Why Bitcoin cannot succeed

My dear rebitcoin-logoader, welcome to the first post of my blog. I decided to start with a topic that is very hot at the moment: Bitcoin.

Having just seen an interview to a Bitcoin developer on the TV, I decided to express my opinion about the famous virtual currency in this blog.

For the few of you that do not know what Bitcoin is, I’ll give a brief introduction: it is a decentralised digital currency, a substitutive of the cash that does not exist in the physical world, payments can be made in a peer to peer fashion and there’s no central bank.

There has been a lot of interest around Bitcoin recently as its value against the dollar moved from 20$ in February to 266$ in April and down to 100$ at the time this post is being written. There have been rumours of people selling their own house to invest in it and at the beginning of July the two famous Winklevoss brothers (the guys who sued Facebook) decided to convert a big bunch of their money into Bitcoin.

Albeit the enormous success, I strongly believe that Bitcoin cannot succeed and will always be a niche market currency, here it is why:

It is too geek
Math based currency. What are you talking about? How can normal people understand that? I still remember the goose bumps of my class mates when it was time for math at high school. You can transfer your money from your USB stick to another person, it is easy and you can do it in a few clicks. What are you really transferring? You don’t know, you’ll probably never be smart enough to know. Most of the people want to do their job, get their salary, see it as a number on a statement and use it, that’s it, no other knowledge is required.

It is for centralised power obsessed
With Bitcoin you can transfer your money to someone in an electronic format without a central authority to know it. How many people really care that Visa, Mastercard or their bank know that they’re buying a bottle of italian wine at Sainsbury’s (not to mention that those data cannot be used freely because of legal restrictions)? How many people do not use a nectar card because they do not want their supermarket to track their spent pattern? Unless you’re buying LSD, a machine gun or a kidney you normally do not really care.

Your laptop is easier to hack than your bank data center
If your credit card gets skimmed, your bank will realise it very quickly preventing huge losses and you’ll get refunded for it anyway. With Bitcoin there’s no such consumer protection, there’s not even a central intermediary that has the power to refund you. It’s like getting real cash stolen, it is gone, forever. There are two ways to store Bitcoins: you can either store them in a wallet on your hard drive or decide to delegate this function to a 3rd party wallet provider. In both cases, won’t you trust your bank systems more?

Bitcoin is for sure a very interesting experiment, and I cannot exclude that in the future more sophisticated virtual currencies will become commonly used, but I simply cannot see it happen with Bitcoin. On the other side, it has the power to become black market’s main currency.

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4 Responses to Why Bitcoin cannot succeed

  1. Mani Tulasi says:

    Good post Vincenzo.

    I think there are two reasons why bitcoin will fail.

    1. The value is purely speculative and subject to manipulation. It is known that hackers have successfully conpromsied and manipulated bitcoin value and there is no guarantee they will not do so again. It is a violatile currency which is not stable and can disappear at short notice. This almost happened a few months ago.

    2. It is not a legal tender. Legal tender is not a payment method but is a legally defined means of payment that should not be refused by a creditor in satisfaction of a debt. The promise to pay guarantee which come with a legal tender mean a central body which manages the legal tender will pay the face value of the currency during transactions, nothing more or nothing less. The value of bitcoin can be X today and XXX tomorow.

    Best regards
    Mani

  2. Richard says:

    Well said. To your arguments I would add:

    Its a commodity, not a currency
    Bitcoin has much more in common with a commodity than a currency, and the difference is important. A lot of Bitcoin’s current attraction is due to its rapidly rising value (ignoring the odd crash). This may make it attractive to commodity speculators, but is pretty much the opposite of what you want in a currency, which is to have its value steadily eroded through inflation so as to encourage its circulation and to discourage hoarding. Recent stats seem to bear this out showing that while the number of Bitcoins “in circulation” (whatever that means) continues to rise steadily with mining, the number of transactions and the number of Bitcoin addresses peaked in April/May with the speculation frenzy and have been falling ever since – all signs that people are hoarding Bitcoins, not spending them.

    It can be controlled
    If – against all odds – it does become popular and widely used, it will be successfully regulated. No government will tolerate an uncontrollable source of financial instability, or support a mechanism that enhances money laundering and tax evasion. For example see the recent announcements by the OECD to combat tax avoidance by multinationals – when it becomes important enough, action will be taken. Bitcoin supporters like to say things like “it can’t be tracked or regulated”. It can and will, and it won’t even be that difficult.

    Actually, banks could play too
    You comment that people are more likely to trust their bank’s systems, which is true. Online exchanges and wallets claim to offer secure storage, but there is no regulatory backup and (probably) inadequate insurance arrangements. However there is nothing really to stop banks taking advantage and offering secure storage for Bitcoin accounts – indeed this is what the Winklevoss twins did. They bought lots of Bitcoins, stored them on thumb drives and put the drives into bank safety deposit boxes. I’m sure there is lots of irony there somewhere.

  3. oneguy says:

    Well the USD is also a math based currency… printing out to infinity. BTC will only ever contain 21 mil, this makes for a unique supply and demand situation, one that seeks to not destroy the value of it. People also said the same thing about email. Now grandma also uses email without understanding the smtp protocol.

    You’re right people don’t care if it is Visa/Mastercard/paypal/whatever, they care about the transaction fees. BTC is/ and will be lower then the traditional system.
    I think those aforementioned methods generate billions in fees every year which = less dollars in my pocket using the old systems.

    You’re right it is like getting cash stolen if you get hacked. That is why it is likened to Digital Cash. You can secure your cash and you can secure your btc (though this is a topic in and of itself). Actually there is a third way to store it. You create an address that has never touched the network and keep your BTC there.
    http://www.youtube.com/watch?v=JsyPfiENwQU

    USD cash already is a black market currency, one that loses value every single day since 1913. There are def more sophisticated currency’s coming, however think of it as the VHS vs Beta argument. It really came down to superior marketing not superior technology. Add in that the code is continually being updated, major players coming to the scene and governments (cyprus) stealing from bank accounts and you have a recipe for success.

  4. asdx says:

    Bitcoin is already thriving and it will continue to do so.

    People don’t trust banks anymore, so Bitcoin will succeed.

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