A bad Forbes article on Bitcoin (or dog bites man)
Sometimes it’s helpful to explain things by discussing common misconceptions. There are lots of misconceptions in this article from Forbes.
First of all, I don’t recommend that you should buy Bitcoin. I don’t know the future. Bitcoin isn’t a company. It doesn’t have a leader or a product. It’s not a stock or a commodity. It doesn’t really have a goal or mission. I think it’s interesting though and technologies like this are worth understanding better.
You can’t put them in a drawer, like dollar bills or gold Krugerrands. They exist only in the cloud, like Paypal. Even though they are virtual, rather than physical, they are used like cash when transferred between people through the web.
You can put them in a drawer. They are not like PayPal. To understand why you have to understand the very basics of public/private key pair encryption. In the case of bitcoin, a private key (number) in your drawer means you can transfer value to your drawer using the blockchain, which isn’t like the cloud. You can use bitcoin like cash but it isn’t used that way very often these days.
The blockchain is a shared database across thousands of machines. Its an identical pile of information replicated. It mostly represents account balances. You can use the web to access bitcoin, but bitcoin runs on the internet or any system of information exchange.
Inherently, being virtual is not a bad thing. The dollars on our financial institution statement, viewed online, are considered real money, even though those are just digital dollars. The fact that Bitcoins aren’t available in physical form is not really a downside, any more than the numbers on your financial statement are not available as physical currency either. Just like we use credit cards or debit cards to transfer value, Bitcoins can be spent in many locations, just like dollars.
So strange. Bitcoins can’t be spent in many locations (unlike dollars). The rest of this paragraph rambles about virtual vs physical. I think everyone understands that finical systems are information systems and not physical systems. Really Forbes? Where did you find this fellow?
What makes Bitcoins unique, versus other currencies, is that there is no financial system, like the U.S. Federal Reserve, managing their existence and value. Instead Bitcoins are managed by a bunch of users who track them via blockchain technology. And Blockchain technology itself is not inherently a problem, since there are folks figuring out all kinds of uses, like accounting, using blockchain. It is the fact that no central bank controls Bitcoin production that makes them a unique currency. Independent people watch who buys and sells, and owns, Bitcoins, and in some general fashion make a market in Bitcoins. This makes Bitcoins very different from dollars, euros or rupees. There is no “good faith and credit” of the government standing behind the currency.
The first use of the blockchain was accounting. We are seeing some really interesting uses since then. Bitcoin is managed by people, just like the fed. The important part is that it’s managed through a system of volentary consensus of the participants. Bitcoin has value because people agree that the system is fair and useful.
Currencies are sort of magical things. If we didn’t have them we would have to do all transactions by barter. Want some gasoline? Without currency you have to give the seller a chicken, or something else the seller wants. That is less than convenient. So currencies were created to represent the value of things. Instead of saying a gallon of gas is worth 1 chicken, we can say it is $2.50. And the chicken can be worth $2.50. So currency represents the value of everything. The dollar, itself, is a small piece of paper that is worth nothing. But it represents buying power. Thus, it is stored value. We hold dollars so we can use the value they represent to obtain the things we want.
Currencies are not magical. They are a measure of value and are controlled by people and markets. They are usually regulated by governments. Measuring and accounting for value of contributions to a community is an old idea.
Tulip bubbles
People when wild for tulips. Government backed currencies usually fail. Bitcoin is the first imperfect way to digitally transfer value all over the world. It’s the first global store of value. At this point nobody thinks it’s similar.
Unless you are a professional trader, or you simply want to gamble, stay away from Bitcoins. They have no inherent value, because they are a currency which represents value rather than having value themselves. The Bitcoin currency is not managed by any government agency, nor is it backed by any government. Bitcoin values are purely dependent upon holders having faith they will continue to have value. Right now the market looks a lot more like tulip mania than careful investing.
He is right here. It’s mania. It has been for 10+ years. Nothing is backing it. Systems like Bitcoin and Ethereum represent something new though. I don’t think of them as stocks or currencies. These are systems of human collaboration, incentive and consensus. If just one of the next level Ethereum tokens works out it could signal a big change. Our author fails because it’s more important to understand what these systems represent then to invest in them.
We created ethex.market to make a contribution to this space. We want to see and determine the real world value of Ethereum tokens as fast as possible. We feel an open decentralized market now is the best way to do that.
