Welcome to the CoinDesk Weekly Review 17th January 2014 – a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law.
ATM by numbers
Bitcoin ATMs are hotting up: Lamassu and Robocoin are making them, Taiwan’s banned them, New York’s thinking about licensing them, and now Skyhook’s doing a $1,000 model that’s open source – anyone who fancies making their own can do so using Skyhook’s design.
But how much would that cost? Well, there’s not very much in a bitcoin ATM. The most esoteric part is the note acceptor (called a bill acceptor in the US), the gubbins that gobbles up the banknotes and checks they’re legit. Otherwise, you just need some sort of display and user control, a smidgeon of network, and a lump of computing to connect everything together.
John Law is quite handy with a soldering iron – the legacy of a mis-spent youth holed up in his bedroom when everyone else was out discovering beer and girls. He popped onto eBay to see how much note acceptors cost: you can get them for anything between twenty and a hundred quid – US prices are $40 to $120.
Although Skyhook hasn’t said exactly how its ATM is put together, it has said that it uses a Nexus 7 tablet (£120) and a Raspberry Pi (£20). You probably need the Pi because note acceptors are a bit fiddly to connect – they have all manner of odd signals, but the Pi is very good at that. The Nexus 7 is a bit posh; you can get a Chinese equivalent for £70 or so. All the networking comes for free with the Pi and the tablet.
Add £20 for the case and a power supply, and John Law reckons you can bring it in for around £150, if you try. If you’re out to make a lot, then building some custom electronics to remove the tablet and the Pi will bring it down quite considerably.
Of course, you’ll need the software to make it work – but with Skyhook promising to go open source, and the very lively developer communities out there, that’s a matter of time, not money. Other cryptocurrencies can be supported as quickly as the right sliver of software can be written.
The very best bit is: you won’t have to do any of this. Once the Skyhook plans are out there, there’ll be a cottage industry in no time flogging kits and complete units for not much over the component cost.
Good luck to the authorities in trying to police a sea of cheap ATMs. Even if they do, there’s nothing to stop enterprising sorts from just bolting a Bluetooth interface onto a note acceptor and selling that for £70 or so. Then, you provide your tablet or laptop with the right app, and you’re away: there’ll be no actual ATM to ban.
What next? Bitcoin slot machines? It can only be a matter of time.
Now you’re being derivative …
Something else that’s just a matter of time is the bitcoin derivative market. Although they’ve got a reputation of late of being mostly a big boys’ gambling den, derivatives are actually a very good way of divorcing risk from money – and nobody can deny that as money goes, bitcoin has more than its fair share of risk.
They’re also pretty simple. Say you’ve got a business that makes saucepans from copper. You know you’re going to need so much copper over the year, and you need to know how much you’re going to pay for it so you can set a sensible price for your kitchenware. But the price of copper shifts quite a lot, in unpredictable ways.
What you do is agree to buy a fixed amount of copper in the future at a price agreed now. The person who’s selling you the copper thus takes on the risk of the actual price going up too much – but also stands to make a bundle if the price collapses.
This sort of deal is also called futures trading, for obvious reasons. In exchange, you get to plan your year and can get on with making and selling pots at a fair profit. The derivatives trader makes their money by being an expert in risk. Result: happiness.
The problem of price swings is far, far worse for people who just want to trade bitcoins at a fair price, rather than speculate. Which is why Coinbase has been calling in Wired magazine for a properly regulated, all-grown-up derivatives market in BTC.
Isn’t regulation against the spirit of bitcoin? Cool your jets, Randians: bitcoin itself isn’t in the firing line – it’s the markets derived from bitcoin that need the icy blast of official attention. People who sell derivatives need enough cash in the bank to cover their promises, or the innocents go to the wall. And there’s been quite enough of that.
If that all works, bitcoin will become ever more attractive as a stable, usable currency for normal transactions. Isn’t that rather the idea?
Buy it now
But enough about John Law’s weekend (oh, he wishes – a trip to Lidl and a medium Americano were the real highlights. January, eh).
But if he had decided to enjoy the above through bitcoin, he’d be in luck: all these services have announced their cryptocurrency compatibility in the past seven days alone. Doubtless, there were many others.
The most exciting of the lot, though, is eBay UK. Although it hasn’t gone as far as adding bitcoin to its acceptable payment methods for ordinary auctions and transactions, it is going to allow virtual currencies to be bought and sold through its classified section.
That’s not quite the real eBay, as it’s just a listing service, and you could already sell bitcoin there provided it was on a physical carrier like a USB key, but it’s yet another fillip of respectability in an arena most of us use.
It’s the trickling-down of bitcoin from the hipster, the elite and the weird that’s going to matter in 2014. Not many of us will be hiring private jets this year, and hopefully few of us will be considering our choice of criminal lawyer, but we’ll probably be looking at news over our bacon and eggs while waiting for the postie to deliver our latest eBay acquisition.
Which is why John Law is relaxed when professors of economics take to the FT to predict doom and misery for bitcoin as an investment – backed by the impeccable argument that “There are no statistics available but one suspects that very few purchases of real goods are settled in Bitcoins.”
When the economists are against it, you know that something’s going right.