Friday, November 1, 2013


This does not actually exist.
I was rather intrigued recently when I read a story of a Norwegian man who, back in 2009, purchased $30 worth of something called “Bitcoin” on a whim. He had forgotten the purchase but was recently reminded of it when he read about bitcoin’s increase in value. He decided to check into his “wallet” and found that his $30 worth of Bitcoins was now worth $850,000. He bought himself a nice house.

Bitcoin is probably the coolest thing you've never heard of but before you can understand bitcoin, you need to understand some monetary philosophy. Not long ago, we humans traded sheep, chickens, rope or other humans in exchange for material goods. Many societies found it cumbersome to stuff chickens in their wallets so they agreed that otherwise “worthless” bits of carved stone or metal would represent chickens and goats. Gold only has value because most of us agree it has value. A diamond is merely a refined carbon crystal but we can trade a carbon crystal for a nice lawn mower. Most of us agree that little slips of worthless paper, imprinted with government seals, have tremendous value. Then again, we sometimes collectively decide that the piece of paper is not worth much and give ourselves a “recession.” So “money” can be anything that is perceived to have value. The key word there is “perceived.”

Bitcoin is a new form of virtual currency made out of 100% pure math. Just like every other currency, Bitcoins have value only because many people believe they have value. Back in 2009, a Bitcoin could be had for pennies. Now each one is worth over $200. It doesn't even exist in the “real” world. Think of it as cash for the internet. Unlike cash or credit cards, bitcoin has no central controlling authority. There is no “Federal Reserve” that controls the value. There are no Big Banks that hit you with fees for storing them.

Just like cash in the real world, individuals can exchange bitcoins for goods with no middleman. Just like cash, Bitcoins allow for anonymous transactions. For example, if you want to sell your car and accept bitcoins as payment, you don’t pay any transactions fees as you would with a credit/debit card. The payment will go directly from the buyer’s digital wallet to the seller’s digital wallet. Using Bitcoin, you could sell stuff on your website without going through the hassles and expense of opening a Merchant Account with a bank.  

So the question becomes, “Is bitcoin something I need to be involved with now?” Maybe. The price of a bitcoin is wildly erratic at the moment. Governments, banks and anyone who is involved with the control of currency do not like this form of money because it may put them out of a job. Like any other currency, the illusion of the value of Bitcoin could evaporate tomorrow without a trace. I can only say that billions of dollars are going to be won or lost over the next 3 to 5 years. Stay tuned.


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