Articles by Sean Murray

My Journey to Bitcoin

Count me amongst the libertarians, anarchists, and digital lunatics. I made an online purchase using bitcoin… and it was insanely easy.

The first person I shared my experience with was a friend who works in automotive manufacturing, someone who operates outside the world of alternative finance. He thought I was crazy or rather he was more confused than anything. “Wait, bitcoin?” he asked. “I thought that was a scam that went out of business two years ago.”

Stunned by his remarks and disappointed with his lack of excitement for me, I told a few more friends about what I had accomplished. They had all heard the term, but none of them knew what it was. Oddly, most seemed to believe that bitcoin had already been revealed as a con and was something from years past, a scheme that came, got hacked and failed.

Not so long ago I was in their shoes. I received my first education in bitcoin this past fall, September 22, 2014 to be exact at the 3rd Annual Tomorrow’s Transactions NYC Unconference hosted in Google’s New York headquarters.

It’s a con?

Famous money laundering expert and author Jeffrey Robinson gave a blistering assessment of bitcoin the currency, which he described as a hoax perpetuated by “libertarian anarchists.” His contentious indictment was half warning, half sales pitch for his latest book, BitCon, which I bought the day it was released.

Robinson argued that bitcoin adoption, while minuscule, was still greatly exaggerated.

He explores several challenges in his book, one of which can be summed up as:

Why would someone exchange dollars into bitcoin only to have to convert their bitcoin back into dollars?

It’s a great question, but it’s something I’ve done every time I’ve traveled abroad. Dollars to euros and then euros back to dollars. Dollars to pounds, dollars to canadian dollars, etc. But why do an exchange at all when the counterparty prices their goods or services in dollars?

Benefits

Assuming bitcoin’s value against the dollar wasn’t volatile, I can think of three immediate reasons:

1. I don’t have to enter in my credit card number on a website and risk it being hacked or stolen.
2. I can make a payment online if I don’t have a credit card or debit card.
3. I can spare the merchant the payment processing fees.

Let’s forget about point one for now because it’s easy to overlook the pervasiveness of point two. According to the FDIC’s latest National Survey of Unbanked and Underbanked, 25 million people in the country do not have access to a bank or banking products at all. Poverty is a main driver of that but curiously 34.2% of respondents in that group cited that they don’t like dealing with banks or don’t trust them as a reason. 30.8% said that account fees were too high or too unpredictable.

And that’s just the unbanked. 1 out every 5 households in the country is underbanked. They have a bank account but have also obtained financial services and products from non-bank alternative financial services providers in the prior 12 months.

To those of us that rely on banks for everything this may seem extreme, perhaps even downright unbelievable. Coincidentally, Robinson wasn’t the only notable figure at the New York Unconference. He was joined by Lisa Servon who later spoke about her hands-on experience with the unbanked and underbanked. A professor of urban policy at the New School in New York, Servon got a job as a check casher/payday lender in a storefront on a busy corner in downtown Berkeley, California to learn about these households on the front lines.

Consumers can be intimidated by banks she said at the Unconference, especially minorities. Even people who can afford to use banks opt not to. A sample of her experience was published a month ago in the New York Times.

Moving on to point three, accepting bitcoin can either be free or vastly less expensive than accepting a credit card payment. Payment processing fees are significant in commerce. I know this because I accept credit card payments through both Square and PayPal in another business I run and it costs me nearly 3% per transaction. I’ve also sold merchant processing for years and have priced hundreds if not thousands of accounts.

You know that thing American Express invented called Small Business Saturday where consumers are encouraged to spend money at small businesses? Paying with your AMEX card is encouraged of course and AMEX charges about 3.5% to the merchants on every sale.

By going dollars->bitcoin->dollars, you can do even more to help small business by saving them the fee. Granted, most consumers probably wouldn’t jump through any hoops to save a business money especially if it meant trying to figure out how to convert your dollars into something they perceive as “a scam that went out of business two years ago.”

I’ve read all the warnings about bitcoin already and have even been lectured by Robinson personally:

and yet what intrigued me most about bitcoin aside from the transaction costs, was the fact that it was not run by a government.

What if?

Five years ago I had a sinking feeling. The safety and security of the U.S. economy was put to the test. Stock prices fell, lending dried up and millions of Americans actually began to ask themselves, what if? As in what if the dollar collapses? What if your bank account suddenly became worthless? What if you had to suffer for the mistakes others in your country made?

In 2009, a colleague and I pledged to stick together should an eventual economic apocalypse happen. Our plan was simple:

1. Exchange all our money for a gigantic gold brick and two shotguns
2. Sit on gold brick and guard it with those shotguns

Survival would remain possible by chiseling off pieces of the gold brick and exchanging them for food and water. We’d each take turns sleeping and hopefully survive until things returned to normal, if ever.

A fantasy to be sure, and it was great for laughs to break up the day, but what if?

My apocalyptic paranoia is one of many stereotypes of the bitcoin faithful, but I have no interest in exchanging 100% of my dollars to bitcoins. And no, I don’t think the dollar is going to collapse tomorrow. I am intrigued however by a currency that eludes governmental control. We can all keep a gold brick in our back pockets, even if it’s small, and even if it’s digital. If for no other reason, it’s a small hedge for peace of mind.

It’s quite ironic that while critics talk up the dollar’s superiority and the strength of the U.S. government, only 14% of Americans approve of how Congress is handling its job. Not to mention that the nation is at this very moment $18 trillion in debt, a number very unlikely to be made whole. Remove the term bitcoin from the conversation and it’s quite likely the average person would at least be amenable to the possibility of a non-governmental currency.

Perhaps as Americans we are somewhat blind to risks, that we feel nothing catastrophic could possibly to happen to us. To many it is literally unthinkable. A completely independent currency has its merits both now and in far bleaker times.

Of course should the apocalypse occur and all you have is bitcoin, rest assured you will be able to buy a shotgun since you can pay for them with bitcoin:

The get rich quick crowd

Here lies another criticism of bitcoin, that everyone is holding it and no one is spending it. Far from idle, there are currently more than 80,000 bitcoin transactions per day. Without prohibitive transaction fees though, volume is a poor measure of adoption since I could easily send bitcoins back and forth between accounts I own and classify them as transactions.

There are indeed those holding and not spending. Rampant speculation is both a cause of volatility and an argument for its long term unsustainability. Speculators are hoping the digital currency will appreciate and make them filthy rich. If that day never comes, a big sell off will cause its value to drop.

And therein lies the argument… when or if the speculators leave, will that spell the end of bitcoin?

If bitcoin had no practical uses outside of being another digital currency like World of Warcraft gold, then bitcoin would likely be a con, a predictable one that probably would’ve combusted already.

There may actually be a massive market correction in the future. At the current moment, Coinbase reports that 1 btc = $376.23. On November 14th, I paid $397 for 1 btc. It lost about 5% of its value in two weeks, a tough percentage to stomach for the faint of heart, and most certainly the average consumer. It’s also equal to the plunge the S&P 500 took between October 8th and October 16th so such short term volatility exists in other mainstream assets.

I’m not necessarily speculating though. I spent almost half my bitcoins shopping on Overstock on Black Friday, an experience I will detail in another post. A 5% swing might be acceptable for an investment but it’s quite ugly for a currency and this fuels the misinformation that bitcoin is a scam, con, or has already gone out of business two years ago.

1 btc could drop to $100 or $10 after a furious market shakeout and it wouldn’t change how I felt about it. It could also rise back up to $1,000 or higher. That volatility is enticing, almost sexy, but it’s the lack of transaction fees and governance by mathematics rather than actual governments that have me hooked

White knight

Still, bitcoin is waiting for a few white knights, merchants willing to price their goods and services in bitcoin. For years, I have priced advertisements on this website in dollars, but to show my support, I will soon be pricing them in bitcoin going forward. Dollars will still be accepted of course, but those Paypal fees hurt. Paypal costs me 3% in a split second. Is a 5% loss in bitcoin value over two weeks really that wild by comparison?

I think not.

Bitcoin is more than a currency. It’s not the euro, the yen, or the peso. It’s a detachment from governments and banking. It’s self-control. Without the private key, your bitcoins can’t be seized.

We live in a world today where everybody has their hand in your money. Just look at what happens when you pay for a cup of coffee using your credit card. The following parties all get paid a percentage:

• The small business owner
• The small business owner’s merchant account representative
• The merchant account representative’s company (the ISO)
• The payment processor (the processor settling the transaction)
• The acquiring bank (the payment processor’s bank that is authorized to use the payment networks)
• The payment networks (Visa, mastercard, etc.)
• The customer’s card issuing bank (The bank that issued the card to the customer gets a percentage of every sale made with that card)
• The state (where there is sales tax)

If you thought bitcoin was insane, what do you call a system where eight parties need to get paid to facilitate the sale of a cup of coffee? And my example was simple. There are typically more parties involved that that.

I don’t want to give the impression that you can evade taxes with bitcoin. I have every intention to stay on the up and up with governments. But remove the tax man and the merchant from the equation, and one has to wonder what the heck is going on with the other six parties, all of whom will ultimately decide if your transaction is acceptable to them. They decide, not you. They can freeze your funds if they don’t like the transaction and they do. It happens to merchants all the time.

Your money is not really yours. You have rights to it, but only to an extent. It can be garnished, frozen or confiscated. That’s the price of liquidity and relative stability. If you can afford to color outside the lines, where you can remove the six bankers and their control, why not experiment? There’s something pure about it, liberating. And when you add in the fact that it’s governed by math, it’s more than that, it’s beautiful.

deBank

If you are under the impression that bitcoin is intimidating, a scam or out of business, well then I encourage you to step out of governments for a minute, to deBank, and take a walk on the digital side. I’m not going to convert all my dollars to bitcoin and you shouldn’t either. Try it out with some extra cash.

Sure, you’ll be in company with libertarians, anarchists, and lunatics. And yes, there’s the paranoid, the speculators, and those transacting in illicit goods and services. The beginning of the Internet and computers was much the same way with the unix and linux faithful.

Perhaps bitcoin needs a Steve Jobs, a Bill Gates, to package up something simple and suitable for the average household. Every American would appreciate squirreling away a little something that is out of reach of government and banks.

The vast majority of Americans already don’t trust congress, and 92 million Americans are already underbanked or unbanked. In 2014 buying a cup of coffee involves paying eight people and the government has spent $18 trillion that it doesn’t have. You have to start to wonder who the real lunatics are. Consumers are waiting for something… even if it’s just a little peace of mind, a hedge, a gold brick in their back pocket, the feeling of independence, freedom, control. Something…

I deBanked and loved it. Now it’s your turn.