How long can the 21 Inc Bitcoin computer's micropayment story last?

The much-anticipated 21 Bitcoin computer has been touted as an efficient way to conduct small transactions online, using the Bitcoin protocol as part of its payment system. But one technology observer has raised doubts about the device based on the amount of power it requires.

Timothy B. Lee, a senior editor at Vox Media, wrote an extended article on why the 21 Bitcoin computer would not be a solution for micropayments. He wrote that the computer consumes too much power to be cost-effective for users, and that it is easy to hack and will be replaced in a few years.

21 Inc., the company behind the 21 Bitcoin Computer, has raised $120 million from investors including PayPal founder Peter Thiel and Andreessen Horowitz.

21 Bitcoin Computer: Will It Be the Solution for Micropayments?

21 Inc.'s backers think the ability to generate small amounts of bitcoins could become a standard part of digital devices, just as wireless chips are today. They further imagine a future in which digital currencies could be used for all kinds of electronic transactions that are impossible with current computers. This could provide a viable system for micropayments and micropayment services online. For example, it could power a jukebox that plays ad-free music or automatically rent a camera that stores data online.

21 Inc. thinks the ability to generate a small amount of money every day is worth the money bitcoin can create for emerging markets that don't exist yet. The proof of concept for the device 21 Inc. is currently selling is aimed at developers who create applications that use the power of the 21 chip. In the next few years, 21 Inc. hopes the chip will become smaller and cheaper, small enough to be built into a variety of third-party devices. For example, a small speaker that acts as a jukebox system. You plug it in, select a song, and the device starts playing music. Then, for each song played, the jukebox generates a small amount of money and sends that money to the corresponding copyright owner.

The technology quickly introduced applications that can pay small amounts. Existing credit card networks charge transaction fees, and the smaller the transaction amount, the higher the transaction service fee. Under the US dollar system, the economic operation of credit card payments is not optimistic.

21 Bitcoin makes a big bet

“Technologists have long hoped to build a practical micropayment system,” Lee wrote.

There have been many attempts to create micropayment systems, but none of them have worked. 21 investors are betting big that Bitcoin technology will eventually make this possible.

But there are real difficulties, Lee also wrote. If a house has 12 devices equipped with 21 bitcoin mining chips, the cost of the electronic bill will quickly exceed expectations.

“Maybe it’s the hottest month and your air conditioner is running all day and all night. Maybe some of your 21 Inc equipment has been hacked and the bad guys are stealing your electricity to generate bitcoin for themselves.”

Unexpected trouble

It can be hard for householders to tell which appliances are using the most power, because electronic bills don’t break out the power consumption of every device in the home. “You’re forced to start weighing the power consumption of devices in your home — especially the calculation difficulties that 21 Inc’s technology is supposed to eliminate,” Lee said.

Once some devices get hacked or some manufacturers start overcharging customers, customers will avoid these devices.

Lee also noticed another problem: Bitcoin mining hardware quickly becomes obsolete because once new, more efficient chips are introduced, the older chips will generate fewer bitcoins.

Over time, the amount of electricity used by 21 Bitcoin devices will increase, while the number of Bitcoins generated will decrease, requiring users to replace these old devices with more expensive ones.

“Of course, a device that only works for a few years is still useful. But in this case, it would be more effective to piggyback on previously generated bitcoins, allowing the manufacturer to provide the necessary service for free and charge an additional $10 or $20 for the device. Customers like clear pricing; information on your electric bill is the opposite.”