Bitcoin Has Passed The Tipping Point
Monday, 21 Jul 2014 07:14 AM
By Dino Londis (Invests.com) – Products and services that are first-to-market often take such a battering that they lose out to competitors with copycat products. Business history is littered with wildly successful products with ultimately spectacular collapses because they lost out to competitors that found a better way of doing things – things they learned at the trailblazer’s expense.
The Sony Betamax is the poster child for products that created a market and lost out to a rival – in this case VHS. Sony created a market for recording TV, but because the tapes where an hour long VHS grabbed the movie rental market.
More recently, Friendster was the first social network to explode, with millions of users in the first 3 months. But it couldn’t manage its growth and lost out to MySpace and of course Facebook.
There are many more examples. Some lost slowly, like the Atari 2600 game console, and some crashed spectacularly like Rio MP3 player. Palm lost to Apple, Netscape to Internet Explorer, WebCrawler to Google, Tivo to the cable companies, and on and on.
So far Bitcoin is an exception to this model. And though it’s been battered by ruinous headlines, including one just this week where the World Bank is calling it a naturally occurring Ponzi scheme, Bitcoin remains resilient.
Kaushik Basu, World Bank economist and author of ‘Ponzis: The Science and Mystique of a Class of Financial Frauds’ argues that most Ponzis today are not always obvious and that today’s Ponzi schemes often don’t have a puppet-master pulling the strings. Bitcoin, he says, is just such a Ponzi. The speculation on the currency raises the demand for Bitcoin making it a bubble.
Bitcoin has hundreds of competitors all built on the Bitcoin model. A handful are gaining some success, like Litecoin which is currently trading at $9, and Darkcoin (I’m not kidding) which is trading now trading at $7.50.
Darkcoin was built to cover perceived flaws in Bitcoin’s anonymity. One reason for the early success of Bitcoin was that it was as anonymous as passing dollars on the street. And while there is a far greater level of anonymity with this electronic transaction than making a purchase with a credit card or PayPal, Bitcoin is not anonymous to those forces who really want to know.
Unlike Bitcoin, Darkcoin mixes up users’ transactions so that it’s nearly impossible to trace a payment to a person. But the promise of Darkcoin’s privacy features solves a problem for only a small subset of Bitcoin users.
Few have heard of other crypto-currencies. If people barely understand Bitcoin, then any competitor has the impossible task of differentiating itself.
In his paper Basu mentioned Bitcoin by name, so did the IRS when it said it was a taxable asset. And this week Benjamin M. Lawsky, the superintendent of financial services for the State of New York, proposed regulations to create a “BitLicense” to include rules on consumer protection, the prevention of money laundering and cybersecurity. That’s akin to Apple successfully rebranding the MP3 to a podcast.
Google also just added Bitcoin exchange rates to instant search answers. Google teamed with Coinbase to support the Bitcoin conversions. Try it, just search “20 USD in BTC” and you’ll get the exchange rate. It works for any fiat currency. You can’t do that with any other crypto-currency.
Bitcoin is currently trading at $624. Not bad for a five year old Ponzi scheme.