(denominated/sub-units)
1- Bitcoin convention brings out hope for digital currency's future
Donna Leinwand Leger, USA TODAY 5:40 p.m. EST December 11, 2013The cyber currency known as Bitcoin has piqued the interest of many savvy business people
Story Highlights
- Cyber currency's value has soared
- Many entrepreneurs are flocking to what they hope will be a mainstream currency
- "People are taking it more seriously now"
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Among the overwhelmingly male crowd gathered in Las Vegas for only the second Bitcoin convention in the cyber currency's history, the passion for the unregulated, computer-generated money is clear.
Bitcoin is already the 75th most valuable currency on earth, says David Johnston, CEO of Engine and executive director of BitAngels, an entrepreneur and angel investor group funding digital currency. Johnston expects Bitcoin to crack the top 10.
The enthusiasm is not unfounded. Since January, the value of one Bitcoin has soared from $13 to more than $1,000, creating instant millionaires among some of Bitcoin's earliest investors.
The new-found wealth has freed many of the programmers, techies, financial analysts and rocket scientists from their day jobs, allowing them to focus full time on creating the consumer applications, Bitcoin stores and security systems that they hope will vault Bitcoin into the mainstream.
More than 600 people registered for the Inside Bitcoins convention, up from a few hundred at the first Bitcoin conference last summer, says Alan Meckler, CEO of MediaBistro, the conference organizer. The number of exhibitors has jumped from three in July to 22 on Wednesday.
"It's the closest thing to the beginning of the Internet than I've ever seen," Meckler says.
The conference is still tiny and without the glamorous trappings of powerhouse conventions like the Consumer Electronics Show, which attracts thousands of attendees with whiz bang demonstrations and high tech luminaries, including Bill Gates.
The motley collection of Bitcoiners hail from the well-heeled of Wall Street, including J.P. Morgan and Visa, and the flannel and Google Glass-wearing grunge set from the West Coast.
There are hipsters in bell-bottom jeans and corduroy jackets, Former Washington, D.C., mayor Adrian Fenty is here. There are libertarians whose philosophy craves a decentralized, limited currency.
"One of the first things that attracted me is it's a currency for the world. It's not specific to any country and might be most useful in the developing world," says Justus Ranvier, 33, a Bitcoin blogger and activist from Austin, Texas, who spoke at the conference.
Ranvier wrote in Bitcoin Magazine that he "indefinitely suspended pursuit of an electrical engineering degree in order to promote Bitcoin adoption and work on various projects which help to develop the emerging Bitcoin economy."
Many Bitcoin businesses have sprung from the mind of serial entrepreneurs, clever techies like George Burke who leveraged his Internet skills to create an eBook swapping serve that works with Nook and Kindle, but is now moving on to a Bitcoin project.
There are seasoned investors who see potential in a cyber coin of the realm. Attorneys from the white shoe law firm Pillsbury are here to offer the intellectual property skills.
Jaron Lukasiewicz, CEO of Coinsetter, a foreign exchange trading platform for Bitcoin, and a former investment banker, says the market for Bitcoin is changing as the value increases. More traditional financial players on Wall Street and high net worth investors are showing interest, says Lukasiewicz, who also co-founded Ticketometer, an online ticket sales business.
Last week, Bank of America and the Central Bank of China both weighed in on opposite sides on the viability of Bitcoin. Chinese Bitcoin investors have driven up to 70% of the trading, he said.
"People are taking it a lot more seriously now," he said. "It's really become a real currency to a lot of people."
Follow @DonnaLeinwand on Twitter
2-
Business and management
Bitcoin
JPMorgan jumps in
THERE is some interesting news from JPMorgan Chase today: the bank has filed for a patent for an online payment system that sounds rather like Bitcoin, the decentralised “cryptocurrency” currently still in the throes of an awesome speculative bubble.
In the patent application, which is published online, the bank argues that while credit cards completely dominate the market for online payments—and are likely to continue to do so for at least five years—their high processing costs and risks (particularly of fraud) limit their usefulness. They suggest that what the internet needs is something that does roughly what cash does in the real world—a quick, cheap and simple way of transferring value.
What they propose is a means of making anonymous payments “without provision of an account number or name from the payer”, where the “money” is stored on the payee’s computer memory and transactions are verified through a shared log. That sounds an awful lot like Bitcoin’s blockchain—a log, now several gigabytes large, which records every transaction ever made in Bitcoin and so ensures that only one person can hold a particular subunit of the currency at any one time.
Whether this will ever come to anything is questionable. But the fundamental point, that something like Bitcoin would be extremely useful, is surely sound. Relying on credit cards for online transactions strengthens big incumbent firms such as Amazon, which can cheaply process payments, at the expense of smaller firms. It weakens cross-border commerce, because the fees for paying in a currency other than your own can be very high. And it locks out plenty of people: people in poor countries, or even in rich ones, cannot always easily get hold of a credit or debit card that they can use online.
So JPMorgan’s intervention strengthens the argument that something like Bitcoin will eventually become a serious part of the online economy. But it also strengthens the argument that it won’t be Bitcoin itself. Quite apart from all of the technical problems it faces—discussed in our Technology Quarterly piece—the Bitcoin economy is simply not sophisticated enough to compete with something introduced by a big firm, which is actually stable in value. Indeed, what Bitcoin adherents rarely admit is that their online currency isn’t actually very useful.
I know this because I have, on my laptop, around £300 in Bitcoin, purchased around six months ago for £30 or so. I am very glad of this paper profit, but it is actually impressively difficult to realise. If I want to spend it on real goods and services in Britain, I am limited to a pub in Hackney and a few websites that sell... well, not very much. In all likelihood, the easiest thing I could get hold of with my Bitcoin would be a gram or two of heroin.
Worse, if I want to sell it for real money (and I do) it is surprisingly difficult to do. Because of anti-money laundering laws, I will have to send copies of my passport and a load of other personal details to a Bitcoin exchange to get a verified account. If I do sell, then I will incur a bunch of real money charges to get the money back—from the cut that the exchange takes on my sale to the charge that my bank will take to receive an international bank transfer. So much for Bitcoin freeing me from charges, then.
That, sadly, is why for all of its elegance—and the sheer commitment of its fans—Bitcoin will never take off in a serious way. Here's hoping that something like it might, however. And if the people at JPMorgan turn out to be the ones that make it work—an idea that I’m sure will make Bitcoin enthusiasts livid—then good for them. 28 November 2013Last updated at 00:01 GMTBitcoin: Experts clash over the crypto-currency
It is possible to buy special computer chips to help generate new bitcoins
As its popularity has soared, so has its price. On Wednesday it breached the $1,000 (£614) mark on Japan's MtGox exchange for the first time. That's nearly five times the price it was at earlier in the month.
Several reasons have been given for the surge:
Unlike "real-world" currencies, there is no central bank backing Bitcoin and anyone with a powerful enough computer can create one as part of a technique called "mining", which is used to process transactions.
Understanding exactly how the Bitcoin system works is only marginally easier than tracking down its mysterious creator - Satoshi Nakamoto, the pseudonym used by the author or authors of the 2008 research paper that sparked its existence.
And, in truth, interest in Bitcoin arguably outweighs its role in the wider economy, with the possible exception of the way it has facilitated illegal trades on underground sites such as the Silk Road.
But what makes it important is what it tells us about the role virtual currencies might play in the years to come.
On this point, however, there is a divide between those who think it is a fantasy destined for failure, and those who think it will underpin the future of finance.
The BBC invited a Bitcoin advocate and a sceptic to explain their views:
I first used Bitcoin in April 2009, just a few months after it was first released to the world. Back then, it had no value at all - there were no users and no trade, no exchanges and thus no exchange rate.
Now Bitcoin is reaching new heights thanks to a combination of speculation on future value and genuine, undeniable usefulness.
Think about it: Why can it take days or weeks for banks to send money around the world, when an email travels in seconds?
Does the money travel by steamboat?
Are they loading gold bars onto the side of a camel and sending it over the mountains of Mongolia?
Of course not.
Bitcoin has created a firestorm of excitement throughout the world because it's a new financial system, designed from scratch by the people, for the people.
It's not only fast, cheap and easy. In Bitcoin, every participant has equal power.
There are no bankers, because there are no banks.
Bitcoins are stored in a virtual postbox called an "address", which is in turn stored in a "wallet" There are no banks because there is no need for them: People can control their own money.
The rules of the system are enforced on everyone by each other. Not even the current software developers can tamper with it against the wishes of the users.
With better technology comes new features.
The web is powered by advertising because credit cards are too inefficient to pay for most content.
Bitcoin enables micropayments - instead of ads, tiny fractions of a penny could flow from your browser directly to sites you visit, with no middleman fees making the scheme impractical.
Crowdfunding doesn't need to be restricted to sites like Kickstarter, which have complex policies and fees - people can do it themselves.
Even something as trivial as a child running a lemonade stand can now be made digital, because anyone with a smartphone can accept Bitcoin: No complicated merchant bank accounts are needed.
Bitcoin is barely five years old.
It has its problems - volatility, geekiness and an appeal to criminals come to mind. With your help the project can overcome these issues and change the world. Trade on!
The origin story is clever and cute, and just hard enough to understand to induce a belief in the stability of the supply of the bitcoins, leading to a rush for them now, as opposed to later.
Bitcoin's value is dependent entirely on what you, the buyer, are willing to pay for it. If there were no users, there wouldn't be any value.
Because it has no use value, only exchange value, Bitcoin can have literally any price, and so the market for Bitcoin is permanently in a bubble as a result.
This bubble will form and burst many times, making and losing fortunes in the process.
I'm Irish. I know exactly what crazy bubbles look like.
In this case a lot of people are deciding a string of electrons are worth something, as opposed to nothing, and they want to sell it to the next guy as soon as possible.
As long as you pass your Bitcoins on to the next guy while extracting a profit, you'll be happy.
There is always a greater fool. Right up until the moment there isn't one.
Economically, Bitcoin is nothing special.
Despite the media's fondness for photos of them, only a tiny number of trades are done using physical bitcoins It's a speculative asset people are buying primarily to flip onto someone else.
The "money 2.0" stuff is just marketing, and has been tried before, in the US in the 1850s during the free banking period, for example.
As I've said elsewhere, this time really isn't different, but you can tweet about it.
The fact Bitcoin isn't regulated is a big plus for some.
As one Bitcoin promoter boasted to me recently- and he did this himself - you can move $1m worth of Bitcoin across a border on a Zip Drive and not be detected.
The authorities won't allow this to last for long. Bitcoin's biggest boosters are also holding large amounts of the stuff, so beware, buyers.
My colleague Karl Whelan has suggested Bitcoin may simply be competed out of existence by other services like LiteCoin, TerraCoin, and AllahCoin, or regulated by national and international governments if it becomes associated with largely criminal activity.
Readers holding Bitcoin will be shaking their heads reading my piece - the value has exploded by thousands of percent in a single year!
Pubs around the world have started accepting bitcoins as payment To which I respond: Exactly.
Get into Bitcoin or another digital currency if you want.
I hope it makes you rich. But don't kid yourself this is anything more than speculation for a quick buck.
The messianic stuff will go out the window once it collapses. There are lots of things in the real economy to invest in too.
The big advantage of Bitcoin as "stateless money" is that when it collapses, the government won't have to bail it out.
http://www.bbc.co.uk/news/technology-25130261
It is possible to buy special computer chips to help generate new bitcoins You can use it to buy beer in Berlin, order pizza in Amsterdam, hire a taxi in Edinburgh, schedule a dental check-up in Ljubljana, do a degree in Nicosia, purchase Alpaca socks from Massachusetts - or even blast off into space with Virgin Galactic.
Every day, it seems, another service joins the Bitcoin revolution, accepting payment in the so-called virtual currency.As its popularity has soared, so has its price. On Wednesday it breached the $1,000 (£614) mark on Japan's MtGox exchange for the first time. That's nearly five times the price it was at earlier in the month.
Several reasons have been given for the surge:
- Speculators piling in after a Senate hearing into the innovation
- Chinese citizens turning to it as a way to shift their wealth out of the country
- Members of the public buying at least a fraction of a bitcoin (the smallest unit is 0.00000001) after hearing reports of others who did the same and then saw the value of their investment swell
The BBC's Rory Cellan-Jones explains how Bitcoin works
Understanding exactly how the Bitcoin system works is only marginally easier than tracking down its mysterious creator - Satoshi Nakamoto, the pseudonym used by the author or authors of the 2008 research paper that sparked its existence.
And, in truth, interest in Bitcoin arguably outweighs its role in the wider economy, with the possible exception of the way it has facilitated illegal trades on underground sites such as the Silk Road.
But what makes it important is what it tells us about the role virtual currencies might play in the years to come.
On this point, however, there is a divide between those who think it is a fantasy destined for failure, and those who think it will underpin the future of finance.
The BBC invited a Bitcoin advocate and a sceptic to explain their views:
Continue reading the main story
Mike Hearn, Bitcoin Core developer “Start Quote
It's a new financial system, designed from scratch by the people, for the people”
Why does Bitcoin have value?
Over the past few years, I must have been asked this hundreds of times. I first used Bitcoin in April 2009, just a few months after it was first released to the world. Back then, it had no value at all - there were no users and no trade, no exchanges and thus no exchange rate.
Now Bitcoin is reaching new heights thanks to a combination of speculation on future value and genuine, undeniable usefulness.
Think about it: Why can it take days or weeks for banks to send money around the world, when an email travels in seconds?
Does the money travel by steamboat?
Are they loading gold bars onto the side of a camel and sending it over the mountains of Mongolia?
Of course not.
Continue reading the main story
Mike Hearn
- Developed BitcoinJ - an implementation of the Bitcoin protocol in the Java programming language
- Believes Bitcoin, or another crypto-currency, could one day be used to allow machines with artificial intelligence to own themselves
The real answer is depressing - banking is a stagnant market running on long-obsolete infrastructure, which improves only when forced to by government.
Same day payments happened only after banks were dragged into the 19th century by the Office of Fair Trading. When Metro Bank opened in 2010, it received the first new UK banking licence issued in 150 years.Bitcoin has created a firestorm of excitement throughout the world because it's a new financial system, designed from scratch by the people, for the people.
It's not only fast, cheap and easy. In Bitcoin, every participant has equal power.
There are no bankers, because there are no banks.
Bitcoins are stored in a virtual postbox called an "address", which is in turn stored in a "wallet" The rules of the system are enforced on everyone by each other. Not even the current software developers can tamper with it against the wishes of the users.
With better technology comes new features.
The web is powered by advertising because credit cards are too inefficient to pay for most content.
Bitcoin enables micropayments - instead of ads, tiny fractions of a penny could flow from your browser directly to sites you visit, with no middleman fees making the scheme impractical.
Crowdfunding doesn't need to be restricted to sites like Kickstarter, which have complex policies and fees - people can do it themselves.
Even something as trivial as a child running a lemonade stand can now be made digital, because anyone with a smartphone can accept Bitcoin: No complicated merchant bank accounts are needed.
Bitcoin is barely five years old.
It has its problems - volatility, geekiness and an appeal to criminals come to mind. With your help the project can overcome these issues and change the world. Trade on!
Continue reading the main story
Dr Stephen Kinsella, University of Limerick “Start Quote
The 'money 2.0' stuff is just marketing, and has been tried before... this time really isn't different, but you can tweet about it”
Bitcoin is a beautiful example of what the psychoanalyst David Tuckett calls a "fantastic object" - unreal but immensely attractive.
The Bitcoin experience accesses notions of stateless money, peer-to-peer exchange, and of course, no regulation or financial intermediation.The origin story is clever and cute, and just hard enough to understand to induce a belief in the stability of the supply of the bitcoins, leading to a rush for them now, as opposed to later.
Bitcoin's value is dependent entirely on what you, the buyer, are willing to pay for it. If there were no users, there wouldn't be any value.
Because it has no use value, only exchange value, Bitcoin can have literally any price, and so the market for Bitcoin is permanently in a bubble as a result.
This bubble will form and burst many times, making and losing fortunes in the process.
I'm Irish. I know exactly what crazy bubbles look like.
Continue reading the main story
Dr Stephen Kinsella
- Senior lecturer in economics at the University Of Limerick's Kemmy Business School
- Also writes a weekly column for the Irish Independent newspaper
The Bitcoin phenomenon is the purest manifestation of what Charles McKay described in his 1841 book Extraordinary Popular Delusions and the Madness of Crowds.
At the psychological level of the investor, there's no difference between bitcoins, tulips, railways, or the stock market bubbles of the 1920s, 1990s, or the mid 2000s.In this case a lot of people are deciding a string of electrons are worth something, as opposed to nothing, and they want to sell it to the next guy as soon as possible.
As long as you pass your Bitcoins on to the next guy while extracting a profit, you'll be happy.
There is always a greater fool. Right up until the moment there isn't one.
Economically, Bitcoin is nothing special.
Despite the media's fondness for photos of them, only a tiny number of trades are done using physical bitcoins The "money 2.0" stuff is just marketing, and has been tried before, in the US in the 1850s during the free banking period, for example.
As I've said elsewhere, this time really isn't different, but you can tweet about it.
The fact Bitcoin isn't regulated is a big plus for some.
As one Bitcoin promoter boasted to me recently- and he did this himself - you can move $1m worth of Bitcoin across a border on a Zip Drive and not be detected.
The authorities won't allow this to last for long. Bitcoin's biggest boosters are also holding large amounts of the stuff, so beware, buyers.
My colleague Karl Whelan has suggested Bitcoin may simply be competed out of existence by other services like LiteCoin, TerraCoin, and AllahCoin, or regulated by national and international governments if it becomes associated with largely criminal activity.
Readers holding Bitcoin will be shaking their heads reading my piece - the value has exploded by thousands of percent in a single year!
Pubs around the world have started accepting bitcoins as payment Get into Bitcoin or another digital currency if you want.
I hope it makes you rich. But don't kid yourself this is anything more than speculation for a quick buck.
The messianic stuff will go out the window once it collapses. There are lots of things in the real economy to invest in too.
The big advantage of Bitcoin as "stateless money" is that when it collapses, the government won't have to bail it out.
Bank of America Pegs Bitcoin -- Here's Why It's a Waste of Time
This week, Bank of America (NYSE: BAC ) became the first major U.S. financial institution to cover the digital currency Bitcoin. In the report, analyst David Woo estimated a maximum fair value of $1,300 and a maximum market capitalization of $15 billion.
Let's hope this is just a PR stunt, an attempt to make the bank appear younger, hipper, or part of the tech in-crowd. Because for actual investors, this exercise in prognostication is a waste of time. Here's why.
Covering tulips in 1637What is Bitcoin, exactly? Proponents will tell you it's a nonfiat currency. It's a way to do transactions in the modern age free from the government, bank, and regulatory restraints of our current fiat system. They'll tell you it's the future of commerce. It's a panacea from financial oppression.
Others will tell you that Bitcoin is a flash in the pan asset, not a currency at all. It's a tulip bulb. It's a series of ones and zeroes being traded -- no, speculated upon -- without any underlying value or practical application. There is even a website devoted to maintaining the current Bitcoin-to-tulip bulb exchange rate (690 at the time of this writing, if you're looking to trade your leftover Thanksgiving orange tulips).
At this point in time no one really knows what bitcoin really means in the big picture. It seems equally likely to me that it could be the start of a commerce revolution or yet another time- and money-wasting folly of group psychology.
Bank of America's calculation assumes, preposterously if you ask me, that bitcoins will become "a major player in e-commerce and money transfer, and a significant store of value with a reputation close to silver."
Whoa!! What?!?
Why is that preposterous, you ask? Several reasons.
1. Pump and dumpLike it or not, bitcoin is wrought with fraudsters, schemers, and other clever bad guys. The New York Times has reported of several instances of such schemes, including Boiler Room-style pump and dumps executed using Twitter.
Earlier this week the Chinese central government barred the nation's banks from accepting bitcoin. The Bank of France issued warnings as well. Despite these soft actions, the fraudsters still act without fear of repurcussion. From the Times article:
2. Its essentially impossible to bet against bitcoinFortune magazine's Stephen Gandel spent a good amount of his time this week attempting to short Bitcoin. Gandel, a very smart financial mind, couldn't figure out a reasonable method to achieve the trade.
Traditionally, a short trade requires shares to be borrowed from a current owner. Besides the fact that no mechanism to allow borrowing exists, would you be comfortable letting digital cowboys borrow your money in the Wild West?
Gandel was able to buy put options, derivative contracts that did allow him to bet against a rise in bitcoin value, but the costs involved with executing the trade didn't make economic sense. The trade would have lost money even if the value of a bitcoin plummeted 55%! Hard to justify losing money when a price moves 55% in your favor.
Does this sound like the silver market to you? Me either.
3. The entire bitcoin market is vulnerable to a complete shutdownWould you consider illegal drugs as a viable investment? Drugs are in demand, and as the War on Drugs raging on, the product is in short supply.
But the economics don't matter in that example because of government intervention. Your entire investment could be scooped up by the DEA at any time (and also, there is the whole legality/jail time issue).
The same is true of Bitcoin. With the Chinese government all but banning the currency from mainstream adoption, a significant portion of the market is wiped out overnight. The New York Times estimated that about 30% of global bitcoin purchases come from China.
The supply and demand implications of this fact are huge! The supply of Bitcoins is essentially fixed (not technically, but close enough for this point). Overnight the demand side declines by 30% based on the decision of just one government. With no inherent value, the downside risk to Bitcoin prices are absolutely tremendous.
What happens if and when the U.S. government changes from its current "watch and wait" policy? Or European Union states? Or Japan?
Thanks for the effort, BofA, but no thanksBank of America should be applauded for attempting to stay ahead of the curve. Unfortunately, this report provides no real value to investors or even bitcoin speculators. The assumptions built in are simply erroneous at this point in bitcoin's evolution.
Perhaps time will prove me wrong, but for now I won't be buying any bitcoins and I'll only be buying tulips for Mother's Day.
Let's hope this is just a PR stunt, an attempt to make the bank appear younger, hipper, or part of the tech in-crowd. Because for actual investors, this exercise in prognostication is a waste of time. Here's why.
Covering tulips in 1637What is Bitcoin, exactly? Proponents will tell you it's a nonfiat currency. It's a way to do transactions in the modern age free from the government, bank, and regulatory restraints of our current fiat system. They'll tell you it's the future of commerce. It's a panacea from financial oppression.
Others will tell you that Bitcoin is a flash in the pan asset, not a currency at all. It's a tulip bulb. It's a series of ones and zeroes being traded -- no, speculated upon -- without any underlying value or practical application. There is even a website devoted to maintaining the current Bitcoin-to-tulip bulb exchange rate (690 at the time of this writing, if you're looking to trade your leftover Thanksgiving orange tulips).
At this point in time no one really knows what bitcoin really means in the big picture. It seems equally likely to me that it could be the start of a commerce revolution or yet another time- and money-wasting folly of group psychology.
Bank of America's calculation assumes, preposterously if you ask me, that bitcoins will become "a major player in e-commerce and money transfer, and a significant store of value with a reputation close to silver."
Whoa!! What?!?
Why is that preposterous, you ask? Several reasons.
1. Pump and dumpLike it or not, bitcoin is wrought with fraudsters, schemers, and other clever bad guys. The New York Times has reported of several instances of such schemes, including Boiler Room-style pump and dumps executed using Twitter.
Earlier this week the Chinese central government barred the nation's banks from accepting bitcoin. The Bank of France issued warnings as well. Despite these soft actions, the fraudsters still act without fear of repurcussion. From the Times article:
[The lack of law enforcement] has allowed more than 30 episodes in which at least 1,000 Bitcoins -- or $1 million at the current rate of exchange -- were stolen or transferred illegally, according to a frequently updated list on the most popular online forum for Bitcoin. Of those cases, 10 involved losses of more than 10,000 Bitcoins, or $10 million at the current value. The authorities have only been publicly involved in one of these cases.Hard to justify bitcoin as a major player in e-commerce or as anywhere near the store of value of silver when scammers can operate with this much impunity.
2. Its essentially impossible to bet against bitcoinFortune magazine's Stephen Gandel spent a good amount of his time this week attempting to short Bitcoin. Gandel, a very smart financial mind, couldn't figure out a reasonable method to achieve the trade.
Traditionally, a short trade requires shares to be borrowed from a current owner. Besides the fact that no mechanism to allow borrowing exists, would you be comfortable letting digital cowboys borrow your money in the Wild West?
Gandel was able to buy put options, derivative contracts that did allow him to bet against a rise in bitcoin value, but the costs involved with executing the trade didn't make economic sense. The trade would have lost money even if the value of a bitcoin plummeted 55%! Hard to justify losing money when a price moves 55% in your favor.
Does this sound like the silver market to you? Me either.
3. The entire bitcoin market is vulnerable to a complete shutdownWould you consider illegal drugs as a viable investment? Drugs are in demand, and as the War on Drugs raging on, the product is in short supply.
But the economics don't matter in that example because of government intervention. Your entire investment could be scooped up by the DEA at any time (and also, there is the whole legality/jail time issue).
The same is true of Bitcoin. With the Chinese government all but banning the currency from mainstream adoption, a significant portion of the market is wiped out overnight. The New York Times estimated that about 30% of global bitcoin purchases come from China.
The supply and demand implications of this fact are huge! The supply of Bitcoins is essentially fixed (not technically, but close enough for this point). Overnight the demand side declines by 30% based on the decision of just one government. With no inherent value, the downside risk to Bitcoin prices are absolutely tremendous.
What happens if and when the U.S. government changes from its current "watch and wait" policy? Or European Union states? Or Japan?
Thanks for the effort, BofA, but no thanksBank of America should be applauded for attempting to stay ahead of the curve. Unfortunately, this report provides no real value to investors or even bitcoin speculators. The assumptions built in are simply erroneous at this point in bitcoin's evolution.
Perhaps time will prove me wrong, but for now I won't be buying any bitcoins and I'll only be buying tulips for Mother's Day.
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Is Bitcoin Turning Into Gold?
The staggering rise of Bitcoin to over $1,000 has raised the debate over this four-year-old virtual currency. Some compare it to PayPal, a global online money transfer company, owned by eBay (NASDAQ: EBAY ) . Others compare it to gold.
But are these comparisons justified? Does Bitcoin resemble PayPal or gold? Should you consider investing in this currency? Let's examine the following points before you consider doing anything with Bitcoin.
Is Bitcoin the new gold?The recent spike in Bitcoin's price has most likely been driven by speculative investors. But this type of behavior isn't new and resembles the movement of highly volatile investments such as gold. Gold investors tend to use SPDR Gold (NYSEMKT: GLD ) as an indirect investment in gold. Up until the past couple of years, the price of gold and SPDR Gold soared.
In the past several years, the Fed's decision to purchase long-term assets (also known as quantitative easing 1, 2, and 3) has reduced confidence in the U.S. dollar, which may have contributed to the strength of both gold and Bitcoin.
In the past year, however, the price of gold has declined as investors' concerns over the depreciation of the dollar have diminished. Moreover, the sharp rise in the cost of holding gold has also reduced the attractiveness of gold as an investment. The drop in demand for gold has also been reflected in the sharp decline SPDR Gold.
Since the beginning of the year, its gold hoards fell by over 37%. Moreover, investing in such an ETF, which follows the price of gold, has several downsides, including commission, lack of dividend, and unlike Bitcoin, the fact that gold can't be used as a currency. On the other hand, Bitcoin can be used to purchase services -- mainly online.
Bitcoin, much like gold, has a cap on its physical growth. Within the past year, Bitcoin's circulation grew by over 14%. Currently, there are roughly 12 million Bitcoins worldwide, and the cap is 21 million. After this cap is reached, no more Bitcoin will be created.
But until that point is reached, Bitcoin's market continues to expand. In the meantime, a wider circulation only drives the price of Bitcoin higher, because more people are using it as a currency. So if anything, the virtual currency, much like gold, acts like a Giffen good.
Therefore, Bitcoin has some similarities to gold: It may serve as a hedge against the devaluation of the dollar, and they both act to a certain degree like a Giffen good. But Bitcoin might be used not only as an alternative investment, but also as a mechanism to buy services and products online. So, is Bitcoin more like PayPal?
Is Bitcoin the new PayPal?In recent years, many of the transactions on eBay have been done via PayPal. Much like PayPal, Bitcoin serves as an alternative to credit card and electronic check payments. The virtual currency is also slowly gaining acceptance from legitimate Internet sites, including Redit and Baidu.
Nonetheless, the issue of Bitcoin's level of security is still a problem -- there are still reports of Bitcoin heists. One of the differences is the level of security PayPal's service has compared to Bitcoin. PayPal, which generated more than $1.6 billion of revenue in the past quarter alone, has ample resources to invest in improving its security. Besides security, the level of acceptance of Bitcoin will remain the key issue as to whether it will continue to extend its reach.
If the U.S. government doesn't accept Bitcoin and deems it illegal, Bitcoin's upward trend could be halted. That doesn't mean the currency will disappear; it could keep growing in other countries, but this would certainty impede the currency's progress. The recent U.S. Senate hearing on Bitcoin has had some positive effect on Bitcoin -- this hearing has raised the chances of the U.S. accepting the virtual coin's validity.
The U.S. isn't the only one coming down on Bitcoin; China has also decided to outlaw the currency from its banks. So, if we don't know what's ahead, how can we value Bitcoin?
Valuation problem and high speculationsThis new currency is likely to draw speculators, and the price is likely to experience big swings. But until it reaches an equilibrium, how would you value it? Shares in the Bitcoin Trust reached a net asset value of $42.44 at the end of November -- a rise from $12.88 when the fund was launched. Some have tried to examine its valuation with respect to other similar companies and commodities. But I think the valuation of this currency will remain unclear; any attempt to predict it will be moot. If the U.S. eventually accepts Bitcoin's validity, demand for Bitcoin will obviously increase.
For now, you may consider Bitcoin like a currency of a small country with a very unclear future. Would you consider investing in this country's currency?
TakeawayThe meteoric rise of Bitcoin might leave you wanting to enter this endeavor, but bear in mind, the currency's value is solely based on the public's acceptance and confidence in it. Currently, it seems there are too many unanswered questions to estimate this currency's future. Thus, this highly volatile currency might be too uncertain to invest in.
But are these comparisons justified? Does Bitcoin resemble PayPal or gold? Should you consider investing in this currency? Let's examine the following points before you consider doing anything with Bitcoin.
Is Bitcoin the new gold?The recent spike in Bitcoin's price has most likely been driven by speculative investors. But this type of behavior isn't new and resembles the movement of highly volatile investments such as gold. Gold investors tend to use SPDR Gold (NYSEMKT: GLD ) as an indirect investment in gold. Up until the past couple of years, the price of gold and SPDR Gold soared.
In the past several years, the Fed's decision to purchase long-term assets (also known as quantitative easing 1, 2, and 3) has reduced confidence in the U.S. dollar, which may have contributed to the strength of both gold and Bitcoin.
In the past year, however, the price of gold has declined as investors' concerns over the depreciation of the dollar have diminished. Moreover, the sharp rise in the cost of holding gold has also reduced the attractiveness of gold as an investment. The drop in demand for gold has also been reflected in the sharp decline SPDR Gold.
Since the beginning of the year, its gold hoards fell by over 37%. Moreover, investing in such an ETF, which follows the price of gold, has several downsides, including commission, lack of dividend, and unlike Bitcoin, the fact that gold can't be used as a currency. On the other hand, Bitcoin can be used to purchase services -- mainly online.
Bitcoin, much like gold, has a cap on its physical growth. Within the past year, Bitcoin's circulation grew by over 14%. Currently, there are roughly 12 million Bitcoins worldwide, and the cap is 21 million. After this cap is reached, no more Bitcoin will be created.
But until that point is reached, Bitcoin's market continues to expand. In the meantime, a wider circulation only drives the price of Bitcoin higher, because more people are using it as a currency. So if anything, the virtual currency, much like gold, acts like a Giffen good.
Therefore, Bitcoin has some similarities to gold: It may serve as a hedge against the devaluation of the dollar, and they both act to a certain degree like a Giffen good. But Bitcoin might be used not only as an alternative investment, but also as a mechanism to buy services and products online. So, is Bitcoin more like PayPal?
Is Bitcoin the new PayPal?In recent years, many of the transactions on eBay have been done via PayPal. Much like PayPal, Bitcoin serves as an alternative to credit card and electronic check payments. The virtual currency is also slowly gaining acceptance from legitimate Internet sites, including Redit and Baidu.
Nonetheless, the issue of Bitcoin's level of security is still a problem -- there are still reports of Bitcoin heists. One of the differences is the level of security PayPal's service has compared to Bitcoin. PayPal, which generated more than $1.6 billion of revenue in the past quarter alone, has ample resources to invest in improving its security. Besides security, the level of acceptance of Bitcoin will remain the key issue as to whether it will continue to extend its reach.
If the U.S. government doesn't accept Bitcoin and deems it illegal, Bitcoin's upward trend could be halted. That doesn't mean the currency will disappear; it could keep growing in other countries, but this would certainty impede the currency's progress. The recent U.S. Senate hearing on Bitcoin has had some positive effect on Bitcoin -- this hearing has raised the chances of the U.S. accepting the virtual coin's validity.
The U.S. isn't the only one coming down on Bitcoin; China has also decided to outlaw the currency from its banks. So, if we don't know what's ahead, how can we value Bitcoin?
Valuation problem and high speculationsThis new currency is likely to draw speculators, and the price is likely to experience big swings. But until it reaches an equilibrium, how would you value it? Shares in the Bitcoin Trust reached a net asset value of $42.44 at the end of November -- a rise from $12.88 when the fund was launched. Some have tried to examine its valuation with respect to other similar companies and commodities. But I think the valuation of this currency will remain unclear; any attempt to predict it will be moot. If the U.S. eventually accepts Bitcoin's validity, demand for Bitcoin will obviously increase.
For now, you may consider Bitcoin like a currency of a small country with a very unclear future. Would you consider investing in this country's currency?
TakeawayThe meteoric rise of Bitcoin might leave you wanting to enter this endeavor, but bear in mind, the currency's value is solely based on the public's acceptance and confidence in it. Currently, it seems there are too many unanswered questions to estimate this currency's future. Thus, this highly volatile currency might be too uncertain to invest in.
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Who is Sotashi Nakamato - the founder of Bitcoin?
- 17 days ago November 26, 2013
Is this Sotashi? Traders have placed this pic on 'I Am Satoshi Nakamato' T-shirts. Picture: Supplied Source: Supplied
IT IS one of the mysteries of our time. Who or what is 'Satoshi Nakamato'? And just what are they up to?
The Japanese name is the alias of the founder of Bitcoin, the virtual currency that's got the internet abuzz. But his, her or their real identity is unknown.
Although we imagine he or she looks something like this. Picture: Thinkstock Source: ThinkStock
But just as the currency started to become popular, Satoshi disappeared, announcing it had "moved on to other things".
"That's part of the allure of (Bitcoin)," said former Australian Federal Police agent and security expert Nigel Phair explained. "No one knows who or what it came from".
Bitcoin explained in five words: Money generated by computer codes. Picture: AP Source: AP
The mystery has become a key part of the Bitcoin myth but now we finally might be a step closer to Satoshi's true identity. Everything you ever needed to know about Bitcoin
THE MEN WITH NO NAMES
This week Satoshi was linked to another mysterious figure with a pseudonym - Dread Pirate Roberts.
DPR founded the Silk Road, the secretive online marketplace for drugs and other illicit products which exclusively used Bitcoin as its currency.
What is Bitcoin?
Cheat Sheet | Agencies | Updated: November 29, 2013 12:34 IST
Here are five things you need to know about Bitcoins:
- What is Bitcoin? It is a digital currency that is created and exchanged independently of any government or bank. The currency is generated through a computer program and can be converted into cash after being deposited into virtual wallets. In 2008, a programmer known as Satoshi Nakamoto - a name believed to be an alias - posted a paper outlining Bitcoin's design and later in 2009 released software that can be used to exchange Bitcoins using the scheme. That software is now maintained by an open-source community coordinated by developers.
- How does Bitcoin work? It exists through an open-source software program and its supply is controlled by a computer algorithm. Once you download and run the Bitcoin client software, it connects over the Internet to the decentralized network of all Bitcoin users and also generates a pair of unique, mathematically linked keys, which you'll need to exchange Bitcoins with any other client. One key is private and kept hidden on your computer. The other is public and a version of it dubbed a Bitcoin address is given to other people so they can send you Bitcoins. The process of generating Bitcoins is quite complicated and involves solving complex algorithms and sharing the solution with the entire network. The "mining" is very computationally intensive and requires powerful computers..
- How to transfer Bitcoins? When you perform a transaction, your Bitcoin software performs a mathematical operation to combine the other party's public key and your own private key with the amount of Bitcoins that you want to transfer. The result of that operation is then sent out across the distributed Bitcoin network so the transaction can be verified by Bitcoin software clients not involved in the transfer.
- How to trade Bitcoins? Exchanges like Mt. Gox provide a place for people to trade Bitcoins for other types of currency. Payments to a merchant who accepts Bitcoins are made from the wallet application, either on your computer or smartphone, by entering the recipient's address, the payment amount. At the end of August 2013, the value of all Bitcoins in circulation exceeded $1.5 billion with millions of dollars worth of Bitcoins exchanged daily, according to Bitcom website.
- Who controls the Bitcoin network? It is controlled by all Bitcoin users around the world. While developers improve the software, they can't force a change in the Bitcoin protocol because the virtual currency can only work correctly only if there is a consensus among all users.
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