Bitcoin is a bad business model
A good business model creates value. Eventually it will create good cashflow (i.e. more money in your bank account each month).
While I understand that some may find the concept of an "unowned" virtual currency appealing, creating bitcoin (aka "mining") in and of itself is not differentiated and does not create value.
Buy (or rent) a server, run software with an algorithm, hope that your 1s and 0s are special enough to be "worth something"
Note that the control of the "coins or transactions accepted" is defined by an external entity, so anyone can use the protocol https://en.wikipedia.org/wiki/Satoshi_Nakamoto
Coinbase (https://www.bloomberg.com/profile/company/0776164D:US) has a business model of creating a platform for speculators to gamble (on many crypto-currencies), but just like selling shovels during a gold rush, they are not in the virtual hills digging, instead they are comfortably collecting a huge pile of gold dust.
With Bitcoin, there is no "moat" (https://www.investopedia.com/terms/e/economicmoat.asp); no way to grow your business other than increasing efficiency and reducing costs. It is not inherently more valuable to have more virtual 1s and 0s when there are an infinite number of possible random numbers, nor is it particularly valuable to write your own IOUs that are guaranteed by random other people writing IOUs.
You cannot add so much efficiency to a Cost Center that it suddenly becomes a business model of its own.
Growing food is a way of creating value: people need food and someone creates it.
Do people need cryptocurrency? Creating things that people want can be valuable (see Art).
So Bitcoin is valuable as a way to digitally exchange value, and because other people think it might be more valuable later.
A good business model should create more value, ideally in a novel and innovative way. Intrinsically then Bitcoin and mining Bitcoin are not creating value but "enabling value".
The more you create Bitcoin the more you are helping someone else capture value ;)
Without bitcoin how would crime in the digital world have been able to innovate? So maybe create Bitcoin as a good "loss leader" or a "cost center"?
Cost Center and Profit Center
Like many ideas, it is not the thing, it is just a way to think about things
The "Profit Center" concept was coined by Peter Drucker in 1945 and it refers to thinking about the role a department or group (or project) plays in a company.
One part of the company is making something of value, the core of the business that you are selling.
As an example, "creating and selling food" is the profit center of some example business.
So the management of the people who are "creating and selling food" is a Cost Center. (Yup, your manager is costing the business money!).
Transporting the food is another cost center; a constant question is then "How to get transportation costs down to zero?"
One might even posit that having people create and sell food is a cost center: why not robots? (of course then whomever maintains the robots is the cost center)
Since Profit Centers are what everyone seeks, they are harder to find. They depend on Customers, on satisfying demand, on product market fit, etc... including many things that may be beyond your control.
Cost Centers tend to provide the illusion of control (things you are paying for) and so are eminently more enjoyable to tweak and revise, presumably with less risk.
You cannot save your way into riches
If you save $1 a day from some habit or vice, you will have saved $7,300 in 20 years.
Despite the sage advice to save money, one should be aware that compound interest is not magic.
If you start with $10,000 and compound annually at 10% interest for 20 years you will have $67,275. To further debunk: starting with $10k is not entirely trivial, and I suspect nobody will be famous for having $67k 20 years from now. In fact, with inflation, I suspect very many people will have at least $67k which is a far cry from $1000k (aka $1m), and even a millionaire isn't as glamarous a title as it used to be.
Therefore to be rich and profitable you must make money. (Perhaps an unsurprising conclusion but for the penny pinchers)
So a Cost Center improvement of 100%, on a company with $0 revenue, only reduces how fast your plane plummets to the earth.
When to invest in a Cost Center
There is an opportunity cost to being alive
Time is not infinite. If you are focusing on your cost center you may be neglecting your profit center, yet there are definitely moments when the investment is worth it.
- When the Cost Center deficiencies become a distraction: if your business does not have electricity or your employees are lost in confusion and chaos then it seems much more challenging to expect your Profit Center to succeed.
- When the Cost Center is a strategic differentiator: it helps create the moat that others cannot cross. As an example: Amazon began offering free shipping (and escalating into 2-day, then 1-day, then hours etc.), which certainly costs a lot to do. Yet it reduced friction to purchasing (and enabled the very profitable Amazon Prime subscription service) which increased sales, strategically raising the bar for competitors to "have a digital platform for buying things". https://www.vox.com/recode/2019/5/3/18511544/amazon-prime-oral-history-jeff-bezos-one-day-shipping
- When the Cost Center will become your Profit Center, see Slack's business pivot away from creating an online game (presumably for profit) into collaborative realtime messaging (an internal tool that cost them money to build and operate). https://mastersofscale.com/stewart-butterfield-the-big-pivot/
- When you need to explain to an Investor (present or future) that you are not wasteful, i.e. efficiency as a proxy for smarts/effectiveness.
- When you have revenue but your cost center is creating a risk to your cashflow, e.g. you are spending so much it seems unlikely you will be able to last long enough for your profit center to profit.
TODO: add more good reasons, but do it later to avoid over-investing in a cost center ;p
Bad Cashflow versus Bad Business
A bad business model will lose money until it is all gone. Interestingly it is possible to have a good business model and still go out of business.
Bad cashflow can kill a good business: you owe more money in a given month than you can pay your creditors and they want their payment now. Over a longer time horizon a good business model would have made everybody more money.
Infinite time horizons are often similar to ponzi schemes where someone has to keep being the "new sucker born every minute".
Thus the stereotype of a business person being conservative and frugal; they're controlling their cashflow, earning through profit over time.
Contrast with a stereotypical "great entrepeneur" who takes risks and creates profit.
Both approaches have the potential for being a bad business.
How can you discern when "losing money is fine"? There's the usual routine of examining timelines (months and up to a few years - further than that and your crystal ball is the "Profit Center"), then considering risks, growth projections, competition, etc.
One simple technical approach is to see how much improvement can occur to the Cost Center and the impact on the Profit Center.
If you can invest and immediately improve your cashflow then you have a straightforward plan for improvement.
As mentioned earlier, a bad business model does not have a Profit Center. Having no positive cashflow may be something that can be fixed.
Should you work in a Cost Center?
Sensibly a business needs to create revenue and reduce costs, so someone needs to work in the "Cost Center". If you are irresponsible and careless it seems unlikely you will be successful in a Cost Center.
- You may genuinely enjoy innovating on efficiency; the larger the scale or harder the problem then potentially the greater the impact.
- The company may have a cashflow issue and working in the Cost Center may save the company.
- It may be that the opportunity to join a growing/successful company is in the Cost Center; don't look a gift horse in the mouth. (A rising tide lifts all ships).
- Sometimes working in a Cost Center is a way to learn the foundations of a business - where are all the dependencies that created the situation for profit?
- In the "DevOps" (and TDD) culture there's a deliberate attempt to remove the artificial silos that would have created a "cost center" (like QA or Operations) in the first place by distributing the work (and automating the toil); everybody should work in a Cost center!