At its best, Bitcoin could be a trusted currency which transforms the way money is transacted.
A virtual currency, offering an alternative to the traditional, state-sanctioned financial system with potential to disrupt age-old established markets. At its worst, Bitcoin is nothing more than gold for geeks; an incomprehensible digital commodity – used mainly for buying drugs and laundering money online.
The four-year-old currency has hit the news in recent weeks as prices surged from $20 in February to a staggering $266 this month, before plummeting and losing $160 in value in a single day. Many have pointed to this volatility as a reason for the currency to be avoided, veteran UBS stockbroker Art Cashin for instance has compared the Bitcoin craze to the tulip mania that led many to financial ruin in the 17th century.
Part of the problem is confusion in terms. Bitcoin has more in common with gold (limited supply) than traditional currencies (theoretically infinite in number). To start with, there's nothing to keep Bitcoin liquid. Coins are mined via an arduous and largely unprofitable process of unlocking blocks of data that “produce a particular pattern when the Bitcoin ‘hash’ algorithm is applied to the data”.
This doesn’t do much to eradicate the ‘gold for geeks’ label, but according to Blockchain.info, some miners are generating as much as $470,000 in Bitcoin revenue per day. However the difficulty with the ecosystem is that it inevitably leads to hoarding, and with no Bank of Bitcoin to release extra liquidity when this happens, price fluctuations and market volatility are inevitable.
Part of the problem is confusion in terms. Bitcoin has more in common with gold (limited supply) than traditional currencies (theoretically infinite in number). To start with, there's nothing to keep Bitcoin liquid. Coins are mined via an arduous and largely unprofitable process of unlocking blocks of data that “produce a particular pattern when the Bitcoin ‘hash’ algorithm is applied to the data”.
This doesn’t do much to eradicate the ‘gold for geeks’ label, but according to Blockchain.info, some miners are generating as much as $470,000 in Bitcoin revenue per day. However the difficulty with the ecosystem is that it inevitably leads to hoarding, and with no Bank of Bitcoin to release extra liquidity when this happens, price fluctuations and market volatility are inevitable.
What Bitcoin’s inventors have done is conjure "value" from thin air, as if someone announced "right, over here we have the Emperor's clothes, and you can buy them". Indeed, the very notion that money representing real value that can buy real things in the real world has been used to purchase 100 tons of an invisible commodity is alarming. And by extension of this, there is no control over who else might invent a similar "currency".
There's no constraint on global virtual money supply even if Bitcoin limit their own. Why would I hold Bitcoin when Hitcoin looks like a sure bet next week? It's like betting on flies racing up a wall. At least real currencies have a semblance of connection with real economies doing well or badly. - Read more here: http://hereisthecity.com/2013/04/25/bitcoin-trusted-currency-or-gold-for-geeks
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