This is by no means a positive or an inspiring article. I hesitated if I should even post and comment on this. In my mind here is another “pioneer penalty” that should be added to Bitcoin’s long list of pitfalls causing it to stumble time and again, delaying or preventing mass acceptance altogether.
Bitcoin cannot blame the media for lack of coverage. There has been some news coverage about Bitcoin everyday; may be not by network TV, and not always the most complimentary, but none the less, it still helps this nascent industry to become known relatively quickly.
There has not been a shortage of investment poured into Bitcoin ecosystem either. As pointed out, BitPay alone raised $30 million and the industry as a whole have raised well over $1 billion, mostly venture capital (VC) money. One would think that this is the smart money; since they typically have some of the smartest people on their team going over hundreds of business plans, and do, on average, one deal for every 100 they analyzed and scrutinized. BitPay is indeed the leading Bitcoin payment processor. For that alone, it is very telling that Bitcoin is not ready to go prime time as a medium of exchange and I do not see any plan to help Bitcoin get there.
This was part of my message when I made
my presentation at NASDAQ on June 22, 2015 and it still holds true today:
“The Currency: As the pioneer, Bitcoin has struggled as a currency with countless negative headlines. It is failing to meet the full functions of money. It has been struggling to gain mass acceptance as it has been too volatile as a store of value and medium of exchange. It seems to have settled with a limited purpose as a speculative trading vehicle.”At DNotes, we believe that meeting the full functions of money, as a unit of account, as a medium of exchange and as a store of value, is critical for DNotes to be successful as the trusted global digital currency for everyone. The “jewel” is in the medium of exchange but achieving mass acceptance to use DNotes as the medium of exchange is one of the biggest challenges in the world of commerce and seriously under estimated. I personally believe that it has to be engineered with a very complex sustainable plan, systematically executed over an extended period of time. It takes a tremendous amount of ingenuity, hard work and tenacity few would care to commit.
DNotes has been doing precisely that by virtual of our growing ecosystem. It is a huge commitment on our part. It has the least short term payoff but absolutely essential for DNotes to be superior to fiat currency without a doubt, in the minds of reasonable people, one day. Most likely, the values and the importance of DNotes ecosystem are not even reflected in the price of DNotes. With mass acceptance, DNotes will become most valuable when the vast majority of the transactions are between two parties with nearly zero transaction cost. At that point nothing else can beat it. Though not obvious, that is the value of DNotes in contrast to other digital currencies, including Bitcoin.
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The Troubles of “Bitcoin’s PayPal” Show
Why the Cryptocurrency Is Not a Good Payment Mechanism
Leading Bitcoin startup BitPay is cutting costs, suggesting that the currency won’t be catching on soon.
In 2014, a Bitcoin startup called BitPay raised $30 million from investors and was dubbed the “PayPal of Bitcoin” for helping companies such as Microsoft accept payments in the digital currency. But 2015 has been less kind. Last week BitPay made significant layoffs, and earlier in the month it admitted to having $1.8 million in Bitcoins stolen.
The company’s travails neatly demonstrate two problems with Bitcoin as a currency and payment mechanism.
First, no one much wants to pay with Bitcoin and there’s not currently good reason to think that will change. BitPay’s business model was to help merchants take Bitcoin payments—often converting them directly into dollars—and take a cut of transactions. The company has enabled Microsoft, retailer Newegg, and many other companies accept Bitcoin payments.
Unfortunately for BitPay, just about no one gets paid in bitcoins, and for most people there are not clear reasons to bother with the trouble of buying bitcoins just to spend them again. The people with the best incentive to buy stuff with the currency are those who bought it several years ago and are now cashing out their gains after Bitcoin’s rise in value.
BitPay’s CEO Stephen Pair admitted as much in June, when he told BusinessInsider that the company was trying to find another business model. “We keep adding merchants—we’re up to over 60,000 now—but they’re selling to the same pool of Bitcoin early adopters.”
Gavin Andresen, who in 2010 was picked by Bitcoin’s mysterious inventor to lead work on its code, recently told me that he didn’t see that changing soon (see “The Looming Problem That Could Kill Bitcoin”). “Until part of your paycheck is regularly paid in Bitcoin, I’m not sure how it would really go mainstream,” he said.
BitPay’s embarrassing loss of 5,000 Bitcoins worth $1.8 million, revealed in court documentsthis month, highlights another challenge facing both the company and the idea of Bitcoin as a currency. The thief was able to trick BitPay’s CEO into transferring the funds just by sending e-mails from the account of his CFO.
That reflects badly on BitPay’s compliance mechanisms. It also adds to the short but very rich history of spectacular Bitcoin thefts (see “Bitcoin’s Rise Constrained by Heists and Lost Fortunes”). They suggest that the currency’s design is not well suited to being used like conventional digital payment and money tools. Although digital, bitcoins are like cash in that transactions cannot be reversed if something goes wrong. Researcher Nicholas Weaver at the International Computer Science Institute has called that Bitcoin’s “fatal flaw.” Conventional electronic transactions such as credit card charges and bank transfers can all be undone if fraud is detected.
All this presents a big headache for BitPay—and for many other people and companies betting on the idea that Bitcoin would become a widely used payment mechanism. In addition, the Bitcoin community is currently faced with tough decisions about adjusting the cryptocurrency’s design (see “Leaderless Bitcoin Struggles to Make Its Most Crucial Decision”).
The e-mail BitPay’s CEO sent to his staff announcing layoffs last week said that the company needed to “reduce costs” so as to “better align with the pace of growth” in the Bitcoin industry. BitPay may have stumbled for reasons specific to the company. Or we might see other companies start to show the strain as hopes that Bitcoin would quickly gain traction as a currency and payment mechanism prove to be false.
Source:http://www.technologyreview.com/view/541901/the-troubles-of-bitcoins-paypal-show-why-the-cryptocurrency-is-not-a-good-payment/Tom Simonite
September 29, 2015
