Since the launch announcement of the Bitcoin computer for $399 by 21.co, there have been a lot of questions and debate about what does it really trying to achieve in the bitcoin ecosystem. The FAQ on the 21 Inc website is not useful to answer a lot of questions floating around, though this may change with time as launch date comes nearer. In the interim, I have compiled the following FAQ which may be of use if you (like me) are also wondering about the answers to a lot of unknowns. Please contact me for additions/corrections or comments.
Why use Raspberry Pi for the hardware when I can so the same using my own computer or a laptop? Why would anyone in their right mind pay 400 dollars for a raspberry pi + an API wrapper?
The 21Inc Bitcoin Computer is a fully functional bitcoin miner, a full bitcoin node and a micro-payments server. It has been rightly pointed about by many others that it is not economical using it as a standalone bitcoin miner – one source says you will be able to mine only $38 worth of bitcoins a year, and even that is not certain. 21 Inc has also acknowledged this fact. Another source says that the hardware included with this device is only worth $250 and thus the $399 is actually the price of the hardware + the included API and micro-payment server.
In my view the aim of 21 Inc is to enable hobbyists and developers come on to the blockchain and start using the (21 Inc + bitcoin) ecosystem to create applications and trade on it via micropayments. 21 Inc is maybe aiming to create a bitcoin platform on which a lot of applications are built using their APIs. If there are a lot of people having the 21 Inc device, it would be very easy for them (with the right kind of applications built on top) to transact with each other using bitcoins for micropayments. At this point in time, to my knowledge, there is no single platform which enables bitcoin transactions using a standard API which allows applications to be built on top of it without charging any transaction fee (happy to be corrected if wrong).
Ok so why not build a library of APIs and publish it instead of selling a piece of hardware? The issue with that is that it will have to integrate with a host of bitcoin wallets where the end users will end up paying a transaction fee. It will still not address the issue of privacy and anonymity (as the wallet provider knows who you really are).
If this device gets smaller and faster (which it should with time due to Moore's law) then you could potentially plug it to your cellphone or refrigerator as a USB drive and thus enable e-commerce on this basis. In the future, this will also enable the IOTs (Internet of Things).
In my view bitcoin micropayments with minimal transaction fees is the key objective of this device.
When there is hardly any Bitcoins I can mine using this device, then what's the difference between using this computer and running a full node on a normal computer? Why include a miner in this in the first place?
Let us look at the alternatives of being able to mine (remember that the 21 Inc computer is a full bitcoin node, meaning it is a miner and wallet rolled into one):
If we have an API sitting over the top of a bitcoin wallet enabing payments, we have no anonymity and privacy. There will be an additional transaction fee which will be a killer deal for micropayments. In fact this is not a viable option as using a wallet means you have handed over your details to the “centralized” wallet provider who can track each and every payment you send or receive. You can also look at an option of using multiple such 21 Inc computers which you use to be truly anonymous and decentralized instead of hooking yourself on to a central wallet.
Using your computer to mine bitcoins on its own and take/send payments is possible, however you will have to set up a micropayments server and wallet to get started, which leads to issues as I described above for the wallet, and challenges in setting up a micropayment server to work with minimal transaction fee. A developer does not need to spend 20-25 hours setting this up and then buying bitcoins from other sources, which is worth atleast $150 in time saved – the assumed saving you can make if you go the DIY route.
The most important reason in my view to include a miner is to enable a large ecosystem of miners which will process micropayments at nearly zero cost. Most miners will not process micropayments today and this will mean tha those transactions are delayed and slow. The 21 Inc computer will enable a lot of mining power to be allocated for micropayments.
Why does not 21.co include a set of BTC – say worth $50 with this device so its easier for people to get started? Why cannot I buy BTC myself to get started?
I can see two reasons for them to do this:
It is easier for them to process returns and credit card chargebacks for their customers, as in theory someone can ask for a refund of the price paid after transferring the bitcoins to himself. There is maybe an option in the future to launch a non refundable cash only device with a built in bitcoin wallet in the future.
If you were to buy the bitcoins yourself – say worth $100, and want to climb the micropayments bandwagon, you still need a mechanism for transacing with minimal transaction fees. There are additional issues with using a wallet as I have outlined earlier.
Will this be a closed or open API from 21.co?
My assumption is that the API from 21.co will be a closed API. They can not make any money with an open API. They may definitely end up open-sourcing some parts of it though to increase adoption and accelerate applications sitting on top of it.
What is the business benefit for 21.co to do this? How do they make money?
It is like asking how Google was supposed to make money with just a search engine before they figured out how to monetize the ads. I think the aim they have is to be a dominant and controlling player in the bitcoin ecosystem. They may have some ideas on how to monetize this as well in the future, but I cannot think of any at this time other than they making money @ $150 per device for their software. They may also be banking on figuring it out along the way if this grows as Google did.
What are the use cases you can think of for the 21 Inc computer?
Some use cases that come to my mind are:
Today advertisers pay websites for placing ads for the attention of the users visting them. Why can the advertisers not pay the users for their eyeballs directly a portion of the ad palcement charges (cost per click) if both the adertisers and users can do micropayments using bitcoin?
Trade my spare bandwidth or cpu power for bitcoin without bothering about tracking the payments received.
IOTs and sensors will get enhanced over time with miniaturization of this device. They offer a variety of use cases, like an individual selling his medical parameters like heart beat rate which by itself is of low value but aggregated data is of value to a lot of people. Another example can be a weather sensor selling data in a locality which when aggregated nation-wide can be of great value to many agencies.
You can reward peers for posting your links on social media, or pay the people who read your opinions. Its like a decentralized ChangeTip with zero payment processing charges.
From one source : Imagine a datacenter of network switches that have one of these installed. These devices could then get paid for their service, maybe based on how much bandwidth they successfully route. Then they pay for their electricity cost. Any device that gets too far into debt would be "killed". Any device that accumulates enough wealth could "reproduce" by ordering more of itself or copying it's software to one of the "dead" switches.
Disclaimer: I have no financial or commercial relationship with 21.co. I have no friends or family members working there. All sources have been attributed and if someone has been missed, happy to incorporate.