Bitcoin Misconceptions

Bitcoin is my new latest obsession. It was one of those things that I’d been meaning to look into for a long time but had never found the time for. Just prior or as the Cyprus banking crisis was beginning to make waves, and with an increase of Bitcoin mentions in my tweet stream, I found myself with a free weekend.

At the Bacon conference 12th - 13th April I gave a lightening talk about Bitcoin. At first I had planned to just give a breif overview of Bitcoin and the blockchain, but after writing up a few notes I had far more than I could possibly fit into 5 minutes. My idea of just talking very fast and showing a new slide every few seconds was shot down by @feeschmidts so she refocussed me on what I wanted the audience to take away.

Now there have been many misconceptions thrown around especially in the media after it grabbed their attention, so I thought I’d give a go at dispelling some of these and most of all encourage the audience of hackers to read up on the ideas and original whitepaper behind Bitcoin, after all code speaks.

I don’t make a habit of giving talks therefore I just wanted something simple, preferably hosted in which to create my talk. After a brief bit of research seemed good enough (based on reveal.js). They don’t appear to have a way to link to just a single slide and pasting the html in here made the display horrible so apologies, hopefully caching won’t make this too bad.

The introduction to the talk. I asked the room how many people had heard of Bitcoin and almost everybody put up their hand. Next I asked how many people owned any Bitcoins and about two people raised their hands. Then I asked how many had owned any Bitcoins before Wednesday (the day of the crash), there were about 10 more hands.

So this is where I identified 4 misconceptions that I’d been hearing from people that I had been talking to over the past few days (anyone who would listen, and believe me, if you talked to me you talked to me about Bitcoins over those few days).

Common misconception #1: It’s not a real currency

My argument is that neither are credit cards, or well they weren’t seen to be when they were first introduced. The credit card companies had a job to do in making people realise this and to think of it as money.

Also I made the point that anything is a currency that people believe has value and that can be exchanged. On online multiplayer games, if no virtual currency exists, players will invent one themselves.

Common misconception #2: I heard Bitcoin was hacked

Bitcoin is somewhat based on hacking, that’s what mining is and it’s built into the system (brute-forcing the answer to a difficult calculation). When people talk about this however what they’re generally referring to is not Bitcoin itself, or the code underlying its algorithms but instead various online wallets (where Bitcoins are stored). Like most hosted systems by using their services you open yourself up to trusting them as you do your bank (not to run off or embezzle your money). Also like banks they make themselves a target for bank robbers who break in and steal your funds, which is what has happened in the Bitcoin world. When this happens at your bank however, it’s not said that Pounds Sterling has been hacked.

One difference here though is that when a bank is robbed the money is generally insured whereas for Bitcoins at the moment this isn’t the case, although I think Bitcoin-24 are making reasonable attempts to pay everyone back the money that was stolen from them. This is something that will likely come with time, we just have to be patient or run our own wallets at home (with good encrypted backups).

Common misconception #3: I can’t spend it anywhere

The number of places that accept Bitcoin are growing every day, especially in online services. Probably the best thing that can come out of the recent media attention is a greater take-up by new services, and I hear BitPay makes it ridiculously easy to do so. I’ve listed a few of the most well known high profile sites that accept it but since this is more of a groundswell movement it’s likely that we’ll see smaller merchants adopt it before the big fish and good for them, hopefully it’ll send some trade their way that might not have otherwise.

Common misconception #4: It’s just a bubble

The graph shows the various trends in Bitcoin growth. Trend 1 shows a healthy growth trend that has been going on for quite some time.

Trend 2 shows when banks started stealing from their customers, probably not Cypriots themselves but the other nations who may suffer the same fate (Spain, Italy, New Zealand, the UK).

Trend 3 is when the mass media got hold of the story and speculators flooded in. This ultimately makes the market much more unstable and puts the exchanges under increased load which they were certainly ill-prepared for.

So looking at the graph afterwards, we can see that we’re still around the $100 mark, which is approximately where we would have been on the healthy growth of the first trend line.

Looking at this again a few days later, the exchange rate dropped lower than this in the days following but has since recovered to just below $100. So my point still stands, we’ll have to see where it goes from there.

The overall point of my talk is that I plan to continue with Bitcoin and not to speculate, not to sell, but instead to buy Bitcoin now when it’s relatively cheap and continue to do so while we have healthy growth.

Since the talk I have added a note to my invoices that I will take Bitcoins as payment at the exchange rate of the date of payment. I may need to rethink how this is calculated but the point is I want to put my money where my mouth is.

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