Bitcoin is the future, Money2020 delegates told

Bitcoin is here to stay and will continue to grow, according to experts speaking on separate panels at Money2020 in Las Vegas.

The recent prosecution of Silk Road, an underground online market for drugs that traded Bitcoins and the FBI’s confiscation of approximately $3.5 million in Bitcoins, looked like a severe blow to the virtual currency. But Carol Van Cleef, partner in Patton Boggs and moderator of a session on maths-based and virtual currencies, said the bust showed growing sophistication on the part of federal law enforcement agencies, reports Tom Groenfeldt.

“They decided to go not after the system itself, but after the parties who were using the system,” she said. Unfortunately federal prosecutors from the Southern District of New York, where the case was filed, were unable to travel to Las Vegas for the conference because of the budget shutdown in Washington.

“This is a great day for Bitcoin,” said Constance Choi, general counsel at Payward. “It was an opportunity to see how inconsequential their [Silk Road’s] criminal activity was to the protocol and to Bitcoin as a whole. They have done analysis on funds going through Bitcoin and determined that Silk Road represents a very small fraction of its use.”

That is a legit question...

It was started by a “consortium” who have kept themselves secret. Hence a lot of conspiracy stuff abounds.

It was “launched” with a fixed amount among a group of the people who started it. However, that amount was relatively small.

The “mining” process is where the bulk of the coins have come from. The name is stupid—I agree that it is “data mining” but I tried explaining that to my wife and I got “doll eyes.”

Anyway, the coins are mined when computers that are logged in as miners on the network complete proofs that maintain the accuracy of the public ledger. The process takes a lot of computing time and power—but it keeps the system working and the bitcoins “clean” on the ledger. This public ledger system allows anyone to track coin transactions. The system is secure, and there are ways to keep yourself anonymous, but the transactions are all public. Try doing THAT with fiat!

The BIG deal is the peer to peer transactions. Consider buying something from Amazon with a credit card. You “buy” the product when you swipe your card, Amazon sends that to a bank via the Visa network, your bank approves it, sends a message back over the Visa network to Amazon. The bank then sends an Automatic Clearing House message to Amazons bank and the debit hits your bank account, and the credit hits amazon.

Pretty complicated. And for every step, someone charges a fee. In fact, the Visa network takes a percentage, the bank charges a transaction fee, and the ACH folks take a bite too. These fees, for the small business (not Amazon) probably amount anywhere from 3-5%. For a company doing a million a year in sales, that is about half of their profit margin.

Now, do the same transaction with bitcoin: You buy the product in dollars. The merchant converts that amount requested into bitcoin. Your transfer your bitcoin to the provider (using a unique encrypted code.) The bitcoin goes out on the network—saying Vt Lt just sent Amazon $100 (for example.) The network node that verifies gets 1/10 of a percent, or about 10 cents. The bitcoin arrive at Amazon within seconds. Sometimes the system takes longer—which can be problamatic. But I have never had one take more than 30 seconds or so.

Amazon can then choose to retain the bitcoin as bitcoin. Or they can immediately convert to dollars—so minimal market volatility comes into play. That would cost about 1/2% in todays merchant world.

So a $100 transaction today with a credit card would cost a small merchant about $3-$5 in fees. With bitcoin, about $0.75. And the bitcoin transaction is more secure because they are dealing with peer to peer encryption—not the lowest common denominator encryption the credit card networks are dealing with.

Bitcoin Wallets (where folks leave their software open or poorly passworded) have been hacked, but the bitcoin transactions have not, to date, been hacked because the encryption is so much stronger—and with fewer players touching the transaction.

And here is the beauty of bitcoin for the merchants. There are no chargebacks. Certainly, refunds happen all of the time and are just as secure. Chargebacks with credit cards can hit you months after a transaction—and without notice and without much recourse.

Finally, for international transactions you can move money from a part of Africa where there are few reliable banks in much of the continent to get goods and services with hardly any fees.

Think of being able to walk onto an airplane, fly out of your oppressive, third world dung heap, and come to America with your assets on a usb card, which is encrypted so no one can steal, confiscate, or otherwise interfere with your ability to maintain your asset base. Try to do that with cash or gold. The only way THAT is going to happen is with diamonds, smuggled inside your body. And this is much cleaner than that!

So, it has small beginnings. Its been out there for years now. Its just now catching on to the mainstream.

Is there a lot to buy and sell now? Not really. At least I haven’t found it. But we are in the very early stages of adoption.

I guess the thing I like about it is that it is clean, no credit card BS, and you can convert it fast. I can convert it to dollars today, and its in my checking account in two days. Try doing that with a lot of gold—not just one or two ounces.

Of course, you have to deal with it like any asset. The IRS will know if you do transactions over $10K and have them sent to your checking account, so its like cash that way.

I believe the days of $100-$500 swings are over. I think it will climb up as the dollar is depreciated with more QE—just like gold. It is volatile. And it is international. Since starting this I know more about how the financial system in China works, and they are ferocious gamblers. But I think it will calm down.

Is it worth investing your retirement money into? Hell No. Is it worth putting a little in because it might be the next big thing? Yes.

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