One third of all the Bitcoins that will ever be created have now been mined. This is as a good a time as any to re-state the facts about Bitcoin.
It needs to be pointed out to the easily frightened out there on teh ineternetz, that Bitcoin has not ‘failed’ simply because the first company to provide a service that uses it (MTGOX) has attracted users who exhibit a class of behaviour and needs.
MTGOX is nothing more than a single company that is providing a service. It does not set the true value of Bitcoins, it publishes what its users are willing to pay for it. This has nothing to do with the actual value of Bitcoin now or in the future.
We can infer this by using a thought experiment.
Imagine a world where Bitcoin is in use by one hundred million people. Every day, people use for every conceivable type of purchase. It is easy to obtain Bitcoins and people have no problem understanding them or spending them.
Now imagine this world with or without MTGOX.
The value of Bitcoins does not change in this world very much, one way or another with or without MTGOX. The aggregate demand of one hundred million people, all trading Bitcoins between themselves, measuring its true value on a minute to minute basis will tell each user what the real value of Bitcoins are.
And that value is orders of magnitude greater than twenty Federal Reserve Notes.
For example, lets suppose that you buy a Chinese take away meal for eight people for one Bitcoin. And that includes four bottles of Champagne. You get an instant feel for what a single Bitcoin is worth in the real world.
This is how real people determine the value of their money. This is how they know that ten dollars is too much for a can of coke.
What is happening now with Bitcoin right now is that it is circulating in a closed feedback loop populated by highly skilled programmers with financial software backgrounds, Libertarian monetary policy enthusiasts and over-clocking geeks. Once the Bitcoin economy breaks out of this closed feedback loop and is in wide use, it will not be possible for a single exchange to alter its value.
This is the inevitable scenario that the Bitcoin detractors cannot see. Bitcoin now is exactly analogous to the birth of email, and all the arguments against email taking off and replacing the post, all the arguments against shopping on the internet all apply equally to Bitcoin.
As I said before, the rate of adoption that Bitcoin will experience will be very much faster than the rates of adoption of email and web browsing. What needs to happen to push adoption along is this:
- The building of simple to deploy tools so that anyone can accept Bitcoin.
And that means plugins for Word Press, Magento, OS Commerce and every other platform that is out there. Imagine a ‘+01’ button for every page you publish on the internet. Imagine Stack Exchange implementing this ‘+01’ button. Do I even need to go on?
It doesn’t take a genius to imagine what would happen if someone developed a Bitcoin app for Facebook. If it spread virally, you would exceed one hundred million users of Bitcoin in a very short amount of time.
Already, people have been donating to posts on BLOGDIAL through the address that is published on every post made by ‘irdial’. Other bloggers are explicitly asking for Bitcoin tips in their sidebars. Once the word gets out that you can make money simply by posting a string on every post, adoption of Bitcoin will explode in the Blogosphere. I imagine the quality of posts will also improve dramatically, as people craft their words to solicit tips, rather than to simply get something off of their chests.
Bitcoin is not MTGOX. MTGOX is a service that is built around Bitcoin. At any time, some piece of software or some service could emerge that will cause adoption of Bitcoin to go viral. Even something as simple as a simple Tweet from a highly influential blogger could cause literally millions of people to download the client and start using Bitcoins.
Anyone who says Bitcoin is finished because a small group of people are agreeing on artificial prices on its first ever large scale service doesn’t understand what Bitcoin is, or what its potential is.
And a final note. The Federal Reserve stopped publishing ‘M3’ the metric that told you the number of dollars in circulation. Bitcoin is different. We know how many Bitcoins are in circulation at every instant because it is public knowledge and will always be public knowledge. In this respect, Bitcoin is more transparent than the dollar, and of course, there is an upper limit to how many Bitcoins there will be, unlike with the dollar that can be printed willy nilly.
The low exchange rates that Bitcoin services are quoting are a great opportunity, maybe (or maybe not) your last opportunity to get Bitcoins at a low price through the current exchanges. As it is with Gold, you will kick yourself if Bitcoins go to $5000 per Bitcoin, just as gold is predicted to go at least ten times higher than it now stands, at record prices of $1671. Both gold and Bitcoins are cheap at today’s prices.
You have been warned.