Golden answers to your bitcoin questions
John Law explores Germany's classification of bitcoin and the solution for those tired of answering their friends' bitcoin-related questions.
Welcome to the CoinDesk Weekly Review 23rd August 2013 — 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
Bitcoining it, 1980s style
You may have heard of the Osborne effect. Named after early personal computer entrepreneur Adam Osborne, it describes what happens when a company kills its cash flow – and itself – by announcing a new product so far ahead of production that the drop in sales of the old product is fatal. There was a very successful Osborne 1 PC launched in 1981; the superior Osborne Executive was announced in 1982 but not delivered in numbers quickly enough to replace lost sales.
Bear that in mind when reading about Butterfly Labs' latest announcement – the Monarch – which, while it has splendid specifications, has no firm delivery date beyond ‘towards the end of the year’ ’ (at the time of the announcement - new orders placed are now stated to be delivered in February 2014 - Ed). Factor in Butterfly’s much-noted problems in delivering on its current product line, and ask yourself “Do they feel lucky, punk?”.
Butterfly might take heart from one additional fact about the Osborne effect – it isn’t quite true. While there were indeed cancelled sales and a buildup of inventory of the Osborne 1 after the Executive had been shown to journalists, they weren’t the only causes of the company’s demise a few months later. Poor quality control, trouble meeting deliveries, a decision to expensively complete some unfinished obsolete products, and superior competition. probably contributed even more to the final bankruptcy.
Hm. Perhaps that isn’t too much comfort for House Butterfly. While it’s understandable that the company wants to put up a good fight with competitors like CoinTerra promising (but also not yet delivering) very high performance mining rigs, it’s a high risk strategy when many customers are still waiting for their gear. With personal computers, it didn’t take long for designs to become obsolete, but that’s nothing compared to Bitcoin’s built-in performance degradation over time. Every day, a mining rig’s specification is worth a little less.
Add in the – shall we say, legally bold – claim by Butterfly that ‘sales are final’ and that no refunds will be forthcoming for non-delivery (in the UK at least, that doesn’t fly), and its move to only accepting non-reversible payments, and it starts to look as if there may indeed be lessons from the early days of personal computers for both bitcoin miner hardware producers and would-be purchasers.
Meanwhile, for those who may not have been born in 1982, here is a video of an Osborne Executive booting up and running some software. John Law was there at the time so can confirm that yes, this is how it was; but, at a 2013 equivalent price of some £3,000, it was not for him. In thirty years time, what will be said about the Monarch?
How to avoid tiresome questions
Bitcoin and its fellow cybercurrencies are the newest inventions in town, at least among those that you can actually use. Which is cool, and thus it’s entirely proper that people of taste and distinction should concern themselves with the whole field. The only downside with being a techno-trendsetter, as you will be all too aware, is that one’s expertise in such an exciting area leads to one’s friends, family, servants and entourage asking questions. How does bitcoin work? Will it lead to the collapse of civilisation? Can it make me insanely rich? How do you spell Nakamoto?
The first few times, such questions are charming. There is a certain gratification in guru status, in lightly reeling off the perfect answer to a complex question. Eventually, though, one realises that the endless quizzing is getting in the way of more important matters. Bordeaux: the ‘78 or the ‘85? Cigars: Bolivar Belicoso Fino or H. Upmann Royal Robusto? The offie: White Lightning or Special Brew?
Help is here. The CoinDesk bitcoin information centre – modestly labelled The beginner’s guide to bitcoin – has all the answers you need to keep the baying hordes satisfied. It’s a distillation of everything the site knows about bitcoin – which is to say, everything worth knowing – in a format that practically screams ease-of-use.
While he has the greatest respect for the toiling multitudes who keep CoinDesk on the road, John Law considers that perhaps they’ve been a little too generous here – if they’d strung out all that valuable info over a few weeks, think of all the gratuitous site traffic. But no, it’s all there all at once. One bookmark, and expert status is guaranteed.
Admittedly, the question of whether bitcoin will make you stupidly wealthy remains unanswered. Which leaves the small matter of the ‘78 versus the ‘85 slightly more difficult to resolve, without sufficient funds to buy up and consume the entire run of both vintages. Nonetheless, next time you bump into John Law in a City wine bar, do ask. Perhaps headway can be made while we’re all waiting.
A golden answer to the hardest question
There is one question that deserves a serious answer, but remains one of the hardest: what is a bitcoin, exactly? From a computer science perspective, that’s fairly simple – it’s a signed token generated by and handled through a distributed open-source cryptographic protocol. Which is as accurate and as useless as defining gold as a transition metal with atomic weight 197 and a Poisson ratio of 0.44. That doesn’t explain why nations go to war, people fall in love, and lives are spent because of the stuff.
Quite a lot of effort is being expended on behalf of bitcoin too, despite it being so new and so difficult to grasp. In that, it has something in common with gold, the oldest and most immediately physical container of enduring value mankind has devised. Is there a clue here to help with that difficult question?
. While the rest of the world is caught up trying to sort out whether bitcoin is Good or Bad, to be encouraged or squelched, the harbinger of chaos or the bringer of freedom, the Germans have decided to analyse what bitcoin is first and worry about what it might do afterwards. It’s a cool, clinical and very practical approach to the issue which John Law finds enormously refreshing in a global climate more given currently to overheated politics and gut reaction.
So, Germany, what is a bitcoin? “A unit of value.” Which is to say, not a currency, nor an e-currency, a financial instrument, or any of the special monetary things which are more or less incomprehensible to non-experts. It just has value. You can create it as you wish – in the same way that you can create anything of value, by writing a book, making jam from strawberries, or digging gold from the ground – and it’s of no interest to the state except that it’s worth having, you can prove you did it, and you own it.
If you then go about trading it, whether that means turning it into Euros or swapping it for a car, then the normal state rules about fraud, tax and so on, apply. But bitcoin itself? Unthreatening, useful, worth protecting, a natural expression of man’s sense that an individual’s work can be converted to a value recognised by society.
It’s a simple definition, yet profound. Germany recognises that in the six thousand years mankind has been dealing with valuable stuff, a basic set of rules has evolved that handles most of the problems, and there’s no need to get too het up because a new way of storing value has appeared. Perhaps they could make a poster about it: keep calm and carry on.
Perhaps not. But another bottle of the ‘85? Now that’s a unit of value.
is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
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