TANSTAAFL

Can it ever rise that high? Count with me (M stands for million).

• There are (will be) a bit over 20M bitcoins.

• There are roughly 9 000 000M dollars in M1 and M2 money supplies. But that is not all, there are other currencies like euro, pound, yen or yuan. Let’s assume there is about 30 000 000M of dollars (or equivalent) in the whole world.

If bitcoins capture just 1% of current money market, each bitcoin will be worth 30 000 000/20*1% = 15 000 USD.

If bitcoin becomes mainstream it would capture more than 1%. Then we may be looking on more than 100 000 USD per bitcoin. This is insane!

The joys of digital currency

Few weeks ago I wanted to write an optimistic article about bitcoins. I have been selling my own software for the past years and receiving money online has been a pain. I had to and still have to trust several banks and companies and each one of them takes a cut. PayPal even holds me liable if someone uses a stolen credit card to buy a license for my software.

Digital currency removes a lot of that pain and I would rejoice if there were a way to get rid of all these middle-men that do not add any value.

Bitcoin promises a lot in this regard. A distributed system, not controlled by banks or governments. Double-spending protection. No fake credit cards. Direct transactions.

But then there is this one downside – the limited supply and the inherent and unavoidable deflation it causes.

The devil is in the details

What is the big deal with the deflation? The market will stabilize. Do not worry about it. That is the kind of talk you’ll hear on the bitcoin forum. The few, who raise concerns about the future of bitcoins are not welcome. People there like the deflation and they want it to continue.

So, why is this a problem?

Because it turns bitcoins from a digital currency into an investment commodity. The goal of digital currency is to be used as a currency. Gold is not used as a currency, it is bought and sold in order to make money.

Digital gold is useless to me. Normal people do not pay with gold, they invest in gold. I want digital currency. I want it be used without thinking whether it will be better to wait 2 days before spending a coin or not.

What is sustaining bitcoins now?

It is the marketing hype. It is the promise of astronomical profits. 1 bitcoin > 10 000 dollars, remember? Each time an article about bitcoins appears, new people learn about it, do the math and some of them are lured in by the vision of profits. This is a bubble, because:

Seller’s perspective

I have been accepting bitcoins as payment for my software for some time. Not a single person showed interest. Not a single visit from the bitcoin website (where there is a list of sellers accepting bitcoins) either. There are no buyers there, because:

Buyer’s perspective

You have just installed the bitcoin purse. You have no bitcoins. The software eats your computer resources and you still have 0 bitcoins. Mining does not work – ordinary person has slim chance to mine a bitcoin. You get bored and turn the software off.

You find a store that accepts bitcoins. Should you purchase a bitcoin just to be able to pay with it in that store, which also accepts dollars? Why bother?

Where does this leaves us?

No incentive for buyers to use bitcoins, no incentive for sellers to accept bitcoins. All the good things are shadowed by the terrible deflation that lures in the wrong kind of people – the investors looking to make (real) money.

A tiny detail (limited supply) rendered bitcoin unusable as a currency. Makes me sad.

I want bitcoin 2.0

The concept of digital currency is still incredibly attractive to me. I still accept bitcoins on my web, but I do not expect anyone to actually use them to pay. By doing this, I am validating investments of other people in bitcoins for free (despite owning none). Why? Because I believe that the world needs to know about digital currency and break free from the rule of banks and paypal-like organizations.

But I am ready for the change. As soon as an alternative to bitcoin appears and it solves the deflation problem, I will switch my support immediately. Who’s with me?

When I logged in to my AdSense account today, I could not believe my eyes: “AdSense for Domains – Get Started”. Is this some kind of joke? Apparently not.

Why am I so mad about it? It is because I like Google. And it hurts when someone or something you fancy turns to the dark side.

What is domain squatting?

There is no doubt you have visited a domain owned by a squatter before. Yet you may not be aware of it. They look like a normal low quality web sites. There are links with interesting anchor text, but all of them are actually ads.

Domain squatters register lots of domains and put useless (ad-overloaded) content (=spam) on these domains.

Domain squatters are interested in these types of domains:

• typo-domains – similar to an established site (hohhle.com instead of the real google.com),
• different top level domains – icofx.com instead of the real icofx.ro,
• expired domains – squatters will buy any expired domain,
• any short domains at all.

Google’s reaction

Until recently Google AdSense terms explicitly disallowed its use on web sites without content or on websites without any valuable content – the so called MFA (Made For AdSense) websites.

Now, with AdSense for Domains, Google has changed the rules of the game. They want to reward the spammers. It is no longer needed to actually contribute to the web to make some money with Google AdSense. You’ll actually get paid to make the web a worse place to navigate.

From the money perspective, this makes perfect sense. Domain squatting is here and it will be here for a while, so why not make some money off it? There are no legal obstacles, but there are moral ones. Each company should act consistently. When you simultaneously say that spam is bad and spam is good, you’ll lost trust. Has the economic crisis affected Google so much that they had to abandon their principles in a so obvious way?

What can we do about it?

Well, I personally would have to adjust my opinion about Google if this service is not canceled in a foreseeable future.

Other than that…hmm…anyone interested in writing a Firefox extension that would warn users when they visit a squatter domain? And what about Opera and IE? Can they do it?

Let’s pick Google as a representative of a free search engine. Despite providing a free service, Google’s value has been rising rapidly and today it is comparable with IT industry giants like Microsoft.

Free search services

There’s nothing simpler than opening Google, typing in a few keywords and hitting Enter. Results relevant to your query from all over the world are delivered to you in less than a second.

Behind the scenes, a bunch of computers is downloading the latest content from the web, analyzing it and ranking pages according to numerous methods. Google employees are constantly updating the ranking algorithms, checking quality of results and trying to prevent spammy pages from ruining users’ experience.

And this group of altruistic businessmen is letting you exploit the fruits of their efforts for free. Oh, really? TANSTAAFL!

Where does the money come from?

Google’s main source of income is contextual advertising. And guess who has to pay the price of advertising in the end… The buyer of a product, of course. And that would be you, dear reader .

So, products are more expensive because of Google?

Let’s not jump to conclusions. I did not say that. What I just said was that a fraction of the money you paid for your shoes or stereo ended in Google’s purse. Advertising is a necessary part (regrettably) of each successful product and it has been here long before Google.

It is entirely possible that Google made the advertising more efficient and thus cheaper.

So, they provide free search while also making things cheaper? That’s so cool

They did a very good job, no doubt about it.

Still, we should be aware, that the search is not free. We are paying for this service. It does not matter whether one person clicks on adverts presented on Google site or not. The system works and the money flows.

The full circle

When you use a search engine, you have to type in a few keyword related to subject of your interest. You are literally telling the search engine your true wishes. And that’s the only thing every successful advertiser is looking for.

Flow of money and information.

A search engine is in a difficult position. Users expect it to deliver the most relevant results, while manufacturers are paying it to show their advertisement. Google and other major search engines solve this conflict of interests by displaying the adverts in a slightly different manner.