Bitcoin is a Mutual or Cooperative Company

What is a bitcoin? Most answers to that question are decidedly complex and lengthy, opening up into abstruse discussions of uncommon terms. The Wikipedia entry warns that its entry is too technical for most readers, which is true.

I will present an answer that goes in an entirely different direction that I think is entirely correct. This answer is easily understood by reference to the ordinary concepts of companies and shares that investors are already familiar with.

The usual way of conceptualizing bitcoin, the way that leads to complexity, is as a cryptocurrency. This is something like saying that The Colgate-Palmolive Company is its Colgate toothpaste. Such a characterization is incorrect for Colgate and not quite right for the bitcoin enterprise.

I offer a different concept, one that I hope clarifies what bitcoin is: Bitcoin is a company. It is a mutual company or a cooperative company, one that is owned. Ownership is obtained by ownership of bitcoins. Bitcoins are tantamount to shares in the company that entitle the owner to certain services. The shares (bitcoins) can be obtained either by mining or by purchase. These shares, known as bitcoins, can be bought in decimal amounts. They are being offered by a number of distribution methods worldwide in a continual offering as new shares are mined. There is an upper limit to the share issue. People who buy and sell bitcoins are buying and selling shares in this more or less unrecognized and unheralded Bitcoin mutual company.

The shares (bitcoins) are traded in secondary markets after being offered to the public, and prices are readily obtained on various exchanges that have sprung up. The SEC and IRS already are treating bitcoin transactions as transactions in assets. There are capital gain taxes on such transactions. The SEC already more or less views cryptocurrency issuers and exchanges as unregulated dealers in securities. Sooner or later, it will extend its regulations to currently unregulated dealers in cryptocoins.

Whatever the SEC does or doesn’t do, the bitcoin operation is, in my view, best understood as a company that’s owned and operated mainly by its shareholders, i.e., the bitcoin holders. I say mainly because there is a bitcoin.org that acts as an unofficial central coordinating body. Certain technical matters have to be dealt with on an ongoing basis, and a way of reaching decisions across the cooperative’s owners must exist. It is said that ownership is highly concentrated at present, and that may lead to central decision-making on critical matters. There is quite a lot of dark matter and dark energy in the operations of this company. It is by no means your typical company.

Being a shareholder in this cooperative (company) entitles the bitcoin holder to certain transfer and blockchain services that compete with transactions that utilize currency, checks and wire transfers. These services also cooperate with and rely upon standard currencies because the shares, the bitcoins, are quoted in terms of such currencies. Vendors of products also use ordinary currencies as benchmarks.

The market price of bitcoins is a market price for shares. As such, that price reflects all sorts of considerations about the demands and supplies of bitcoin’s and competing suppliers’ transfer and blockchain services, now and in the future. The plural applies because there is open and widespread competition among competing issuers of shares in a variety of cryptocoin enterprises.

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3:02 pm on December 29, 2017