Since it’s a new year (Happy New Year btw), I’m going to mix things up a little bit for today’s Didn’t Work Wednesday. Instead of talking about one of the many many mistakes I’ve made over the years, today I’m going make a prediction and talk about something I think we’ll look back on and say “Didn’t work”.
At the moment Bitcoin is getting a lot of press and the actual price has been fluctuating a lot because of it.
And it appears to be gaining some ‘serious’ traction with the 'grown-ups’ when investment firms like Andressen Horowitz and Union Square Ventures are making investments in companies like Coinbase (which btw should be fine supporting any virtual currency that eventually *does* work; regardless of if that is bitcoin or something else)
Plus there are a lot of really smart (much smarter than myself) people who are believers in the idea of Bitcoin - most recently Chris Dixon (also of Adressen Horowitz) shared a post on why he’s interested in Bitcoin. It’s smart and makes a lot of good points as to why Bitcoin should, could, and just might work.
However there are a few massive bumps on the Bitcoin road that I think are going to ensure that ultimately it doesn’t work (from a U.S. consumer point of view).
1. You can’t really buy anything with Bitcoin yet. Yes you can find a handful of sites/services/companies that accept Bitcoin - but John Q. Public can not use Bitcoin to buy anything they actually want in their day-to-day lives (local food, gas, rent, utilities, movie tickets, beer, etc.). It’s just not easy to buy real, physical goods or even in-person services with Bitcoin right now.
Yes, of all the problems facing Bitcoin, this is actually the easiest to solve (the longer the hype lives, the more likely more and more places will start to accept it). But the reality of the moment is that you can’t actually *use* Bitcoin (or rather you can, but it’s harder to use than any other form of main stream currency).
2. Partially because of problem #1, and partially adding to problem #1 is the fact that John Q. Public doesn’t actually understand Bitcoin. Go to a random person at any local bar across the U.S. and ask them if they own Bitcoin…I bet 85% (maybe more) will respond with “What’s a Bitcoin”? Or at best they’ll know it’s some “internet thing” but won’t really know how or what you could use them for.
This is because fundamentally, reg. people think in dollars (at least in the U.S.). Right now they don’t want to replace the dollar, they want to make more dollars. Their entire thought process around Bitcoin is how do I convert this into more dollars? It’s a bit like emailing someone a message that says nothing other than “call me so we can talk” (which btw people *still* do too). It works, but it’s fundamentally the wrong way to think about/use the system.
Again - on it’s own this is just an education problem…but…uh…education is already the *biggest* challenge/problem in the U.S. (so I wouldn’t bank on it as part of a solution itself). Still if problem #1 is solved, then people at least have a bit more motivation to figure out problem #2…but you do see the catch-22 here right?
3. To a lesser degree, the problem with Bitcoin is that it has strong, technical fans…but no 'real’ people behind it. Every post I see around Bitcoin has comments flooded with almost-religious-like debate on politics and the theory of currency. The 'regulars’ with basic questions are laughed off as idiots and fools for not 'seeing’ or 'understanding’ the future…but there are never any *actual* facts provided to show there are emerging solutions for problem #1 or problem #2.
So rather than help a true understanding of Bitcoin spread, most people walk away feeling like it’s either a scam or too technical/difficult for them to really understand or get involved with.
This is a problem because a true adoption and understanding is only going to spread once reg. people can teach (or better show) other reg. people why it’s awesome. Right now the biggest, and most vocal, fans of Bitcoin are actually doing A TON to prevent this from happening…which on the plus side means they do get to keep their secret society a bit longer (but that it eventually won’t work to the scale that actually changes the world the way they want.)
It’s just too easy to not care and so most people just won’t.
4. In addition to not have a 'reg. person’ behind it, and somewhat related to problem #1, there is no 'killer app’ for Bitcoin yet.
As an example, when someone can log onto Amazon.com and buy something with Bitcoin, and there is a tangible benefit to having used Bitcoin, then Bitcoin wins (or at least starts to actually win).
But I don’t see a huge advantage (or disadvantage) for Amazon (or any large e-commerce service) supporting this any time soon. It likely won’t get them any *more* customers or sell any *more* merchandise, and in fact would likely up their technical debt and risk (not to mention customer support issues).
Even if you solve for that problem and a company like Amazon starts accepting Bitcoin (who knows they might just do it because it’s 'cool tec’), you still have to convince buyers that using Bitcoin is *better* than using credit or the U.S. Dollar (see problem #2).
This means there would have to be price stablization (vs. the dollar)…and something outside of 'anonymous’.
Keep in mind that reg. people don’t really care 99% of the time if Amazon knows what they buy or Google knows what they search – in fact they like that they get better recommendations/answers because of it. Especially when you consider that you want physical goods delivered, so you need some identification/address to be part of the transaction anyway.
So what *is* the killer reason that you should use Bitcoin vs. your credit card or even cold, hard, cash?
That and so many other questions that stem from the things I listed above are yet to really be answered in my opinion.
In the end, Bitcoin very well might be the bees knees for consumer to consumer transactions (c2c) but it’s got a really long way to go before it makes sense in business to consumer (b2c) or business to business (b2b) transactions.
Ultimately, when you notice all these “ifs” and “maybes” and “open questions” (and honestly I wasn’t even all that thorough in this post) I think you’ll see a pretty obvious trend that we are heading towards a serious “it didn’t work”.
NOTE: c2c is very likely a massive market (and growing thanks to the internet), and so Bitcoin could very well still be a HUGE overall success…but not at all for the reasons I think people are actually talking about right now…and not at all at the expense or death of the dollar (or what we currently consider 'regular currency’)
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Kevin has a day job as CTO of Veritonic and is spending nights & weekends hacking on Share Game Tape. You can also check out some of his open source code on GitHub or connect with him on Twitter @falicon or via email at kevin at falicon.com.
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