Bitcoins may soon become a national currency, replacing others - Roger Ver, bitcoin entrepreneur

SS: But bitcoin has been making the news lately because of Mt. Gox - one of the biggest and oldest bitcoin exchanges that has virtually disappeared. The chief is nowhere to be found, the offices are empty. I mean, for many, it does look like a very definition of a financial pyramid in action. What happened there? Why did it happen? Why did it disappear?

RV: So we don’t know all the details yet but it’s very, very important to distinguish Mt. Gox from bitcoin. Mt. Gox is just one particular company that’s using bitcoin. It’s not bitcoin itself. So if Hotmail disappeared tomorrow we would not blame email, we would just blame Hotmail and say we shouldn’t use Hotmail anymore; we can use Gmail or Yahoo or any other email service provider. And that’s the exact same way with Mt. Gox. Mt. Gox is having some problems, but that does not reflect on bitcoin itself as a whole. Bitcoin itself has no problem whatsoever and it is still being used by millions of people around the world. I feel horrible for all those people that got caught up in the Mt. Gox mess. But that’s Mt. Gox's problem, not bitcoin’s problem.

SS:So is there a guarantee that what happened with Mt. Gox won’t happen again?

RV: There is no guarantee that it won’t happen again. But if you hold the bitcoins yourself, you can have the control in your own hand, for you don’t have to trust some other company that they won’t get hacked or bad things won’t happen. There are all sorts of open source software tools, like blockchain.info is the one that I use myself and recommend. You hold your bitcoins yourself; you don’t have to ask permission from anybody else. You have all the information that is required to spend your bitcoins without needing to trust or rely on anybody. And I think that’s the real way to go. If you want to be using bitcoin, my advice to you is: hold it yourself, in your bitcoin wallet, rather than trust them with somebody else.

SS:But what do you mean by saying, “hold bitcoins yourself?” Didn’t people lose money at the disappearance of Mt.Gox? Didn’t they lose the bitcoins?

RV: They did. But that’s because they were allowing Mt. Gox to hold their bitcoins for them on their behalf. And, well, Mt. Gox is holding their bitcoins for them, so they have to trust that Mt. Gox is not going to lose them. And in this case, Mt. Gox appears to have lost everybody’s bitcoins. And that is a big problem. But all people who were holding bitcoins themselves, in their own lot, had no problem whatsoever and they still have their bitcoins. So I think the real lesson to be learned from the Mt. Gox incident is to hold your bitcoins in your own wallet yourself and only send them to a bitcoin exchange if you are actively going to be trading with them.

SS: Well, like you said there is no guarantee that what happened to Mt. Gox won’t happen again. So here’s my question: Let’s say if I lose my cash in real life I can go to the police, I can sue a bank - there is a higher [party] that I can complain to. Bitcoin is not regulated by anybody or anything. What happens if you lose your bitcoins? Where do they go? Could you ever get them back? Could you complain to someone about that?

RV: To be honest, with your cash…I think if you go to the police they will not be particularly likely to help you…

SS:No, but I am saying theoretically there is always a higher [party] you can complain to. In the case of bitcoin, because it is not regulated by anyone or anything, I’m just wondering like…can I sue someone? Do you know what I mean?

RV: Yes. I don’t think it is necessarily fair to say bitcoin is unregulated. There are all sorts of laws that apply to bitcoin currently, as well. But look at the people that had money in the banks in Cyprus. All of a sudden the government there changed the rules on them and they lost the percentage of their bank accounts. And there is not really anybody who they can complain to, either. With bitcoin, if you hold it in your own wallet, there is nobody that can affect those bitcoins in your wallet. You have complete control over them and it’s a much, much, much better position to be in than if you are keeping your money in a traditional bank or financial system. Because if something happens there, yeah, you can complain about it, but in reality you’re probably not going to be able to get much effect.

SS:Why is the number of bitcoins limited to 21 million? Can that number ever grow?

RV: That number cannot grow. It is hard-coded into the code itself. And that is one of the most attractive aspects of bitcoin. With US dollars or euros or Japanese yen, the governments can print as many as they want at any time for any reason. That makes all the savings that the normal people have worth less. With bitcoin that cannot happen. The price of bitcoins in terms of dollars or euros or yen will have to constantly increase year after year as more and more people start using it as a currency. So for example, I got into bitcoin over three years ago. When I first heard about bitcoin they were less than a dollar, today they are around six hundred dollars. And in the future, if they become really popular and used over the world, it looks like it is going to happen, each single bitcoin is going to be worth at least tens of thousands of dollars, if not a hundred thousand dollars or more for each one single bitcoin which today is worth around six hundred dollars. And we really see lots and lots of merchants get on board, overstock.com is one of the largest shopping websites in the entire United States. They are accepting bitcoin directly. The CEO has gone on record saying they are not converting bitcoins into dollars and they are planning to spend a portion of bitcoins they receive to pay to their suppliers. With my...business I still pay suppliers in China all the time with bitcoin. And it's just so much more convenient to send or receive money with bitcoin than it is with any other payment system that has ever existed before in the history of the world. And nothing like that has existed…The best way for people to understand what bitcoin is is actually to go on and use it. So I recommend people to go to www.blockchain.info and make a free wallet - it does not cost anything, you don't even have to give your email address if you don't want to. And then you have a bitcoin wallet that's one hundred percent completely in your own control. And you can then send or receive any amount of money with anyone, anywhere else on the planet. And you don't have to ask permission from anybody, you don't have to sign any terms of service. It just works.

SS:Roger, what other kinds of money do you use? Any other hard currency? Or do you only use bitcoins with everything?

RV: Yeah, actually in my computer bags next to the set here I have Japanese yen, I have US dollars, I have British pounds, I have Korean won, I have Chinese renminbi. And I have all these stupid pieces of paper that I have to sort out every time I travel from one country to another. It's so incredibly inconvenient to keep track of which pieces of paper that you know people have been using for hundreds of years as money that I have to use in the particular geographic area. With bitcoin I just pull out my cell phone and it does not matter what country I’m in, it just works. So bitcoins from my perspective are certainly much, much more convenient than pieces of paper I still have to carry around with me. And I am looking forward to the day when I don’t need to carry these pieces of paper around with me anymore.

SS:But can I ask you something? I’m trying to figure out the technicalities of using bitcoins. Nowadays, I'm not saying in 50 or 60 years. What exactly can I buy with bitcoins? Can I travel with them? Can I pay for college? Pay a mortgage? Can I go to brand-name stores? Because I’m thinking, if I want to become a bitcoin millionaire, the first thing I want to do is go on a shopping spree!

RV: Sure. I think at this point a better question is what can't you buy with bitcoin. So for example I just flew into Tokyo a couple of days ago from the US. I bought my plane ticket on Cheapair.com with bitcoin. When I was visiting the US I paid for my hotel stay in bitcoin. You can buy rides in outer space with bitcoin. You can buy just about anything you can think of in bitcoin at this point. So the real question is what can't you buy with bitcoin.

SS:Yes, but can you go to stores like...i don't know, brand-name stores?Can you pay for college with bitcoins? Is it something that's already in store?

RV: Sure, every university does not accept bitcoins yet. But there is a number of colleges that already do. There is a whole bunch of physical real world locations that you can spend bitcoin at. There is a great site called Coinmap.org and you can also see all sorts of locations near you that all allow you to spend bitcoins in a physical shop. Bitcoin is primarily an online currency so there are hundreds of thousands of sites around the world that accept bitcoins directly at this point. So as far as far as online goods go, you can buy just about anything - and if there is something that you can't buy with bitcoins directly, there are all sorts of bitcoin exchanges that will let you exchange bitcoins back into your local currency, and then you can use that to pay for whatever you want.

SS:That's my next question. How can bitcoins be exchanged for hard currency? How does that happen?

RV: The same way as if you had a gold coin or a bar of gold. You would find the gold exchanger and you would give them the gold and they would give you the local fiat currency. It's the same way with bitcoin. There is another great site called bitcoincharts.com where you can see a list of probably over hundred bitcoin exchanges around the world at this point that will exchange your local fiat currency to or from bitcoin. If you are in the US there is a great company called Coinbase.com, you link your bank account to their web site just like you would with your PayPal account. And they will debit dollars from your account and give you bitcoins or you can send them bitcoins and they’ll deposit dollars right into your bank account. And they charge a fee that is just a small fraction of what paypal would charge you. And it's a fantastic website and really came into use. But my advice to everybody is that if you use that website to buy or sell bitcoins, store the bitcoins in the wallet in which you control the keys.

SS: From what I understand you can also create your own bitcoins through a process called mining. And that would imply a certain knowledge of math or technological knowledge. So is that a system that is limited to computer experts only?

RV: What I actually tell to people in regards of bitcoin mining is that you can kind of think of it in the same way as gold mining. Technically you could probably go up to the mountains and dig around and dig some gold over the mountains but your time is probably better spent doing your regular job and then converting whatever amount the money you are using in your regular job into bitcoins. Just as if you want gold you would rather go and buy it, rather than go in the mountains and dig for it. But if you are inclined there is all sorts of information on the internet. You can read about all the specialized hardware that people are building to mine bitcoins. One thing a lot of people don't realize about bitcoin mining is that in the next year there will be somewhere around a billion dollars worth of bitcoins created which means that people will be willing to spend just under a billion dollars to mine those bitcoins. So the bitcoin mining industry is about a billion dollars per year industry at this point. And it's only going to grow from here.

SS:Basically it's kind of funny because it comes down to the industry of two kinds of people. The really smart ones that can mine their bitcoins and rich ones that can buy their bitcoins, right?

RV: There are lots of people who work for bitcoins and get their salary paid in bitcoin. There is more and more that sort of thing going on all over the world. And I think in the near future we will see lots and lots of people receiving their salary in bitcoin. The company I am involved with the most heavily is called blockchain.info -every single employee gets paid 100 percent in bitcoin. We have no bank account, we don't have anything other than bitcoins. And it works wonderfully – we pay all our vendors in bitcoin, everybody's happy to be running their life that way and it's really, really convenient.

SS:Anyway, you invested in 2011, like you have mentioned in the beginning, when one bitcoin was worth one dollar. How does one become a bitcoin millionaire and how quickly did that happen for you?

RV: That’s a little bit personal I suppose. But even if you buy a decent amount of bitcoins now, I think there is a really good chance that they will continue to grow substantially from what they are now, because as we are seeing more and more websites all over the world are starting to use bitcoin, more and more people are already using bitcoin…for example the website that evolved at the beginning of the year we had just around a million users exactly on January 1t. Now we have over 1.3 million users, that has only been two months. I think by the end of the year there is a good chance we will have something around 10 million users. So more people use bitcoins. Because the supply is limited to 21 million and there can never be more than that and as more and more people start using it, the price of bitcoin in dollars will have to go up. And in the future…if you buy some bitcoins now, there is a really big chance it is going to be worth a lot more in the future. And I know personally with my bitcoins I want to hold on to as many of them as I possibly can because I think the value will continue to go up. But that’s not really the main reason to get involved with bitcoin. Just as an average person, they are much, much easier to use if you want to send money to people that are not standing right next to you. It’s cheaper and faster and easier than any other system that has ever been devised in the history of the world.

SS:But also I am thinking can you become a millionaire quicker investing in bitcoins than a regular guy who is investing in bonds and stocks.

RV: My goal is not to promote bitcoin as an investment scheme. But if you ask me directly as that, I think yes…I made a bet a little over two years ago that the bitcoin would outperform gold, silver and the US stock market by more than one hundred times. I bet over 10 thousand dollars the time I said that. I said it will do it in the next two years. And in fact it did not do that over the next two years. It took two years and two months. So in two years and two months I took the 10 thousand dollars that were the bitcoins that I bought at the time I made the bet, and 2 years and 2 months later that 10 thousand dollars was worth more than 1.1 million US dollars. So in two years it went from 10 thousand dollars to over 1.1 million dollars. And I donated all those to the Foundation for Economic Education which is exactly what the name says - it’s the foundation that educates people in economics. And it is because of their books and articles that I read when I was younger that allowed me to understand just how amazing bitcoin was going to be. And I am definitely being proved right at this point that it’s gaining more and more popularity and more and more people are starting to use it. And I think we will see some similar increases to that over the next two years as well.

SS:But bitcoin's value jumps up and down so drastically in the space of a week. How can you trust something that is so unstable and volatile?

RV: It does jump around and that’s because the market cap is still so incredibly small. As bitcoin becomes more and more popular and the market cap is larger, the stability of bitcoin will increase.

SS: So can you loan or borrow money within the bitcoin system?

RV: Sure, people borrow and loan money all the time with bitcoin. There are all sorts of markets for that. There are all sorts of trading and things like that going on. With bitcoin it makes it incredibly easy to loan someone one dollar in bitcoin or one million dollars in bitcoin, to or from anywhere on the planet with people that trust each other. And there are all sorts of interesting technological sort of things people can do with bitcoin called multi-signature transactions. So, for example, if some bitcoins are send to a particular bitcoin address you can have a setup where three separate people control that address and any two of those three can spend the bitcoins. You can set up all sorts of escort systems and all sorts of interesting things can make it much, much safer for people to use, loan or borrow bitcoins.

SS:Also there is some kind of regulation within the system. It's not completely unregulated.

RV: So, bitcoin itself is regulated by the laws of mathematics and those are the same anywhere in the universe. They cannot be changed. Men can go and pass whatever laws they want but it does not change the laws of mathematics. So at the end of the day politicians will pass whatever laws they want but that wont change the way bitcoin itself functions. And people will just choose whether or not they personally want to follow those rules and regulations with the bitcoin that they are using.

SS: But bitcoin is a piece of computer code like you said, it's regulated by the laws of mathematics. Where does its market value come from?

RV: Its market value comes from its utility. Because bitcoin is so incredibly useful to use as money, people just spontaneously started using it that way. And as more and more people start using it this way, it has even more value. Because there are more people you can trade the bitcoin with and because the supply is limited, any time you have a demand for something with a scarce supply, the prices are going to be set by supply and demand. And the demand has been increasing year after year and the supply is been staying about the same so the price has been increasing to accommodate that additional demand. And I think really clearly we will continue to see this happening over the next couple of years as well.

SS: But it's still only a computer program and bitcoin exchanges have been coming under massive cyber attacks from unknown sources. Who do you think is behind them?

RV: I don't know. I don't have an opinion. People go and hack things and do some other bad things on the internet all the time. I'm sure there are lots of people that have various motivations for that. I’m not one of them, so I don’t really have an opinion as to what they are doing. But I am confident that lots of smart and good people will find ways to deal with cyber attacks and cause. It [will not be] a problem for normal people who just want to use the internet or just want to use bitcoins.

SS: But at this point there is still a big danger for those who think that bitcoin is hacker-proof because it is so heavily encrypted.

RV: Sure, bitcoin is dangerous. Don't put all your eggs in one basket. Don't put your entire life savings into bitcoin. But if you are careful about what you are doing and use strong passwords and use good proper computer security you can use bitcoins very, very safely to send any amount of money anywhere in the world. So if you are careful with what you are doing you can use bitcoins safely. It's not ready for your grandma to use yet but lots and lots of really smart computer programmers are working on the software tools that eventually will make bitcoin easy and a safe enough for your grandmother to use.

SS:But I guess with all the perks that bitcoin brings, there is a side effect - the system clearly facilitates crime. You can buy drugs, arms. Your payments will be untraceable, it is very accessible, it is quick. Does it not seem obvious that someone is needed to control that part at least?

RV: Everything you just said applies equally to cash. So I don't see bitcoins as being any more disruptive or destructive in that sense than cash. People use cash to buy drugs and guns and terrorism and whatever else you want. Yes, some people will do some bad things with bitcoin. But that does not mean that the rest of the world should be deprived from the ability of being able to send any amount of money to or from anyone anywhere on the planet almost for free. And that's a wonderful thing that is going to improve the lives of literally billions of people across the world. And just because some people might do some bad things is not any sort of reason to delay or squash or hold back this wonderful invention that is going to improve lives of just about everybody.

SS:But all I am asking is that if you come up to a virtual currency, government can't really do anything about that because it is not against the law. You are not breaking any law. But if this wonderful virtual currency facilitates crime, this is something that government can declare war on bitcoin for. You know what I mean, this could be a reason for a crackdown of bitcoin.

RV: At the end of the day people wearing costumes and shiny badges can do whatever they want but it does not make it right and it does not mean that they have the moral authority to do so. In the last century alone governments rounded up more than two hundred and fifty million innocent people and executed them. So at the end of the day I'm not really particularly interested in what the politicians think and that's one of things that had me so excited about bitcoin – it is technically, technologically beyond the control of politicians. And, all in all, it is going to be a wonderful, wonderful thing. It is going to lift so many people out of poverty, all over the world, and if the politicians try to stop that, that's on them. That's them committing evil trying to prevent people from improving their situation in the world. And I want no part of that whatsoever.

SS:No, no, no, but all i'm saying, like no one is doubting how wonderful bitcoin is, I'm actually very excited to start using it myself. All i'm saying is that you know facilitation of the crime, which is obvious in the case of bitcoin, could be enough for the government to actually officially come after the bitcoin.

RV: Well, maybe they will do that. But I disagree with their assessment that this is what they should do. And all the arguments you previously gave apply equally to cash.

SS:Alright. So what does it mean when people say that bitcoin payments are irreversible? Can you explain that?

RV: It’sactually very similar to cash. If I hand you a hundred dollar bill and it is in your hands the only way for me to get it back is to ask you to send it back to me. And bitcoin is the same way. If I send you some bitcoins the only way for me to get it back would be to ask you to send it back to me. And that is very different than with credit cards or checks or bank wires, in which you can call the credit card company you know months and months later and say: “Oh, send my money back, I didn't buy that” or “I changed my mind” or whatever reason. With bitcoin once you’ve sent the bitcoin that's it. The transactions are done and it's over.

SS:Wouldn’t that have consequences for business, like wouldn't it be easier for people to lie to other people that they are making business with? If the transaction is irreversible?

RV: Luckily, we have all sorts of tools to deal with those sort of things, there are all sorts of online escrows…basically any time you pay to a company which you trust, lets take Amazon.com for example - if you pay with a credit card, the credit card company is going to charge you around a three per cent fee. If you pay with bitcoin there is basically no fee. So Amazon has a three percent saving right there. I think...I will predict actually, I’ll go out here on camera, I'm going to predict that Amazon.com is going to be accepting bitcoin by the end of this year and I think not too long after that, all the different businesses that are accepting bitcoin, I think they are going to have to start offering a discount for people that pay in bitcoin over credit cards. So, maybe they will offer a one percent discount, all the people that are paying in bitcoin will save this one percent discount, and Amazon will save one or two percent off from the credit card processing fees. And everybody is happy. And in regards to paying with bitcoin and chargebacks, if you pay Amazon.com and you know there is a problem, they are going to do the right thing. They are going to give your money back if there’s an issue. They are going to make a refund, they’ll send you another product, they will take care of it. And in the future if you are paying for some business that you are not so sure about if you trust it or not, maybe you'll still want to use a credit card. I'm not predicting that credit cards are going to go away completely. But I am predicting that bitcoin is going to become a predominant form of payment online.

SS:But do you think bitcoin will ever replace national currencies?

RV: I am hoping, and it depends on what sorts of fiscal policy governments have. If the governments are restrained in regards to their money printing and quantitative easing, then there is maybe not as much of a need for bitcoin. But if governments continue to just print money like crazy, devaluing the currencies all around the world, people are figuring it out real quick - with bitcoin that sort of thing can't happen and people are going to just flood to want to use bitcoin instead of dollars or euros or yen.

SS:Alright. Roger, thank you very much for this very interesting insight. We were talking to Roger Ver, one of the biggest bitcoin investors. We were talking about the future of bitcoin and how more and more people will be using it. But we have to be smart about it and maybe not put all our eggs in one basket as of now. Thanks for the interview. That's it for this edition of SophieCo. See you next time.