Bitcoin has been around for years, but it has exploded in importance, and value, in the last few months. Why care?
Too many people don’t understand the big picture, and it is worth a response that removes the hype that is connecting Bitcoin with cybercrime and currency speculation. Let’s look at what is, why it is here, and what the direction of this technology looks like. Pretend I am talking about the future of mobile technology while the only thing you have ever heard of and used is a flip phone that can’t send and receive text messages, yet.
At the center of commerce is the ability for the buyer and seller to have a medium in which they can conduct business. They needed a language to communicate what they had to sell and what they needed to buy, and they needed a tool to facilitate that transaction. Because of original sin, people cheat and steal to get ahead. The victims of their efforts always asked their governments to intervene, not only to create a restitution for the crime but to put in measures to prevent it from happening again. Institutions and inventions are a result of this innate human failure. Some examples include serial numbers, the Federal Reserve System, the Securities and Exchange Commission and the FBI. None of these exist without humanity having this desire to lie and steal to get ahead.
Bitcoin is simply one of many cryptocurrencies, or ‘cryptos’ for short, that are out there. When Satoshi Nakamoto created Bitcoin in 2008, he had a simple set of intentions. He wanted educated buyers and sellers to get back to the business of business. He wanted them to be able to have a medium of transaction that didn’t have any third-party regulation, knowing good and well that educated buyers and sellers don’t want that. It is the uneducated or the scared who want those services. If I want to buy and you want to sell, no one else needs to be involved, EVER…that was his thinking. That meant he needed to create a decentralized currency equivalent that didn’t require a bank or administrator to get involved to do business. The ledger for accounting was distributed, meaning no one had “the whole” history of the item. That “no one gets more than a piece of the checkbook” idea became known as blockchain technology. He wanted to limit the number of bitcoins in circulation, to prevent people from printing currency. He wanted to make it easy to exchange goods and services, with the currency used being as safe and secure against tracking and fraud as possible.
We have not used it that way. My father-in-law is treating cryptos like they are assets, to be bought and sold with the frequency of stocks and other tradable assets. He is not alone. I, too, own some cryptos, and I have bought and sold them, and have made good money doing it. But both of us are way off base. We are using a hammer to pound in a screw.
Bitcoin, he imaged, would be a currency that people could use to buy pizza, get a haircut and pay their rent, without anyone ever having the power to regulate the transaction. Today, though, Bitcoin has its greatest name as the currency of cybercrime, as criminals are using it to get paid when they deploy a ransomware attack via a thoughtful email. Business asset owners are discovering bitcoin when they are approached by an IT guy who tells them that their network has been locked, and the only way to get a key to their data is to buy some bitcoin and send it to an anonymous person whom they can’t track.
Cryptocurrencies have some obstacles to overcome before they are a mainstream tool. To begin, cryptos can be stolen, and there is little if any unique offerings to prevent this theft from occurring; a password and a stolen phone can give you access to Fort Knox. Another more daunting obstacle is the government. Several governments like Australia have already slammed the door on the use of cryptos, making the routing of them through their banks a big no-no. Governments' loss of ability to regulate and tax crypto transactions has taken their legs out from underneath them. Unfortunately, a small number of people are ASKING our governments to be an obstacle and have the ability to trace/track bitcoin transactions to find bad guys and extract tax revenues. The story currently doesn’t have a happy ending for anyone, as there is no method to get all the pieces of the checkbook together to track the exchanges to see who paid for who to commit a crime. Governments have a bad image to address in their inability to do what is asked of them. As such, when a law enforcement agency catches a bad guy and extracts his/her crypto from their computer/phone, they stand up and shout of their success. The truth is the bad guy left his cryptos is a public place that anyone could have taken it from, no different than leaving your wallet on the counter. Even the most powerful computers used by the richest of governments can’t find out who held the bitcoin last week. The definition of blockchain is truly a pain in the side of everyone both in law enforcement and regulation.
Finally, there is no mechanism to increase the supply of bitcoin using the current methods available. Nakamoto didn’t perceive a need to support growth in value of hundreds of millions in a month, yet that is where we are now.
I think bitcoin (or its technical replacement) will be a mainstream idea sooner rather than later. People do not want to use cash or even credit card anymore to purchase goods and services. The growth of Amazon’s Buy it Now service shows that folks are more interested in faster identity verification and convenience than they are in physical security associated with cash, checks, and credit cards.
Amazon has all but announced that it intends to begin use cryptocurrencies. They have bought several domain names associated with cryptos. What is the news here? Amazon is formally in the weeds with the use of cryptos. The odds are more than likely, government regulation will show up sooner rather than later, and the vision that Nakamoto had will be lost in translation.
Your response should be a desire for education. An MSNBC reporter announced that he thought Bitcoin would hit 200,000 sometime in 2018. Holy cow. That means a Bitcoin could buy an entire house! How cryptos work should be for you like the way your grandparents first viewed Mastercard and VISA when they were introduced in the late 50s. This will become your mode of commerce. You only control when.