You’ve likely heard about BitCoin as potentially the currency of the future but haven’t explored it any further than that. We’re pro digital currencies and have a little BitCoin, but don’t think it’s quite ready for the mainstream.
Created by ‘Satoshi Nakamoto‘ in 2009 BitCoin is really an algorithm where digital currency is created (like central banks do, eg. quantitive easing). BitCoins are created by computers solving mathematical problems (called mining) which can only be done really by brute force, trying every permutation.
There is a fixed total number of BitCoin, and to ensure the supply is constant the mathematical problems the computers (think lots of computing power!). As well as mining, these computers keep a track of all the transactions in the BlockChain, which verifies and confirms each transaction.
BitCoin is held in a digital wallet, which can be on a smart phone, hard drive or physical wallet (like a USB key or hard drive). Each wallet has an address like 3AquovMQpgqBzQ7h6ffdqTanJmKgmPjE2s which can also be expressed as a scannable QR code.
BitCoin Concepts and Problems
Working in the digital sphere with clients you soon become aware of how many jargon and concepts need explaining. For example, explaining what a domain name is – a digital signpost – but because you can’t physically put your hands on it then it’s hard to grasp (pun intended).
Right now BitCoin (in my view) has those problems but on a greater level
- your BitCoin address is a horribly long string of characters, there isn’t a simple way to remember or reference it
- the high profile failure of exchanges causing an issue of trust
- the difficulty in distinguishing between BitCoin wallets and their respective advantages is a problem for consumers; as well as not enough presence of traditionally trusted brands – it this Bit Wallet company really a safe space to store my money?
- BitCoin websites are perhaps functionally good, but their user experience needs work, especially assuming too knowledge on behalf of potential users
- users will just lose phones, computers, etc meaning money will be lost, harming adoption. To date about 25% of all BitCoins have been permamently lost this way
- jargon like Hash, Bit Rate, etc involves concepts which sound more like maths (they are); though users do pick things up slowly, the #HashTag now being well understood
- the use of terms like ‘mining’ which try to connect such concepts to the real world are potentially unhelpful. Smartphones moved away from making things feel like the ‘real world’ (skuemorphism) a while back
- a high value per BitCoin meaning you have to deal in tiny decimal fractions, £1 being 0.00023 at the time of writing, and fractions as low as 0.00000001 BTC = 1 Satoshi (one hundred millionth) … or put another way it requires mathematics skills to use
- scammers running Ponzi and pyramid schemes pretending to look like investments
- the lack of government backing to protect deposits
- It has competitors like DogeCoin, AltCoin, Etherium, etc all of which suggest they improve on the BitCoin model and hence take market share
In short it’s a sub-optimal experience which is currently ideal for techy’s and early adpoters but a space that we’d suggest the averge user needs to be wary.
[Update: Since publishing the massive increase in investment also shows lack of understanding, and as of today, 23rd of December 2017 this bubble seems to have come back down]
BitCoin is a ‘Disruptive’ Technology
Of course disruptive technology can be complicated initially; a comparable example being the Internet itself, which was complicated to access with modems and understanding how to use it. Over time that simplified; you are now “just connected” and search has improved vastly to the point you can just speak a request.
The combustion engine is another example, a complicated mechanical marvel that most of us don’t understand fully but get the basics – petrol in, bang, movement out. Science classes and the fact a vehicle is tangible helps, but the real key to success is a support network of mechanics and petrol stations meaning that for the most part it “just works”. Add petrol and go, see the garage for everything else.
So what BitCoin really needs is a simpler point of entry, ideally with the support of existing trusted financial brands which helps to bridge the trust gap for users. It would be especially helpful if some kind of backup/ certainty could be provided without the user needing to do it (they won’t!).
Finally making it easy to find BitCoin accepting locations via one central app, and add it to existing sites (PayPal-style) would go a long way to increasing adoption – otherwise it will be primarily limited to large population centres.
Digital Currency isn’t going away
We’re already used to current being digital, almost without realising it. With bank accounts being more numbers than a pile of cash, using debit/credit cards, contactless payment and even the likes of Android and Apple Pay.
While cash still has its place there isn’t far to go until being cashless is a real possibility. The explosion of payment terminal options now meaning even a farmer’s market is tapping your card.
Looking to Hollywood and Science Fiction there are many cases of ‘credits’ being the universal means of exchange and we do effectively have such credits already. The only difference is that there are several currencies involves while BitCoin is a global cross-border currency.
However, digital currencies are – like regular currency – based on trust. So when confidence in a currency goes up and down so does the value, and BitCoin has had a rocky ride. If you’re intrested, check out the charts on BitCoin.com
BitCoin’s Anonymity and Power
One of the attractions of BitCoin is that your identity can be completely anonymous, and in that sense works very much like cash. That’s perfect for buying a coffee, but what about bigger items where sometimes the businesses are required to know about their customers/ it’s necessary to deliver the product/service?
More importantly, banks, financial institutions and governments owe a lot of their income to power and influence over regulation. If you have a currency like BitCoin which goes around all that it sounds wonderful but also means it’s highly likely (as has been the case) to be banned and replaced with a taxable, trackable variant.
Being more practical, how do you verify that a transaction over £10,000 is genuine? In normal banking terms those transactions are checked for abnormalities, in the case of BitCoin it can’t be, just recorded. And in tax terms, typically what isn’t understood is either regulated or outlawed. It’s also hard to track transactions if you don’t know who is receiving the funds.
Want to get started?
The place most people seem to start is www.bitcoin.org which has a good guide to various wallets and initial basic information. Its important to be sure you have a basic understanding of how BitCoin works before you start. Also depending on when you’re reading this the ‘hard fork in Nov 2017‘ might be worth letting pass first before you invest.
[Update: It seems the Hard Fork to BitCoin Cash is somewhat fluid, with initial limited suport from the big exchanges, though CoinBase seems to have changed their approach and BitCoin Cash is having a rocky ride, with trasnactions temporarily suspended]
You will find many sites offering free BitCoin in return for some kind of work, eg. filling in a Captcha (those funny words and symbols) or viewing an advert.
- 99 BitCoins both educated about BitCoin and runs a Faucet which gives out a small amount every 5 minutes after you fill out a Captcha
- Ads 4 BitCoin lets you view ads on an daily basis in return for BitCoin. Typically these are 5 to 60 second adverts with corresponding amounts of BitCoin for your time
- Free BitCoin is an app which runs both a Faucet and Lottery (you gain tickets each time you use the Faucet on an hourly basis)
Just keep in mind that you need to compare what they’re offering (usually in Satoshi), because you need 230 Satoshi to make 1p and often can’t ‘withdraw’ to your account until you have 10,000 Satoshi. For example getting a generous 30 Satoshi per advert is 334 adverts before you can withdraw a lot of advert viewing.
However in short, BitCoin is now a proper currency, volatile but you aren’t going to get any substantial quantity for free. You could invest in purchasing BitCoin, hoping that its value will go up, but that would be like any investment a risk, especially as digital currency is still really in its infancy. While we’re not financial advisors (obviously!), please only invest what you can afford to lose.
While the places that accept BitCoin and it’s potential uses expand daily, it’s adoption rate is still low. However that doesn’t mean it should be discounted and it has -by far- the biggest brand recognition.
As for freshSPRING, we won’t be recommending it to our clients anytime soon – though perhaps can be persuaded. However we will start accepting it as a form of payment for donations (we’re a non-profit) and transactions under £100, incresing the values when it’s more stable.
That should help us learn more so we can help clients transition when adoption of BitCoin or similar widens. Though the volatility means that BitCoin payments for traditional organisations will initially be exchanged pretty quickly for services or hard currency; and likely a percentage will need to be added to each transaction to reflect the risk of this volatility.
But perhaps we’re wrong and need to soak for a while in the BitCoin pool. Let us know in the comments below.
And if you want to buy us a coffee, here’s our shiny new BitCoin address: 3AquovMQpgqBzQ7h6ffdqTanJmKgmPjE2s or just scan the barcode.