No Bitcoin Economy - Yet

About a month ago, I surveyed the Bitcoin gambling economy to get a feel for how much money was actually being pumped into those sites. While there was some activity, as a percentage of Bitcoin's "market-cap," it was microscopic.

There are no equivalent numbers to tell us about the rest of the economy, but anecdotally, we have this:

"As some of you are aware, we are selling mini-cannons at www.pocketartillery.com. Paypal has decided they do not want to be part of any of it because of EBAY'S policies. I understand eBay owns Paypal but that is kind of silly. We have offered Bitcoin payment from the beginning yet NOT A SINGLE PERSON has paid with it as of right now, with over 250 orders through Paypal. Come on people...check out with BITCOIN instead of Paypal!"

Is this story being played-out across Bitcoin-land?

It may be a symptom of the nature of Bitcoin's userbase. At the moment, it consists mostly of developers, investors, miners, and traders. How many people have specifically bought Bitcoins so they could spend them on goods and services? How many of these people go to the bank once every month or two to wire money to Mt.Gox to replenish their Bitcoins so they can spend them online? I would say less than 5% - though I'm being generous - it's probably less than 1%.

Don't get me wrong. I'm not saying that Bitcoin won't get there eventually, but as one of my good readers commented once, "let's be honest about where we are, today."

What this economy needs is a way of bringing in consumers; the one demographic that the Bitcoin economy is currently lacking. That's going to require a few more developments in the "ease-of-use" department, and perhaps a little marketing. Sites like Ogrr.com that give its users an advantage over the competition are certainly a step in the right direction.

Developers, investors, miners and traders will spend too, but as Bitcoin's valuation consistently fell between June and mid-October, they chose to hold onto their coins. When housing prices and stocks rise, people spend more; it's called the "wealth effect." Perhaps Bitcoin's recent turn to the upside will drive a little more spending from that, proportionally huge, segment of the userbase.

For the moment, however, the economy is quiet, and may continue to remain so for a while longer.

Posted in: economy