Reuben Goldberg
New member
Anyone using the BitCoin?
The Basics of Bitcoin
Bitcoin is a completely unregulated form of currency developed by an anonymous Japanese programmer (according to some apocryphal claims) as a completely digital, peer-to-peer payment system that is independent of national currencies (which, Bitcoin users argue, are all subject to the riskiness of the underlying country).
Bitcoins are rewarded throughout the day to a "Bitcoin miner" whose computer solves a series of algorithms quicker than other miners.
The puzzles become more difficult over time, so the calculations take longer and the computations require more computing power.
There will eventually be a total of 21 million Bitcoins (12.4 million are in circulation today) and we won't reach the point that they are effectively "mined out" until 2040.
The value of a Bitcoin is supposed to be market-driven, meaning they're worth whatever the two parties in a transaction value them as.
For example, in one of the original Bitcoin transactions, a "miner" bought two pizzas worth $25 for 10,000 Bitcoins. (The deal of a lifetime for the pizza seller -- as of this writing, those Bitcoins are worth $6.6 million.)
But as Andreessen admits in a New York Times article, "at this moment ... the value of Bitcoin currency is based more on speculation than actual payment volume." (In full disclosure, he later admits, "it is equally true that that speculation is establishing a sufficiently high price for the currency.")
Of course, euphoric speculation like this never lasts. As with the housing bubble's collapse and the dot-com bubble before it, Bitcoin prices are sure to drop -- a fact that should give one pause when considering whether or not to dabble in Bitcoins.
But There Are Even More Reasons to Think Twice
Economist Bryan Caplan recently speculated on reddit.com that if Bitcoin continues to grow in popularity, reaching the point that it begins to threaten national currencies, regulators will likely begin to crack down on Bitcoin.
There's already government suspicion. In October, the FBI shut down Silk Road (a popular Bitcoin marketplace), arguing that the website was facilitating transactions of illegal drugs and illicit goods and services. Then last month, the CEO of BitInstant (another Bitcoin exchange) was arrested on money laundering charges. If Bitcoin continues to be associated with crime, its popularity will fade.
It's for this reason that Bitcoin is effectively banned in Russia and China -- and more countries are likely to follow.
Of course, there's also the question of how to acquire (and eventually sell) Bitcoins. eBay's (EBAY) Paypal is "cracking down on Bitcoin sellers," according to Entrepreneur. Fidelity's (FNF) customers were briefly permitted to invest in Bitcoin trusts -- but the company has since withdrawn that ability. There are dozens of fixed-rate exchanges, but many are based abroad, so the security of your transaction isn't necessarily a guarantee.
And it's unlikely you'd be successful mining your own Bitcoins. The computers needed to run the calculations cost as much as $11,000 each, and it's difficult to locate data to mine. (Of course, that price is for a good rig. A cheap, hobbyist mining rig ... that's entirely doable too.) According to TechCrunch, it would take you "over three years to generate any coins," and by then, "the energy cost and equipment deprecation will eventually cost more than the actual Bitcoins are worth."
The Basics of Bitcoin
Bitcoin is a completely unregulated form of currency developed by an anonymous Japanese programmer (according to some apocryphal claims) as a completely digital, peer-to-peer payment system that is independent of national currencies (which, Bitcoin users argue, are all subject to the riskiness of the underlying country).
Bitcoins are rewarded throughout the day to a "Bitcoin miner" whose computer solves a series of algorithms quicker than other miners.
The puzzles become more difficult over time, so the calculations take longer and the computations require more computing power.
There will eventually be a total of 21 million Bitcoins (12.4 million are in circulation today) and we won't reach the point that they are effectively "mined out" until 2040.
The value of a Bitcoin is supposed to be market-driven, meaning they're worth whatever the two parties in a transaction value them as.
For example, in one of the original Bitcoin transactions, a "miner" bought two pizzas worth $25 for 10,000 Bitcoins. (The deal of a lifetime for the pizza seller -- as of this writing, those Bitcoins are worth $6.6 million.)
But as Andreessen admits in a New York Times article, "at this moment ... the value of Bitcoin currency is based more on speculation than actual payment volume." (In full disclosure, he later admits, "it is equally true that that speculation is establishing a sufficiently high price for the currency.")
Of course, euphoric speculation like this never lasts. As with the housing bubble's collapse and the dot-com bubble before it, Bitcoin prices are sure to drop -- a fact that should give one pause when considering whether or not to dabble in Bitcoins.
But There Are Even More Reasons to Think Twice
Economist Bryan Caplan recently speculated on reddit.com that if Bitcoin continues to grow in popularity, reaching the point that it begins to threaten national currencies, regulators will likely begin to crack down on Bitcoin.
There's already government suspicion. In October, the FBI shut down Silk Road (a popular Bitcoin marketplace), arguing that the website was facilitating transactions of illegal drugs and illicit goods and services. Then last month, the CEO of BitInstant (another Bitcoin exchange) was arrested on money laundering charges. If Bitcoin continues to be associated with crime, its popularity will fade.
It's for this reason that Bitcoin is effectively banned in Russia and China -- and more countries are likely to follow.
Of course, there's also the question of how to acquire (and eventually sell) Bitcoins. eBay's (EBAY) Paypal is "cracking down on Bitcoin sellers," according to Entrepreneur. Fidelity's (FNF) customers were briefly permitted to invest in Bitcoin trusts -- but the company has since withdrawn that ability. There are dozens of fixed-rate exchanges, but many are based abroad, so the security of your transaction isn't necessarily a guarantee.
And it's unlikely you'd be successful mining your own Bitcoins. The computers needed to run the calculations cost as much as $11,000 each, and it's difficult to locate data to mine. (Of course, that price is for a good rig. A cheap, hobbyist mining rig ... that's entirely doable too.) According to TechCrunch, it would take you "over three years to generate any coins," and by then, "the energy cost and equipment deprecation will eventually cost more than the actual Bitcoins are worth."