The necessity of a centralized voice for Bitcoin

The Bitcoin community is in need of centralization. By centralization I do not mean a core authority, but rather a core voice. This is not an optional element in the future success of Bitcoin. While the origins of motivating adoption to Bitcoin have been grassroots, a continual shift in the way Bitcoins are earned by new users is a key reason why a central voice to the currency is essential for merchants and new users to trust adopting the currency.

The transition to exchanges & authorities

The nature of mining has changed dramatically for cryptocurrencies in the few years Bitcoin has existed. As the computing difficulty grew exponentially with the arrival of ASICs, the ability to earn Bitcoins shifted from the hands of independent users and into those with more powerful (and expensive) hardware. Meanwhile, new users no longer turned to their GPUs and CPUs for Bitcoins, and would instead buy Bitcoins with fiat currency. This transition has already brought the access of Bitcoin away from independent users and toward authorities of some shape and size. It is not difficult, if not impossible to independently acquire Bitcoins without a major capital investment totaling thousands of dollars. Even Satoshi Nakamoto’s original whitepaper expected this eventual transition.

In either case, this transition is where we are today. When people are encouraged to adopt Bitcoin, they don’t need to be tech-savvy or already own powerful computers. Instead, they only need an interest in the currency and a bank account. Acquiring Bitcoins with fiat currency is easier than ever, where not too long ago you’d have to meet with someone in person and exchange prepaid gift cards. This is all evident of how beneficial these exchanges and authorities have become, even if some still ground the success of Bitcoin on its ability to be anonymous and decentralized.

In reality though, the term “decentralized” will forever, at least with Bitcoin, remain an oxymoron. Bitcoin is not developed through an anonymously maintained, flat-hierarchy development team. It has a lead developer and a core team. That core team decides the future developments and goals of Bitcoin. Even though the currency could technically fork, the amount of money and resources invested into the core team almost completely assures they are the ones who will be followed for future developments. This fact is why embracing the decentralized nature of Bitcoin is impossible, at least for Bitcoin. A future cryptocurrency could be created that allows for a more decentralized core development, but Bitcoin is pretty much centralized, whether you like it or not.

The woes of the Bitcoin Foundation

For many, disliking the centralization is easy when you consider which organization sits at the center. The Bitcoin Foundation has had a harsh amount of criticism directed at it for being more or less a lobbying organization. Membership is not based on your commitment to the currency but instead your financial commitment to the Foundation.

Another core flaw of the Bitcoin Foundation is the type of companies it best represents. At this time, the Foundation is seen very closely aligned with exchanges and ASIC providers, but not large merchants and firms that help spread interest about Bitcoin to new users. The Bitcoin Foundation should be partnering and rewarding the companies that commit to offering Bitcoin as a trusted payment method, as well as bringing new customers directly at the cash register.

But this thesis is not about the Bitcoin Foundation. It just so happens the Bitcoin Foundation is in charge of core development, but chooses not to do as much as it can to mold a central message about Bitcoin. So far the groups doing the best job of painting Bitcoin in a positive light are Coinbase and BitPay. This is evident not by what they claim or say, but by the customers they’ve convinced to adopt Bitcoin. The Bitcoin Foundation and the Bitcoin community at large could learn a lot from these companies about how to market Bitcoin from these organizations.

Developing mission critical goals.

With this concept of a central voice in mind, what Bitcoin then needs is a set of mission critical goals: objectives that are possible and are measurable. While goals like less volatility are ideal, they cannot be easily controlled. One goal that can be controlled and measured well however is adoption of Bitcoin. Getting people to buy and then spend Bitcoin is what will help fuel success for the currency in the months ahead. Building trust is another element behind growing adoption. What The Bitcoin Foundation ought to do is develop a roadmap for these goals to succeed, much like many other public advocacy organizations. If they choose to collect fees, they should also demonstrate how those funds are reinvested into the currency, not stored at the core or spent on lobbying – neither of which compare well to the efforts of Coinbase and BitPay.

Ultimately, this also crosses over with a major flaw behind Bitcoin users: An inherent desire to hold, rather than spend. Many people see Bitcoin in its potential value, as opposed to its present value. As a result, many are waiting for some sort of price to then sell Bitcoin like a stock. This however isn’t best for building trust, encouraging adoption or the overall utilization of Bitcoin as a currency. These are the values that some core organization – be it the Bitcoin Foundation, a company like Coinbase, or the communities of /r/Bitcoin and BitcoinTalk – should be sharing.
Josh Sherman

Version: BCPG v1.47


Bitcoin and the “R” Word

The “R” word—Regulation—is a polarizing one in the virtual currency world. On one hand, any sense of acknowledgement or potential trust by a government or financial agency is a sign of impending widespread adoption. On the other, regulation stifles innovation and, for even a radical few, is against the very values of virtual currencies. In reality, the news of potential regulation by the New York Department of Financial Services is a necessary reality for Bitcoin to become a currency for the masses.

For some time now, Benjamin Lawsky of New York’s Department of Financial Services has been taking an exceptional amount of time to learn about Bitcoin. From AMAs on Reddit to in-depth conversations via Twitter, Lawsky has spent much of the last six months devising a way to bring Bitcoin to the mainstream financial landscape. At the forefront of this plan is, of course, regulatory policies. By issuing Bitlicenses for companies that serve as wallets, banks, vaults, exchanges or creators of virtual currencies, Lawsky wants to ensure that virtual currencies like Bitcoin are set to the same standards as every other brick-and-mortar financial services firm.

This of course costs money. Lots of money. One major flaw in this regulatory proposal not yet addressed is what this will do to all the startups without the millions of dollars of capital, but the genuine interest and support for Bitcoin as an effective financial tool. Some goes as far as to even say that the regulations are overkill and will hinder innovation, forcing the early-adopters an early, perhaps even unnecessary tax on the process. It’s up to personal opinion whether you think all these financial tools included in the regulatory framework are necessary. They all however do exist in some form for all banks and similar financial institutions for Fiat Currencies. The framework isn’t perfect, but it is suggesting a very bright future for Bitcoin as a financial asset if key stakeholders choose to embrace the framework.

Others, like Sean King, argue that Bitcoin is not financial in nature, grounding the technological principles of the Blockchain and of Bitcoin as superior to its analogy as a financial tool. Put simply, Bitcoin and its technology are like the internet; they shouldn’t be regulated, but that something more specific within it perhaps should be. This is an argument that tries to have its cake and eat it too. Bitcoin is not about being financial and its goals are not financial, but its primary usage at this time just happens to be financial.

What this leads to is a dilemma in definition, and inherently a philosophical debate as much as a political and economic one. The DFS defines a virtual currency as anything that is used digitally as a payment method or can be converted into Fiat Currency. Pretty much every Bitcoin and scrypt-based currency falls under this category if any sort of exchange carries it.

But the Blockchain itself is not being defined as the virtual currency. It’s the path to Fiat Currency and other goods and services that Lawsky and the DFS is concerned about regulating and monitoring—and these are legitimate concerns. As much as the virtual currency community shrugs off the debatable statistics of Bitcoin usage in illegal transactions, the fact remains that it’s a lot easier to do illegal business with Bitcoin than it is with other currencies.

Another reality is that while Bitcoin is inherently a protocol, it really isn’t being used or marketed as one. The biggest selling point about Bitcoin is the fact it can serve as an effective and borderless currency. The arguments of the extensibility of Bitcoin to tag or identify rights to more than just currency alone are not wrong, but miss the entire point of what Bitcoin has become, as opposed to what it was designed as. The public opinion and the goals of those driving the innovation and usability of Bitcoin are not pushing it as a digitally signed messaging service, but as a currency. The top stakeholders in the currency are invested in the success of Bitcoin as a currency and not as a protocol. It seems backwards to argue that Bitcoin is about the protocol while ignoring the opportunity to accelerate the status as a currency forward. For Bitcoin to continue earning the trust it needs regulatory policy is not inevitable, but essential. Is the DFS giving the most ideal regulatory policies? No, but it is nonetheless giving Bitcoin a generous amount of trust.

The technology behind Bitcoin is not at risk. The product of these regulations will not hinder the ability to use a Blockchain-based technology to send digitally signed messages, to affirm ownership or any other extensible function so long as that there is no direct, intentional gateway to Fiat currency. The technology behind Bitcoin is about carrying an individual identity that can be verified without a central authority. In this scenario there are many opportunities to still utilize the extensibility behind Bitcoin’s technology while earning the benefits of mainstream adoption through a trusted regulatory agency. Worldwide adoption and trust are the necessary elements for the success of Bitcoin. Regulation is a powerful tool in encouraging both.