To me the main case for bitcoin is simple. It’s much easier to move money with it.
I like and use Skrill. When I withdraw from it to a bank account, I wait 3 business days and lose about $40 in bank fees.
My bank lets me wire internationally. It takes about 4 business days, usually with at least $50 in fees spread between me and the recipient.
People will often pay a vig greater than 5% to turn online money into cash in Vegas during the WSOP.
Western Union charges up to a 15% vig for moving money, requires time from both parties, and collects over $10M a day in revenue from this.
Enter bitcoin. You are your own bank. You can pay anyone in the world almost immediately, for almost no fee. I could send the equivalent of millions of dollars to someone in Africa — as long as they have internet access — on a Sunday night for a fee of pennies. Nobody has to approve it.
If you hold dollars, and are not constantly generating a return on them, they will continue losing value over time. Bitcoin has a fixed number. Hyperinflation is impossible.
The bitcoin network also has the potential to be used for revolutionary advances such as smart property.
I haven’t addressed the investment case, i.e. whether bitcoin is a good buy at its current ~ $650 per btc. I’ll do that in a future blog if there’s interest.
For now I want to address a few of the common arguments against bitcoin.
Bitcoin is not backed by anything.
Neither are dollars. Money is whatever commodity people accept as money, whether it’s paper, shells, gold, or bitcoins.
Bitcoin is a Ponzi scheme.
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation.
Bitcoin is decentralized. There are a fixed number of bitcoins, and a market that determines the price based on supply and demand. There is no one person or organization who runs bitcoin and collects money from those who buy.
So even if the bitcoin price ultimately goes to zero, there has been no fraud, and no Ponzi scheme by definition.
Bitcoin is too volatile to be an effective currency.
This concern reflects a short time horizon. In time, bitcoin will either fail and be worth around $0, or succeed and have a relatively stable value. People who accept it as payment now can convert it to fiat currency if they don’t want to risk a drop in value. There are services like Bitpay that do this automatically for merchants, charging considerably less than credit card processing fees.
Nobody actually accepts bitcoin.
In the US at least, you can use bitcoin to buy almost anything. Go to a site like Gyft, buy a gift card with bitcoin for Amazon, and spend away – getting a discount in the process.
Compared to the local currency of a country though, there are of course many fewer merchants that accept bitcoin. If I transfer that bitcoin to Africa on a Sunday night, the recipient might find little to buy — and few ways to convert to his local currency — on Monday morning.
As others have pointed out, the internet was similar in its early days. The minority used it. Some considered it a fad. (Certainly, few thought real money poker online had significant potential.) Email had great benefits in theory over snail mail, but how useful was it in the early 90’s if almost none of your friends had an email account?
Nobody then could guarantee that email would catch on, even though it was a better system. And nobody today can guarantee bitcoin will catch on.
But it too is a better system.