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If you’re ever looking for a bit of excitement at an otherwise dull or dreary cocktail party, simply breeze over to the complimentary champagne, briefly introduce yourself and ask someone their thoughts on bitcoin. It’s a guaranteed debate starter, and you can be sure that you’ll either find yourself talking to someone who’s a staunch supporter, or vehement critic. There seems to be little middle ground on this one, and as someone with a vested interest in the mainstream acceptance of bitcoin, I’ll admit that I sit on the backer side of the fence. But that wasn’t always the case.
With a background in trading and finance, my inherent mistrust of the unknown and unregulated was strong when it came to bitcoin. I dismissed the technology as one reserved for the ultra-geeks, that wouldn’t see the light of accepted use, and quite literally laughed at the concept of it being a viable vehicle for investment! And then, something changed. I decided that before I could take an unwavering stand on the topic, I'd best educate myself properly. But with a host of contradictory and highly-opinionated information out there, it was tough to cut through the clutter and reveal the truth about bitcoin. So today, I’d like to share the misrepresentations I often come across and my thoughts on each.
Bitcoin Myths: Busted
Let’s deal with the tech geeks first. Granted, at its inception, this was the case. The earliest adopters of Bitcoin were definitely those with a deep knowledge of computational coding and cryptography; after all, these were the mechanics that enabled the network and without them it would not have evolved to its current ecosystem. Today, though, you need only the skills to operate your desktop browser or mobile phone to interact successfully with and transact in Bitcoin.
As for unscrupulous users, it’s no secret that Bitcoin has a reputation of being used (or is that abused?) to support illegal activities and transactions. A simple Google search will deliver a slew of crime-related bitcoin stories. Slowly but surely though the ratio is declining as businesses work to create consumer-driven apps and interfaces that power legitimate use. Will the shady element ever be eradicated? It’s unlikely. Criminals will always find a way to operate, whether that’s in cash - or bitcoin.
There's also another important demographic that many forget about: the millions of unbanked people throughout the developing world who rely on mobile phones as their computer, bank and communication device all in one. What Bitcoin represents to these people is momentous compared to the majority of us who can easily walk into a traditional bank or financial institution and walk out an account holder. Lack of accessibility, documentation and funds inhibits these people from doing the same and as such Bitcoin is a perfect option for them, enabling economic contribution and monetary transaction, irrespective of their social status.
If anything, Bitcoin is for everyone!
Bitcoin is a currency; a digital currency. It’s the money of the Internet. But when I hear people palm bitcoin off as simply just a currency, I am compelled to offer them further information. Bitcoin is so much more than just another currency. It’s a technological breakthrough akin to the automobile, mobile phones or Internet. An innovation set to disrupt existing systems and empower individuals.
The true value of Bitcoin is that it’s a protocol that allows for the seamless, instantaneous transfer of value between two parties without either party having to know or trust one another, via the blockchain. The blockchain is a globally distributed general ledger and as such lends itself to multiple applications, most especially for industries that rely on time-sensitive, verified information. A block – once processed and verified – is ‘locked in’ to the blockchain, which makes it immovable. It also makes it traceable at every point since inception, and this information is freely and readily available to anyone who wishes to see it. That’s a pretty powerful, worldwide database, wouldn’t you say?
So yes, bitcoin certainly holds value as a currency. But there’s an enormity to Bitcoin that will be realised through the use of the blockchain and bitcoin for other applications too. It’s a technological tour de force that is positioned to alter how we interact financially online.
A highly dramatised and damaging misconception is that bitcoin is a carefully orchestrated Ponzi scheme. A Ponzi scheme requires new investors to hand over capital, which is then paid to older, existing investors as returns. In other words, it’s paying initial investors from new investor’s money, not profits earned. It also needs a central body of sorts to oversee the scheme. And ideally a Ponzi scheme needs to keep its records close to its chest to keep up the farce of legitimacy. Bitcoin doesn’t offer or guarantee returns to those that buy bitcoin. It isn’t centrally operated. And the blockchain (Bitcoin’s record of activity) is freely accessible to anyone who wishes to view it. Three key points for dismissal of the Ponzi scheme claim!
There’s an incentive for investment in bitcoin (otherwise I wouldn’t be here), but to say that a potential return relies on another individual buying bitcoin (at a later date) is nonsense. Early adopters who have held on to bitcoin for some time have earned sizable gains due to popularity surges and growing scarcity of bitcoin. The value of bitcoin has climbed quickly and dropped just as suddenly. Now as it matures as a currency and store of value, we’re seeing a movement to price stabilisation, which will deliver returns to investors based on the growing bitcoin economy, and not at the expense of newer investors.
*Note: There’s record of genuine Ponzi schemes being coordinated with bitcoin, but this shouldn’t be confused with the entire network being a scam. (Much like the cash and criminal activity link.)
Digital wallets have been hacked; bitcoin exchanges have been penetrated, and marketplaces have been infiltrated. And in all cases, bitcoins have been stolen or lost forever. But these instances are a result of loose security of a third party (and a major driving factor as to why we’re explicitly stringent about our security protocols), not the network itself. In fact, Bitcoin is quite possibly the most secure form of transaction in the world’s history.
The blockchain has encryption at the highest level, and the chance of a successful attack on the network is miniscule. Less than miniscule, in fact, as a massive amount of computational power would be needed to make any significant impact on the blockchain – and that level of computational power is simply not available. Not even Google’s supercomputers come close to having the power required to intercept a single block transaction. You’d need 1,000 of them to make a dent.
When dealing with your digital wallet or using an online exchange, you need to exercise extreme caution and deploy intense measures to secure your coins. But from a network perspective, it’s virtually unhackable.
A couple of years ago, merchants accepting bitcoin were few and far between, but that’s no longer the case. In fact we’ve seen merchants outpacing individual adoption at 711%, compared to 483%, over the last 24 month period. There are approximately 99,000 merchants who accept bitcoin and when you look at the reach via gift cards or online payment processors that base broadens substantially.
Are the merchants merely a long list of technology giants and trendy coffee shops? Not in the least. The diversity of merchants is testament to the fact that bitcoin is gaining widespread acceptance. Dell, Microsoft, Expedia and Overstock.com are just a few of the widely recognised names, but dig a bit deeper and you’ll find a host of interesting and completely ‘normal’ places too.
Feeling peckish? Takeaway.com lets you place a takeaway delivery order online. Keen for a show? Theatreticketsdirect.co.uk offers tickets for West End musicals, plays and ballets at lower rates. How about a fine craft beer? Honest Brew delivers a monthly package of specifically selected craft beers based on your preferred taste. Perhaps you’re looking to move? East London Man With a Van accepts bitcoin for removals and courier services. Gift cards are also available through Gift Off opening up a further 192 retailers such as Marks and Spencer, Amazon.co.uk, ASDA, Apple Store or Debenhams. A full list of goods and services can be found here.
Bitcoin is a highly misunderstood topic. It's my hope that this post will offer some insight into this ground-breaking technology and offer you a more informed view on the subject. At the very least, it'll give you some talking points for the cocktail party debate!