Bitcoin is not going to topple governments.Bitcoin is not going to take over the world.
Bitcoin will not be the only currency everyone on this Earth use.
What Bitcoin is, as I’ve come to understand after learning as much as possible about it over the last few days, a massive bubble. One riskier than anything we’ve seen over the last few years.
And it will burst.
When? I don’t know, although I suspect it’ll be sooner rather than later.
So, what exactly is Bitcoin?
From Bitcoin’s official website:
Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.
Wired tried to explain it as such in their Bitcoin Survival Guide:
Bitcoin isn’t just a currency, like dollars or euros or yen. It’s a way of making payments, like PayPal or the Visa credit card network. It lets you hold money, but it also lets you spend it and trade it and move it from place to place, almost as cheaply and easily as you’d send an email.
…
Bitcoin is much more than a money service for illegal operations. It’s a re-imagining of international finance, something that breaks down barriers between countries and frees currency from the control of federal governments. Bitcoin is controlled by open source software that operates according to the laws of mathematics — and by the people who collectively oversee this software. The software runs on thousands of machines across the globe, but it can be changed. It’s just that a majority of those overseeing the software must agree to the change.
As for me?
I don’t know.
And if you’re reading this, I suspect that you don’t truly understand what Bitcoin is. Sure, you might know more than others up to varying degrees, but you don’t actually know every single aspect about it.
(Hell, no one even knows who first conceived the idea of Bitcoin! If one doesn’t even know that, wouldn’t asking for their trust, or worse, money, be a little stretch?)
And that, is the first problem: no one really understands Bitcoin. But the truth is, there’s no reason why anyone should be bothered to understand what Bitcoin is. If we want to pay for goods, we’ve got trusty hard cash that we’ve collectively agreed to use for a few centuries now. For those who will try to compare money to the downsizing of technology over the recent years (for example, from the 1st-gen iPhone to the iPhone 5s), well, we’ve got the credit card.
There’s really, no need for a new currency.
Don’t fix it if it ain’t broke.
To fully understand something like Bitcoin — which, generally, is something people want to do before investing their hard-earned money — is really, really hard. Even for people working in the crossroads of the technology and financial sector who analyze these kinds of stuff all day in their little offices. It just is difficult and almost, I dare say, abstract to explain.
There’s no tangible proof that Bitcoin is actually there.
The tangibility of Bitcoin only comes when you use Bitcoin to purchase something. For example, if you use Bitcoin to purchase, say, 100 grams of heroin from the Silk Road and the heroin actually gets delivered — no guarantee that it will since you can’t reverse a transaction on Bitcoin — that’s as much tangibility as you’ll get.
The issue of tangibility actually goes further than what one might expect. If one day, hypothetically, 1 Bitcoin is worth as much as one gold bar and you give any walking stranger on the street the choice to choose either one, which one would they pick? My bet would be the gold bar.
Because you can actually see the gold bar.
You can’t see Bitcoin. You can’t feel it. And what is harder to understand is that you are expected to work hard, only to be rewarded with something that is invisible. I’m not sure how many people would be open to that idea.
A comparison can be drawn here from the days when we were still in school: grades are never given alone, because grades are virtually invisible other than an ink on a piece of paper. Therefore, grades have always been supplemented with medals, trophies and diplomas — something people can actually see, feel, keep in the favorite corner of their room.
So if Bitcoin can’t even be seen, then idea returns to its original roots: what exactly is it?
Several websites and publications have attempted — very nobly — to explain what Bitcoin actually is but in reality, they’re just rephrasing sentences from the Bitcoin website, which they themselves quite obviously don’t really understand too.
Need more proof?
Take it from the Winklevoss brothers, who claims to own 1% of all Bitcoin out there but yet when pressed to explain what Bitcoin is, they instead diverted and referred to articles that supposedly explains Bitcoin better. The question, then, boils down to: how many people would be willing to learn something so difficult even for the experts to grasp and comprehend, when they’ve got something working perfectly, like say, paper money? My guess would be not much.
Over the recent weeks or two, a popular headline that seems to draw a lot of attention (and in turn traffic, ad revenue, etc.) goes along the lines of “Bitcoin will take over the world”.
No it won’t.
In one word, here’s why: adaptability. People have been using paper money ever since gold. They’ve been using it for centuries after centuries without much of a complain. So then, it begs the question of why would anyone want to change to something radically different? I’m pretty sure they don’t.
Change is hard to come by and truth be told, no one really likes change.
(People who respond to that with stuff like “Oh Facebook often change their timeline too and everyone always get used to it at the end of the day anyway even though they’re complaining at first” — well, Facebook doesn’t really pertain to your livelihood, does it? Money does.)
In order for the full Bitcoin revolution to take place, we would have to wait for a few generations to phase out (die, for the lack of a better word) before Bitcoin can be accepted as the main currency worldwide. By then, who will really care? Will there still be sufficient interest in Bitcoin? Remember, the only reason why there’s still something called Bitcoin is because there’s human interest in it… which leads on to my next point.
Bitcoin, in its early days, used to mean nothing. It’s virtually (pun unintended) worthless. But these days, it means something, albeit a whole lot. Why? Because people have begun accepting it. Some police officer now accepts it as his salary. Some shop down the street accepts it. Some online eCommerce shop accepts it. Bitcoin, quite simply, derives its value from human interest.
“The first rule of Bitcoin is talk nonstop about Bitcoin.”
And with that comes Bitcoin’s biggest, colossal downside: what if people start to get bored/tired of Bitcoin and the hype around it?
Bitcoin will simply lose its value.
Right now, the Bitcoin market is extremely volatile. But what will happen the moment the prices stabilize? People wouldn’t want to play in the market anymore. And what happens when no one transacts with Bitcoin any longer? It will be worthless, just like in the very beginning. Don’t ever forget: Bitcoin relies on people to actually use it. Once the chatter dies down, it’s done. It’s over for Bitcoin. It simply does not have any concrete backing. Will it ever? I don’t know either.
Paper money, on the other hand, will never face the same problems Bitcoin will in the future.
The paper money that we use today is only valuable and treated as such because of how much weight it has behind it. It used to be backed with gold. Now, it’s the world’s largest military and mandated laws and regulations. On the other hand, Bitcoin is only enforced by… human’s fickle interest.
With those guarantees in place, paper money will never face the same threats Bitcoin will in the close future.
Bitcoin will only mean something when people accept it for what it is, even if it’s for illegal (or legitimate!) purposes. And there’s a pretty obvious stigma attached to Bitcoin — something that comes to mind when most ordinary people think about Bitcoin, even before its benefits: the Deep Web and the Silk Road. Essentially, those are places where you can buy unlicensed guns , trade contraband and even go so far as to hire assassins to attempt murder on a target — all using Bitcoin. Although this isn’t a huge factor, I’m going to stake a bet that this is also one of the contributing factors as to why “ordinary” people might be reluctant to step into the Bitcoin world. To them, the only people trading with Bitcoin are probably thugs and/or organized crime syndicates.
Lastly, let’s talk about Bitcoin’s volatility, arguably one of the more important pillar out of the three that includes human interest and tangibility. It’s hard for shops to accept Bitcoin. Why? Because in every practical sense, the currency might be way too volatile to be used realistically.
Recently over Twitter, someone announced that their online shop was going to start accepting Bitcoin. One of the replies that caught my eye was “Are you going to keep updating the price on your website as Bitcoin’s value goes up and down?”
People want something they’re familiar with. And something that’s actually tangible whose value is not fluctuating every hour or so.
Sellers who accept Bitcoin without the help of a third-party service like BitPay will have to constantly exchange Bitcoin for USD in fear that the volatile market will decrease the value of the exchanged currency in just the next few hours. And at the end of the day, we still revert to USD, don’t we? We accept Bitcoin, but we exchange it for USD — so why change in the first place? It just doesn’t make sense to me.
Due to Bitcoin’s volatility , one might assume: well, since the value of Bitcoin is just going to keep increasing — which is why people are cashing in on the bubble in the first place — why would anyone want to spend it?
They wouldn’t.
And nothing would stop anyone from hoarding Bitcoin, if they want to.
And in the case of Bitcoin, when the market doesn’t move, well, it loses its value.
Still not convinced that Bitcoin is highly volatile? Just three days ago, Bitcoin crashed almost 50%, when China decided to clampdown on the currency, from $1079 to $576 in the span of a few hours (if you’re looking to buy Bitcoin, now is the perfect time: you get them at a 50% discount!). A helpful tip someone recently told me was: only invest money you’re ready to lose completely into Bitcoin.
If that’s the case, then what’s the difference between investing in Bitcoin and going to the casino?
The Economist recently summarized Bitcoin as “flexible but fragile” — and I agree. Bitcoin is what it is — a bubble.
It’s not going to change how the world deals with money or topple any government, good or bad. It’s just not going to. It’s, rather, more like something that people who cash on early will benefit from and people who didn’t get to cash in… well, just sit and watch. And maybe when the bubble burst, we’ll get to see who was smart, and who wasn’t.
If I have to summarize my thoughts on Bitcoin into one sentence, this would probably be it: Bitcoin is a bubble — there’s no reason why it will not be worth a million dollars, but at the same time, there’s no reason why it shouldn’t be worth zero.
Not Michael 