Bitcoin

By Guest Blogger – Adam Riley

It’s a story I tell a lot.  In 2006 I was looking for a way to prolong my life of sybaritic ennui when I stumbled across an article on gold.  At the time it was trading at $400/oz.  Having some cash in the bank from various deaths I thought about buying some.  Why not?  And while I’m at it, get my trotters on some silver as well, at $7/oz.  There is a shop near The Savoy Hotel where you can walk out with a bar of bullion as easily as buying a Twix from WHSmith.  Even I, with a C in GCSE Economics, could do that.

Instead, I proceeded to invest in an Xbox 360 and spent the next six years playing FIFA, GTA and CoD, frittering away my inheritance on Ask pizzas and low quality cocaine.  Not a bad way to live through the credit crunch, you might think, until you reflect that gold is now $1650/oz and silver $30/oz.

Last year I sold the Xbox to pay an electricity bill.

What I’m trying to say is: my instincts were right.  It’s just that I’ve stultified my responses to the level of an inert gelatinous blob with ME.  I guess I’m also saying: do as I say, not as I do.  Because I think I’ve found a new opportunity to squander.  Bitcoins.

The brainchild of a mysterious internet figure with a Japanese name, Bitcoins are an online peer to peer currency that has been running for three years. There’s no central bank.  All transactions are processed through a network of people who have decided to become miners.  These miners are continuously running a program on their computers that is attempting to solve a complex mathematical problem every ten minutes.  The one that solves it will receive fifty Bitcoins, giving everyone an incentive to keep their computers running so that the transactions can be processed.

But that takes electricity and a fast computer.  You don’t have to be a miner.  Bitcoin markets have evolved where you can buy, trade and squander them in your own time.  One enterprising Chinese schoolboy has developed a complicated Bitcoin exchange where you can leverage yourself several times over and thus recreate the global financial crisis from the comfort of your own desktop.

“They’re not real!” I hear you vomit in my face.  It’s true, and the online retailers accepting Bitcoins as payment are a little obscure.  But on Mt. Gox, the most respected Bitcoin exchange, 1 Bitcoin is trading at around $5.  When Bitcoins started they traded at 30 cents.  Last year, someone tried to corner the market, jerking up the price to a stiff $30.  That spike’s viagra has now worn off, and the market flops along at $4 to $5, manifestly the new baseline.

Bitcoins also have built in scarcity.  Only 21 million Bitcoins will ever exist, 7 million are in circulation at the moment.  They are divisible to eight decimal places so there will always be enough currency around.  And even though that means Bitcoin miners will no longer have a reason to maintain the network, the theory is that they’ll start to charge a small reasonable fee.  Well, that’s the theory.

There are some dodgy aspects.  Despite numerous safeguards a high profile Bitcoin robbery was carried out last year, and given the anonymous nature of everything in the network, they are impossible to trace.  The Silk Road, the online black market where you can buy microdots and Tec 9s, will only accept Bitcoins.  That probably can’t last.

On the other hand, what’s the worst that can happen?  Invest in Bitcoins and you’ll have a little online money to buy something particularly useless.  Or maybe, just maybe, you’ll be in on the first viable economic revolution since Communism, that might free the entire world from the tyranny of central banking and represent a step towards our ultimate destiny as immaterial beings of pure intelligence, unencumbered by the mortality of physical existence, a nodal mist floating blissfully through space, dishing out Bitcoins to the aliens as we go.

5 Comments

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  • Humorous read, and you got most of the information correct. However, Bitcoin’s price didn’t start at $0.30, but at $0.00. It traded under a penny for a long time, but has since shot way up and trades in the $5 range currently. Also, the spike last summer to $30 was not due to someone “trying to corner the market,” but was simply a speculative bubble – but even after the bubble the price has held multiple times higher than it was prior to the bubble, indicating that there is something real and interesting going on.

    • Thanks for the corrections Erik. Should have checked my facts better!

      I certainly agree that something real and interesting is going on with Bitcoins.

      Adam

  • Interesting info on Bitcoin, Guy. I agree, this is a promising phenomenon… or a blip, depending on how you look at it. The idea of a revolution, introducing the new economic system insulated from the greed of banksters is certainly appealing.

    Times are changing and world financial system will be drastically different ten years from now. Maybe I’ll do a post about that some time soon.

    P.S. Loved the gold story. Do as I say, not as I do – so true! 😉

    • You should definitely do a post about the world financial system Lada. After all you obviously know a lot about it having been a stock broker. There seems to be a lot of uncertainty in the financial markets today!

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