The heart of Bitcoin is still beating - part II

Since my earlier post on Bitcoin, the cryptocurrency has continued to stir debate. Among other events, the inventor has been "unmasked," the IRS has issued rules regarding Bitcoin and billionaire Warren Buffett seemed to side with the Bitcoin...

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Since my earlier post on Bitcoin, the cryptocurrency has continued to stir debate. Among other events, the inventor has been "unmasked," the IRS has issued rules regarding Bitcoin and billionaire Warren Buffett seemed to side with the Bitcoin bears with some remarks on CNBC calling the idea that Bitcoin has intrinsic value "a joke."

Buffett's comments have prompted a number of discussions and have been used by Bitcoin skeptics as additional proof that Bitcoin is a fad. Some have taken issue with Buffett's comments, including Bitcoin backer Marc Andreessen (Andreessen reacted by questioning Buffett's understanding of Bitcoin), but Buffett's full remarks need to be read in context:

It's a method of transmitting money. It's a very effective way of transmitting money and you can do it anonymously and all that. (emphasis added) A check is a way of transmitting money, too. Are cheques worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.

This is precisely how those of us who have been looking at Bitcoin as a potential platform to build new services on, as opposed to seeing it as an investment vehicle, have looked at digital currencies. In other words, it's possible to agree with Buffett and still think Bitcoin offers some intriguing and important possible uses. That's because Buffett is correct: Bitcoin is a very effective way of transmitting money. That's kind of the point.

The original paper about Bitcoin offered a very simple idea: "allow online payments to be sent directly from one party to another without going through a financial institution." As I said in my earlier post, Bitcoin could prove to be a very effective method for uses like cross border transactions at a very low cost. For the communities that make cross border transactions, that could be a very big deal. (The costs charged to the unbanked to make cross border transactions is shockingly high. For those who ask, "What problem does Bitcoin solve?" try being poor in a foreign country with no bank account.)

Helping the unbanked send money to their families may not be as sexy as minting billionaires, but it certainly shouldn't be qualified with "only."

Unfortunately, the newly minted IRS rules regarding Bitcoins may complicate that (and other) use cases for a while. Instead of treating Bitcoin as a currency, the IRS will now treat it as property. Transactions using Bitcoins will require more effort for reporting purposes. For the unbanked, that's particularly problematic. In a blog post on the new rules, the Bitcoin Foundation said the new guidance "creates a poor framework for innovation." Indeed. I suspect (hope!) that guidance will be revisited in time and as the possibilities for Bitcoin become more understood.

I'll say little about the "unmasking" of Satoshi Nakamoto except to say that I'm genuinely dubious that the Dorian Satoshi Nakamoto identified as the inventor of Bitcoin by Newsweek is -the Satoshi Nakamoto. I'm not sure that it really matters to the development of Bitcoins much if he is or isn't the guy, but I did note the tone of the article.

Newsweek's Satoshi is described as a quirky, anti-government libertarian with poor social skills. In other words, he's exactly what those who think Bitcoin is supported only by anti-social libertarians think the inventor of Bitcoin would be like.

Posted by James Wester