Topic: [2015-02-03] CBS: Does Bitcoin Still Matter? (Read 639 times)

http://www.cbsnews.com/news/does-bitcoin-still-matter-age-of-cryptocurrency/

Bitcoin has a marketing problem.

Talk of the digital currency has petered since its introduction in 2009, and much of what remains hasn't been good for P.R. Discussions about Bitcoin can sound like inscrutable technobabble to non-adherents (most people fall into this category), and the system has been dogged by hacking and fraud, making a concept that is hard to wrap your head around also hard to get behind.

But the establishment in late January of the first regulated U.S.-based Bitcoin exchange, by Coinbase, a major broker, may help legitimize the Bitcoin and protect investors. The second such exchange is in the works, fronted by Cameron and Tyler Winklevoss, two of the largest-known holders of Bitcoin currency.

"Bitcoin has a sales job to getting people to trust it, which is ironic because it was set up to be a trustless system," said Paul Vigna, who co-wrote with Michael J. Casey "The Age of Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order," released Jan. 27. "It is sort of opaque and hard to understand and esoteric because it is so new."

About $50 million worth of Bitcoin transactions are done on an average day, a drop in the bucket compared with the tens of billions performed by the likes of Mastercard and Visa, but not a negligible amount. Businesses such as Overstock.com are beginning to accept Bitcoin as a payment option and some companies even pay employees in Bitcoin.

For better or worse, Bitcoin is not going away any time soon, and Casey and Vigna contend that digital currency could change the global economic landscape and prevent financial collapse.

Or not.

Either way, there are some good reasons not to ignore it -- even if you want to.

Bitcoins are just as meaningful (and meaningless) as dollars
The mere concept of Bitcoin is hard to grasp, in large part because there's nothing, literally, to hold onto. But, Casey argues, "Money doesn't have to be tangible to have intrinsic value."

We think of a dollar bill as having value because we know the value of a dollar. In truth, a dollar is just a token that represents the trust you put in the government that its value will be upheld. Moreover, most of our transactions don't happen in cash anyway. And just like any currency, the dollar could collapse, however hard that might be to imagine.

"The difference of Bitcoin is it's a piece of software," Vigna told CBS News. "It replaces trust with software and math. You don't have to 'believe' in the system, because the system is being proven."

They're not regulated by banks or the government
The earliest pioneers of cryptocurrency founded the movement on libertarian principles of freedom from central authority. They believed it could "fundamentally alter the nature of corporations and of government interference in economic transactions," ending a reliance on central banks.

Bitcoin is open-source and fully decentralized, controlled by algorithms and policed by its users. "Many decided it was better to trust this inviolable-algorithm-based system than the error- and fraud-prone human beings that run the large institutions at the center of the old monetary system," the authors wrote in their book.

If the 2008 banking crisis taught them anything, it was that "the centralization of money is destructive and that attempts to change that from within would fail. The solution could only be true decentralization, by coming up with a brand-new, rebel monetary system" -- the system we see today, exemplified by Bitcoin, but including hundreds of other, smaller so-called alt-coins.

Right now it takes three days to pay for a pizza
When you walk into a pizza shop to pay for a pie, there are many people and institutions in on the transaction beside you and Papa John.

While you're at the counter, your information is sent to a front-end processor, which locates the bank that issued your card and confirms validity and that there are sufficient funds. The bank's payment processor gives the OK, which the front-end processor passes along to the pizza shop's bank. That's when the "authorized" message pops up at the register.

You grab the box and head home, but the transaction is far from over. The pizza place's bank will give it the money for your pizza, then request -- via a clearinghouse network -- reimbursement from your bank, which will only release the funds after its fraud team deems the transaction kosher. If there's anything fishy, they'll start an investigation. The whole process can take three business days.

With Bitcoin, it's just payer and receiver. "Two people can send money to each other in 10 seconds" -- even across oceans -- "and the cost is nil and the whole thing is confirmed inside of 10 minutes instead of three days like the banking system, which includes a half dozen institutions," said Vigna. "That's the real innovation; it takes the system that exists and digitizes it, puts it online and takes out the costs and waiting."

It could elevate the billions of "unbanked" out of poverty
"Roughly 2.5 billion adults in the world don't have access to banks, which means somewhere on the order of 5 billion people belong to households that are cut off from a financial system that we take for granted," Casey and Vigna wrote. They don't have checking accounts, or savings, and can't get a credit card. "They remain effectively walled off from the global economy."

For these billions of the "unbanked," Bitcoin could be the towrope that pulls them into financial solvency. They may not have bank accounts, but almost all of them have a phone -- and that's all you really need.

It only takes an Internet connection to store, send and receive Bitcoins. And if your phone doesn't have 4G, services are cropping up that act as the middleman, translating a simple SMS text message into a monetary transaction, for a small fee.

"If you can text," Casey said, "you can offer them a way to bootstrap themselves into the 21st century."