OK, this has come around again, so I guess I need to actually fill a few of you in on something. I hate to be the one to break this to you. But, Bitcoin isn’t going to ever achieve any kind of mass success.
There’s no conspiracy theory, no “big banks are keeping it down, man!” plot. The reasons why Bitcoin will fail like EVERY OTHER ATTEMPT to create a digital currency before it simply boils down to this.
Social and political issues have never been solved technologically. They’ve always been solved.. well, socially and politically first, and the technology has only played a factor long after the shouting has stopped.
The reasons for this involve “tipping points”, and I won’t go into the whole theory on tipping points and macroeconomics here. Go read Freakonomics and The Tipping Point if you want an exhausting analysis as to the reasons Bitcoin has yet to achieve enough critical mass (and more importantly, enough critical mass in the right areas). The TL;DR edition: until you can use Bitcoins at a mass-market retailer, fuhgeddabout.
But let’s wander back to the first point, which is, technology never solves social ills by itself. It only solves social and political problems when it is clear to enough “somebodys” that Societal Ill A can be solved by Technology B in a direct, linear fashion. And, to that end, Bitcoin doesn’t even serve to solve the societal ill it claims to combat. And that goes double here in the US, I’m afraid to say, because we do live in a self-styled “democracy”.. and I’m ashamed to admit this, but most Americans are too dumb to understand any cause and effect that can’t be summed up in a 15-second infographic on CNN.
Bitcoin is trumpeted up as being a way for, say, the Occupy Movement to finally free us from the financial tyranny (*snort*) of the Big Banks. Well, that’s all fine and dandy, but.. please explain to me how any third-party currency, be it Bitcoins, Lindens, or Disney Dollars, “frees” me from dealing with the Big Banks when it is impossible to buy any of the “necessities” of life (food, clothing, shelter, and transportation) without using US Dollars. It’s not just difficult, it is impossible. Even the handful of small merchants who accept Bitcoin are doing it largely via automatic exchanges that are converting the coins into US Dollars at clearance. You can probably count on one hand the pure-play merchants who are keeping any quantity of Bitcoins on hand.
And that shouldn’t surprise anyone. How many brick and mortar merchants keep a large quantity of cash on hand? None of them do, don’t be silly. They may keep a few hundred dollars in change, and they may have a day’s receipts worth of cash because they haven’t made the bank run yet. But in the back of the grocery store on the corner there isn’t some massive safe with thousands of dollars locked away in it for any longer than it has to be.
And that goes double for Bitcoins, because of the very volatile nature of the “currency.” Minute to minute prices of Bitcoin fluctuate, so if you’re a merchant that accepts Bitcoin you are playing a game of “beat the clock” every time you accept Bitcoin. You want to get that out of the liquid state of Bitcoins into cold, hard US Dollars as quickly as possible, lest you potentially lose the entire value of the transaction when the Bitcoin market has one of it’s frequent and violent cases of shitting itself.
Businesses are highly risk-averse, and there is no greater risk heavier than acting as a currency exchange. In effect, every merchant that wants to accept Bitcoin has to know the value of Bitcoin to whatever they’re paying out in expenses in (and with rare exception, regardless of where in the world it is, that essentially becomes the US Dollar). There is actually one or two of the major Bitcoin trading houses who do this automatically via a “shopping cart”: and guess what they clear the funds in. Usually, the quicker the better.
Point is, even in some hypothetical future scenario where Seven-11 takes Bitcoin (hey, it could happen, they take PayPal, amirite?) they’re not going to be trading in Bitcoin, just accepting it and converting it to a more fungible, negotiable currency. Right now, that currency is the Federal Reserve Note US Dollar, who.. yeah, we know. Big banks.
At the end of the day, big banks have their hold over us precisely because they’re.. big banks. When Kroger needs a loan to open a new store, they’re not going to launch a Kickstarter. They’re going to talk to their banker, and depending on their financial solvency they may issue more stocks, or a capital bond, or borrow the money. In all three cases, the people who are giving them the money will be giving it in US Dollars, and expecting payment in US Dollars.
And why not? The US Dollar is a reasonably stable currency. You know that if you loan out $1,000,000 at 5% interest exactly how much you’re going to get paid back. And the only calculation you have to make as the loaner of the money is the risk of the investment itself compared to other potential investments: you don’t have to necessarily worry that the currency will be worth substantially less in five years’ time. The ups and downs of the US Dollar are “well understood”, the risks are largely able to be mitigated.
The only way Bitcoin will ever succeed as a widely accepted currency is if the US Dollar fails. And to be honest, if that happens, no cryptocurrency will save us: there will be no capital available to keep the lights on to even think about a cybercurrency.