To paraphrase the old Beatles’ song – Bitcoins Can’t Buy Me Love
Ali Spagnola, a comedienne from the USA sent me a link to the 2 minute mash-up of 33 famous songs about money she created to celebrate Bitcoin, the digital, virtual currency that is trending all over.
It is described on the Bitcoin website as ‘an innovative payment network and a new kind of money.’ It’s outside the normal currency regulatory frameworks that govern global money and it has been causing quite a bit of controversy lately. We thought we’d give you a few pointers, in case you wanted to invest in some.
There is a pdf available describing ‘a peer to peer electronic cash system’ which discusses the problems with banking systems, trust and the internet. There is a simple guide to the idea on YouTube.
Pots of History
We introduced the topic in two MBF Blogs in March 2013 – Local Ticketless Technology Means the World Is Our Oyster, 13 March 2013 and again in May 2013 when we said this:
‘It is an online, virtual currency, designed to facilitate trading. It has no government or central bank to underpin it, nor gold reserves to back it up. Some observers regard it a sort of international ‘online cooperative.
To prevent more Bitcoins being ‘created’ to cause devaluation (no quantitive easing here), there is an upper limit of just 21 million. No more Bitcoins can exist than that.
The rules were apparently set out by a figure called ‘Satoshi Nakamoto’ in 2009. Very little data is available on that person or group of people. But, nonetheless, the creation is taking off. Scarcity drives up the value and price, just like gold. Users refer to ‘mining’ Bitcoins to liken it to gold.
If a hacker found a way of making more, the world would still know exactly who owns and where are the 21 million. They are tracked online. However, for the individual owner or speculator, if they were stolen, there is no Government-backed safety net scheme, such as the £85,000 protection limit covering approved British banking institutions.’
Mt Cox Is No Fort Knox
When the story broke that Tokyo-based Mt Gox, the bitcoin exchange had collapsed into bankruptcy with around $460 million dollars apparently ‘stolen by hackers; and a further ‘$27 million missing from bank accounts’ alarm bells started ringing.
Was the future of digital currency actually being terminated abruptly or was it a mere blip in the evolution of a global currency which would soon become the only way forward?
Robert McMillan writing in Wired explained it this way: ‘From a distance, the world’s largest bitcoin exchange looked like a towering example of renegade entrepreneurism. But on the inside, according to some who were there, Mt. Gox was a messy combination of poor management, neglect, and raw inexperience.’
McMillan suggested that it is probably incompetence and inexperience behind the problems, rather than fundamental flaws in the concept. ‘Bitcoin promises to give a bank account to anyone with a mobile phone, no ID required. It’s clearly an amazing and potentially world-changing technology — the first viable, decentralized, reliable form of digital cash. It could democratize international finance. But it’s also a technology that was pushed forward by a community of people who were unprepared or unwilling to deal with even the basics of everyday business.’
It may be that ‘a new wave of entrepreneurs may bring digital currency to a new level of respectability’ driven by financial experts rather than computer geeks and coding boffs.
A hack in 2011 cost Mt Gox almost $9 million which they made good, thus building a reputation for honesty and integrity which encouraged millions of new investors to pile in as the price of Bitcoins started to reach stratospheric levels. At the outset of 2013 they cost $13 and before the year end they traded at $1200 apiece.
Still Hot News
The news media flurried about a story in early March: ‘Police in Singapore are probing what they call the “unnatural death” of an American woman who ran a firm dealing in bitcoins and other virtual currencies. Autumn Radtke, 28, was found dead in her apartment in what local media say was a suicide, reports the New York Post. Officials are waiting the results of toxicology tests….’
On 7th March Newsweek magazine claimed to have tracked down Satoshi Nakomoto, the 64-year old Japanese-American living in Los Angeles. He declined to answer any questions beyond claiming that he no longer ‘had any connection’ with Bitcoin.’
There are sites mushrooming about Bitcoins, rather like there are about Facebook or Tesco or Apple. One that is stuffed full of Bitcoin stories is Bitcoinagile. There is also The Bitcoin News devoted to the currency.
Last autumn the Daily Mail got excited at the launch of a vending machine in a Canadian coffee shop that changes Bitcoins to Canadian dollars and vice versa moving funds to and fro a virtual wallet on people’s smartphones.
They were convinced that by the end of 2014 these robocoin ATMs will roll-out globally. They may be right, seems a reasonable prediction if teething problems are resolved and bitcoins gain traction and credibility and governments find ways of living with/regulating/taxing them satisfactorily.
But so does the one that I think – surely there will be other encrypted currencies that people choose to use, just as Google is the only search engine in the world?