Thursday, May 14, 2015

And no, there are no actual coins....


     We are in an era when, if you are not careful, technology will race away from you, and you'll end up a befuddled person confronting a puzzling world of alien systems and incomprehensible institutions. Thus while I don't believe in giddily embracing every new development, in case it becomes popular, you shouldn't ignore the arrival of significant developments either, just because it takes effort to comprehend them.
     Thus the installation of this "Bitcoin" machine recently between the Jamba Juice and the FedEx on the second floor of the Merchandise Mart seemed the moment to pause, bite the bullet, and try to understand what Bitcoin is, and the best way to do that is by trying to explain it to you, assuming that, like me, up to this point you've kept the whole issue on the periphery of your perception. 
    Assuming I'm not that last person who hasn't yet grasped it. If you're buying your pizza and paying your mortgage in Bitcoin, well, laugh away. I haven't joined Uber yet either.
    It isn't as if I have no idea. Bitcoin is some kind of online currency. Though that is the limit of my knowledge, along with the recollection that the whole thing collapsed a while back, which can't be true, as testified by the arrival of this machine.
    So...let's poke around. 
   CNN Money describes Bitcoin this way: "Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures."
    Well, that is interesting. Its creator being unknown puts it in an elite group of technology—along with fire and the wheel, I suppose.
     So it's like cash, only online. You store it in a wallet in your device or in the cloud, and people have hacked them and stolen them. That said, what good is it? 
    The downside of the CNN Money description is that it doesn't seem to be accurate. Vox published an interesting account in December (only half a year ago, so I'm not lagging behind the curve that badly). Timothy Lee points out that while Bitcoin fluctuates like any currency, sometimes losing alarming portions of its worth against the dollar, despite CNN Money's claim, it actually is not quite a currency, but more of a new, unregulated open financial system, and so has enormous potential. Lee compares Bitcoin to the Internet:
     Because no one owns or controls the network, there are no limits on how people can use it. Some people have used that freedom to do illegal things like buying drugs or gambling online. But it also means there's a low barrier to entry for building new Bitcoin-based financial services.  There's an obvious parallel to the internet. Before the internet became mainstream, the leading online services were commercial networks like Compuserve and Prodigy. The companies that ran the network decided what services would be available on them.
    So what good is it besides buying drugs? Lee says they can do international currency transactions, that while Western Union charges 8 percent, that Bitcoin ATMs charge only 3 percent per transaction (on each end, meaning sending funds would cost 6 percent, and also painting CNN Money's "no transaction fees" as wrong—it isn't as if Malaysia Airlines is their only embarrassment ) an improvement, though hardly worth braving the uncertainties of the Bitcoin world, at least right now. (He also mentions the ATM's were launched in late 2013, and by 2015 there were some 329 of them).
     I explored the glowing orange machine screen, but it seemed to only work if you already had an account, and given that it accepts only $20s and $100s, I didn't quite see the point of pumping big bucks into it just to then try to find a vendor who would take the Bitcoins my money would become. Where's the benefit in that?
     I don't want to merely echo Lee's analysis, you should give it a read. The takeaway is that Bitcoin is to financial networks what Uber is to taxi services: an unregulated, technology-driven twist that might work spectacularly—as Uber has so far—or might crash and burn. The question is whether all that regulation is necessary. My hunch is, given how screwed up our own economy has been—thank you banking industry—that people going into Bitcoin in a big way are going to miss those legal protections.
     Right now, it seems only really useful to those who want to buy drugs online—that wouldn't be me. As for its other uses, I'm not exactly an early adopter. Maybe some of you have some Bitcoin experiences you'd like to share. I think I'll wait, then maybe find a place that accepts them that has something I wish to buy.  Investors have poured some $500 million into it, so somebody thinks it has potential. 

34 comments:

  1. Bitcoin is ridiculous. Some of the companies involved have been frauds, such as Mt. Gox.
    There's a limit to how many Bitcoins there can be, so if it were to succeed, people would be spending miniscule fractions of them, but real money has no limit.
    There are people "mining" Bitcoins [that's what they call making new ones], but it takes multiple computers that use immense amounts of power & those computers are mostly water cooled & I believe many are in Iceland, a country not noted for its financial acumen, which makes it all worse.
    My guess is that it all will go the way of Flooze, another internet fraud that failed around 15 years ago.

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    1. I couldn't remember the way the Mt. Gox name came about. It means "Magic: The Gathering Online eXchange", which is from one of those idiotic card games like Dungeons & Dragons.
      That's the mentality of Bitcoin users & promoters.

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  2. some hookers take them.

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  3. I'll stick with the dollar, thanks.

    JP

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  4. Maybe they can underwrite the new casino - there's a win-win baby!!!

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  5. With the mess in Chicago, Rahm should have his head examined to have wanted to run again.

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  6. Important invention. If Bitcoin doesn't take off, something similar will. Fiat money is soo last-century. I have a small percent of my investment funds in Bitcoin. Anyone who places all their fatith in governments' credit is a fool.

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  7. 2 1/2 years ago there was no real 'tracked' value. It went from that to being 'worth' $1200/unit a year later and now is about $250. It seems to be a bit too manipulated/volatile for the average person to trust as a store of value at this point, besides the fact that it's a limited supply (as mentioned above). Some of the early miners still hold large stores of them worth billions.

    I'll wait for the Amero.....

    RC

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  8. There is an "Amero " It's called the U.S. Dollar, and I have very little faith in its long-term value.

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  9. Bitcoins I don't need to understand, but thinking about the "elite group of technologies" with origins we know nothing about is of interest. The ancients had a way of dealing with such uncertainties: by creating Gods they personified. In the case of fire--or, more specifically, its usefulness in metalworking -- it was Hephiastes (Roman: Vulcan). Although he was useful to the other Gods, notably by forging their weapons, he had a somewhat chequered career on Olympus, being kicked out by daddy Zeus on one occasion for interfering with his philandering.

    He was said to be married to Aphrodite. Who was, of course, Hot.

    Tom Evans

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  10. Phillipe, don't let the Chinese scare you. You can rely on the American dollar.

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    1. I'm not scared of the Chinese, at all. I embrace international commerce. It's American politicians and technocrats that scare me. I have no faith in them.

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  11. Tom, that's clever. Reminds me also of my hs mythology class.

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  12. Seems to me the downside potential of funny money outweighs the upside opportunities, unless of course you're interested in express money laundering services. And if big banks decide to jump into the pool, watch out for a giant financial tsunami.

    john

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  13. I'll sure hate it if those "gold, nothing but gold" uber tea party Constitutionalists end up having been right.

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  14. Tea party= grimace.

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  15. I suspect there is a large overlap between BitCoin enthusiasts and those advocating for a return to the gold standard (which I try to politely refer to as "tin-foil-hat-adjacent").

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  16. I think one of the big problems people have with BitCoin is how the ephemeral nature of this currency is right out in the open -- it's only worth something because enough people choose to act as if it's worth something. This is true of currency in general, but in this case the lack of an underwriting nation-state or a backing financial institution lays that aspect bare in alarming fashion. It's not as if all those ones and zeros in the servers of the major financial institutions are any more "real" than BitCoins, but when you say "bank" most people still picture a building and not a server farm; it's harder to imagine a building just vanishing into thin air than it is to picture a computer crashing and losing all your ones and zeros.

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  17. Most of the posters here have no idea what they're talking about, merely projecting their political biases on a cryptographic computer application that they don't understand. Encyclical is almost right, in that all currency is only worth anything because users believe it is. As a 25-year-plus professional currency trader, I see Bitcoin as an important innovation that is probably a lot closer to what we will be using in the future than national fiat currencies.

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    1. A few adjustments to the way credit/debit cards work and we'd be free of the national currencies, for better or worse.

      john

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  18. Well excuse those who haven't had 25 yrs. experience in currency trading, PHillipe. How arrogant indeed! Who made you judge and jury? I suppose you are an expert on most things. I didn't know this blog was only for "experts" on the matter at hand.

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  19. I'm still waiting for Robbie the Robot to comment. I figure he's the real expert.

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    1. Robbie the RobotMay 15, 2015 at 7:36 AM

      Yes, I am an Ex-Pert. My Perting days are over. I have no need for tender, legal or cyber. Nor tenderness. Shit, I can't even have sex, just an occasional lube job! Oil Can! In that regard, I am just like Republican legislators and TV ministers, unless you count anonymous encounters they have in airport restroom stalls.

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  20. Arrogant people rule! For anyone interested in learning the basics of monetary theory, read "Money Mischief" by Milton Friedman, available at the Chicago Public Library. The fraud Mr. Clark St. refers to, stems from the use of unreliable third parties to clear transactions. For more accurate information visit the Bitcoin website.

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  21. Before we get too exercised about possible fraud in the use of online money transactions, we should focus on the actual fraud by the big banks who used real money transactions to perpetrate the biggest financial collapse in US history. Sure they paid big fines. And where did the actual (not virtual) money for those fines come from? Us. Who at Barclays, or B of A, or Citi, or Goldman, or any of the others, went to jail? No one.

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  22. Bitcoin: A completely unregulated financial system with units of currency created by computer algorithms no one can understand, subject to insane fluctuations for no reason at all, that could disappear tomorrow.

    Pass.

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    1. "That could disappear tomorrow". You mean kind of like your retirement account when the politicians can no longer resist the temptation to get their hands on it? I'll try not to laugh too hard when I'm on a beach in the Bahamas with a nest-egg on my flash drive.

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    2. And when you plug in your flash drive and the computer basically says "Huh?", and you're left with no way to pay for your daiquiris, I'm sure you'll find that equally amusing.

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    3. Never put all your eggs in one account. Bitcoin is just an alternate container for me.

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  23. Well said, Gary and Scribe.

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Thanks for commenting. As soon as I vet your remarks, they'll be posted, assuming they aren't, you know, mean and crazy.