I wrote the post below a few years ago. Bitcoin still intrigues me and with so many central banks moving to negative interest rates I believe there is a chance that bitcoin’s progress could be boosted significantly as people (savers) move money away from regulated (manipulated) currencies.
Time will tell, but with the cash controls on the horizon as well you can see more and more reasons to try to avoid central bank controlled assets altogether.
There has been a lot of excitement (fear) recently around Mt. Gox, the early leading Japanese bitcoin exchange, and their suspension of withdraws from all accounts on their service. The strange behavior of the company coupled with several unfavorable news stories by Russia (banning) and New York (plans to regulate) caused the price of a bitcoin to fall from $800 to $500 (currently $620) over the last 10 days.
Bitcoin’s volatility scares many people but one of the attributes that I love about the system is its ability to preserve capital by minimizing intermediate transaction fees.
Tonight I attempted to pay an outstanding property tax bill for a property in Jefferson Co, Alabama. Granted, Jefferson County (Birmingham Metro) is not known for its financially savvy government. In fact, until it was surpassed by Detroit ($18B) in October 2013 it was the site of the largest municipal bankruptcy in history ($4B). Impressively enough, they have a payment portal where you can see current charges and make payments on property taxes.
In the end, the transaction totaled just over $2,100 and there were $55 of transaction fees attached. These numbers fall within with traditional 2.9% + 30 cents fee schedule of most major payment processors but I was appalled at the sheer size of the fee so I cancelled the order, wrote them a check, and saved about $54.50 in the process.
The sad truth is that I wish it were a problem isolated within Jefferson County. It’s not. Our current payment infrastructure is too costly and I believe that bitcoin could be a fantastic way to improve a merchant or government’s efficiency and give customers more value for their money.
For instance, a company with a 20% profit margin could (on some very rough math) make themselves 16% more profitable on a $100 sale if they could eliminate just this $3.20 expense. A company with a slim 5% margin could improve results by 64%. Every cent counts and chopping 3% off the gross in a low margin business creates problems quickly.
While bitcoin may not currently ‘preserve value’ due to its volatility, it has tremendous potential to do so with widespread implementation across thriving businesses.