A Bitcoin for Your Thoughts

Chances are you’ve heard something about Bitcoin (BTC) by this point, maybe from people who own a couple of bitcoins and think they’re pretty neat. We’ve been covering Bitcoin for a while here ourselves (check out today’s “Anything Peaceful” blog post), and for good reason: It’s part of some exciting trends. But what’s it really like to live with BTC? Or, more to the point, to make an actual living from BTC, turning this arcane bit of coding into housing, food, clothing, and all the other real-world stuff money’s pretty handy for? We decided to ask a BTC trader, who wishes to remain anonymous, for some commentary from the inside of the BTC community.  

The Freeman: We’ve been told you make your living from Bitcoin. How do you go about that? Do you have a mining rig?

Trader: Yes, I currently day-trade BTC. I trade BTC futures and invest in BTC companies. I am also involved in development for BTC-related ventures.

The Freeman: How did you become involved in BTC in the first place? What made you decide to pursue a living from it?

Trader: I first heard about Bitcoin from a friend in 2011. His interest was mostly humorous, relating anecdotes of people running GPU-mining farms being targeted for drug raids because their heat signatures were similar to [those of] indoor hydroponics. About a year later, while working in San Francisco, I would hear about it and decided to download the client and tried to run the mining protocol. But when the four CPU cores of my little Lenovo laptop went straight to 100 percent and generated a hashing rate far below the current difficulty, I realized I was going to break my computer before I mined any bitcoins. Instead I investigated a little more, and got my first 0.05 BTC (or was it 0.005?) from a free faucet. Unfortunately, I was too busy with work, and the opinion of the IT people around me at the time was that the security risks of storing any amount of wealth in BTC [were] too great. It wasn't until early 2013 and my third encounter with BTC that I made the plunge, convincing a friend to buy $1,000 worth of BTC on Mt. Gox (he had an account at the time).

Although I was certainly a bit dense at first, the more I read about Bitcoin and the underlying technology, the more I realized how truly powerful and new it is. My increasing exposure and interest in Bitcoin has also dovetailed nicely with my foray into Linux, open-source software, and programming.

The Freeman: Some specifics for the Bitcoin crowd: Which exchange do you use? Which BTC wallet? How do you convert to USD for everyday purchases?

Trader: The ideal is never needing to convert—to use BTC for every purchase— but we're still years away from that. I convert USD in person, either through LocalBitcoins or at Satoshi Square [ed: Satoshi Square is a gathering in Union Square Park in Manhattan]. For people new to the space I recommend setting up a Coinbase account—you can link it directly with a bank account for additional liquidity. Personally, I use a wide variety of wallets including running my own Bitcoin-QT client. If you plan on using BTC as a store of value it is considered best practice to save it in cold storage, encrypting it with keys from a computer that does not have Internet access.

The space changes rapidly and it can be very difficult to separate out the trustworthy and reliable services. It is essential to realize that whenever you send BTC to a third party they are in control of your funds, that you are trusting the operators to be both secure and honest. Currently I trade futures on icbit.se and 796.com, but please don't consider this an endorsement of either site (but I must say I have been very impressed with 796). If either closed up shop tomorrow I would have little to no recourse in recovering my funds from them. I have also traded stocks on btct.co and BitFunder, but both have closed because of, seemingly, SEC regulatory concerns. Cryptostocks.com and havelockinvestments.com are two BTC stock markets which have continued to operate, but whether that'll be true tomorrow or a month from now is uncertain.

The Freeman: What’s the biggest roadblock to widespread adoption of BTC?

Trader: Development and to a lesser extent regulation. Adoption is somewhat of a chicken and egg problem, but essentially the more people use it the more other people will too. However, if you run a business I see little reason not to incorporate it as a payment option. Services like BitPay or Coinbase make integration simple and the savings on transaction fees will be worth it.

The other issue is regulation and I can understand why it is a concern for others. Few people I meet are as risk tolerant as me (which is probably a good thing), and as services mature and become more reliable, people will place more trust in them. I don't believe regulation is necessary for this to occur, but some do.

The Freeman: Do you use any other altcurrencies?

Trader: I have read and used a few other altcurrencies, principally Litecoin and Namecoin, but I spend very little time on them. I also recommend people involved in cryptocurrencies to keep an eye on ColoredCoins.

The Freeman: Have you run into any legal troubles using Bitcoin as your main currency? We've seen reports of people getting their bank accounts shut down for "suspicious activity" while using lots of bitcoins. Any troubles on your end?

Trader: Luckily I have not, but I also no longer have a bank account. I have some concern over how to file my taxes, but that's months away.

The Freeman: How many businesses around you (NYC) take bitcoins?

Trader: A few. Foodler accepts bitcoins and plenty of restaurants use that service. EVR in Manhattan, and there is a small grocer which accepts BTC. Since I live in a major metropolitan area, converting BTC into USD has not been too difficult, so I have not aggressively sought out BTC-accepting businesses. Almost all my online purchases and donations are done through BTC.

The Freeman: There are always stories of BTC sites being hacked. Do you see it delivering on its promise of resiliency, and getting stronger over time?

Trader: Yes, security, it is a major concern. Just recently inputs.io (an online wallet service) was compromised.

I am likely in the minority when I write this, but in general ongoing security concerns are a very good thing for everyone. BTC, and the very real wealth behind it, are on the forefront of Internet security. Oftentimes when a system is compromised those operating will not even be aware of it because the information the attacker is interested in can be copied without tipping off the original owner. However, bitcoins, because of the underlying protocol, are unique, and cannot be simply copied but must be taken much like any other possession, such as a car, or a wallet full of cash—when it's missing, it's obvious. In this way BTC can be viewed as a sort of canary in the coal mine.

Security has improved dramatically, and will continue to improve, which benefits everyone whether or not they use cryptocurrencies.

The Freeman: Do you see BTC replacing fiat currencies, living alongside them, or just clearing the way for a successor altcurrency? Some mixture of all of them?

Trader: The honest answer is I don't know. It is something of a truism in the Bitcoin community that it will either spectacularly succeed or fail miserably. I believe whatever happens the underlying technology will be used (is being used), and will be incorporated in one way or another—there are simply too many advantages for it not to be.

A larger point can be made about technological adoption, that oftentimes there is a hurdle in adapting to new methods, be it from landlines to cell phones to smart phones or fax machines to scanners, but adapt we must or risk obsolescence.

The Freeman: Thank you for taking the time to speak with us.

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