Bitcoins have seen some tremendous press coverage in recent days, mainly because of its dramatic increase in value: $147 yesterday, $47 two weeks ago, and a few pennies two years ago. Sounds familiar? If you lived in the Valley around the dot-com time, you know what I am talking about. See this “charmer” increase in value from we-tear-it-down-and-buy-the-lot $150k mid 90s to the $2.5m “prime property” in 2006.
I think the thought of having a new independent currency is interesting but Bitcoins exactly does not solve the main angst about traditional currency – which is value. It all boils down to which price I have to pay and whether the buyer is accepting my currency. Supply and Demand are reciprocal tight together.
Bitcoin mining is essentially pecked to technological development of CPU speed, and finding alternative methods such as ASICs (the business model of some well-known Valley companies), but also the number of ledgers. Or think about the possibility to botnet spammers looking for alternative revenue sources. (Read Brian’s blog if you want to know more about the ability of spammers and the like http://krebsonsecurity.com) In other words, money supply follows its own curve which is in positive correlation with time and hype. Demand follows, right now, clearly the same trap we saw with classic asset bubbles in the last decade. All what you get is a very volatile commodity, a volatility which can trip the one or other direction for long stretches of time. Of course, you can go down the Silk Road road and peck your prices to dollars. But then again, what do you solve?
The question is whether Bitcoins are anonymous but in addition still traceable by record, kind of an oxymoron in some sense. I am pretty sure that illegal use can be controlled and Silk Road was wise enough to set the threshold high by disallowing items where government have the highest incentive to go after such as child pornography or weapons of war. Who cares about illegal drugs – but then again the US is committed to the war on drugs with big funding behind that effort.
At best, I think Bitcoins is a product of the Zeitgeist. It is good evidence of volatile times ahead of us but not a solution. (SB)
Somebody who is even wordier than me:
The Bitcoin Bubble and the Future of Currency https://medium.com/money-banking/2b5ef79482cb
Nothing dramatic in this long article, but a nice summary about the complexity around Bitcoins. Felix Salmon (Reuters) talks about the two things I mentioned above, bubble and money supply, but also that the dualism of commodity and currency comes with its own issues. He names a few other obvious issues such as security. Defintely an interesting read and the most conclusive I found so far on this topic.
Some other good articles:
The Underground Website Where You Can Buy Any Drug Imaginable http://gawker.com/5805928/
Four Reasons You Shouldn’t Buy Bitcoins http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/
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