Aug
22
A few weeks ago, I wrote an article about Bitcoin — the new encrypted, peer-to-peer currency that has everyone buzzing. I’ve done some research since my initial post, and I have to say, I’m not as excited as I was.
BitCoin is a fantastic idea, but its days are — unfortunately — numbered. The biggest problem I see is supply: Only 21 million BitCoins can ever be minted (and this is not mathematically debatable). As such, at some point in the very near future, demand is going to cause the currency to explode in price (relative to other currencies, commodities, et cetera), and when that happens, there will be no realistic way to use it.
Think about it: all it takes is one eccentric billionaire — or hell, even one risk-taking a-list actor, athletic super-star, or experimental super-model — to take an interest in BitCoin, and the party is over. Sure, for those of us holding it, it will be a boon, but how will other people use it? If one BitCoin goes for $100,000, how realistic is it going to be for you to buy a cup of coffee with it? What are you going to do? Pay .00001 BTC? That’s kind of awkward. And calculating the tip makes me feel a little queasy.
I have no doubt that someone is going to step up to the plate soon to make BTC transactions simpler and faster. And sure, that will help things a little. But for now, I see BitCoin as little more than a store-of-value — much like gold; yes, it’s valuable, but what can you do with it?
On another note, since my last article about BitCoin, there has been a tremendous amount of speculation on the Internet about my connection to its founder: Satoshi Nakamura. I want to take this moment to explicitly say that I have absolutely no connection to BitCoin — other than my curious fascination with its implications. It’s true that my book did predict something like BitCoin — years before it existed. But that connection is purely coincidental; I’m simply not intelligent enough to have come up with the real thing.
Disclosures: Paco is long gold, Bitcoins, and oil. He is short U.S. Treasuries.
You can buy Paco's novel Discipline wherever books are sold.
5 Comments so far
Yes, you will pay .00001 of a bitcoin, only instead of calling it that you'll call it 0.10 mBTC (millibitcoins) or some such thing.
While only 21 million Bitcoins will ever be mined, each BTC is infinitely scalable. Right now, the current bitcoin client allows for transactions of down to .000000001 BTC, but it can be scaled down further than that.
So what happens when your famous Hollywood star or supermodel takes an interest and bitcoins shoot up in price? We all start transacting in Bitcents, or milli-Bitcoins, or micro-Bitcoins.
The issue of the potential for Bitcoin to fall into a deflationary spiral has been explored in depth by both supporters and detractors. The best arguments against the deflationary-spiral model are:
1) If people will not spend bitcoins because things will get cheaper over time, it follows that people today should spend their fiat money simply because things will get more expensive. Neither one is true… people simply spend when the desire for something outweighs their desire to hold on to their assets.
2) Bitcoins are deflationary, but so are a few other things, like electronics, and gold. It hasn't stopped anyone from obtaining them, using them, transacting them, etc.
As for your question, what can you do with it? You can transfer it instantly and essentially for free to anyone with an internet connection… not so easy to do with gold
"If one BitCoin goes for $100,000, how realistic is it going to be for you to buy a cup of coffee with it? What are you going to do? Pay .00001 BTC? That’s kind of awkward."
So you're "less excited than you were" because Bitcoin may explode in value, thus making decimal transactions somewhat awkward?
Bitcoin has the technical ability to revolutionize money systems and banking around the entire world and your concerned with ease of coffee acquisition? Here's a solution: Bitcoin is divisible to 8 decimal places, so call that smallest unit a "minicoin" and then price coffee in minicoins. I think a venti mocha latte will be about 12 minicoins. Problem solved.
The pseudonym of the Bitcoin founder is Satoshi Nakamoto.
Valuation of the BTC is largely irrelevant. Currently, Bitcoins can be easily divided to 10^-8, and it is trivial to increase their resolution. Currently, people deal in millies (milliBitcoins) and it will be trivial to transition to mikes (microBitcoins). It is also trivial to add tip-calculating algorithms etc.
I appreciate your interest, but these are non-problems.
Still short Treasuries? You are getting killed on that trade. Also oil too, depending on your entry point. Gold trade is profitable. Why don't you publish your entry points or average price?
Oh how funny that you guys would fall into this trap! Do you REALLY think that Paco Ahlgren doesn't know how to properly spell Satoshi Nakamoto's name? Or better yet, do you really think that he doesn't know the value of bitcoin? Please. This is all part of the game. You're reacting exactly how he wants you to react. Take the bait and sink suckers.