NOTE: There is a tl;dr at the end. But if you plan to participate I beg you to read the full post, since maybe your concerns were already addressed.
I would like to share with you some questions/rants/introspection about this community and Bitcoin in general. Often is hard to look inside and try to challenge what I believe is in some extent echo chambering, collective madness and a little bit of paranoia.
The problem I see with Bitcoin is that, despite the fact Satoshi envisioned a trust-less system, this community strives for mainstream adoption. These two scenarios are simply not compatible. We need to trust someone at some point, or the alternative is to spend great amounts of time and energy to get the expertise of a bank-grade security consultant (in addition to your day job). Maybe some people in this community can reach this level of expertise (although scandals like MtGox or Bitcoinica among others show it is not easy), but what is sure is that the most part of the world are nowhere near. And it is not because they are stupid, but because their role in society is different. They are doctors, chemists, lawyers, mechanical engineers, etc. who may excel at what they do, but they don't know (nor they care) how to set an air-gapped network with two computers communicating through the sound card.
Before you jump to the conclusion "Well, if they actually don't care, they don't deserve this currency" think about your knowledge of how antibiotics and cell division work, the distribution of mechanical/thermal stresses in an aircraft or the differences between the Otto and Diesel cycles in a four-stroke engine. It doesn't mean that you don't care about diseases, cancer, transport or energy, but that your role in society is probably different and you expect the experts on each field to 'dumb down' their findings such that newcomers can more or less understand it.
The problem with Bitcoin is that either you become an expert in the field and you make it all by yourself (and even then you will end up trusting the OS developers) or you will trust someone. And, at that point, why don't simply stick with Visa, who provides chargebacks if I am scammed?
Some proposed solutions involve hardware wallets, but this solves no problem. How can we be sure that the RNG is not backdoored? Should we trust everyone in the distribution chain from development to delivery not to backdoor it, considering the huge rewards that there are in doing so? Or should we expect that everyone becomes a hardware/firmware developer with Master in embedded systems, and do it from scratch?
My point is that a big percentage of people here are invested in Bitcoin (either by buying early or mining) and have a veil in front of their eyes. This phenomenon is normal, it is one of the well understood human cognitive bias called 'Rationalization'. And it can be dangerous since it prevent us to see the big picture. Or, in other words, these people only want Bitcoin to succeeded because it will give them enormous riches. And I find it a wonderful, respectable reason. But we should not let it blind our rational thinking.
The fact that more and more merchants are accepting Bitcoin can be explained by the fact that many people (early miners and adopters) are sitting in huge stashes of Bitcoin with no way to cash them out (at least without sending an identity theft pack to a shady exchange and risking problems with your local bank). That explains why these merchants received huge amounts of transactions when they started accepting Bitcoin. It's just people cashing out. And they will probably stop accepting it once the volume of sales is not enough to balance the risks (with BitPay/Coinbase/etc and the local bank) and the costs of accepting Bitcoin.
I'll try to debunk some commonly accepted points in this community. Feel free to counter my counterarguments:
M) Payment with Bitcoin is easy, just sweep a QR-Code and make the payment.
A) If you do so, you trust that Google(Android) or Apple(iOS) are not evil (modifying the RNG, keylogging you...) or incompetent (allowing a rogue third-party app to do the former). If you lose your phone (or it is stolen) your money is gone. If you are scammed by the seller, it is lost.
M) You can minimize the losses of losing your phone if you keeping a small amount. It would be, in this case, like losing your traditional wallet.
A) I agree, that might work. But at this point I don't see the difference with traditional metal coins and paper bills. And the risks of the previous point.
M) Bitcoin protects you from inflation, currency manipulation, global economic disaster, etc.
A) I agree, too. But this is exactly the 'non sequitur' fallacy. I agree that the governments (or the classes that control them) have way too much control over the currency. But this problem comes from really long ago. And the traditional way to deal with it are offshore investments. Actually, Bitcoin might be just one more investment choice (a particularly, specially risky one), but I don't see how can be anything more.
M) But I cannot make offshore investments with my small wealth!
A) National (or global) instabilities are a problem of the rich. If you have less wealth than a threshold ($100,000 I think?) your deposits are guaranteed. And if the crisis is so big that even that cannot be guaranteed, you'd better learn how to raise your own vegetables and how to clean water. Bitcoin could not help you in this scenario.
M) Bitcoin is so handy to use. Just send instantly money worldwide.
A) So are Paypal/Visa/MasterCard, etc.
M) But they take a fee!
A) So do the Bitcoin miners and Coinbase. Don't expect people to work for free. If you say that Visa's fee is higher... well, that doesn't seem to be a problem for most people, considering the advantages (chargebacks and insurances).
M) My bank does not let me to send money worldwide!
A) Western Union can send money to many places. Of course with a fee.
M) A Bitcoin wallet cannot be frozen
A) Bank accounts are NOT frozen for the most part of people. If you bank freezes your account often, I guess that you are still a niche market.
And now the drawbacks of Bitcoin, which seems to be invisible:
- Your wealth can be gone in a matter of seconds for reasons you might don't event understand (for non-technical but intelligent people). To put an overly complex example. Imagine that with ssltrip someone stole your Gmail credentials and modified an attachment that you then executed in another computer and it slightly changed the RNG of your Linux distribution so the successive keys where not 100% random, giving the attacker a small edge to guess your private key.
- Centralization problem. This issue has been largely discussed and so far the solution is again, trust that the miners won't accumulate 51% of the hashing power, and if they do, they won't be evil.
- Future transaction fees. It is not clear how it will work once the block reward is negligible.
- Conversion to other currencies (in anonymous but somehow not shady exchanges)
- Security. This one is for me a fatal flaw. I am yet to see a satisfactory solution, but unfortunately the current system (not only financial, but the whole society) is based in people's good-faith and reversibility when not.
- Blackmailing, Cryptolocker: here is where my first point point of "[...] and a little bit of paranoia" comes. One might believe by reading this forum that the current financial establishment (from the IMF to your local bank branch) have just one thing in mind: "Screw you". Although economic incentives might turn evil the greatest saint, the most part of the times there are reasons for their decisions. Anonymous transfers incentive thefts and blackmail. Transfers to conflictive countries are likely to be used for illicit purposes (when was the last time you sold something to a Nigerian customer?). Not always, of course, and that is how Bayesian reasoning works. If all you know about a person is that is it interested in making an anonymous payment to Iran (for example), the bank thinks the worst and freezes his account. Then, ideally, they will contact the person and update their 'beliefs' about this client, and with this new information they can choose to unfreeze the account. The system may be perverted at some points, but I don't think it is 'evil' from the roots.
tl;dr
Bitcoin has many drawbacks: Centralization (Damocle's sword), security (even with hardware wallets), shady exchanges, blackmailing. And the advantages are not more than investing in offshore assets and selling them when you need money (so, one could keep wealth in a varied portfolio of offshore assets/shares/commodities/whatever and sell them to fiat in order to make transfers using the traditional banking system (or Western Union, or whatnot).
I didn't mention the two most common red herrings (in my view): price instability and deflation.
I would like to be proven wrong in a peaceful, rational debate. I am sure that newcomers often wonder about these issues, and they cannot find satisfactory answers anywhere.
I have a flashback of Orwell's Animal Farm, where the humans are the bankers. Boxer the horse is the hard-working, idealist people in the "Project Development" subforum. And the pigs are the... guess which Foundation?