Bitcoin a failure? Let the market decide

Bitcoin a failure? Let the market decide

By eeNews Europe

I was very surprised to see how much importance was given to what one developer is saying, without judging the quality and importance of his work. Thousands of developers have been working on Bitcoin for several years. I believe this happened because we, as an industry, focused too much on making our products better and didn’t spend enough time explaining it to the wider audience.

This post discusses the claims made in Mike’s post and in the subsequent Forbes article – "Something Rotten In The State Of Bitcoin" – and explains why they are actually good news:

• Bitcoin is running out of capacity
• Some Bitcoin companies operate in China
• Bitcoin is managed by a community
• Some Bitcoin users have libertarian views.

Bitcoin is running out of capacity
Does anyone believe that it is bad for airlines when lots of people want to fly? Or that it is bad for telecom companies when their users make phone calls? I believe fax vendors are quite unhappy about not selling their machines anymore. The same is now happening to PC vendors.

Similarly for online businesses, it is good news when the product sees increased adoption and encounters growing pains. Luckily with Bitcoin, and contrarily to most other businesses, all usage data is immediately and available online. This is how the Bitcoin network works.

Bitcoin transactions

Is this your definition of failure?

Every technology must evolve and adapt to increased adoption. That is exactly what Bitcoin is doing currently. In fact, at least three different technology solutions are under development to increase the network capacity: Bitcoin Classic, segregated witness, and sidechains. Another one, Bitcoin-XT, designed by Mike Hearn, the developer cited by Forbes, was not adopted by the Bitcoin community.

Bitcoin mining is mainly performed in China
As Bitcoin is a global network available in all 196 countries in the world, any business can connect to it if it makes sense for them. Bitcoin mining is a specialized industry that plays a very important role: it secures transactions and builds the blockchain, an immutable public record of all transactions ever performed. Miners receive newly created Bitcoins as a reward.

Currently two large miners are based in China. As they make profit by generating and selling Bitcoin, they have a strong incentive to keep the network working as intended. In fact, the Bitcoin network has been operating correctly 24/7, 365 days a week for several years now. Current technologies used by banks often suffer from unplanned downtime, despite their massively higher development and operating costs. Even companies like Google, Facebook, Apple, and Microsoft occasionally suffer from major IT problems.

Bitcoin computer

21’s Bitcoin computer was launched in November 2015

Finally, anyone can start a mining operation anywhere very quickly. Mining could become distributed thanks to new devices like Balaji S. Srinivasan 21’s Bitcoin computer, and Valery Vavilov BitFury‘s portable mining device. Operating costs could go up in China. Some financial institutions or big technology companies may find an interest in operating a Bitcoin mining data center. Don’t judge a movie from just one snapshot.

Open source process has never been applied to finance before
Due to the nature of Bitcoin, a distributed computer network without a single point of failure and running open source software, no one can impose changes to the Bitcoin community. Instead, every decision must be discussed in public, and consensus must be reached by all users of the Bitcoin software.

Consensus takes time, but this process means that the solutions satisfying the largest number of users will be selected. This decision process is both highly democratic and meritocratic, and capitalistic. It is very different from how most decisions are taken within large companies. There is no President of Bitcoin who will decide where everybody must go. Rather, every member of the Bitcoin community will take a decision, and the Bitcoin network will follow the majority. Ultimately, the decision will just happen.

There is a very compelling argument to understand why these Bitcoin users will reach a consensus. They have a shared financial interest. All of them own Bitcoin, some of them own part of a Bitcoin startup, and most of them are employed by a business whose future depends on Bitcoin answering the market needs.

This shared financial incentive is actually what motivates the Bitcoin community to spend so much time to get these decisions right, and discuss them for so long. This hasn’t hurt Bitcoin adoption and usage.

It is likely that a combination of several technical solutions will be adopted this year to solve Bitcoin’s growing pains. The strongest candidates are Bitcoin Classic, segregated witness, and sidechains. Bitcoin-XT, Mike Hearn’s proposal, may have introduced too many changes at once, and may have been perceived as too risky for Bitcoin business owners and leaders.

Some Bitcoin users have libertarian views
It is the nature of democracy to let people express their views, even when one disagrees with them.

Richard Branson invested in Bitcoin startups

For instance, Richard Branson lives in a democratic country, and expresses libertarian views about many society debates. In less democratic countries, he may run into trouble, as Mikhail Khodorkovsky, a Russian businessman, experienced when getting involved in politics.

Similarly in the Bitcoin community, some people hold unconventional points of view. While this makes them more noticeable, this does not mean that they have more decision power than others.

Money laundering
As with every new technology, most people don’t use it and then assume no one needs it. IBM famously predicted that the total world markets for computers was three units. As with every prediction, it is easy to be right 10 years later. Let’s focus on the present and the future.

We have seen that Bitcoin usage increases. Some people who do not use Bitcoin claim that this is due to money laundering and financing terrorism. Well, if someone wants to launder money, surely recording this transaction in an immutable and public database would not be the best idea. US Federal agent Shaun Bridges who got convicted in 2015 to six years in jail for blackmailing a suspect and extorting $800,000 in Bitcoin can probably tell you more about it.

A US Federal agent was convicted for extortion – his digital fingerprints were found in the Bitcoin Blockchain.

Money laundering uses either cash, whose exchange is not recorded by anyone else but the parties involved in the transaction, or electronic money, often involving offshore banks and luxury real estates, recorded in privately controlled databases. Regarding terrorism, ISIS uses US dollars, Western Union transfers, and personal loans from regulated companies, that are never paid back.

No one knows what the future holds, and with Bitcoin it is no different. What we know and can all agree on is that it is a unique and innovative new technology; its usage keeps increasing, and it gets better everyday thanks to more than 300 startups funded with $1 billion of venture capital.

Current usage is an aggregate of small niche use cases, from international remittances, helping NGO pay their staff abroad, to people in India selling Amazon vouchers at a discount. We also know from experience that easier, safer and cost efficient products usually lead to massively increased adoption and better consumer value over time. We have seen this in the airline travel, smartphones and taxi industries in the past 20 years.

We have all observed in the past that the banking sector may not be operating optimally. In the United Kingdom alone, there are two million people without a bank account. Let the market decide for how many people and use cases Bitcoin is good enough.

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