Lots of time, work, and their own money. Especially for the people who spent the time coding it and setting up the initial networks. Really, the same risks that people like Bill Gates, Steve Jobs, and Eric Schmidt, along with their first few employees, took when they created their software revolutions.

Direct link here: http://goo.gl/LIFCz


Why some of Bitcoin’s hurdles may actually be its drivers

     There are two biggest complaints I keep hearing about Bitcoin, first, that it makes tax evasion too easy and governments will hate it, and second is that it only benefits early adopters. I argue that the first is not really thought through, and the second is already proving to be wrong.

     Bitcoin is designed to be completely anonymous, but that anonymity is only by choice. The argument is that, with people creating anonymous addresses, companies will be able to hire people and pay them under the table, and the government will have no way of tracking such transactions. Technically, the same could be said of cash payments, which could be, and very often are, paid “under the table.” However, companies have an incentive to report their financial transactions. That incentive may be due to failure to report may bring down the law on them, or that reporting transactions and being in good standing allows them to operate more securely within the government legal system, and contest any theft or dispute between other companies and participants.

     Regarding a Bitcoin based scenario, just as a company can hire employees, report their social security numbers to the government, and make payments against those social security numbers, having to report all the payments every few quarters, a company can hire employees, use their self-selected Bitcoin addresses to pay them, and report those addresses to the government. The huge benefit is that, since all transactions are public, there is no longer any need to collect and report payroll information. As long as the government has all the employee addresses, all salary information can be collected automatically from the Bitcoin blocks. And if the employees feel that they would still rather keep the rest of their transactions private, sending the received salary amounts through a few addresses before sending to another one of your own would make the amount of money anonymous again. Yes, that could be considered money laundering, but we will have to see how the law comes down on that when we get there.

     The second biggest claim I keep hearing against Bitcoin is that “it mainly benefits early adopters.” I guess the claim is that, since people who got into it early will have all the money, newcomers will want to stay out of the system, and that will lead it to failure. What this claim fails to take into account is that those people who got in early, and now have a lot of wealth, have an incredibly high incentive to see this system succeed. They will very likely use their wealth to invest in improved financial service companies, design easier ways to transact with Bitcoin, and make the system more prevalent and user friendly in general. In a way, early adopters who have taken on enormous risks on the hopes that this currency goes anywhere, will be paid by the currency itself to make sure that it succeeds. An excellent example of this is the largest Bitcoin currency exchange site MtGox. At present volume, they already make an estimated $30,000+ a day in revenues, and the owners have pledged to use the money to continue to expand and improve the system, and to create a lobby to defend Bitcoin in governments. At $14,000,000 a year that is expected to only grow, that is a pretty nice chunk of cash to run a lobby with.

     Am I sure that Bitcoin will succeed? No. Rick Falkvinge has written some excellent analysis of it’s other more realistic hurdles (goo.gl/HBvYM). But, after reading up on the technology behind it, and meeting the community involved with it, I am personally fairly confident in it.

-- Rassah