BitCoin and free market efficiency

The crash

Today, some time in the morning Mt.Gox, the biggest BitCoin exchange, crashed. One of the accounts was hacked and the database with usernames, e-mails and encrypted passwords was leaked. Right now exchange is out of service and administrators try to bring it back, with better security infrastructure in place.

Competition

Since free market does not tolerate void, TradeHill.com (a new BitCoin exchange) seized the opportunity to acquire new customers. Apart from providing typical exchange services it also offers instant Buy and Sell transactions. You just specify how much BTC you want to buy or sell and they present you with an offer on the spot.

But the most interesting feature on TradeHill.com is the referral program. If a user signs-up using a referral code than all his trades have fees lowered by 10% and this discount never expires. In turn the user that provides the code gets 10% of commissions of his referrals and the exchange gets two happy customers. This is a win-win-win situation for all three parties.

TradeHill.com lets you buy and sell BTC in over 20 national currencies including: ARS, AUD, BTC, BRL, CAD, CHF, CLP, CNY, CZK, DKK, EUR, GBP, HKD, ILS, INR, JPY, LR, MXN, NZD, NOK, PEN, PLN, SGD, ZAR, SEK, USD and has over 50 methods of transfer/deposit.
TradeHill sign-up
If you decide to sign-up you can use a link with my referral code and get 10% off your transaction fees or you can drop the referral code altogether – it’s up to you. Sign-up :)

Free market consequences

Mt.Gox crash is a real world example of a bank failure. Since exchanges provide the option to store users’ BTC, the exchanges are like the first banks i.e. they do not lend money, they store it for you. Users assume their BTC are safe and most of the time that is true but there is always a small % of risk. Today it materialized and one user lost some BTC while others temporarily can’t log-in to their accounts.

If this was the real world where nation states have monopoly over every sector of the economy, including banking, state bureaucrats would be all over Mt.Gox and probably every other BitCoin exchange. Whey would want to investigate and regulate the exchanges to provide ‘safety’ which would effectively make the system more prone to failure in the future.

Fortunately BitCoin is not state controlled, instead it’s controlled by free market. This is better because now if Mt.Gox wants to regain trust of its customers, it will not only have to convince them that the exchange is safe but maybe lower it’s fees or offer some basic insurance for users. Otherwise users will permanently move to other exchanges so either way this makes the BitCoin market stronger not weaker.

One thing is sure, users will use the service again only if they feel it provides a good value, both in terms of economic benefits and in terms of safety. This way a failure causes some short-term pain but in the long run it is transformed by the free market forces into a better service and happier customers.

That is why I love BitCoin, it makes anarcho-capitalist ideas a reality.
We love BitCoin

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Filed under Analysis, Economy, English

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