Bit Coin - A New Guest at the Roach Motel
Inclusionistas rest assured. You don’t need to know too much about bitcoin to know that it is not a financial inclusion option. Essentially, bitcoin is to money what the Roach Motel is to roaches. You can check in but never check out.
Recently, I visited a bitcoin retailer - a machine that converts US Dollars into bitcoins. I pressed one button – Start – and out popped a pleasing piece of plastic about the size and shape of a credit card. It was free. I placed the card on a scanner at a second machine. The digital screen said “Please Insert Cash.” I inserted a$20 and $5 bill into the slot and tapped “Send”. The machine sent the money to my shiny piece of plastic.
I asked the young, nerdy, instructor at the machine how I could use bitcoin to treat my colleague to a burger at Veggie Galaxy, the bitcoin-accepting diner next door. He answered with a question: “What kind of phone do you have?” “An Iphone,” I replied. Not the right answer. “The best thing you can do,” he advised “is to go home and place your new bitcoin card in a cash box and lock it up.” Whaa? I put physical cash into a machine, got a plastic card, and now must place the card under lock and key? Yes, to protect it, because anyone could steal it and use it, he explained. But I want to spend the bitcoins on the card, I protested. “Take it home and lock it up,” were his final words.
Perplexed, I went to the website of the card (libertyteller.com). I searched for bitcoin wallets, which took me to a webpage for Iphone. Oh no, I can’t download a bitcoin wallet for the Iphone. Apple has blocked all such apps. (Clearly they are getting into the payment business – see this.)
My choice was to get a new phone or to not use my card. To make sure I really, really could not use my $25 worth of bitcoin, I visited Veggie Galaxy. A member of the wait staff examined my shiny card with mysterious codes and holograms. “No, you can’t use this card here,” she said regretfully. You must use an e-wallet. She mentioned something about how I must scan the shiny thing on the card with phone app, which pushes the bitcoin into my e-wallet. Veggie Galaxy then uses its own gadget to pull bitcoins from my e-wallet into their bitcoin till. How easy, if it weren’t so many steps and if the app were available.
Just for kicks, the next day I asked the wait staff at Veggie Galaxy what I would have gotten for my $25 in bitcoin. It turns out the exchange rate, one day later, would have given me $18 worth of meals. I bought bitcoins at .042 one day and the next it was worth .056, so it grew in value as long as I didn’t use it. Thus, even if I could have spent my bitcoins, which I could not, I would have lost more than 20% of value in a single day.
The card sits in my cash box, a symbol of illiquidity (permanent illiquidity unless I purchase a new phone), vulnerability (anyone who has the proper phone can make off with it), and volatility (whatever I have stored is subject to a currency exchange that is untethered to anything in the real world). These are three features that suggest no financially excluded person would ever ride the bitcoin wave.
NB: Originally published a few years ago, but this post - like bitcoin - won't die.