Financial Anarchy Reigns With the Bitcoin
Three days ago I didn't know a damn thing about bitcoins, the new virtual currency that is clearly starting to become something of a talking point. Three days later, I still know very little about bitcoins, other than I have 0.02 of them and they are rife with the stench of anarchy, nerd power and complexities that I'm still trying to grasp.
With the assistance of the internet and bitcoin expert and podcaster Adam B. Levine here's what I do know. The bitcoin is a virtual currency that was created to buck the system. Damn the man! From Wikipedia: "Bitcoin is a decentralized digital currency based on an open-source, peer-to-peer Internet protocol. It was introduced in 2009 by a pseudonymous developer (or developers) Satoshi Nakamoto." Basically, bitcoin is a financial market and currency that operates outside any governmental or regulatory agency - which makes it a target for volitile and highly venomous criticism.
Yet, many retailers and online vendors have embraced the bitcoin and are accepting payments. Because nerds have money too. Though with the bitcoin, that is limited to 21 million BTC. Here's the deal, without an issuing authority, the bitcoin is mined via a connection of peer-to-peer networks through a bunch of complicated stuff I don't understand involving the processing power of graphic cards. 25 bitcoins are created every ten minutes, which amounts to every single one of them being created by 2140. The reason they aren't created all at once is because each one is harder to mine than the last due to increased difficulty in the calculations required to create them. This mining created a few bitcoin millionaires early on, and may create a few more if you've got the computer power.
After listening to Levine's surprisingly entertaining and informative podcast I was still not too much better off. I created my bitcoin wallet (which assigns a series of letters and numbers - which you better guard with your life) and added a widget to my blog to accept bitcoin payments. I think Levine sent me the 0.02 as a welcome to the club gift. Then I settled right back down to my confusion and wrote this piece, hoping it would help. I like financial chaos as much as the next guy, but is the bitcoin the currency of the future or just some nerd get rich quick scheme about to pop?
Levine had the same concerns, then after months of research and becoming an expert, had this to say on the matter:
"It’s a revaluation, that is, people taking their local currencies and choosing to buy bitcoins with them. At first it will be greed driving people, Bitcoin is a complicated concept that took me personally two months to really wrap my brain around. 1000% gains that seem like they’ll go on forever are pretty simple incentives to understand.
"It won’t take long for those new to Bitcoin to start using them on their merits, and then the bubble theory kind of falls apart. But before we get to the point where people will want to spend their bitcoins, we have to figure out what a fair price is given the amount of interest."
That's the kicker - the price of the bitcoin has been nothing short of drinking 12 cups of coffee then riding a dirt bike over a series of speed bumps while trying to pop and lock. At creation it was about 20 cents (U.S. dollar) to one bitcoin. Then the value skyrocketed, creating those aforementioned millionaires, then the price dropped and is now somewhere around $66 USD to every one bitcoin, according to bitcoin exchange MT.GOX. This down from a recent jump to well over $200 per bitcoin.
So that's the education bit and about as far as I've gotten in the bitcoin world. In research for this piece, I think I've figured out how to turn bitcoins into dollars and I know that a lot of people think they are a scam and not worth our time. Regardless of how much I don't know about the bitcoin, I see it as neither. Most of the critics are entrenched in the current financial markets, so a money supply that cannot be watered down by the release of additional currency (as the bitcoin will be limited to 21 million) threatens their way of life. All the criticisms aimed at the bitcoin seem to circle around functionality of the current banking system (which is highly fucked) and the regulatory sytems (also fucked) controlling that. As far as I'm concerned that's like telling me my bike is no good because it's not a car.
The bitcoin, whether or not it is here to stay, has little to do with the current financial system and how money is printed to make up for too much money being liquified. If you ask me - that makes no sense. What we have here is a virtual currency run by shadowy figures, non-regulated and price controlled by the anarchy of the free market. What's not awesome about that? If it's a scam - fine - it's a scam that has cost me nothing but time at this point. Others have sunk money into it, but based on the current price drop, they are slowing down, waiting for a stabilization.
That stabilization will come. It may be tomorrow, it may be in ten years - but the fact is just like Beanie Babies (or more appropriately - Pogs) or anything else falling into the supply and demand of economics - bitcoins will fall into a comfortable ratio of dollars to bitcoin. More retailers, especially those doing business solely online, will allow bitcoin transactions. Hell, the porn industry is already getting into the bitcoin market (NSFW link there). Not to mention the possible application of bitcoins for in-game (video games) micro-transactions. While I'm no financial expert, I expect this mystical new currency to settle to a nice ratio to the dollar that every one is happy with and will only help increase the value of the dollar by lessening the need for over saturation.
While the critics of the bitcoin seethe in their glass houses, calling it worthless, stupid (I literally saw a celebrity tweet that yesterday) and a scam; the bitcoin will continue to increase in volume at a fully calculated pace - can you say that about the dollar or any other paper currency? This is the future people! It's time for a virtual currency that can be managed via mobile and has complex account keys that look like this: 199t4uVpGtwgS5Th4hwaardBJ17WDmrUVT. That's actually my account key, located on some mystery server out in the cloud, or something like that.
Even if the bitcoin crashes and burns it will still have opened the door to the inevitable future. A future that creates a financial market that is controlled by the people rather than the government. Sure, that stinks of anarchy but hell, have you seen what the government has been doing with our money lately? What's the debt ceiling again? How many banks got bailed out? Who owns all our debt? How much do you owe the IRS this year? The bitcoin is not taxed (though there are a litany of processing fees, which is to be expected) and exists outside the confines of our clearly broken financial system. While it might not be the end all be all of virtual financial currency, it's certainly a step in the right direction.
There is so much more information related to bitcoins that I couldn't possibly cover in one article, nor fully grasp. I suggest you check out Levine's podcast if you want to know more. In the meantime, damn the man!
Image Source: Yes, that's a pile of pennies.
