Push vs. Pull
Credit cards are a pull technology. That is, when you go to purchase a service or product, you are giving your credit card and identification information and then they make a request for funds to your credit card company. The credit card company then authorizes the transaction resulting in the pull transaction. The company and anybody else can make this pull if they have your credit card information With bitcoin, you are sending money to the merchant directly. They don’t even have to authorize you to send them money. This is called a push transaction.
Once you send bitcoins to an address, there is no undoing this – it is an irreversible transaction. With credit cards and ACH, there is a wait period before the money is sent. Also, the money can only sent to merchants that have shared all of their information with the bank or credit card company. If someone buys something with a stolen credit card, then the merchant will not receive the funds from the credit card company. The merchant, in turn, makes up for these losses by raising there prices. The consumer ends up paying for this. The credit card companies also advertise that they offer fraud protection, but it is really the merchant that is being forced to offer the fraud protection.
Centralization vs Decentralization
There will have to be a balance between centralization and decentralization. Pure centralization would mean there is one large organization that controls everything. Pure decentralization would mean that each person contributes nearly an equal amount of effort to the system. There must be a balance between these two. We can’t go too far in either direction or we won’t progress with technology. If we start heading in one direction, a revolutionary product will come out that will bring it back in the other direction. Look back at the mainframes – they were a centralized computer system where dumb terminals would connect to them. Then, we switched towards decentralization by having all the processing power in each individual device. More recently, we have gone back in the direction of centralization with cloud services. Bitcoin is a revolutionary service that is leaning towards decentralization – anybody can have a bank on their own computer. In the end, there will be computation going on everywhere – centralized and decentralized.
Risky Owning Lots of Bitcoin
It is necessary to keep hard copies of large quantities of bitcoins in fire proof safes or in an insured account – otherwise it is a risk and precautions need to be taken. Businesses surrounding safe bitcoin storage are arising. If bitcoins are not stored very carefully, they could be corrupted, lost or stolen. There have been countless tales of people losing bitcoins by computer crashes or having them stolen by hackers. $500,000,000.00, at the time of the theft, were stolen from customers on Mt. Gox.
The problem of safely storing large amounts of bitcoin will stop some investors from jumping on board right away. They will wait for an easy to understand and secure solution. They want their accounts to be insured by the FDIC. These services are being launched in Q1 2015. There is a market for professionals to advise wealthy individuals in purchasing bitcoin for their investment portfolio and this market will grow exponentially.
It is very dangerous to hold a large amount of cash since it can be lost or stolen. For Credit Cards, they pass the fraud expenses onto the businesses and customers. The loss is distributed more in CC – with bitcoin, it is more easy for an individual to get targeted and lose a lot. It would be a good general rule that if you have a large sum of bitcoins, then you better know exactly what you are doing or hire someone that knows what they are doing. And, make sure you trust the person that you hire – it would be easy for them to steal your bitcoins. Those bitcoins are almost certainly gone forever.
Banking for All
A high school student will have the power to run his or her own bank. A high school student from a 3rd world country will have the ability to run his or her own bank. 2/3’s of the worlds population does not have access to banking right now. Most of them have or will have mobile phones with internet access. They will be able to use Bitcoin and get access to the same banking systems that the rest of the world. They will be able to make orders for deliveries of items which otherwise might be more difficult.
In the not too future, drones will be able to deliver items to places around the world. This is not going to happen for many years, but large companies are currently working on drones that deliver items to people’s doorsteps. If this method of delivering goods proves successful, which it will, then drone development will grow exponentially and we will have drones that can deliver anything, anywhere at anytime. Since Bitcoin can be easily used by anyone, anywhere, at any time and for any amount of money, it will align well with an international drone delivery system.
SpaceX and Facebook have been looking to create satellites that will allow everybody on the planet to get on the internet. They will be providing cheap mobile phones for little to no costs. Facebook will be able to monetize the traffic from all the new users, so they have an incentive to move fast on this venture. These new people on the web will probably all be using Bitcoin for their financial needs – it is an international digital currency that allows any two parties anywhere on the planet to immediately exchange wealth for nearly free. I should say free since the costs will be absorbed by 3rd party apps that will monetize the traffic with advertisements.
History has never allowed for such a huge leap in financial internationalization before. Gold and the USD came the closest to allowing this so far; Bitcoin is the next chapter in this process. There has already been a confirmed transaction from somebody from North Korea. It is rare and highly illegal for residents of North Korea to make financial contact with anyone outside the country.
Getting People on Board
The biggest hurdle right now is getting people on board. Bitcoin has a bad name and it sounds like it is from a cartoon. People that never heard about Bitcoin before usually laugh when I try to explain it to them. One way to get people on board is by giving free and/or cheap bitcoins in order to get people to become familiar with the name Bitcoin and build trust in the Bitcoin system. For the average person, a very small amount, maybe $1, should be seeded to individuals that otherwise would not get into Bitcoin. For the wealthy people, a discount on bitcoins must be given to them so they can jump on board. The bitcoins need to be re-distributed from the early adopters to a larger population in order to get the Bitcoin market to go mainstream. The early adopters will still benefit because the value of the entire Bitcoin network goes up for each new person that starts using Bitcoin. The more valuable the Bitcoin network, the higher the price of a bitcoin will be!