After months of hype fuelled a price rally that ended with bitcoin surpassing the price of gold, the Securities and Exchange Commission denied a proposed bitcoin investment fund led by the Winklevoss twins on Friday.
That led to an initial nosedive in value, but now the price of bitcoin is more or less back to where it was before the denial. Despite what some feared, while it's deflated a bit, bitcoin hasn't exactly imploded. Now might be a good time for the bitcoin community to take a step back and think about where to go from here.
One implication of bitcoin's price comeback is the possibility that a good chunk of the price rally didn't just come from the anticipated approval of the Winklevoss' investment fund, but from all of the other things that make bitcoin… bitcoin.
"It's not a bad thing to have speculators as long as they're balanced out by actual use of the currency," said prominent bitcoin expert Andreas Antonopoulos in an interview. "If you remove the use of the currency, and its value is dependent entirely on speculation, then it has no intrinsic value. The intrinsic value of bitcoin is through the economic activity of users using it to buy things from each other."
Rampant speculation with bitcoin would turn it into a "highly volatile casino," Antonopoulos continued.
And this is a crucial point: the Winklevoss investment fund would have essentially been a way for finance types to win big by gambling on the price of bitcoin going up, without doing any of the work that actually makes it increase in value. Viewed like this, it might have never made sense to place so much hope in the Winklevoss' fund as being the thing that brings bitcoin to the mainstream.
So, after the fund's failure, where does bitcoin go from here? It might make sense to focus on all the things that helped bitcoin retain much of its value after the investment fund was denied by the SEC. That is: making bitcoin something people can use.
This will not be an easy thing to do. For nearly two years, bitcoin has been mired in a never-ending debate—or "civil war" as some call it—about a code change that would allow bitcoin to be used by more people, more quickly, and some argue with lower transaction fees to boot. While not everyone agrees on how to address the issue, most now feel that something needs to be done.
I've used this example before, but I think it's a good one to consider: When I buy my morning coffee with cash, I don't have to pay an extra few cents, or perhaps a dollar, for the privilege of paying for goods. With bitcoin, I do. Bitcoin evangelists should ask themselves why anyone would ever do this voluntarily.
Another problem is that while bitcoin used to be able to tout no more than a 10-minute wait time for a transaction to be "confirmed" by the network, wait times can now be hours upon hours. This places unnecessary risk on vendors who, for convenience's sake, must then let people walk out the door with goods without the transaction being settled.
These are serious problems with numerous proposed solutions, but nobody can agree on which to go with.
For his part, Antonopoulos suggested that bitcoin could be most useful in developing nations without a stable banking industry (this is a popular claim, but so far hasn't borne much fruit). On the note of usability, he suggested the community could look to technologies that put less strain on the blockchain by handling individual transactions in a separate system and only interacting with the blockchain when uploading them in bulk.
The most important thing to take away from the investment fund's denial, however, is that speculation isn't the way forward for bitcoin, Antonopoulos said. Work is.
"The next page of this story is that bitcoin will scale," he explained, "but on its own terms and its own timescale, and without sacrificing decentralization through more innovation coming down the line."
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