I have to admit that I've not understood the bitcoin currency. I don't understand how bitcoins are created or who controls them.
I'm no expert on currency, but this is what I think I know: There is hard currency, which is currency that is based on some tangible thing. Gold and silver were popular currency foundations, but it could have been anything else, such as iron ingots. Currency arose from warehouse receipts-- a farmer would take his wheat or grain to a local storehouse and receive bearer receipts for it. The farmer then might trade those receipts for something else, like a new harness for his ox. Those grain receipts were the first money.
Then there is fiat currency, of which about 99.9999% of the world uses. This is where a government issues currency and in turn. will only accept payments and taxes in that currency. A central bank of some flavor issues the currency and controls the supply. Some fiat currencies are more exchangeable (or trusted) than others, such as the Japanese yen as opposed to the North Korean Won.
So either a currency is valuable because it is backed by some tangible goodies or it is valuable because a viable government and national economy makes it so.
Bitcoins would seem to fall into neither category. I don't see where they differ from some kid making a $200 bill with crayons and construction paper. Bitcoins are a shadowy pseudo-currency with no government regulation, so I'm very much surprised that Goldman Sach's sleazy fingerprints haven't been found all over them.
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The very attraction of bitcoin is that it's not tied to a government. Even government money these days is digital, bank transfers & private transactions without a single thing exchanged except an encrypted token.
Production of bitcoins is interesting. It is called "mining", and involves turning computing into a self-consistent crypto-hash. Turn the crank long enough and out pops a new coin. Some academic supercomputer clusters ( I believe Harvards ) "idle" time was spent this way until detected..
What I can't figure out is: where does the money used to purchase a bitcoin go ??
Ah well, Bears ain't really digital.
I'm amused by how quickly the whole point of Bitcoin disappeared from the media. It only took a couple of weeks to turn Bitcoin into just another speculative asset. The "buying things" aspect is ignored.
The unique thing about bitcoin is that it's is totally unregulated and totally free market. (Or is that a redundancy?) Anyway, that's why the Ayn Rand crazies love it better than sex.
Of course, in a completely free market, you're completely free to lose your shirt, as some bitcoin owners already have.
Added to that, bitcon has very limited utility (you can't use it at the supermarket, Macy's or the racetrack, for example, although you can use it for trading large amounts of cocaine, although not for the bail you'll need to put up afterward) and it's the new fool's gold.
Wanna buy something for, say, $50 and wake up the next morning to find it's worth either $500 or 50 cents, provided there's something you want to buy for either $5 or 50 cents? Have a ball.
Personally, I'd rather invest in fresh fish futures, if there is such a thing. Nah! Well but, wait a second...why not? How about beetle casting futures,too? Did I mention toenail clippings as currency?
Yours very crankily,
The New York Crank
Gold, Silver and gems have some inherent value, but are mostly valuable because we agree they are. An artificial sapphire is at least as useful as a real one, but has a fraction of the value.
Bitcoin has some features of "mined" wealth. I don't understand the math involved, but apparently to find a bitcoin there are a huge number of calculations involved, with significant time on fast computers needed. Some are easier to find than others, so the difficulty in finding new bitcoins is expected to remain difficult even with Moore's Law. There is a built-in limit of just under 21 million Bitcoins there can ever be. Bitcoins are extremely divisible, so even if they wind up very valuable per bitcoin small transactions will remain possible.
A couple made a documentary called "Life on Bitcoin". They made all their transactions for 100 days using only Bitcoin. I don't know how it turned out, but they have a website, lifeonbitcion.com. Of course, all this was before the latest shenanigans.
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