- Boring, right? A bitcoin ATM in Vancouver.
Some day in the far off future, when we’ve all got chips implanted in our temples and synced to our Google glasses, Justin Beiber is running for president and “The Walking Dead” is beginning its 29th apocalyptic season, we imagine bitcoin will be boring. Just another thing, a thing that most people don’t even think about anymore. Boring may not seem like much of a goal, but it is for a currency, especially a new, radical, alternative, currently exciting one like bitcoin. Because when bitcoin becomes boring, that means it will have integrated itself into daily life.
The alternative currency briefly spiked up over $1,000 over the weekend, at least on Mt. Gox’s exchange, after Overstock started accepting bitcoin as a payment option. Since running up to more than $1,200 in 2013 — after starting out below $20 — it’s been more or less range bound (“range bound” for bitcoin, mind you, is a very wide range.) On Monday it was trading around $900.
The spike in prices, though, is benefiting only a small group, Steven Englander, global head of G10 strategy at Citi, wrote in a note to clients. “The distribution of bitcoin holdings looks much like the distribution of wealth in North Korea and makes China’s and even the U.S.’ wealth distribution look like that of a workers’ paradise,” he wrote in a weekend note to clients.
In the early days of bitcoin, people got it by “mining” for it, essentially turning their computers to the task of extracting and solving math equations from the algorithm that’s at the heart of bitcoin. As more people got involved, the equations got increasingly harder (a feature of the system to control the level of mining). Those early adopters thus had, and continue to have, a huge advantage in terms of the price.
Mr. Englander (citing other sources) estimated that 1% of bitcoin holders are sitting on 80% of the total value. In that case, bitcoin has “seignorage” like any other asset, he argues, and while that can create some serious imbalances, it also could produce some social good: if those early holders are driven to encourage bitcoin’s use, even for their own profit, it could drive wider adoption of bitcoin, and that’s where it becomes relevant, he thinks.
“We are less excited about Bitcoin as a store of value and alternative to fiat currencies than about its potential use in facilitating transaction and improving payments efficiency,” Mr. Englander wrote. This is similar to what we’ve been saying for some time, that bitcoin’s value lies more in its ability to be a mundane facility for people’s daily needs than some spectacular modern gold rush.
“Net, net, we like small-‘b’ generic bitcoin as a payments technology more than big-‘B’ brand-name Bitcoin as a store of value,” he wrote.
The idea of bitcoin as a payments system is gaining steam. Overstock’s Mr. Byrne noted, importantly, that the company isn’t keeping payments it receives in bitcoin as bitcoin. It’s converting that into dollars. Because his suppliers aren’t using bitcoin, there’s no reason for him to hold onto them, he said. So, in essence, what Overstock is doing is using it only as a payments system, like, say, PayPal.
That isn’t to denigrate bitcoin (or PayPal, for that matter). As 2014 progresses, this will be where bitcoin developments get interesting, not the price movement. In fact, Lightspeed Venture’s Maninder Gulati thinks bitcoin will evolve beyond being just a store of value or payments system in 2014. We’ve heard similar predictions from others; that what’s really important is the underlying protocol, and as bitcoin develops, more entrepreneurs will come up with ways to use it that are beyond mere currency. And that’s when things will get exciting.
One of Mr. Gulati’s other interesting predictions is that this year will see the advent of an interface that brings bitcoin to the masses in the same way Netscape’s browser brought the Internet to the masses in the 1990s. “It is still very difficult for the average ‘Joe’ to understand, acquire, store and use bitcoins,” he wrote. “Hence, what a ‘browser’ did to the Internet, a product or technology innovation will do it to bitcoin in 2014.”
Citi’s Mr. Englander, in fact, sees a path in which alternative currencies become accepted as an asset class, and possibly even absorbed into the existing system. “Businesses are likely to prefer whichever payments system gives the best combination of safety, security and stability. They are likely to be indifferent whether these characteristics will be found inside or outside the conventional financial system or whether the preferred vehicle is the original bitcoin, a bitcoin lookalike, or USD-coin that makes transacting easier.”
A bitcoin greenback? There is nothing boring about that idea.