Should you Buy Bitcoin?

I did.

 

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.

 

 

bitcoin1

 

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.

From Wikipedia:

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.

About Collin Moshman

Collin Moshman graduated from Caltech in 2003 with a degree in theoretical math prior to becoming a professional online sit 'n go player. He is the author of best-selling poker strategy books Sit 'n Go Strategy,
Heads-Up No-Limit Hold 'em, and The Math of Hold'em. Collin is also the lead SNG coach for Cardrunners and Pokerstrategy. He lives in Mexico with his wife Katie and dog Wilbur, playing on Pokerstars as tfnc314.

Comments

  1. I love the idea of bitcoin and could add another 30 positives to your list. One thing though, the US Dollar is backed by America’s Military power, which is getting more and more concentrated with drones and other things by the day.

  2. Interesting post Collin. I don’t really agree with it.

    Two things.

    1: ) “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.”

    The USD is backed by the US Government. Bitcoin is totally virtual, no central regulation, no collateral. Bitcoin is totally virtual currency.

    2:) “There are a fixed number of bitcoins, and a market that determines the price based on supply and demand.”

    In theory sounds good, but in reality, there is guarantee its true, since there is liable central body that controls the supply. So there is no guarantee that the supply will remain fixed.

    The main issue with Bitcoin beyond the above mentioned is that, as an asset it has zero value, beyond its speculative value, combined with the fact that it is in competition with the baking industry it feels like a bubble doomed to burst.

    Imo, Bitcoin is worst the the tulip mania, at least then you got a tulip bulb at the end, with Bitcoin you get nothing.”

    Imho :)

  3. We have taken an anti-Bitcoin stance but haven’t made it illegal: Iceland and Vietnam.

    The secretive, bitcoin outlaw vibe of the biggest signs yet of
    mainstream acceptance has grown in an enormous growth and
    wildly optimistic. However, at more than 744, 408 of its software
    allowed bitcoin hackers to pull off a self-fulfilling spiral where no centralized ledger currently
    exists. London-based Coinfloor is setting up a bitcoin financial product based on decisions made
    by your referred users:http://freebitco.


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