Bitcoin is Doing for Money What Email Did for Snail Mail
Bitcoin is a complex idea which is often explained in complex terms. Words such as “cryptographic algorithm” and “decentralized currency” are often used. The less common explanations actually address the function of Bitcoin; the fact that it is currently the fastest and cheapest way to transfer money directly to another party anywhere in the world.
It’s difficult to think of an analogy for the mechanism behind Bitcoin, so I like to use an analogy to describe its features. Instead of trying to explain the intricacies behind Bitcoin mining and exchange rates, I tell people that Bitcoin is a new form of “digital money” that will do for money what email did for snail mail.
When people ask if Bitcoin is like PayPal, I’ll say something like, “No, because the monetary value of a Bitcoin account constantly changes according to market conditions, unlike a PayPal account.” I describe it as more of an online Foreign Exchange (“FOREX”) account, but for an entirely new currency or “asset class.” I refer to Bitcoin addresses as “Bitcoin accounts” that can be used to send or receive money as quickly and easily as sending an email.
This, of course, is an exaggeration. The “ease” of Bitcoin use is disputable and sending/receiving Bitcoins can take up to an hour for full confirmation. So while my description does not accurately describe the mechanism behind Bitcoin, I believe that it is a fair assessment of the benefits of Bitcoin. After all, Bitcoins can be sent by email and the concept of Bitcoin shares a lot in common with email. For example:
- Bitcoin is an affordable way to instantly send/receive money, just as email is an affordable way to instantly send/receive messages.
- Bitcoin addresses must be unique, just as email addresses must be unique.
- Bitcoin transactions cannot be reversed, just as emails (usually) can’t be unsent.
- Bitcoin addresses are pseudo-anonymous, and even though email is less anonymous than Bitcoin, disposable email services such as Mailinator.com and SharkLasers.com give email greater anonymity. (SharkLasers also accepts Bitcoin donations.)
- Bitcoin turns paper money into digital data, just as emails turned hardcopy letters into digital data.
There are, of course, some important differences between Bitcoin and email, including:
- Bitcoin transactions are made directly between two parties without passing through a third party, whereas email messages must pass through an Internet Service Provider (ISP) in order to reach the other party.
- Bitcoin addresses cannot be customized the way that email addresses can be.
- Bitcoin addresses are a store of monetary value, email addresses are not.
The idea of comparing bank & wire transfers to snail mail and Bitcoin to email occurred after reading a quote by Jeff Garzik, Bitcoin core developer:
“Bitcoin is out of its infancy and starting to mature. There are increasing numbers of merchants at BitPay, and people are starting to see it as money over IP.”
Bitcoin is indeed out of its infancy, but it is also far from mature. While merchant acceptance (online and offline) has been steadily increasing and emerging start-up companies are making Bitcoin easier to use, the fact is that the concept is still too difficult for most people to comprehend and the inability to understand Bitcoin often results in a loss of interest. This is an obstacle that Bitcoin has yet to overcome.
The point is that it’s not necessary for the average consumer to understand the mechanics of Bitcoin in the same way that its not necessary for the average consumer to understand the mechanics of Central Banks or Fractional Reserve systems.
Thirty years ago the US mail had a complete monopoly on person to person correspondence over distance, now it has less than 1% of the market. This didn’t happen because email had a snazzy marketing campaign, rather it is better in every way that matters. Like mail it is faster, cheaper, more private, less vulnerable to tampering, and you can even send packages (attachments) for the same price – cheap or free. Bitcoin is to money what email is to mail, wait a few years and the one simply obsoletes the other for nearly every use-case.
The bottom line is that Bitcoin has actual monetary value and increasing purchasing power. My “faith” in Bitcoin is very strong, but not everyone will (or even should) share my confidence in it. For me, I’m “all in” when it comes to Bitcoin. It’s only a matter of time before I’ll know whether the market is “bluffing.”
Note: The reason for the time gap between this article and the one before it is because I have been collaborating with others in the Bitcoin community. This article marks a transition in the format and frequency of postings on BTCbible. Whereas articles were previously news-driven, future articles will be more of an analytical commentary on Bitcoin in general, as well as Bitcoin news. There are many great news sources available, and the “Bloggregator” on this site is one way to keep up with the constant stream of Bitcoin news.
Disclaimer: This article is not a recommendation to buy or sell currency (including but not limited to Bitcoin). Daniel Roseman is not a licensed financial adviser. Always seek the guidance of a licensed financial adviser before making any investment decision.