So is Bitcoin doomed to become a niche curiosity, used for remittances and international purchases by the bold, and for illicit goods by the wary? (Large niches, granted, but niches nonetheless.) How and when could it actually enter the day-to-day life of anything more than a small minority of people? What is the Bitcoin killer app?
I don’t know — yet — but I suspect it will emerge from arguably the most remarkable thing about Bitcoin: it’s not just electronic money, it’s programmable money. (Every Bitcoin transaction is actually a fragment of code written in Bitcoin’s scripting language.) It’s a chicken-and-egg problem, though; how will programmable money matter if almost no one is using it outside of a few very clearly delineated use cases?
Very well put together piece from The New Republic on how the original decentralized dreams of bitcoin aren’t being realized:
The prospects for democracy in the system have grown dimmer still. By the middle of last year, the largest mining pools came within reach of a 50 percent market share—making it possible for them to endanger the whole system by falsifying transactions. What prevents them from actually doing so, apparently, is that it would reduce confidence in the value of the bitcoins they invest so much to mine. They also prevent changes to the Bitcoin software that would lessen their dominance. A distributed network of users now has to trust an oligarchy of capital-intensive miners.
3. (De) Central Bankers
Central bankers continue their long-distance love affair with the concept of digital money. First up is Bank of England, which raises some interesting questions around the issuance of government-backed digital currency in their One Bank Research (direct link to digital currency section here). This debate caught the eye of the mainstream press as well as a few bloggers, including Ken Tindell’s excellent post:
In one sense the Bank of England is asking the same QTWTAIN that others have posed in response to Bitcoin: “Can we have a centralised decentralised system that has all the advantages of Bitcoin but none of the disadvantages?” But a better question which the Bank is hinting at is “Can a central bank be inspired by Bitcoin to create an egalitarian payment system that has features that the Internet Age needs?” Answering that question will be fascinating.
Back in the US, the authors of the Boston Fed research paper Bitcoin as Money? (Stephanie Lo and J. Christina Wang) gave an interview to CoinDesk where they reiterate all their concerns about bitcoin the currency, such as the perverse tendency to centralization in mining as well as the bug (feature?) that bitcoin has no backer (which strikes me as a bit of book-talking). I did find myself nodding at this section:
Further, they suggested that the technology has been effective at least at waking up the financial world to new ideas on how payments can work. “Bitcoin’s presence has demonstrated that a separate system outside the existing established payment system is a very real possibility, and it has emboldened potential entrants as well as galvanized at least some incumbents,” the researchers said. They went on to suggest that bitcoin, even if unlikely to succeed, will prove “valuable in stimulating innovations”.
Bitcoin transactions are faster and cheaper than traditional transactions, which is an important incentive not only for end users but for government agencies as well, as shown by the recent Bitcoin bills in Utah, New Hampshire and New York City. It seems likely that governments will try to appropriate selected aspects of digital currencies, and eliminate undesired aspects such as anonymity and volatility, to create efficient and cost-effective but fully regulated digital economies.
The project initially created buzz in in the bitcoin blogosphere, but that interest faltered once it was clear that Ecuador’s project would not present a competing alternative. Not only is the technology importantly different, but Ecuador’s electronic money system currently can be accessed only by qualifying citizens and residents.
In fact, Ecuador’s project is more similar to M-Pesa, a mobile phone-based money transfer service started by Vodafone, according to Pete Rizzo, the U.S. editor for cryptocurrency site CoinDesk.
In many ways, the new system will be a government-run version of Venmo—users will be able to make payments with the aid of a cellphone and store value in their accounts. But unlike the popular smartphone application, the Ecuadorean version will be able to run on “dumb” mobile devices too.
This article’s title is a bit misleading, as it makes the point that the “unbanked” don’t need access to banking but to financial services, which can be delivered outside of a traditional bank:
A paper by a Development Research Group of the World Bank concludes that only 24 percent of adults in sub-Saharan Africa have formal bank accounts and 18 percent in the Middle East & North Africa. Researchers reported a strong correlation between income levels and financial product penetration. However, the 2010 report by McKinsey, titled Half the World is Unbanked noted that the fact these people are unbanked does not mean they are unservable. The report clearly stated that serving adults who live on less than $5 a day is not only possible at scale, but it is already happening.
From the insurance perspective, Hollard notes in its 2014 Integrated Report, that low income communities are not uninsured because they face uninsurable risks; but rather because very few insurers truly understand their needs.
For now, the foundation is the only organization of any size publicly known to be making use of Stellar. Praekelt hopes that will change after companies and other nonprofits see the savings account service in action.
However, digital currencies have yet to see much take-up from conventional financial institutions or companies anywhere in the world. Kentaro Toyama, an associate professor at the University of Michigan who studies technology and development, says that even if Stellar does make it easier to build new financial services for poor people, it will still need to win the approval of regulators.