Blockchain and Bitcoin: two buzzwords that keep surfacing in news headlines, tweets, and coffee shop conversation, are getting to the point where we actually need to start paying better attention.
The long term possibilities are profound. Have you ever wondered what life would be like with just a single, global currency? Is it really secure enough? Compared to cash, what are its vulnerabilities? Is Bitcoin something we should invest in today?
And what about blockchain? We know it ties in with Bitcoin, but it's difficult to find someone who can actually explain that relationship in layman's terms.
But still, I felt an even more elementary breakdown was in order. Our conversation was just what I was looking for:
MC: Thanks for joining me, Josh. I've been reading your blog series on Blockchain, and I'm not going to mess around; let's get right to business!
OK, so... Fiat currency: In your first blog post, you refer to this term, which is one that’s not thrown around very often. What is Fiat currency?
Josh: Well, Fiat in a monetary sense also means it is a currency that is not backed by a physical commodity such as gold. The US Dollar is such a currency or fiat-currency if you will. When talking about conversion, that is the case if you were to convert Bitcoin to US Dollars, it would be a conversion from the digital to the fiat. A lot of the noise about fiat in the crypto-community arises out of the libertarian underpinnings that perhaps gave some rise to the crypto economy with the idea of “helicopter” money being printed and scattered around to save the world economy from the great recession.
MC: Let’s talk about the true definition of Bitcoin and blockchain. If you were to explain each to a preschool student, how would you define them?
Josh: Bitcoin is digital money, you can use it like a piggy bank, and if you want you can use it to exchange it for something like candy or a soda. Blockchain is like a large public book where we record all of your “bitcoin” or other pieces of digital information. Once recorded, we all know what you have or own.
MC: So, Bitcoin is just a digital currency. But in order for it to exist legitimately, it must exist within a database called blockchain, which records every single action for the entire existence of every single bitcoin, correct? So essentially, when we pick up a nickel from 1963 and wonder where it’s been and whose hands it’s passed through… with Bitcoin, blockchain literally allows us to look at the comprehensive history of each coin? And without blockchain, we run the risk of Bitcoin getting duplicated or hacked somehow. Or am I way off track?
Josh: You are on track -- Bitcoin is a digital cryptocurrency. It utilizes encryption to secure on a peer to peer network to facilitate transactions between users. The transactions are verified by the distributed network and recorded into the “blockchain” or distributed ledger. Bitcoin has a finite supply of 21 million coins, these coins are released into the eco-system roughly every 10 minutes until all coins are in circulation. Bitcoin has techniques to create “consensus” on the ledger, mining, in particular, is done to verify these transactions. The miners are rewarded for their “work” in Bitcoin itself.
Blockchain gained rise because it is the underlying distributed ledger in Bitcoin. Given the rise of bitcoin, the blockchain has taken on a whole new context now and there are various implementations and strategies actively being worked on. Essentially, a blockchain protects the integrity of a digital piece of information. It is a true statement to say that Bitcoin could not exist without blockchain, and perhaps vice versa
MC: In your first of your 3-part series on blockchain, you addressed the advantages of using bitcoin and blockchain in cross-border payments. Can you walk me through an example of how this would work? Let’s say I’m the worker that you mentioned in your blog post, hoping to send money to my family in the Bahamas. Assume I have no Bitcoin currently and have never used blockchain. Walk me through the process of getting money quickly and easily to my family through blockchain. Theoretically, is this something I could do today? Is there a list of countries that allow this type of transfer?
Josh: Sure, there are actually so many competing services it is probably more confusing trying to find one. For simplicity, let's stick with what I was discussing in my article. Bitt.com. As the worker looking to send money, you would go to bitt.com and sign up, this creates your wallet and your wallet will have a name like mark.bi.tt, you then would verify a funding source and put your money or US Dollars into your account. Now, you would ask your family member to create a bitt.com account, again this creates a wallet and their wallet name like mary.bi.tt. Now you would click send and enter in Mary’s wallet name and you are done. There are much more ways to do this, if your users are a more savvy crypto user, they can just supply the address to send the money to as well.
MC: In the instance of P2P lending, which is the topic of the 2nd chapter of your blockchain blog series,
…it’s a little bit out of my mind's feeble comprehension of how lending could be truly managed without some type of government or law enforcement. Generally speaking, how is a lender utilizing Bitcoin and blockchain be ensured that he can count on his debtors to resolve when due?
Josh: I think it can be a bit easy to get carried away at first with the idea of complete disintermediation of the “middle-men”. In the case of lending, most likely the pieces we will see at first will be KYC/AML and identity utilizing the blockchain as tools to help automate, aid and reconcile these systems. These tools may be run by the very same governments we are speaking of, or perhaps by the banks themselves. Over time, we start talking about smart-contracts in which we replace a lot of the red tape that surrounds traditional debtor accounts and put the trust into the computable contract itself.
MC: Recently I was talking to a restaurateur about whether he could ever see Bitcoin as a form of payment. His response was that he believes it will fail and become more like civil war Confederate currency. He doesn’t believe that he’d ever been able to monetize the payment in dollars. What would be your response to this? Do any retailers currently accept Bitcoin? How about restaurants or brick-and-mortar storefronts? If so, how? If not, how would that look?
Josh: Actually, a lot of retailers accept Bitcoin and ethereum as payments, not so much in the US, but of course Overstock.com is the most famous of these but I think it only accounts for less than 1% of their sale volume. The current state of cryptocurrency as a payment mechanism is a bit of a disarray. Bitcoin itself is facing scaling issues and transaction fees that are just not compatible with a payment system at this point. This is all changing as we speak. There are initiatives going on to scale and lower txn fees along with off-chain capabilities to help facilitate a payment eco-system. Honestly, if I was a restaurateur, I would do it if I had a crypto interest, but not as a primary form of payment.
MC: Do you think bitcoin could ever be accepted as a fiat currency in the US or globally? Are the days of multiple currencies and exchange rates on the way to extinction? If that’s possible, what’s your prediction as far as when?
Josh: Well, it a certain aspect this is already the case, it just isn’t readily accepted, nor is it scalable at this point. I think you will see a transformation over the years to come; will that eliminate fiat currencies? Most likely not. If you look at how Bitcoin is being used to store the value in countries that are highly deflationary like Venezuela, most likely that is where you will see the revolution come from. Now, what that looks like is another story, it could pivot in multiple ways in the years to come. We could end up with several “digital currencies”. TBD
MC: Once in conversation, I had mentioned that I once bought $5 of bitcoin. You said it could have gone up in value. Since we talked, I opened up my Coinbase app and it looks like my purchase didn’t actually go through, so I didn’t actually buy any Bitcoin after all. But do you view as Bitcoin as a possible investment?
Josh: I can give you the academic view and my view. The academic view is that it is highly speculative at this point. We are looking at the emergence of a completely new technology and how that plays out remains to be seen. That said, there are many professionals in the industry that believe each single Bitcoin could be worth hundreds of thousands of dollars at some point. My personal view is that if you have money you can afford to lose and you have an appetite for this sort of thing and are willing to spend some time studying it, it is worth using some of that money as a long term investment.
MC: If you had to choose between investing $1000 of your own money in either gold or bitcoin, which would you choose? (this question is assuming you respond favorably to #8)
Josh: Currently, I would choose Bitcoin. If we were to put more stipulations around when I could cash out or how much money I was putting in, I might have to rethink my answer.
MC: What opportunities do you see for developers today in regard to Bitcoin/blockchain?
Josh: Many blockchain developer jobs are skyrocketing and there is a shortage of understanding and hands on experience in the industry. This is highly true around ethereum and smart-contract development. Prior to 2016, there were not many opportunities for developers, and perhaps that is what Ethereum has provided, a way for developers to lay the groundwork into a “contract” ecosystem.
MC: OK, now we're talking about Etherium. Maybe we'll have to save that topic for another interview down the road. I really appreciate your time, Josh! If our readers have more questions about bitcoin, are you willing to take them?
Josh: Of course, bring it on!
Stay tuned for our next 101 interview, where I'll be asking Vantiv Product Marketing Manager, Gord Sissons gjsissons all about mobile payments! And if you missed our first 101 interview with Lisa Killigrew, "Payments 101", look no further: Click Here