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Bitcoin, What's It For?

author: Nefario
published: 2011-04-17 22:34:24 UTC

Specialization, that is the division of labour where each worker focuses on one thing, and doing that one thing really really well. Historically it has always resulted in greater efficieny with most economic growth since man began farming the result of specialization.

Try doing verything yourself, grow vegetables, herd & milk animals, make your own cloths, shoes, glasses(if you can),or even build your own home, and you'll probably not do any of them very well, just try to be your own doctor and see how well that turns out for you.

So why not ask someone else to do them for you? Your tailor makes your clothes, the shepherd looks after the sheep, different farmers to grow different vegetables or keep different animals and so on. In return you do something that someone else needs, blacksmith, doctor, whatever.

Now none of this will work too well without money, sure barter will get you along, but there is only so far you can go with a cow in your pocket if you're looking for a new pair of shoes. Money is the magical ingredient that lets all this happen. The overall result is that the quality of everything goes up(because people finally know what they're doing), quantity goes up too, prices fall.

Everyone is happy and the world is a better place, all because of specialization. Because I teach English, and some person all the way over in Finland designs the buttons for a mobile phone. This process is responsible for all that we have, much of which would be impossible otherwise, it makes things plentiful.

I have been spending some time on the bitcoin.org forums(too much actually), and something that has come up time and again, is the complaint that there are not enough goods and services in the bitcoin economy. You can't buy anything with bitcoins. The talk is of being able to buy things like...coffee, food, oil, electricity or some other common good or service you can get from your local store. This is the talk, because if you can't use it to buy these things it's no good as a currency right?

Wrong.

Even if bitcoin is never much used for buying things it has an excellent use as a store of value(how many people use gold or silver to buy milk today), and in this purpose alone it can be considered a success(as long as it's not abandoned by it's users). The question of what you can buy with bitcoin is the wrong one. A better question to ask is what is bitcoin good at buying, that other currencies are not, what is it's.... specialization?

Maybe someday you'll buy a coffee and cookie from starbucks using only btc, I wouldn't bet on that day (prove me wrong) ever coming but lets assume it does. This kind of transaction is perfectly normal, regular currency already handles this kind of things just fine, so taking the role of specialization of labour and applying it to currencies we can see that bitcoin is good for something, it's good for many things but for one or two things it is exceptionally good at.

We shouldn't be trying to use bitcoin to pay for our coffee, shopping, or our gas. That's not what it's really for. Bitcoin has a number of properties that other currencies just don't have.

• It is limited in quantity
• It is anonymous
• It is decentralised
• It is electronic

Put this all together and we have a currency that is ideal for every transaction that needs privacy, that needs confindentiality. It is a sad fact but fact no less that bitcoin is the perfect currency for every shady opperation or deal that is out there. These are it's strengths, and to get the most from bitcoin, to ensure it's continued growth it must be played to it's strengths.

Now you can debate all day about whether government should or shouldn't outlaw, ban or prevent certain activities. Prostitution, drugs, guns to name a few. I won't debate the morals of these activities but that in most countries they are illegal. Thats fine. But there are some other activities that rather more normal people would like to get involved in but can't because of it's illegality or red tape.

Think of individuals that would like to send money to friends or family abroad, but for some reason or other would like to avoid having to identify themselves to a bank(an illegal immigrant, or even a legal one that doesn't open an account because they don't know the language).

Think of parents or grandparents that wish to give a significant amount of the wealth they have earned up in the course of their lives to their children or grandchildren. Sadly in most first world countries, doing such a thing can cause the government to take a big slice for themselves. Sometimes as high as 40% (never mind that they had already taken their cut when it was first earned!).

Think of activities that, in some places are quite legal and even normal and others banned completely. Gambling for example, at least online gambling in the U.S.A is completely illegal. But is there any real justification for a free person, if they so wish to take part in what is really a simple everyday activity(a game) in most parts of the world being prevented?

Another area bitcoin is well suited to is cutting through red tape. With me being in China, to do business with someone in America it would be quite difficult. To avoid having to pay high transfer expenses and exchange rates associated with an international account in China I would set up an account in the U.S. This would be ideal, but due to rules and regulations it's not even possible! And the same is true if I want to trade shares in Europe, U.S. or other parts of the world.

For these and many other situations bitcoin is the ideal medium of exchange, and will cause not just an increase in the ammount of commerce, but an increase in it's speed too. Without red-tape slowing things down or over-regulation choking off business bitcoin and its users are set to prosper.

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