A Blog by Jonathan Low

 

Apr 19, 2017

Why Businesses Appear To Love Talking About Bitcoin More Than Using It

It's innovative! It's revolutionary! It's disruptive! And it's still a bit early to be calling bitcoin a success or failure. Businesses, regulators and consumers - to the extent they are even aware of it - are still trying to figure out what it does and how they benefit, as opposed to how they might be ripped off.

The ephemeral lure of a currency that purports to evade taxation and 'heavy-handed regulation' has a flip side, which is that it may also be immune to safety nets like the rule of law. And in this era, where enterprises and their investors appear more attracted to certainty than to risk, especially ten short years after 'financial innovation' created the worst economic crisis since the Great Depression, that may be asking too much of those expected to fund it. Even Apple Pay and Google Wallet have failed to achieve the domination expected of them - and they were based on what is arguably the most popular and influential technology of all time - the smartphone. 

Without demonstrable financial incentives and the customer demand they tend to inspire - as well as 2,000 years of payment history to compete against - bitcoin may be an answer still waiting for a question. JL

Paul Vigna reports in the Wall Street Journal:

Bitcoin isn’t living up to early hype as the payment system of the future. It has failed to emerge as a mainstream payment method among consumers. As an investment,  it is still far too volatile, and opaque, for mainstream investors. Technologists are trying to adopt bitcoin’s open-ledger “blockchain” tracking system, a digital version of gold or a payment system to rival Visa or MasterCard (but) so far, it hasn’t fulfilled those goals.
A few years ago, a Spice Girl and an NFL star were accepting bitcoin to sell their wares. Comedian Drew Carey tweeted about trying to buy breakfast with it, and Federal Reserve Chairwoman Janet Yellen testified about bitcoin in front of Congress.
Now, the virtual currency still feels more virtual than real.
More than eight years after it started, bitcoin isn’t living up to early hype as the payment system of the future. It has failed to emerge as a mainstream payment method among consumers. The Securities and Exchange Commission denied two applications last month for bitcoin-related funds, nixing an avenue for widespread investor adoption that could have boosted bitcoin’s relevance and profile.
And while an array of technologists are trying to adopt bitcoin’s open-ledger “blockchain” tracking system, it is mostly to transact in items besides bitcoin.
“It doesn’t feel like it’s going in the right direction,” said Brian Hoffman, chief executive of OB1, which runs an online marketplace called OpenBazaar that accepts bitcoin.
Bitcoin, introduced in 2008 by an anonymous creator calling himself Satoshi Nakamoto, is a digital currency that operates through a computer network. It is designed to allow for users to transact with each other directly, bypassing governments and banks that act as middlemen in financial transactions.
To a certain extent, bitcoin has found an audience. It has a core group of dedicated backers who believe in its future, and it has attracted traders who like the challenge of an asset that never stops trading. It has also found a home among people who want to move money without being detected.
These groups have pushed the price up by more than 100% over the past year, currently trading at about $1,215, and the currency’s network is handling more transactions on a daily basis than ever, roughly 250,000 a day, up from 164,000 a year ago, according to data from the news site Coindesk.

Still, bitcoin faces an existential question—what exactly is it for? Some of the early adopters pushed for it to be a viable alternative to government-backed currencies such as dollars, yen or euros. Others see a digital version of gold or a payment system to rival Visa Inc. or MasterCard Inc. Proponents envisioned bitcoin as a way for poorer countries and citizens to bypass banks.
So far, it hasn’t fulfilled any of those goals.
Another fan base has been largely driven offline. More than 90% of global bitcoin trading last year took place in China. That has changed dramatically since the Chinese government earlier this year forced local bitcoin exchanges to add transaction fees—trading on these platforms before that was free—and adhere to anti-money-laundering regulations. The move has pushed more trading to Japan and the U.S., with China’s share falling to 13%, according to research site CryptoCompare.
Meanwhile, a battle among bitcoin’s insiders has erupted over its future. One side wants to keep it small and outside the purview of governments. The other side wants bitcoin to go mainstream, and is willing to accept more transparency and government oversight to make it happen.
Bitcoin hasn’t caught on with U.S. consumers. That is in part because bitcoin’s followers are diffuse and never really had a champion committed to persuading both businesses and individuals of its merits.
At CheapAir.com, an online travel agency, bitcoin purchases comprise less than 10% of overall purchases, roughly flat in recent months, said Chief Executive Jeff Klee. “If you step back and look at the big picture,” he said, “it certainly hasn’t taken off.”
Mr. Klee was personally involved in the decision to accept bitcoin in 2013—after a customer suggested it—and praises its utility and advantages for merchants, but said it hasn’t yet been able to find a large audience outside loyal core backers. The typical customer staying away from bitcoin “loves their points and their miles,” he said, referring to credit-card perks. “That alone is tough to compete with.”
At satellite-TV company Dish Network Corp. , which began accepting bitcoin in 2014, bitcoin represents less than 1% of its total payments, the company said. “We have not seen growing enthusiasm,” Dish Chief Marketing Officer Jay Roth said.
As an investment, bitcoin has drawbacks as well. Even though its volatility is down compared with its eight-year history, it is still far too volatile, and opaque, for many mainstream investors. In March, the SEC rejected two proposed exchange-traded funds, the Winklevoss Bitcoin Trust and SolidX Bitcoin Trust, citing the lack of transparency around trading on bitcoin exchanges, many of which are overseas.
The SEC said that without the ability to monitor trading activity, it couldn't approve an investment product aimed at retail investors.
Other government regulators are also taking a harder line. The Internal Revenue Service recently ordered bitcoin-services company Coinbase to turn over all records of its customers between 2013 and 2015, a sweeping summons the government said was intended to root out potential tax evaders. The company is fighting the order.
Competitors aren’t standing still. In February, a consortium of banks and tech giants including Microsoft Corp. and J.P. Morgan Chase & Co. announced a new financial platform based on Ethereum, a bitcoin competitor.
If bitcoin was a company, its growth would be managed by executives and shareholders. It isn’t a company, though, it’s an open-source software project, and one without any recognized leader. That makes controlling its growth especially difficult, said OB1’s Mr. Hoffman.
“You see the evolution from when it was so small, it was easy for everybody to be on the same page,” he said. “Now there are so many competing projects, it’s so huge, it’s a mess.”

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