What is up with this Bitcoin thing?

by Kraettli Lawrence Epperson in Explorations of the Inevitable

bitcoin-gold-feat

Here’s one of the better articles I’ve seen on the Bitcoin phenomenon: Bitcoin Is Pointless as a Currency, But It Could Change the World Anyway | Enterprise | WIRED.

I’m not sure I agree with his conclusion. Read that through, and then come back.

Here’s my take: Bitcoin is unlikely to be anonymous enough and secure enough to replace cash. But maybe the next bitcoin will be. Or the one after that. (Maybe when quantum encryption and communication are common.)

That being said, I’m fascinated by the number of people who want to argue that typical sovereign currencies have “no value” or “only the value we imagine them to have” – and, therefore, Bitcoin is just as valid as any other currency. That is ridiculous.

Modern sovereign currencies are backed by the power of the state to tax and to defend itself. Most of the time that means 1040 forms. However, in extremis, soldiers would come to your house and take some chickens and firewood and the Federal Reserve would issue notes against them to purchase bullets and torpedoes. That is why sovereign currencies have value.

Bitcoins will not come to your house and walk off with your furniture to trade for cruise missiles. Therefore Bitcoin is not a currency. End of story.

I’ll acknowledge that there is a lot of smart money going into Bitcoin right now as a VC investment. I think the smart ones of those investments are based on the exchange potential of Bitcoin. I’m definitely reading about powerful uses of Bitcoin: Chinese nationals are apparently using it to silently expatriate millions of dollars and thereby circumvent currency export controls. That’s a pretty compelling use of Bitcoin. But that’s a very specialized use. All it really involves is trusting the exchange process, not treating Bitcoin as a currency. And, of course, is highly illegal in the local context.

The transformation of Bitcoin into a currency will occur when people want to start holding their wealth in Bitcoin, rather than just exchanging money and holding in US Dollars.

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Kraettli Lawrence Epperson

Managing Director at JumpPhase Ventures
This blog is dedicated to providing advice, tools and encouragement from one entrepreneur to another. I want to keep this practical and accessible for the new entrepreneur while also providing enough sophistication and depth to prove useful to the successful serial entrepreneur. My target rests somewhere between the garage and the board room, where the work gets done and the hockey stick emerges.