NOTE: I, Star Simpson, am not the author of this post.
Greetings, readers! I am introducing guest blogger Pseudonymous, who is writing a post about Bitcoins this week on the blog.
The post assumes some familiarity with the cryptocurrency known as Bitcoins, but if you haven’t encountered it yet and are curious, learn more at weusecoins.com
Insomne, poseído, casi feliz, pensé que nada hay menos material que el dinero
Some people claim that Bitcoin isn’t a “real currency,” that it is “imaginary,” or a Ponzi scheme — for a number of reasons, but perhaps mostly because there’s no obvious way to use them in most people’s daily lives. I have a different perspective because last week I paid for lunch with Bitcoins. Here’s how it happened.
First, someone sent me a Fortune article, “The Clock is Ticking on Bitcoin.” The article is mainly gloom and doom about Bitcoin’s future, but also happened to alert me to the existence of Meze Grill, a restaurant in midtown Manhattan, that accepts both U.S. dollars and Bitcoins as payment for food. Notably, even this was not enough to inspire the Fortune author’s confidence, on the grounds that nobody had yet spent a Bitcoin there.
Being in midtown Manhattan, I decided to hop over to Meze Grill for a bite to eat. The restaurant is a block or so from Columbus Circle and sports a rather professional-looking “Bitcoin Accepted Here” sign in the window.
My conversation with the man behind the counter began awkwardly:
“I heard that you take … Bitcoins here … as a way of paying for food,” I said.
“Oh,” he said, looking confused. “Ask him about that,” and pointed to the restaurant owner, who was sitting at a table explaining Bitcoin to another employee.
I walked up to them. “Excuse me,” I said, “I heard you accept Bitcoins here?”
“Yes, of course,” the owner replied, nonchalantly.
The owner responded so confidently, I felt as though I had asked if they took US dollars. What kind of a restaurant did I think this was — of course they accept Bitcoins!
“What kind of device do you have?”
I told him that I had a cell phone and a laptop. He instructed me to order from the guy behind the counter, have him ring it up as “cash”, and then tell the owner how much the total was. So I went back to the counter and ordered a hummus plate with olives, the cashier called out the total in dollars, and I wandered back over to the table where the owner was sitting.
He held up an enormous laminated QR code the size of an entire sheet of paper, which I scanned on my phone yielding
I transferred this address onto my laptop and logged onto my Mt. Gox Bitcoin exchange market account. In the meantime, the owner took out his own phone, looked up the current exchange rates, and told me he wanted 0.52 Bitcoins for my lunch. I asked Mt. Gox to send 0.52 Bitcoins to 1MTbKpYWnzqmsLvCjdTtwrvuX81g3HCgC and about three minutes later the restaurateur received an e-mail on his phone indicating that the coins had arrived.
I asked whether I was the first person ever to pay in Bitcoins. “No,” he said, “about the fifth.” Maybe he didn’t have the laminated QR code for the first four, because Bitcoin transaction history browser Block Explorer shows my transaction as the first payment ever to Meze Grill’s current address.
Meanwhile, the owner and I talked about how much nicer it would be if I could send the transaction directly from my phone in a single step without using the laptop.
As if on cue, a young man I’d prefer to remember as wearing a trenchcoat, mirrored sunglasses, and with slicked-back hair walked in, with his entourage. I knew why he was there even before he began inquiring about Meze Grill’s Bitcoin support.
The young man said he was a Bitcoin blogger and Android app developer and he was hoping to make it easy to make a Bitcoin transaction from one’s phone without having to store the entire block history on the phone. (That requires some kind of intermediation because the block history has to be stored somewhere, but of course my own payment was intermediated because I used Mt. Gox to send it rather than keeping block history on my laptop. This is one point at which the tension between convenience and decentralization surfaces.)
He told his friends to place their orders and said he would pay for them. It appears that their orders cost BTC 0.75 and his own meal cost BTC 0.7 and nobody has bought anything with Bitcoins at the Meze Grill since then.
Feeling satisfied as I enjoyed my lunch, I remembered how many people I’ve heard continue to call Bitcoin imaginary, or a pyramid scheme. But I used it in a retail point-of-sale transaction and got a tasty meal, with nothing more than a cryptographic signature asking everyone whom it might concern to consider the Meze Grill the new owner of my half an imaginary coin.
Bitcoin is not really imaginary: no more imaginary than the bits the traders down on Wall Street are signing over to each other all day long, that encumber quantities of corn and wheat that haven’t even been grown yet. El dinero es abstracto, repetí, el dinero es tiempo futuro.
My Bitcoins have lost value since I bought them, but I’m not writing this to ask you to buy them from me. I’m completely content to be the greater fool. I’m writing this to emphasize that Bitcoin is an experiment, which is something very different from a Ponzi scheme. This experiment will probably fail at some point for reasons other people have already enumerated, and that’s fine. We’ll have learned an enormous amount from it: how well can total strangers reach consensus about history without allowing anyone to rewrite it after the fact? How important is it to be able to reverse a payment transaction? What’s a limit order? What’s a depth chart? Should we think of every kind of ownership as a matter of appropriately formalized social convention? How hard is it to disrupt a P2P network? How easily can statistical inference pierce the anonymity of transactions? How much inertia do widely-implemented network protocols have against incompatible changes? Is mining in hashes’ input space better or worse ecologically than mining under hilltops? Are regular computers too insecure to use for anything important and irreversible? Just how good can phishing get, anyway?
I thought the most amazing part of the entire transaction at the Meze Grill was not the QR code and not the cryptography, but the complete composure with which the restaurant owner said that, of course, his restaurant accepts Bitcoins. Apart from whether there is a central bank somewhere to bid against George Soros, doesn’t the difference between a real currency and an imaginary currency lie in some sense in the composure with which a customer can ask if the currency is accepted here and in the composure with which a merchant can say yes?
It’s striking how polarizing the Bitcoin project has been, and particularly how little empathy Bitcoin’s enthusiasts and critics show toward one another.
There are amazing things about Bitcoin. When Rick Falkvinge madly put his life savings into Bitcoin a month ago, he described what “didn’t happen” in a Bitcoin transaction:
- Nobody logged on to a bank of any kind.
- No bank page for complicated foreign transactions was loaded into any browser.
- No expensive foreign transfer fees were applied. In fact, no transfer fees were applied at all.
- No banks were holding on to the money for a couple of days. My friend had the money instantly.
- No bank holidays were relevant. I did this on a Sunday.
- No governmental economic blacklist was consulted. He could be a criminal under New Zealand law for all I care, but what matters to me is that he is my friend.
- Nobody got the chance to seize the money before my friend in New Zealand got it. Or afterwards.
- An alternative to a bank transfer would have been to use Visa or MasterCard. They did not get a cut, either.
- No tax authority saw the transaction or the money.
These properties are quite different from what you get with other ways of transferring money electronically. I find it incredible that people are so captivated by the notion of Bitcoin as Ponzi scheme that they would simply overlook the potential appeal of these properties: of cash that we can spend on-line.
Bitcoin’s proponents are often similarly lacking in empathy and dismissive of the value retail banks and central banks offer: the ability to reverse a fraudulent or disputed transaction; recourse when funds deposited with a bank are stolen or misappropriated; insurance for the value of your deposits; people out there making some kind of concerted attempt to maintain the value of your savings; and so on. I’ve personally used the dispute mechanism twice, and just knowing it was there has made me much more comfortable engaging in transactions, even if there are ways to work around its absence. I would be more than alarmed if the value of the dollars I own fluctuated as wildly as the value of my Bitcoins. I would be positively terrified if the price of a meal in the dollars my salary is paid in changed by an order of magnitude in a month.
The idea that a bank’s responsibility to its customers might sometimes be useful is becoming increasingly concrete in the Bitcoin world as the scandals about Bitcoin thefts unfold and we see that, much of the time, Bitcoins really do work like cash: if someone steals them from you, there’s a real chance that they’re just gone. Keeping thousands of coins under your digital mattress is a great thing for financial privacy, but it raises the possibility that your mattress might not be the safest place for them. Hence the prediction that many of the financial intermediaries we use with traditional currencies may get reinvented in some form for cryptocurrencies and may even get regulated the way the weary giants of flesh and steel did.
All fiat currency is imaginary sub specie (hee hee) aeternitatis and gets its value from psychology and various institutional arrangements. And that’s true of the currency in your wallet right now. It’s fair enough to point at the tremendous resources that might be brought to bear to defend the value of the U.S. dollar. Not much will defend the value of a Bitcoin once anything at all goes awry, and as Adam Smith might have said, there is a great deal of ruin in a currency. But I have no patience for theories that say that I couldn’t possibly have bought lunch with my half a Bitcoin or that the restaurant was crazy to accept it. It was a delicious thrill; I suggest you go down to Columbus Circle and try it for yourself while we watch to see what else this experiment has to teach us.