There are a lot of people who “don’t understand what Bitcoin is for”. They think it is only good for illegal activity or that merchants don’t see many transactions. They tell you that it’s too volatile, or a bad store of value, or that lack of regulation is a problem. Instead I’d like to tell you about what bitcoin really is, and why all of these statements are trying to predict bitcoin’s failure based on a misunderstanding of what it is even for.
There was a time when if you wanted to buy a server, you called somebody on the phone and they mailed you a server. People still do that; but at some point most people started buying servers by filling out a web form that gives you access to a server that is already set up. People still do that too; but now we live in a world where oftentimes servers buy themselves. Your website buys some servers when it the traffic is high and it sells some servers when the traffic is low. Servers can comparison shop for themselves; they go out and get quotes from different vendors, they negotiate term lengths, they test the merchandise and return the product if it has noisy neighbors or it is otherwise undesireable.
There was a time when if you wanted to buy a stock, you called somebody on the phone and they went into a room with a lot of other people and they found somebody selling the stock and you wrote the deal down in a notebook. People still do that; but at some point most people started buying stock by filling out a web form that gives you access to stocks that are already bought. People still do that too; but now we live in a world where stocks buy and sell themselves. Computers go out and buy stocks from other computers. They negotiate very complicated contractual terms, they get quotes from different vendors, they ask other computers for advice, they decide with high sophistication what kinds of stocks they want to buy and sell.
Consider the humble vending machine. A vending machine is a kind of automated business; it sells products to customers without human involvement. But how much work it is to actually operate one:
Vending machines are in reality a highly manual business; the automation is a consumer illusion. But there is no real reason why vending machines can’t run themselves the way servers buy themselves or stocks sell themselves. A vending machine could decide where to place itself; it could pay rent by itself, it could decide to move to a new location and arrange its own delivery, it could make job postings to Craigslist asking for someone to restock it. The only real reason why this hasn’t happened is that people haven’t bothered so far, but it seems obvious to me that one day we will run out of Yo startups and the process of buying a Pepsi will become just as automated as the process of buying NYSE:PEP.
Strictly speaking, none of this even requires bitcoin. (That is the problem with defending bitcoin, by the way. Either it has already happened so you don’t need bitcoin, or it hasn’t already happened which means it won’t ever.) There are already markets that have gone “full auto”. The difference is that automating the server market requires basically a datacenter with an API, and datacenters are basically technology companies to start with. Meanwhile automating your vending machine business requires way over here like some grocery store making machine-readable real estate listings that an algorithm can browse, and way over there some labor pool to use machine-readable job postings for odd jobs. But that is not a technically hard problem, and if there is money to be made on both sides then it is not a socially hard problem either. People do a version of this when they list their business on Yelp, or when they use Mechanical Turk. However it does require a common, general protocol for transactions, a category of thing in which bitcoin is currently the leading implementation.
A second category of objection points out that Bitcoin has practical problems. The blockchain doesn’t scale, transactions take too long, contracts are hard to specify, etc. However those are implementation details. Through some combination of changes and bugfixes, I believe those problems will be solved in the long arc of time. It may even be that some other cryptocurrency wins; I’m not religious at that level of detail. I use the word “bitcoin” because that is the only practical one at present; it is the name brand for a category of thing that is still coming into existence. If it becomes clear that there is a better way to do this category of thing than some anonymous guy’s 2008 paper then I will not be sad.
A third category of objection involves regulation. Some city will object to roving vending machines under their health codes; some HOA will object to a vending machine on your porch, some lobby will complain about how this upsets the existing vending machine operators. Probably. The same tired objections are raised for AirBnB and Uber and Tesla, and yet these companies still exist in many jurisdictions. And they don’t exist in others, and that’s okay. I’m not hung up on that magnitude of problem.
Of course, “vending machines that operate themselves” is really a stand-in for “Xs that Y themselves.” Packages that hitchike themselves along the interstate. Lunch that delivers itself to your office break room, like a hotel minibar. A fridge that orders more milk. Bikes that store themselves in winter. Cars that manage their own oil changes. MacBooks that schedule their own Genius Bar appointments. Houses that decorate themselves for holidays. Winter coats as a service.
Looking at bitcoin in terms of a currency is like looking at the iPhone in terms of a phone. You’re asking all the wrong questions. I don’t care whether bitcoin ever becomes a currency that people use to buy things, as if “people buying things” is the only category or even the most important category of economic activity that can exist. Asking how bitcoin facilitates existing transactions is like asking how the Internet helps print journalism. It has not come to help at all, but to destroy. It has come to replace the old way with a mildly terrifying, but more convenient future. With complicated policy implications that we will debate but that in the end doesn’t matter because it’s going to happen either way.
Bitcoin is not what you use to buy stuff. In soviet russia, bitcoin buys you.
