Bitcoin Is Not A “Coin” Quite Yet.

In his paper “Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto refers to starting with already used forms of digital currencies. In fact he refers to them as usual;

“We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending.”

In the same paper he previously introduced the gold miner analogy to his idea with

“The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation.”
Now even though I believe his idea and his work are works of genius I am starting to believe he made an error in naming it Bit “COIN” and that the error is now affecting the adoption of his work into mainstream culture. I think we need to “tweak” his original name and call it “BitOre” or “BitNugget” for the simple fact that gold never leaves the mine as COINS but always in the form of gold ore or gold nuggets. I can emphatically say that, from experience, mis-naming something in a complex idea can have far reaching and even devastating consequences. But at the same time, once a mis-labelling is discovered and corrected the progress can again resume and is, oftentimes, quite rapid after the change.

There are at least a couple processes after the gold mining process that are performed on gold after it is mined that are absolutely necessary in order for gold to enter circulation. From his quote above we can see that Satoshi Nakamoto compressed the analogy into going from mining directly into circulation. And after listening to many of the videos from the Bitcoin 2013 conference on YouTube I would say that many of the businesses trying to adapt Bitcoin to mainstream are having difficulty because they are (to elaborate on the mining analogy) trying to get the general public to accept gold ore or nuggets as coin.

What I believe Satoshi Nakamoto accomplished was more akin to an assay of digital currency rather than a minting of it into a coin. This doesn’t in anyway diminish the enormous importance of his feat. He solved a bottleneck that had held back digital currencies for a long time. But if you think what gold is like after it leaves a mine you will realize that it is practically worthless as a currency. That is because there is noway for the layman to determine its value without having it assayed. Ore in its natural state may not even be recognizable as gold. But once an assayer takes a sample from a container of ore and conducts an assay on it to determine its gold content the, and only then, can the container can be made tamper proof and the assayer’s stamp be placed upon it as a guarantee of its contents. Those contents can now be traded among experienced traders but it is still a ways away from a coin still.

The next step in the process would be to smelt the ore. After that, it still needs further refining. Now lets refer back to the coin analogy again so that we clearly see that making a coin from un-smelted and un-refined gold ore would be a total waste of time and such a coin would have little, if any, acceptance. Such a coin with an assayer’s label on it it would have some value but the greatest value is awaiting the coin that is minted from the ore after it is smelted and refined.

So what possibly could be analogous to smelting and refining Bitcoin? I may be wrong but I am seeing much of the work in the Bitcoin community that was discussed at the Bitcoin 2013 Conference is equivalent to the smelting process. There are impurities in the Bitcoin that main stream wants out of it so that they can use it. But “main stream” isn’t all that uniform itself. There are businesses wanting to use Bitcoin facing increasing scrutiny from regulators and there are end users trying to figure out how to even acquire some.

So just as smelting doesn’t make ore quite ready for the general public it does create a broader user base for the smelted ore. Other manufactures can take the smelted ore and refine it to whatever standards and purity they need for their individual products. To use my own BungeeBones.com web advertising system as a reference point, I have been working on converting it over to Bitcoin. The plan is to include both currency (through PayPal) or Bitcoin as payment and to make all commission payments to publishers by Bitcoin. I couldn’t possibly maintain two separate accounting systems for currency an for Bitcoin so what I hope is to find some company to send advertisers to to purchase Bitcoin but there is just no easy way to do that right now. Mt. Gox has recently registered as a money transmitter in compliance with US laws so hopefully BungeeBones will be able to get their Bitcoin there soon.

 

 

This entry was posted in Bitcoin Philosophy. Bookmark the permalink.

Comments are closed.