Bitcoin Series 15 - The discontinuity that is bitcoin

I had known about bitcoin for years.    Along with many other 'sophisticated' people in tech and finance, I dismissed it as a tulip-bulb-libertarian-gold-bug-survivalist-geek fad of no importance.   Like you, my savvy [banker / economist / journalist / person-who-does-not-like-their-cheese-moved], I had seen this movie before.   I knew the generally sordid history of e-gold, Liberty Reserve and other private digital currencies and was certain that bitcoin would not be long for this world.   So I spent some time on Wikipedia and Reddit, snorted at the lunacy of the true believers, and years passed.   

In the summer of 2013, I was quizzed about bitcoin by a colleague at the University of Nicosia who had developed an interest.    I gave him the by-the-books answer of how it works and asked him if he had developed a drug habit that I was unaware of.  He persisted.   So  I spent a couple of afternoons playing with the bitcoin client, buying a bitcoin, reading up on bitcoin and generally finding it technically cool.   But I was still a virgin  - sending bitcoins to yourself does not exactly set the pulse racing.  

One Saturday afternoon here in New York, after making a bowl of cheese fondue with my wife, I called my colleague in Cyprus and we decided to play around a bit with bitcoin.   It was 2pm New York time and 9pm Cyprus time.   I was (impressively) still in my pajamas and I am sure my friend was watching soccer on TV.  

In any case,  I asked for one of his public addresses and sent him 0.1 bitcoins, which at the time was about $20, using the reference bitcoin-qt client .   5 seconds later, he said 'yup, I have it'.    If I am not mistaken, the transaction fee was $0.20 (0.001 bitcoins).

There have been a handful of times in my life when I have felt a discontinuity in the tech universe.    In the 1980s, when my mother, an executive at Bell Atlantic, brought home the 1st car phone (the size of a backpack).  In 1993, when I went to college and discovered gopher and email in the school's computer lab.   In 2007, when I grabbed a friend's new iPhone in a bar and started streaming full-screen video.

That afternoon with bitcoin easily makes my top five - the world moved discontinuously and my brain struggled to re-adjust. 

Imagine what just happened.    I transferred $20 to an individual 7,000 miles away at 9pm on a Saturday night in a matter of seconds,  at a trivial transaction fee, without any intermediary to approve, block or reverse the transaction.   And that transaction would have taken the same amount of time and cost the same amount of money if my friend was in Manhattan, Illinois, Cyprus, Moscow, Tokyo, Nigeria, Bangladesh or Patagonia or if I were sending $2, $20, $200, $2,000 or $2M.     The only thing required was an internet connection.

Now we can argue all day long about if bitcoin is a currency, if its volatility matters, if it is a good store of value, if you should use it as a national currency, if it has network effects and 100 other nuances.  While these are important topics, they are ultimately irrelevant to the big picture.  

Seeing bitcoin in action is like seeing email for the first time.  It has been a long road from my first email in college to Gmail. It has been 34 years since the SMTP protocol was published and there is still no universal email equivalent to certified mail and when Amazon sends me a package, it comes with UPS or USPS, not through email.  Having said that, I knew from my very first email that I would send a lot more emails in my life and write a lot fewer letters and postcards. 

Bitcoin is like that.    It won't replace the financial system, the Fed or the nation-state.    It will supplement the financial system in a big and important way, push it to be more innovative and efficient and, finally, will merge with it, in the same way that IP delivery has crept into telephony and video infrastructure over time.   To start, we will use it internationally, we will use it for micro-payments, we will use it for new types of contracts, we will use it in dangerous parts of the world and our machines will use it, first to help us, and then to coordinate when they rise up against us.

But if you think that this idea can be 'unthought', that somehow I can erase from my memory how I dropped $20 in my friend's pocket in Nicosia in a few seconds, without $30 of fees for each of us, plus 2%-3% of currency spreads in each direction plus 2-3 days waiting for the weekend to end and the bankers to get back to work plus forms and approvals, well, I just don't see how that happens.   Bitcoin might be worth $10, $100, $1,000, $10,000 or $100,000; it might be bitcoin or some other coin that ultimately 'wins'; but this idea is here to stay...

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Posted on January 7, 2014 and filed under Bitcoin.