Thoughts on Bitcoin #13529872

Everybody else seems to be talking about bitcoins, so I will too.

I have a slightly different perspective from the (ahem) pundits though, in that I have actually been using the things (as a buyer and a merchant) for years now. About this time last year, I bought a case of beer for 12 bitcoins which today would be worth $1680.

And I understand how they work… unlike ANY of the old-school economists, who also failed to predict the 2008 crash, and who just went along with what it was acceptable to say. The more “established” an economist is, the more likely they are to be wrong about bitcoins. This has been the pattern so far. You might as well ask the doddering self-entitled satin-tour-jackets wearing old twats from the RIAA about torrent protocols.

These people are from the past. They can be ignored.

So.

Thought 1)

The price of them is going up exponentially. Lots of people are saying this is a bubble. “It’s a bubble” they say.

I’m not so sure.

Think of Skype… or bittorrent or MySpace or HTML or jQuery or Kickstarter or cellphones or longbows or literacy etc etc. All incredibly successful platforms, that disrupted the fuck out of what went before. They measure their success in numbers of users, numbers of downloads etc. Their growth is exponential, but nobody says “they’re a bubble”… why not? Because their “unit of success” is not also a unit of money. They’re only called bubbles when this changes.

So… any currency that succeeds is going to have what resembles bubble behaviour built into it, because it’s money that’s being measured. This doesn’t mean it’s a bubble. This doesn’t mean it isn’t… but… IF something turns up that replaces fiat money, then it’s going to look like a bubble, when it’s actually a massive tectonic shift.

So don’t count on bitcoin being a bubble.

People wanting to build bitcoin up as a plarform, should start measuring its success in terms of numbers of users or numbers of transactions. Something decoupled from the market rate.

Thought 2)

It hasn’t started yet.

There are a bunch of different killer-benefits of bitcoin, that aren’t being taken advantage of by those with the most to gain. My Golden Mean Caliper business for example is able to offer a 7% discount to people buying with bitcoin because in CC fees and currency-exchange fees, that’s what it saves me.

Businesses haven’t yet twigged that they can double their profit margins by cutting out the credit card companies.

The Black Economy hasn’t really cottoned onto it yet… there are huge advantages to being able to transfer, instantly, under the radar large anonymous payments. Someone, somewhere, the other day said that bitcoins where “eternally traceable”… every transaction is stored forever in the blockchain… but obfuscating this would be trivial (and free) compared to the difficulty of traditional layering/money-laundering.

Thought 3)

Yup, it fluctuates, but the drivers are pointing up rather than down. Since I moved to NZ from the UK, 5 years ago, my income has been slashed by a 1/3rd because of the downward trajectory of the GBP against NZD. Bitcoin may fluctuate wildly, but fiat currency is ALREADY a losing proposition, that is systemically geared in the downward direction. The £10 you have now is going to buy less this time next year. The main way of maintaining the value of your money within the fiat economy is by “investing at interest” becoming a usurer yourself, and feeding the beast that is fucking it up for everyone.

Thought 4)

If you’re going to siphon money into bitcoin, do it at a flat rate, at a regular interval. This is known as the Dollar Cost Averaging Strategy.

Whenever I’ve tried to day-trade with bitcoins, I’ve lost money. I even wrote a program to spot differences in the UK/US markets and transfer money backwards and forwards between them… this didn’t work – partly because…

Thought 5)

The bitcoin markets fucking suck.

This is the big weak point at the moment. MtGox is the facebook of bitcoins – it is a big single-point of failure… and it’s an accident waiting to happen, and if bitcoin is going to crash again, it’s likely to be due to money fleeing MtGox.

Meanwhile, the only UK exchange stopped taking bank transfers. New Zealand? Very difficult… you’ve got to turn up to a bank in person (which means putting on trousers, leaving the house), hand over the money in person, wait for it to clear, then “buy” from a market that seems to have about 4 people selling.

In a digital economy, this is ridiculous.

What is needed is something with a reputation-system (like Ebay), with a search-engine for buyers/sellers… a bit like Napster. Probably in a similar way that bitcoin clients store the entire blockchain (down the track when this gets to be too big, there are plans to only store “recent” transactions, or allow people to download a meta-blockchain)… there needs to be a P2P reputational block-chain. So people are still essentially anonymous to each other, but if you want to buy $1000 worth, rather than trusting some complete unknown with $1000, you can split the purchase across 100 people, who have proved trustworthy to other people in the past.

Each movement of fiat money into BTC in other words need not rely on a single node, but can be split across a number of sellers (a bit like seeds in a bittorrent system)

Thought 6)

I’m attempting to blog outside, and the sun has come out and now I can’t see the screen.

That is all.

Thought 7)

No that’s it, I’ve stopped.

Thought 8)

Just wait until The Chinese get hold of it… at the moment, I import stuff from China via Alibaba / Aliexpress – and a BIG chunk is taken by Western Union… money transfers between here and China are really expensive (and a pain in the arse, trying to fit Chinese addresses into fiddly paper-forms… that you have to leave the house to fill in)… and the Aliexpress sellers really play the margins. Being able to knock 7% (or whatever) off their foreign sale price… or add that to their margin is going to be a serious competitive advantage.

It’ll be an unstoppable force… and 1/2 the people on Aliexpress also sell their stuff on ebay. I would have thought ebay would be reluctant to use BTC, because it’ll compete with Paypal… but then again, they could well find themselves competing as a whole, with sites (like Aliexpress) that have a permanent 3%-5% advantage.