Currency Wrapping with Bitcoin

Bitcoin is nothing more than a wrapper for an underlying regulated currency, without which Bitcoin would have no value. It’s equivalent to a casino chip, and the Internet is the casino.

If you’re not familiar with Bitcoin, here’s the short of it. Bitcoin is a digital “currency” that lives on a peer-to-peer network and is not currently regulated by any government. It can be used to buy things just like any other currency so long as a merchant is willing to accept Bitcoins instead of “real” money. Bitcoin supply is managed by an algorithm that adds Bitcoins into the system at a predefined rate. It’s no different than a central bank adding money to an economy to help it grow. The number of Bitcoins will reach a limit of just shy of 21 million by the year 2140. Bitcoins are exchanged through “mines”, which are effectively intermediaries, just like banks. Most mines take a transaction fee for making the exchange, just like banks, because managing the systems/servers needed to be involved in the Bitcoin network costs money (i.e., you need computers, electricity, and all of the other expenses of running a business, as well as a profit…imagine that). Here is more information on Bitcoins if you want to take the time to get into the details. You can also do a simple bing or Google search.

OK, so what’s the point? Why not use real money? Some claim Bitcoin is anonymous and as such people can use it to stay off the official currency grid. But it’s not anonymous. The transaction log used to manage the Bitcoin system, which contains the information for every Bitcoin transaction ever made, can be unwound all the way back to the original Bitcoin owner. Would it be harder to trace than a traditional credit card transaction? Sure. But it’s not completely anonymous. But perhaps this layer of pseudo-security is enough to drive the use of Bitcoins. “Find me if you want, but you’ll have to decrypt and unwind the transaction hash.”

What if I don’t care about pseudo-anonymity, why would I use Bitcoin? Really, there is no compelling reason.

Let’s take a step back. What is a currency? A currency is nothing more than an agreed upon item used to simplify the storage and exchange of value. Today we use “money”, but if you want to do some research you’ll find that all sorts of things have been used as currency throughout human history.

For example, you get paid money for doing a job. This money represents and stores the value of your labor. You can then use your money, the value of your labor, to buy other goods and services. But if you got paid with pencils instead of money, it would be much more difficult to buy the goods and services you need because you would be limited to transacting with people and businesses that need pencils. If no one needed pencils, or if the people that needed pencils didn’t provide the goods and services you need, your pencils would be completely worthless and the hard work you put in to get those pencils would have been for naught. But with a common currency you can trade that currency for any good or service from anyone, because then those people can use the same currency to transact with anyone else, etc. It simplifies trade immensely.

So what makes Bitcoin usable as a currency? The only thing that makes Bitcoin usable as a currency is that it is assumed it can be exchanged for an underlying regulated currency, just like a casino chip, and then that regulated currency can be used to buy things. Keep the casino chip and try to buy things outside of the casino and you’ll be met with a blank stare. A casino chip has no value outside of the casino. In the case of Bitcoin, the casino is the Internet and Bitcoin is the casino chip. On the Internet, where people have blindly given Bitcoin a value, it has value, although that value tends to fluctuate based on the inherent irrational nature of its users. Bitcoin is worthless everywhere else.

The best advice I have for using Bitcoin is caveat emptor.


Immigration and the Undesirables

I’m probably a bit late to the game with this post, as the talk about immigration reform seems to have died down, but the problem hasn’t gone away, so here goes. Immigration is a huge topic, but I’m going to focus on the tech side of things.

Technology related companies have been very vocal about their desire for immigration reform. The problem is that there aren’t enough skilled technology workers in the US to meet labor demand, so it is argued the best way to boost labor supply is to import skilled workers from other countries. In other words, the current pool of unemployed in the US is effectively unemployable in the tech sector. How’s that to boost your spirits? “You know, not only will we not hire you, but you’re so bad that we’d rather get laws changed so we can import a worker from another country to fill this job.” What would you call that, a “geek slap”?

Honestly, I have no problem with importing workers. People are just another asset businesses employ in order to function and countries should be able to engage in the free trade of their people just as they do their goods, services, and natural resources. Ignoring politics, what’s the difference between hiring someone that lives down the street versus someone that lives halfway around the world? There is no difference. If the world were one big country, we wouldn’t give it a second thought.

But importing skilled workers to meet labor demand is a short-term, narrowly focused solution to a much larger, longer-term problem. Even if the US could import tomorrow all of the skilled tech people it thinks it needs, what’s to be done with all of the “undesirables”? Are they to be educated and trained? Ignored and left to fend for themselves? Or perhaps we could enter into a bilateral trade agreement whereby, in exchange for each skilled worker imported to the US, we export a handful of our undesirables. After all, what’s undesirable to one country is likely to be a treasure to another.

Stemming (pun intended) from the technology labor problem has been a greater focus on STEM (science, technology, engineering, and math, which are all directly related, by the way) education and training. Much of the focus has been on younger generations, guiding them to these fields and/or better supporting students that are already genuinely interested. And that is a good solution, I think, that will help in the future when these kids are finally old enough to be legally employed, but we also need to do something about the “older” folks (in tech, I think that’s anyone over the age of 12), most of whom have likely spent their working lives in other disciplines, but would like to transition into the STEM world. Not only are these people already skilled at being employees, but they can also bring valuable non-tech insights that would compliment their newfound technological knowhow.

Certainly there are great education efforts being made to get people trained in STEM, largely only possible because of technology. Some great examples are Khan Academy, Codecademy, and things like Massively Open Online Cources offered by accredited universities. Education probably hasn’t changed this much since the formation of written language. But I think we need to expedite the process. Just as the first dotcom bubble of the late 1990s/early 2000s expedited the development of so many technologies we take for granted today, a similar level of investment in STEM education for young and old alike could transform the technology world yet again.