@BrianM_Butler I’m really not qualified, the economics baffles me. But the idea of creating money ex nihilo by hard calculation fascinates.

@looksurly I’m currently just researching Bitcoin and am wondering what would make the average person adopt it? Wonder if we’ll ever know.

Hi @BrianM_Butler and @looksurly,

I am not an economist either, but I am an average person and I just recently decided to adopt Bitcoin in a fairly big way. I bought some bitcoin and created this website to educate others in just the last few months. First I am going to give a list of what I see as some of the key benefits and criticisms of Bitcoin. Then, if you are interested, I am going to give you a little of my personal journey to Bitcoin.

Benefits

Bitcoin has utility. It solves a number of real-world problems, and if it grows large enough, it may solve more.

• Bitcoin can be used to ship-money overseas without incurring the high transfer costs of banks. I live in Japan, and this is a real issue for me.
• Bitcoin can be used to pay for things online without having to get a credit or debit card, without incurring their fees, and without being subject to their rules. (Have you ever actually read the agreement?)
• Bitcoin can be used to store money securely. There are things that need to be taken care of to do this, but then this is true when storing any type of valuable commodity.
• Bitcoin is a hedge against a market crash. If the world markets take a plunge like they did in 2008, Bitcoin is positioned to be the commodity that people will flee to save their money, just like some Cypriots did. In this respect, Bitcoin has some of the advantages of gold or commodities, but you could carry all the bitcoins extant on a single thumb drive.
• Bitcoin is volatile, but if successful, its value will only increase. The limit on the number of Bitcoins means that a Bitcoin economy will be, by its very nature, deflationary. Governments prefer inflation since the debt they incur will be cheaper, but deflation favors the average citizen.
• Bitcoin will allow easier exchanges in areas like Africa where many countries, currencies, and languages intersect.
• Bitcoin will allow people in poorer countries without good access to credit card companies or Pay Pal to get on the internet and benefit from the economic rewards of doing so. This is one of the reasons that Word Press started accepting Bitcoin.
• Charities will be able to accept contributions directly without incurring the fees of credit card companies or Pay Pal.
• The Bitcoin economy is growing and there is potential for explosive growth.
• Bitcoin, if it grows large enough, will force financial institutions to rethink their services and policies because people will have a viable alternative.
• It is not controlled by any government, individual, or group, so it will be difficult if not impossible to manipulate.
• Bitcoin is innovative. This will open up possibilities that people haven’t even thought of. One of the most exciting aspects of Bitcoin today is the news of companies trying out different things. Just like the internet spurred a myriad of different activities and businesses, so, likely, will Bitcoin.

Misconceptions and Criticisms

There are a number of typical claims made against Bitcoin. Some have more validity than others:

• There is no real value behind it (creation ex nihilo): This is also true of dollars. Governments print money from nothing. Of course the Dollar is backed by the full faith and credit of the US Government. But you will also notice the budget battles we have had over the last few months where threats to allow the government to default on its debts have been floated. The real threat  is to expose the Dollar to a loss of faith which could send its value plummeting. The Dollar is floated by an expectation of value, and that is the same for Bitcoin.
• It’s a Ponzi scheme: It’s not. Unless, of course, you think the whole US financial market is a Ponzi scheme. A Ponzi scheme can be run with Bitcoin, just as with dollars, but it is not one itself.
• It’s illegal: It’s not. How it gets regulated and integrated into the world economy is still an open question. It may even happen that certain countries try to make it illegal, but Bitcoin is very much legal.
• It’s been hacked: It hasn’t. The way bitcoins transactions are recorded and validated makes the process very secure on that end. There are lots of challenges making sure that electronic wallets are secure, exchanges are secure, and so forth, but the basic system is pretty solid.
• It is a haven of money laundering and black market activities: True. And so are all other currencies. Furthermore, one of the often cited, but wrong, advantages of Bitcoin is its anonymity. While true that Bitcoin addresses do not have a name on them, all addresses, and the number of coins in them, are publicly available. That means that anyone can mine the data of the block chain and try to find patters of use that will tie addresses to an individual. Tracking Bitcoin transactions might be hard, just like for cash, but possible, just like for cash.
• Bitcoin is used by political radicals: True. But this is becoming less the norm as Bitcoin grows up. As I stated above, Bitcoin will pose a challenge to the current governmental and financial system, but that challenge will come from the inherent nature of Bitcoin itself and not from any one group’s agenda.
• It is a haven for tax-cheats: True. But this is also true of dollars. People with a will to cheat on their taxes will find a way. For most of us though, taxes will be collected from payroll and at point-of-sale whether we are using dollars or bitcoins.
• You can’t get your money in or out: Partially true. Bitcoin is still developing, and as with any new thing, there are snags. Buying Bitcoin hand-to-hand is one option, but means that you need to find the person to trade with. Trading on eBay or Craigslist a little dangerous for the buyer and very dangerous for the seller due to the non-reversible aspect of Bitcoin. Exchanges have been created and run into lots of problems ranging from being unable to scale to the volume of sales they may see in a spike or crash to failure to meet all regulatory requirments (which are, nevertheless, vague). Bitcoin can be bought and it can be sold, for not really that much more effort than applying for a credit card. But it is not as straightforward, so this aspect of Bitcoin is likely to keep some people away for the time being.

My Personal Journey

Bitcoin first hit my radar about a year and a half ago when I heard it mentioned on the Planet Money podcast. They talked about it as an interesting experiment in virtual currency and mentioned that it just might have a usefulness that would help it succeed. They also mentioned that it was a risk since no one really knew what would happen with it.

I thought at the time that it is something that I should check out, but then didn’t. It seemed marginal and risky, and it would be something difficult to explain to the wife. Better to leave it alone. I have two preschool kids and a nine-to-five job, and that keeps me pretty busy. I didn’t have the time or the money to waste.

One other point to mention is that I am something of a news junky. I listen to hours of podcasts from a range of sources and with a range of perspectives every day. And it drives me nuts. I want nothing more than the American dream that I grew up with. And it seems to me that that dream is still possible but for actions of some in our country who will not be happy until the people are Balkanized, the middle class impoverished, and the commons defiled. In normal times, I would probably be termed a moderate, but in our current political climate I have been made to feel radical.

I am no tree-hugging hippy. I believe that people should work hard to make a living and that people who have special talent or put in special effort should get special rewards. I do not believe that the game should be rigged in such a way that it’s impossible to get ahead without winning the lottery. And I think that that fairly well describes the environment that we currently have. It has often been reported in the news that the middle class in America has lost ground over the last forty years. I am one of the many who feel that although I have paid my dues, and although I have a job equivalent to the one that my dad had when raising a family of five, I cannot even buy a house. I don’t read that the middle class is eroding; I experience it every day.

At the same time, I can’t help but notice that after the Crash of ’08, very few in the financial industry went to jail. The article I have linked to here points out that there are legal challenges to pursuing Wall Street, traders, or the financial advisors who precipitated the crash. Legal challenges there may be, but there were also few congressional hearings, weak efforts to reform our laws to prevent these types of dangerous activities in the future, and a continuation of the comfortable relationship between Wall Street and Washington. After a calamity on the scale of ’08, there should have been a full-on press to get to the bottom of the problem and fix it.

It was certainly possible to go after the banks, but Attorney General Eric Holder is on record saying that some banks are just too big to prosecute. Leaked emails and whistleblowers have given plenty of evidence that a full-on investigation should be made, but no real effort has been made.

So what have we learned from all of this? Steal five dollars and you go to jail; steal 50,000,000 dollars and you get a bonus. Wall Street has walked away from the crash with barely a hair-tousle. The have learned that they are above the law, untouchable.

Right now the stock market has rebounded to pre-crash levels, so for Wall Street, the crisis seems over. But for Main Street, we are still dealing with un- and underemployment levels far above what they should be (and far above what the officially published numbers suggest). The economy is sluggish, and the only reason that the stock market is doing so well is that the banks are still able to conduct the same kind of activities that led up to the crash of ’08 facilitated by the government printing fiat to boost them up. But precious little of that money is trickling down to Main Street. Rather, on Main Street we are seeing battles over the minimum wage.

It is my personal belief that there is another big crash coming, and that this one might be worse than the last. We have already used up a lot of our reserves in surviving the last, but the recovery has not been good enough for us to rebuild those reserves.

About last April, I had a change in my personal situation that meant that I was ready to explore new opportunities. Just as I began to look around, the Cypriote banking crisis hit and the price of Bitcoin soared. That got my attention again. It took a couple of weeks for me to get comfortable with the idea of becoming a Bitcoin user and promoter. There are risks, to be sure, and when I talk to people who don’t know much about digital currency, they think the whole idea sounds whacky. And, in fact, I still agree with them to a large extent.

I am not 100 percent sure that Bitcoin is going to fulfill its potential. I attended a Bitcoin Meetup last week and heard lots of the people there repeating that in five years Bitcoin could be worth much more than it is now, or it could be worth nothing. I think that that is a fair assessment. At the same time, I look at Wall Street and Washington and feel that a breaking point is coming. Put one next to the other, and Bitcoin starts to look pretty good to me.

As noted in this article, I am new to Bitcoin. There are many people more experienced and knowledgeable. Please leave your comments, corrections, and suggestions.