Bitcoin is the Linux of payments. And its killer apps will be for US dollars.
I was scanning the news the other day, and someone on Hacker News mentioned that half the items above the fold on StreetEYE were about Bitcoin. And I said to myself, I haven’t seen the neckbeards this excited since the early days of Linux. And it hit me, Bitcoin is the new Linux. Go back to 1998, the days of The Cathedral and the Bazaar and the ‘Halloween Document’, and open source zealots were gleefully foreseeing the day when freedom-loving hackers would take down the evil Microsoft empire.
Linux was how virtuous hackers were going to end the hegemony of robber barons who stifled freedom and innovation and extracted monopoly rents.
And a glorified screwdriver shop called VA Linux went public at $30 and hit $320 on its opening day.
And 15 or so years later, what happened? Well, VA Linux is now pretty much forgotten1.
And yet, Linux won the Internet. Microsoft has lost relevance. Linux underpins the Web, sites like Google and Amazon, devices like Android and Kindle. Apple is still (even more) proprietary, but everything they do is built on Unix foundations.
Where is the promised utopia? Isn’t it just “new boss, same as the old boss?” Sure, the world is a better place because the OS and the Web are commoditized, not Bill Gates’s private playground. There is more innovation because people don’t fear everything they invent will become a bundled Windows OS feature.
Linux is the ubiquitous plumbing of the Internet, but does it drive the tech agenda? The tech game is basically the same, isn’t it?
Two killer apps built around Linux are Android and Amazon Web Services (which has many of the network and platform effects of an OS). How different are they from the old Microsoft platform? Like the old Microsoft ecosystem, Android and AWS are open enough that people can build great software and services on top of them, and yet closely directed by a benevolent (we hope) dictator for life with a strong financial interest in their success.
And very closed, proprietary ecosystems are still around: only Apple can make an IOS device, and only Apple can decide what software can run on those devices. Not to mention Linux powering numerous completely closed devices and mostly closed social platforms like Facebook.
Linux ‘won,’ and its killer apps are not-totally-open platforms not all that different from Microsoft’s.
And so I predict, the killer app for Bitcoin is the US dollar.
The open payment API and public blockchain are innovative and have applications for things like property records, stock transfer agents, etc.
The money unit, on the other hand, seems like the biggest step backwards in money since the Rai Stones of Yap (pictures). Like the Rai stones, much greater resources have to be spent to manufacture Bitcoin than the bits are actually worth. And moving them around securely and conveniently is not as easy as it should be.
There are a lot of currencies one can exchange for goods and services: dollars, yen, euros, rubles, subway tokens/stored value cards, Club Med beads, frequent flier miles. And yet, 81% of international trade is settled in dollars, and 62% of central bank reserves are in dollars, both numbers which do not appear to be falling rapidly. The market has sort of spoken.
Thought experiment: What if a comic book supervillain (or superhero) decided to build a replica Fed across from the Eccles building and offer its own currency, payment system, and proposed to supplant dollars. What do you think would happen… would no one adopt it, would it co-exist in some way with dollars, or would it take over, and what would it take for it to do that? A cheaper payment system? A more open API? A system designed to maintain the currency’s value? What kind of value proposition improvement does it normally take to overcome an entrenched competitor?
And Bitcoin doesn’t have The Joker going “Who do you trust! … I’m giving away free money.” Just the opposite! There’s an inherent conflict between managing a currency to be liquid and flexible and support a growing economy, and being an asset which is a long-term store of value. Some currencies, such as the old Deutschemark, the Swiss franc were managed with a sharp focus on being stable stores of value; others, such as the yen, with more focus on supporting export economies. Being an attractive store of value has a downside for real economies using the currency, and Bitcoin is to the Swiss franc like Mr. Potter is to George Bailey.
As a medium of exchange, a store of value, and a unit of account, Bitcoins are a giant fail. There is no case they can or every will hit kind of 10x improvement you look for in disrupting an entrenched incumbent. And what if that competitor writes and enforces the laws, and has an NSA and nuclear aircraft carriers?
And there is also no chance a Bitcoin ecosystem can be tolerated at scale without imposing the exact same terms and conditions as dollars. If our supervillain gets everyone to adopt his currency, the end game is imposing all the same taxes, reporting, anti-money-laundering regs on Bitcoins as on USD. Otherwise, you know the last act is the Navy SEALs clambering down ropes into his replica Fed and blowing the place up.
Please. If Bitcoin is the future Linux, and not the future Segway, it has to lose the Bitcoins.
Just as people are creating Bitcoin-like Dogecoin, Ponzicoin2, etc., the future is Bitcoin-like blockchain APIs to transfer all manner of assets, stocks, real estate deeds, and above all, the most popular asset in the world, the US dollar.
Every super-amazing feat, new contracts, cheap international transfers, low transaction costs, etc. that can be accomplished with Bitcoin can also be accomplished with Bit-cents _ dollars in an account at the Fed, or a bank, or in a vault, transferred using the Bitcoin API.
You want an international transfer, set up a pool of pesos tied to a Bitcoin API, and a pool of dollars, and an exchange where you offer to exchange one for the other, and any time someone buys pesos for dollars, they have to be paired with someone buying dollars for pesos at a market-clearing FX rate.
The only advantage of the Bitcoins themselves is that government is out of the loop, which is sort of a bug as far as the tax collector is concerned, never mind that seignorage goes toward burning electricity instead of building schools, roads, and the occasional aircraft carrier to keep that economy safe.
Like Linux, Bitcoin needs to become the plumbing, and start working within existing financial frameworks.
So, hackers, please. Stop designing mining ASICs, and burning up the planet. If it’s about better financial institutions, access to electronic payments for the unbanked, more efficient payments, financial services without too-big-to-fail financial institution rent-seeking, then start building the startups that will enable them. Show us how Bitcoin can make the world a better place. Stop trying to make fiat currency worthless, and unleash the kind of financial disruption and chaos Bitcoin is supposedly designed to prevent. Don’t try to ‘end the Fed’ Just build things people love, to do the things they need to do with the assets that already matter. Otherwise it’s just about disruption fetishism, geek privilege, and slightly harebrained ideology.
Bitcoins must die, in order that Bitcoin may live. RIP Bitcoins, long live Bitcoin.
Everything that disrupts at one level, must sustain at a different level.
And thus, the world must change, in order that it may remain the same.
1VA Linux is now Geeknet, with a market cap of $120 million or so. Their hardware is gone, GitHub has eclipsed VA Linux’s SourceForge, and Hacker News and TechMeme have displaced their SlashDot paleo-news-aggregator.</p>
2Ponzicoin is not intended to be construed as an actual crytpocurrency.
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