Welcome to the Bitcoin revolution, there's no going back now
I’ve been aware of Bitcoins for a few years now and have been generally curious about the concept. Lately, though, I’m being bombarded with information on it.
For the uninitiated, Bitcoin is a cryptographic digital currency that is not underwritten by any government. The software underlying the currency, which operates on a decentralized peer-to-peer network, is designed to ensure security – that it can’t be counterfeited – and to enable anonymity. What started out in 2010 as an underground currency for grey-market activities, has since grown to a $400 million worldwide market for buying everything from pizza to domain names. In an attempt to prevent inflation, the number of Bitcoins in circulation will continue to grow automatically at an ever-decreasing rate, according to the laws of its software, until reaching maximum of 21 million coins shortly after 2030. There are just over 10 million today.
I began thinking more deeply about Bitcoins following a conversation with Boost VC’s Adam Draper, who is dedicating part of his upcoming accelerator class to startups related to the currency. Since then, I’ve found myself overwhelmed with news and information on the subject. It’s possible that this is simply a matter of reticular activation, the phenomenon that happens when you want to buy a particular new car and then start seeing that car everywhere around you, even though they’ve always been there. Or it may be indicative of a change in the mainstream acceptance of the currency.
Yesterday, noted angel investor Howard Lindzon asked the question “Bitcoin...Winning?” in a post on his personal blog. Along the same lines, a week ago Alex Liu asked on Vice’s Motherboard blog, “Is it time to take Bitcoin seriously?” It would seem based on the sheer volume of conversation on the topic and the credibility of several corporate early adopters, that the answer to Lindzon and Lui’s questions might be, yes.
In November, WordPress began accepting payment for digital goods via Bitcoin, with transactions being handled via a third-party Bitcoin processor, BitPay. The fact that the virtual currency and its ecosystem of service providers have reached the level that a ubiquitous company like WordPress – which powers 16 percent of the Internet by some estimates – would adopt them was a highly positive sign.
Earlier this month, Namecheap became the first domain registrar to accept payments via Bitcoin. Other online publishers and service providers like Reddit, Kim Dotcom’s Mega cyberlocker service, and the FoxyCart shopping cart platform have taken taken the same step. Several weeks ago, the Internet Archive announced that it would begin paying some employees in Bitcoin, at their request. The non-profit will also accept donations via the digital currency. And earlier today, a Finnish dev shop announced that it would follow suit and also pay its employees using Bitcoin.
More validation came when Mt. Gox, the world’s largest Bitcoin exchange, partnered with CoinLab to establish US operations and the pair subsequently partnered with Silicon Valley Bank to make it more convenient to transfer between dollars and Bitcoin. Around the same time, Bitcoin-Central received authorization from French regulators to operate as a bank (in partnership with payment processor Aqoba and bank Credit Mutuel).
Moving beyond the world of bits and bites, several brick-and-mortar businesses across the US have started accepting the virtual currency as well. This includes 10 merchants in the startup-friendly Downtown Vegas community. Elsewhere, an online service called Pizza for Coins allows users to order and pay for Dominos using Bitcoin. There’s even a project underway to create a Bitcoin ATM, and a Silicon Valley conference dedicated to currency.
A search of Reddit Weekly for Bitcoin related threads gives a sense of the buzz, revealing 140 conversations this week alone, several with hundreds of comments. Similarly, a search of HackerNews for mentions of Bitcoin turns up more than 9,000 results. The topic even popped up on Bloomberg earlier this week as the weekly buzzword.
The key remaining holdouts for digital ubiquity would appear to be Amazon and PayPal, and to a lesser extent Google, Apple, and Facebook – maybe eventually Square, Stripe, Braintree, Authorize.net, et al. There are several still-suspect third-party services that offer to act as an intermediary, facilitating Bitcoin transactions on these platforms, but should one or all of them decide to integrate the currency directly, it could cause the floodgates to open.
Despite the hype, the news around Bitcoin hasn’t been all positive. There’s been a palpable concern that there exists a bubble in the currency, which has reached all-time-highs in value relative to the US dollar in recent months. Further, earlier this week a glitch in the software underlying the digital currency caused a massive sell-off and resulted in a temporary loss of 23 percent of its value. The error was quickly corrected, and the value has since rebounded, but the possibility of such breaches must give pause to anyone thinking about relying on the currency entirely. During the same week, news that a DNS-based attack resulted in the theft of $12,000 worth of Bitcoin from a brokerage service did little to quell these fears.
Governments still remain concerned about the nefarious uses of Bitcoin as well. Since its earliest days, Bitcoins have been used in money laundering, black market transactions for drugs and arms, and even human trafficking. Hell, even the creator of the currency goes by a pseudonym, Satoshi Nakamoto, and his identity remains a mystery. By virtue of the currency's anonymity, there is no obvious solution for these issues. This understandably strikes fear into those in positions of power, but at the same time is responsable for much of Bitcoins' early appeal.
Unsurprisingly, the currency is still the purview of underemployed, 32.7-year-old, white, libertarian males according to a survey conducted by ZeroHedge. There remains an enormous amount of infrastructure and mindshare that must be built before Bitcoin can truly become a globally mainstream alternative currency. But, to quote a recent Tumblr thread from MG Siegler, “The idea that a new form of currency can arise seemingly out of nowhere and start to take hold is pretty amazing.”
There are a number of reasons that it’s appealing to imagine a future of currency that does not involve a Federal Reserve Bank, be it one run by the United States, the United Nations, Amazon, Google, or Facebook. The powers that be are unlikely to accept such a future without a serious fight, but the momentum seems to be shifting in Bitcoin’s favor, as more and more smart people and influential corporations hop on board.
[Illustration by Hallie Bateman]