't think of myself as an anarchist, but I am a Geek and economic purist. I take pride in the fundamentals of Bitcoin. It represents evolution. It is a higher form of currency than those printed by man and centrally controlled by pundits of ‘monetary policy':

? Inexpensive to pay, receive or transmit
? Resistant to legislation & regulation because it is P2P
? Impervious to inflation because the supply is capped
? Like cash, individual transactions and wealth are quasi-anonymous
? Unlike cash, it is resistant to forgery
? Unlike cash, it can be encrypted and backed up with ease
? Unlike national currency, it cannot be manipulated for political purposes
? Unlike national currency, redistribution for social purposes requires individual consent users

Safety & Security

But there is a problem that inhibits widespread adoption. The vast majority of legitimate consumers & businesses need their transactions conducted via a process that is transparent, ‘auditable' and with insurance or recourse. But I also identify with the Geeks, anarchists and economic purists who revel in the distributed P2P nature of Bitcoin. [*]

So how does one establish a framework to protect consumer and commercial transactions while leaving Bitcoin free to be private, anonymous, and effectively undercover? There is a way...

Actually, I am not too concerned about regulation. As Sean points out, businesses are seeking as a path toward consumer protection. But Bitcoin and regulations are like oil and water. Laws will help to deter certain activities, but the fact is that Bitcoin will be tough to regulate. It's a bit like trying to regulate feral cats. They will find each other regardless of the law.

But it is possible for transactions to be transparent, trusted, verifiable and guaranteed. This is achieved by giving businesses and consumers the tools to determine if an organization and a specific transactions merits their confidence. No one is forced to use these tools, but in an ideal implementation, all parties can verify a transaction in real time and link it to a particular contractual commitment (such as the shipment of a package from Amazon, the deposit that you leave on a new car, or a refund you were promised). Of course, a great tool needs no training and functions transparently—just like the secure lock icon on your browser toolbar.

Bitcoin will become trusted, but not as a result of regulation. It will become trusted because the assurances and guarantees that one expects from a credit card or bank mitigated transaction will be widely available for those who need a safe environment. With tools and a reputable standards organization validating tools and practices, the experience will almost seem to be controlled by a central authority. But even though Bitcoin resists both central control and authority, it can be made safe for business!

Philip Raymond
CRYPSA (Partner, Interim Co-Chair)
Cryptocurrency Standards Association

Sean X
Sean X March 20, 2014 at 12:03 PM

Neal,

You may have missed Why Bitcoin is Failing. It is failing because tech geeks describe things like crypto-currency and block-chains to people when it's about the concept of how to take back anonymity and power from our banking system. Many other countries have far superior banking models than ours.

Your arguments lose some weight on "dumpers" because consumers have a choice to use another form of payment. And you are merely describing inflation which affects other currencies the same way. It's risky, as I have outlined several times in the article, but the fundamentals of the technology that enables Bitcoin can be transformative, as it could be used for transfers of ownership etc... The public block-chain method helps keeps the system of any value exchange accountable.

Then again, the whole thing may crumble, fail and implode. Lesson is "don't speculate in speculative things unless you can afford to lose everything." And the transformative nature to the third world only starts to become apparent when the currency stabilizes over time. As with any currency.

Neal Palmquist
Neal Palmquist March 20, 2014 at 6:42 AM

I see there is no conclusion to the titled question, "Why Bitcoin is Failing." I can answer that in many less words.

Bitcoin is a hoax to get USD traded down to a third world currency. Behind that hoax is the same thing applied again onto the Bitcoin itself. People are trading Bitcoins for gold backed crypto currencies and this trade throws used Bitcoins back onto the exchanges when the price of gold goes up. People don't like buying Bitcoins when they figure out they buy them from sellers of gold backed crypto currencies.

People also don't like their Bitcoins being sold to them by dumping activity from Overstock.com. People are starting to understand that when they put cash into the Bitcoin exchanges then that cash is immediately used to buy somebody else's shoes for them.

Bitcoin is a currency that loses purchasing power as the price goes up and as the price goes down. If BTC drops, then I would have to buy even more BTC (From dumpers like Overstock) to get my item from Overstock. And if prices for BTC go up, then Overstock cannot afford the risk of being caught selling items of real and true quality for Bitcoin. As BTC prices rise it becomes even more so the third world currency that is only good for basic necessities of life, like socks and shoes and underwear and junk that is probably almost cheaper for the vendor to throw into the incinerator.

"We Accept Bitcoin" means "We Cannot Afford to Lose Our Merchandise. But We Can Afford to Lose Our Customers." Bitcoin is going to crash back to nearly the nothingness from where it comes. People are going to be pissed. And when they come to realize that vendors were dumping, that vendors have ALWAYS been dumping BTC onto the exchanges, customers are going to be furious at the vendors who accepted Bitcoin. People are going to have their wealth destroyed by Bitcoin and the vendors will be blamed.

In summary (Yes, I can write a summary. It is not too hard, actually. Others should try it sometime.) In summary, Bitcoin is failing because it has not crashed and destroyed the wealth of innocent people, yet.

Travis Mitchell
Travis Mitchell March 19, 2014 at 7:44 PM

Very dated information, and the picture is laughable. If you replace "BitCoin" with "Dollar" you would be making a great argument to remove the Federal Reserve. And then I read on... great swing. Make sure you read all seven pages.