What’s Bitcoin good for, anyway?

​The idea of using Bitcoins instead of “normal” monetary currencies has been getting a lot of attention lately, and a lot of people seem to be wondering why anyone would want to use Bitcoin in the first place. This is, of course, a question worth pondering, but I think it has been sufficiently addressed. Entrepreneur and software engineer Marc Andreessen has persuasively argued in favor of Bitcoin, highlighting several advantages of Bitcoin over conventional currency. Consider for a moment that one of the characteristics that makes Bitcoin a completely revolutionary currency is that it can be divided into very small amounts. While a U.S. dollar can be divided into no more than one hundred parts – or up to 2 decimal places – a Bitcoin can be partitioned into a number with 8 decimal places. This is actually very exciting and opens up a whole new world of possibilities, and Marc Andreessen points out that the ability to send very small amounts of money (“micropayments”) can be harnessed for beneficial purposes. For instance, Bitcoins could be instrumental in filtering out spam: if posting a comment to a given site required the commenter to pay a very small fee in Bitcoins, then spammers would almost certainly be hesitant to post. Since the effectiveness of spam relies on the volume of spam, having to pay for spam content would basically defeat the whole purpose of spam. On the other hand, individuals who genuinely have something to say would not be affected all that much since the “Bitcoin fee” would be extremely small (say, thousandths of a penny).

​Bitcoins would also be pretty useful in content monetization (also discussed by Andreessen), and the widespread use of Bitcoins would effectively render the subscription model obsolete. Today, if you’re interested in reading a digital article in, for example, The New York Times, you have to purchase a subscription. But you just want to read one article, so why should you pay for anything more than that? That’s where Bitcoins come in. In principle, you could pay for just one page if that’s all you needed. Naturally, we could extend this line of reasoning such that you don’t have to buy a whole Kindle book if you’re just interested in reading a few pages. Thus, Bitcoins would give you the option to pay for exactly what you need – and no more.

​So, yes, Bitcoins are pretty neat because they allow micropayments, and this one feature of Bitcoins trumps the normal monetary currencies. What are some other nifty uses of Bitcoins? This is something that I’ve been thinking about recently, and what follows are some of the ideas I came up with.

​Let’s start with a fairly common situation. Suppose you’re at Starbucks to get a cup of coffee, and you just happen to like your coffee without sugar. Nonetheless, you still actually pay for sugar in your coffee (this is because the price of having a coffee with sugar is included in the overall cost for the cup of coffee – regardless of whether or not you want sugar). But with Bitcoins, you could theoretically pay for a cup of coffee without the cost of the sugar. Pretty cool, eh? We can go further than, this, too. What if you’re stuck in line at your favorite Starbucks? You’re in a hurry and you want your coffee fast, but there are a dozen people ahead of you. Bitcoins would offer a straightforward solution: pay everyone ahead of you a couple of cents worth of Bitcoins and move along. This is similar to the so-called premium lines in amusement parks, where individuals can pay the business to essentially “skip the line.” But Bitcoins would allow this to be a public benefit, and not something that helps the corporation. In other words, the people who do you the favor of allowing you to move ahead of them get rewarded, instead of the business (which really has nothing to do with where you are in line). UPDATE: Unfortunately this is not gonna work since social norm and marketing norm will collide and with a time any payment will seem unfair.

​Here’s another idea: Bitcoins could be instrumental in activities like voting for a feature of an app. In fact, very recently app.net has used this approach in deciding whether or not to accept Bitcoin payments. The whole open source software sector could be heavily impacted – in a positive way – by the use of Bitcoins. Users of the community could invest in their votes by “attaching” a small value in Bitcoins to their votes. In addition, helpful users in the open source community could receive some small contributions for their work, and thus growth in open source software would be encouraged.

​If there’s one consistent theme that we constantly see in Bitcoin, it is the fact that Bitcoins facilitate micropayments. While banks do not currently support fraction-of-a-cent transactions, Bitcoins make such “microtransactions” perfectly feasible (even conventional transactions of couple cents doesn’t make economical sense because of the fees). Imagine a world infused with billions of micropayments going back and forth among different people. While I’ve already discussed a few of the possibilities, here are some more:

Bitcoins provide an easy way to say “thank you” to someone who has helped you out. For example, if someone helped you with technical issue on Stackoverflow, you may reward him with couple cents rather than just upvote. This commercial approach may attract more technically adept people and facilitate professional community growth.

This is just a brief overview of the kinds of things we could do with Bitcoins. Though the critics might continue to raise arguments against the emergence and growth of Bitcoins, the fact remains that Bitcoins seem to be the wave of the future and aligns with the zeitgeist of the 21st century that has been so dominated and shaped by internet technologies.

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  • Sergei

    bitcoins will not work, there are too many serious issues with the design of this currency… the ability to subdivide into very small portions, or the ability to make quick anonymous payments, are the only positive sides of bitcoin – everything else is a drawback (dependence on p2p network, no offline storage, vulnerability to government intervention, wild fluctuations of exchange rates, vulnerability to competing bitcoin-lookalikes that you can set up in a short time, etc. etc.)

    • http://podlipensky.com/ Pavel Podlipensky

      Well, dependence on p2p network is an upside, rather than downside, since it is harder to take the whole system down. What did you mean by “government intervention”?