New Zealand will next month get a full dose of what bitcoin is all about in our first cryptocurrency (read bitcoin) conference. Bitcoin South (Nov 29-30, 2014) will bring together bitcoin experts, investors, and anyone mad about bitcoin. Experts will speak on among other issues, the regulatory framework for bitcoin, the accounting side of bitcoin (blockchain) and bitcoin mining.
Here’s the good bit, there are some really smart money people who haven’t ruled out bitcoin completely.
Bill Gates told Bloomberg TV: ““Bitcoin is exciting because it shows how cheap it can be.”
Peter Thiel, founder of PayPal, has had mixed views on it, although he was an early investor in BitPay, a bitcoin company. His last comments: “I will become more bullish on bitcoin when I see the payment volume of bitcoin really increase.”
Warren Buffet, super money guy, however, does not like bitcoin. Read Forbe's take on his views here
NZ’s Reserve Bank deputy governor Geoff Bascand, in July this year described virtual currency (best known being bitcoin) “as a very low cost payment method with strong security features and usable for cross-border transactions…” He also warned of the drawbacks, including volatility and the speculative element of bitcoin. Read his full report here. Also check out the European Central Bank's view on virtual currency
Q: Why should anyone be interested in bitcoin?
A: Bitcoin is significant because it allows you to send any amount of value securely to anyone in the world almost instantly and very cheaply over the internet.
It’s sent directly P2P without the need for institutions acting as middlemen and taking a cut or imposing political agendas. Bitcoin is to traditional money what email is to snail mail, it is the ‘internet of money’. Also there is a lot of interesting innovation happening with the technology behind bitcoin, the blockchain.
The currency bitcoin was really just the first ‘app’ and there are already multiple other uses for the decentralization made possible by this new technology. This huge potential for new types of industry is the reason why we are seeing massive amounts of venture capital being invested, even more than the early days of the internet.
Q: How may bitcoins are in circulation around the world?
A: 13,380,725 at time of writing (as at Oct 14th, 2014) out of a total 21 million that will ever exist. Each bitcoin can be split up to 8 decimal places (0.00000001). This smallest number is called a 'satoshi' after the founder of bitcoin Satoshi Nakamoto.
Q: There is a huge debate going on that this whole bitcoin thing is a scam, a sort of Ponzi scheme. Is there any truth to it?
A: That's just a lack of understanding and a common miss-conception. The Bitcoin protocol or code is open-source. This means that anyone can look at it and see exactly how it works and the rules that it follows. There is nothing to scam. Basically you either understand the advantages of a technology like bitcoin and choose to participate, or you don't.
Q: Who regulates bitcoin promoters/traders/or trading companies?
A: No one person or organisation regulates bitcoin itself. All the parameters of the currency such as the rate of supply or the total supply are mathematically defined in the bitcoin protocol.
This is great because we all know the rules of the game before we choose to start playing.
History has taught us that trusting a single person or group with power to control a money supply almost always leads to corruption or self-serving agendas that benefit only a few. With bitcoin, we instead choose to put our trust in mathematics, which can’t be cheated or manipulated.
As for those offering complex financial products like bitcoin futures and derivatives, or companies using the blockchain technology to crowd-fund ideas, and offer real-life company equity in return - those need to be regulated in the same manner as traditional 'non-bitcoin' companies.
The Guardian explains bitcoin
Q: Given that bitcoin is a currency without borders, where is the “transparency” or how can we ensure the system is not all going to disintegrate or implode (like real financial systems do)?
A: Bitcoin is perhaps the most transparent financial instrument in history. Every transaction is stored on a public ledger, so there’s a record of everything and it’s relatively easy to track. For the system to disintegrate every single copy of the public ledger would need to be lost or destroyed. Given that every computer in the bitcoin network has a copy, this is highly unlikely.
Q: One of the features seen as bitcoin’s best is that it is decentralised – no one person/country/central bank has control over this. What is the downside to a decentralised currency trading system?
A: There are very few if any downsides to the decentralized system. However, one difference that people need to take note of is that with bitcoin you essentially become you own bank. In other words, you are totally responsible for the control and security of your money. So you should research and understand methods for storing it securely because if it gets stolen or you forget a password you only have yourself to blame.
Q: I know my NZ dollar is worth about 79-80c per US dollar, currently. How does 1 NZ dlr equate to bitcoins today?
A: Right now we are sitting at $508.62 NZD (as at Oct 14, the value has since moved) for 1 BTC (according to http://bravenewcoin.com). However, most people who use bitcoin for everyday transactions use a unit called a milibit (1/1000th). So $1 is about 2 milibits.
Charts from Bravenewcoin, printed Oct 21, 2014 (period tracked, Feb-Oct 2014)
Q: The Bank of England (BoE) was quoted by Reuters as warning that widespread bitcoin use could increase volatility in prices and real activity. Should this be a worry? The Reserve Bank of NZ has had some kind of warning along similar lines?
A: The opposite of this is much more likely. As bitcoin use grows and more people can meet more of their needs without having to convert back to fiat (global monetary system at the moment), the price volatility should lessen.
In the quote you mentioned the BoE was referring to the supply of bitcoin not being able to vary with demand (i.e fixed supply).
With a fixed supply, as demand increases so does price and vice versa.
Bitcoin is still very new and there is volatility in the price as demand spikes, levels off or drops, but over time as the size of the bitcoin ecosystem grows this effect will become less and less.
In general, although banks may be tentative about bitcoin as a currency, there seems to be a consensus that the technology behind it (the blockchain) holds great potential. Our own Geoff Bascand, deputy governor of the RBNZ recently stated: “[Bitcoin] is a very low cost payment method with strong security features …making it advantageous … to more traditional payment mechanisms.”
Q: The US has a high-profile bitcoin case, Trendon Shavers, who was fined US$40.6 million by a judge who also blocked him from further trading bitcoin. How can the public be assured Kiwis won’t be exposed to such fraud given there is no transparency in how the digital currency is moved?
A: There's been a number of high-profile scams and there always will be as long as there are people who buy into them. When Bernie Madoff was exposed as a fraudster, no one blamed the US dollar for his actions, that would be ridiculous. As mention earlier, there is far more transparency to bitcoin than most people think. The best advice for people looking invest is to do your research thoroughly and be weary of ‘to good to be true’ opportunities.
The bitcoin Industry is the first in history to be screaming out for regulation. Bitcoin companies would love a coherent framework on digital currencies so they can get on with business. I personally stick to data & analysis or events and do not operate a 'bitcoin company' until I know what the complete rules in NZ will be.
Q: What is available in NZ, by way of bitcoin transaction/payment system?
A: There are dozens of businesses throughout NZ that accept bitcoin as a form of payment. Most liquidate (bitcoins) into NZ dollars to avoid price volatility which is fine. It’s very easy for a business to accept bitcoin and it’s cheaper than traditional methods like credit cards. We have an exchange www.igot.co.nz that's now running very smoothly and allows buying and selling of bitcoin. There is coinex.co.nz which uses a blockchain-based system called Ripples to transmit value. There are also thousands of online retailers who accept bitcoin for a wide range of goods.
Q: Are we any closer to knowing who Satoshi Nakamoto is?
A: No. It’s likely that we may never know. The great thing is, it doesn’t matter. Although it’s an exciting mystery to some, knowing Satoshi’s true identity is pretty trivial at this point.