Bitcoins: A Currency With The Best Intentions

If you haven’t heard it’s not due to a lack of press coverage; bitcoins are a hot topic. And yet, even with its skyrocketing popularity many can’t help but wonder how this thing really works. The writing on the wall seems clear; I mean we’re talking about e-money right?

Well kinda sorta not really.

Reports infused with familiar concepts like currency, security, trading exchange, bubble and “just like cash” unfortunately lend a false understanding of this tool. To truly wrap one’s head around this new “pseudonymous” electronic medium one must contend with decades of an indoctrinated fiat money standard and its relative macro-economic principles. Welcome to my Saturday trying to sell this Kool Aid, over a few beers and bourbon, to a couple of finance veterans.

Never mind the fact that we spent a prime weekend night indoors debating the state of bitcoins in our economy and its prospects as an investment asset— those are grievances of an “older” man for a different day. The takeaways from the evening interestingly enough ended as a mish-mash of arguments based on an incomplete image of a new system characterized by labels that incorrectly set the foundation for factual debate on the subject.

Bitcoins are fucking confusing

Bitcoins come from one of two places. They are either mined by special machines connected to the bitcoin network (process + verify transactions) or are purchased on a market exchange. Like cash, ownership is singular, transactions, absent of a 3rd party, are final and transfers between parties guaranteed and secure.

These processes are the result of a tremendous computer science breakthrough in cryptography. Andreessen Horowitz summarizes it best in one of the better articles about the potential of bitcoins:

“Bitcoin is the first practical solution of the Byzantine Generals Problem that poses the question of how to establish trust between otherwise unrelated parties over an untrusted network like the Internet.
Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer.”

All of this sounds great except for this whole Mt. Gox thing people keep talking about.

Half A Billion Worth of Bitcoins Disappear

The jury is still out and we don’t know the root of this massive blunder that has left thousands of users (pardon my french) essentially holding their dick in their hands. Official word from Mt. Gox is that coins were stolen. Though, I’m convinced the makeup is instead rather a  strong cocktail made up of 1 part fraud, 2 parts negligence, 1 part cover-up and a splash of the alleged transaction malleability. This isn’t the first fuck up (see hereherehere…) but we are dealing with a new technology poised to endure some growing pains not-withstanding traditional macro-economic interpretations.

What’s My Money?

Unlike fiat currencies that derive their value from federal law and regulation, bitcoins are transparently self controlled and their value is the result of two notions. The present use of the system in terms of volume of transactions and  speculation of future use of the system.

Contrary to popular belief, bitcoins do not have an deflation problem. Though the traditional fundamentals make sense here. According to economists, given the coins’ finite supply (presently around 12 million BTC and poised to steadily reach around 21 million by 2140) users are incentivized to horde the currency and delay purchases until a later date when BTC value increase (deflation 101). Although this makes sense,  the BTC system, in rudimentary terms, is a tool that allows for transactions to take place relative to an actual fiat currency. [Remember? Bitcoins don’t have an arbitrary value to begin but rather volume of transactions are a key aspect where BTC derive its value allowing people to use them for trade.] In the end, national currencies remain central while the bitcoin ecosystem acts as a more efficient middleman replacing transactional functions of traditional banks.

Lets be clear that as is, the BTC system lacks may key elements (insurance, legal accountability of exchanges) for it to earn critical mass public trust and adoption. But, as more people use the system  it becomes more stable, less volatile, and its efficiencies become more apparent.

Like the many ground breaking technologies of the past decade and a half, bitcoins are simply a more efficient way of transferring value. They accomplish this feat much faster and at a fraction of what the banks costs. Certainly the lack of customer assurance, trustworthy mediators, independent audits and technical complications, that I didn’t even touch, are hurdles. Fortunately, these issues are all solvable and so long as the rate of adoption increases  the incentize is there to do so. To quit amidst the turmoil would be foolish when the upside is just too good not to fight for.

Relax. Gaming Consoles Aren’t Dead

Well… At least not yet.

Mobile and social media are the sexy new platforms du jour. With users increasingly spending their time on these medium also playing games, the adage is that those dedicated black living room set-op boxes will become irrelevant and redundant.

Well… Hmmm. No. No. And well, at least not yet.

Context. Context. Context.

According to emaketer, users spend about 5 hours a day online, half of which is spent on mobile. Surely that’s plenty of time on competing media devices but two things stand out. First, total  amount of time spent on media has grown and second, the TV share has remained constant at around 4.5 hrs. As online activity grows television is very much still in the mix.

Over 263 million third generation consoles were sold as of Jan 2014 (see: vgchartz). A little over 2 months into the fourth, hardware sales are strong with totals of 14 million. This news is more of the same ; video games have been a living room staple for over two decades now. None of it is sexy. Mobile is the shinny new toy in the room getting all the attention.

With addictively simple mechanics mobile games have lowered the barrier to entry such that anyone from toddlers to your grandma can intuitively partake on any mobile device. As a result, the overall gaming audience has grown tremendously over the last decade having added legitimacy to the category of casual gamers, now layered on top of the already stacked hardcore set.  Bo Featherhunter playing Angry Birds on his iPhone is different than Jo Thunderclap on FPS Battlefield.  These different audiences have their own unique engagement video games.

Mobile devices offer users a fresh (accelerometer & gyroscope driven), simple (touch), no frills experience on much smaller screens. Their portability drive a contextual experience in which the user conveniently seeks escape from his environment. Whereas set-op boxes tethered to large screens TV’s in the living room offer a robust ecosystem in a more intimate setting. Users in this case seek out this gaming environment to engage. It’s a primary user choice rather than an available option.

I’ll spare you the foreplay in the form of a long dissertation and simply say that there is still huge demand for polished, more immersive form of play. In terms of the finite commodity of time consoles no longer dominate what we’ve traditionally called gaming but the demand for the experience (setting and quality) is still there. So long as people want they will get.

SmartWatch: A New Dumb Smart Device

Consumers love these powerful “phat” smartphones with the crisp huge screens. They carry these devices with them everywhere so that they could remain connected to the people they love, continually have access to the information they crave and seamlessly share discoveries and bits of themselves throughout the day.

What’s missing here?

The market needs a smartwatch with a very small screen that only works while in proximity to the smartphone they already carry around with them. This gizmo will attempt to accomplish the same tasks as the ubiquitous smarthphone just not as efficiently. Oh and the price point will be about the same.

In its infancy stage the smartwatch is a dud. Granted the major players, a la Apple and Google, haven’t showed their full hands quite yet but so far the best options on the market amount to nothing more than a complementary notification screen latched on to a user’s arm. A constant stream of press release make their way to media outlets daily with a steady dose of the buzzwords du jour such as “apps,” “connected,” and -my favorite- “future” all with the promise of a product that will make life easier and better. Right now there aren’t enough compelling features to justify the addition of yet another redundant gadgets in our ever growing arsenal.

Cons summary
-Small screen: yeah I get it. It’s a watch meant to be worn on the wrist but early stage user interface is going to be archaic.
-Redundant: It attempts to mirror the already existing functions of your smartphone.
-Complementary: Many functions can’t be accomplished independently from said smartphone.
-Expensive: Anywhere between $89 and $459 with most, except one, $125 or more.

This is only the beginning
Sure there are flaws but hey these devices are meant for early adopters. Let manufacturers tinker and process feedback for a few months. Down the line these devices will actually serve a functional purpose and in turn be a condonable purchase.

The growth possibilities are palpable. Clunky touch interface will shift more toward voice input to counteract the “small screen” fail. Device will fully mirror the smartphone instead of acting as a complimentary remote control. Prices will fall.

The battle is already half won. Although on paper these devices sound like nothing more than a wrist-strapped-iPod-nano-notification-screen-remotes, the video demos are inspiring and convincing (especially for sporty outdoor activities). Design options are across the board from futuristic minimalism to old school craftsmanship. The idea’s already cool. As soon as the fashion, functionality and price aspects are a bit more mature we will have another dumb smart product making it easier to ignore the people around us.

Smartglasses anyone?