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People gather every Monday evening in New York’s Union Square to buy and sell the crypto-currency known as Bitcoin. Flashing cash and smartphones, men make trades worth thousands of dollars in a nook of the park they call Satoshi Square.
The scene is like an open-air trading floor and, indeed, participants liken themselves to the men who hatched New York’s first stock exchange under a buttonwood tree in 1792. Similar gatherings have taken place in London and an inaugural one will take place in Toronto next week.
What gives? While the economic appeal of Bitcoin is easy to understand — it’s not tethered to a central bank and can be traded at low or zero cost — it’s not clear if the currency has a place in everyday life. To get a better idea, I paid $96 this week to buy my first Bitcoin and went to Satoshi Square.
Here’s a short summary of what I saw, some pictures and three takeaways (if you need to catch up on what Bitcoin is, see our primer).
An hour at Satoshi Square
The first Bitcoin buy-up in Union Square took place in May, and now they occur every Monday from 5 to 7 near the Abe Lincoln statue at the north end of the park. By 6 pm, about 20 people — all men — had gathered to trade Bitcoins in the 95 degree heat and swap stories about software.
People called out sale prices and others, clutching envelopes of $100 bills accepted. In 30 minutes, I saw around seven transactions, the largest for $1500. None involved merchandise — it was all greenbacks for Bitcoins.
I had hoped to spend my new Bitcoin on beer or a farmer’s pie. No luck. (It turns out I couldn’t have spent it even if someone at Satoshi Square was selling pie — the Bitcoin I bought earlier in the day takes three days to show up in my digital wallet).
The traders in the square used no single method for exchange: some pulled out phones to scan Bitcoin addresses embedded in QR codes, others used laptops or tablets, and one man used a gift card he obtained months ago at a Bitcoin event in California.
The vibe at Satoshi Square was a cross between a stock exchange, a religious revival and buying weed in the park. There was a lust for money tinged with a higher ideal. Here’s three totally subjective takeaways from the whole affair:
Bitcoin won’t be used in everyday commerce soon (if ever)
Every few weeks you hear a story about a cupcake store or a bar that now accepts Bitcoins. I’ve always suspected these stories are a marketing ploy cooked up by a business seeking media attention. Now I know for sure.
The reason is that the currency requires too much friction to be practical. Consider my experience of what it took to create a digital wallet and to put Bitcoins to put in it — and I chose the simplest path.
I used Coinbase because it’s the easiest on-ramp to the Bitcoin world — but look what I had to do: disclose my bank account information, enable 2-factor authentication by sharing my cell number, and then wait 3 days. The traders at Satoshi Square, meanwhile, use even more complicated wallet tools than Coinbase. (To clarify per comments below: the transactions in the park are near-instant).
All this is fine for a certain type of person. Most people, however, are too lazy, cautious or tech-averse to engage in this type of rigamarole. And before you write me off as a skeptic, consider Google(s goog): there’s a reason that the search giant, despite spending tens of millions, can’t persuade people to pay for things with their phones. People thinks it’s simpler to swipe a credit card or hand over a $20 bill than to pay with some phone-based thing called Google Wallet (most people also believe it’s safer).
If giant Google — whose Wallet is easy compared to Coinbase — can’t figure out the payment thing, how likely is it that anyone will use Bitcoin to buy pies in New York any time soon? Cash is still king, in accounting and on the street.
Only three types of people care about Bitcoin
My conversations at Satoshi Square confirmed my earlier impressions that there are basically three types of Bitcoiners: political idealists, geeks, and people who want to get stinking rich.
The first group include libertarians who worry the Federal Reserve and other central banks will debase the national currency and that Bitcoin — like gold — is an independent store of value. Others in this group just like the idea of a borderless, semi-anonymous form of money based on person-to-person transaction.
Another group attracted to Bitcoin are computer and math savants who relish the beauty of the Bitcoin blockchain and its unbreakable encryption mechanism. This group includes software developers who want to build cool features to use or enhance the currency (and perhaps make some extra cash).
The third type of Bitcoin enthusiasts are all about the money. These include bankers, hustlers and executives who just like the trading game — but also some unsavory types who hope to induce and profit from Bitcoin bubbles or to use the currency for criminal ends.
Overall, this is a problem: the people who care about Bitcoin are nearly all male (with some prominent exceptions) and represent just a tiny sliver of the population. You could say the same thing, of course, about people who trade oil or hog or yen futures — the difference is that everyone uses those things, but almost no one uses Bitcoin.
The upshot is that, in five years, we’re likely to look back on Bitcoin as a fad or a hobby, while treating the currency itself as worthless computer debris. Unless, that is, it catches on with a fourth group.
If Bitcoin has a future, it depends on the money men
In the best piece yet written on the Bitcoin phenomenon, the Financial Times in June described a growing schism between the idealists and the money men. The former don’t want to sell out to any government, but the guys with the money believe that playing nice with Uncle Sam and his money laundering rules is the way to go.
These money men include respected venture capitalist Fred Wilson, whose firm is an investor in Coinbase and who gave Bitcoin a recent shout-out on his blog. The FT says Wilson and his VC crew are treating the currency as a “just in case” investment — and that’s a good bet, considering the money they’ve put into Coinbase is small beer for these guys.
But the speculation doesn’t mean that Bitcoin won’t have traction in the long run. Even though typical Americans won’t (and probably never will) buy Bitcoin, there are plenty of people in other countries who would.
As Silicon Valley executive Wences Caseres explained at a GigaOM meet-up this spring, governments in places like Argentina have repeatedly wiped out the savings of ordinary people through economic mismanagement. Many of these people would jump at the chance to buy Bitcoin — as an alternative currency that won’t deflate, and that is hard for the government to confiscate.
It is in this role, for now, that Bitcoin has the greatest opportunity to flourish: as a currency traded through exchanges that are acceptable to America’s financial regulators, and that can become an established part of the world’s foreign exchange and remittance economy.