OP-ED CONTRIBUTOR
Much Ado About Bitcoin
By ADRIAN CHEN
Published: November 26, 2013
FOR the obsessive followers of the volatile virtual currency bitcoin, the price of a single bitcoin at the time their fixation began holds undue significance. I know one bitcoin cost around $9 when I first stumbled on it in the summer of 2011. That was before I single-handedly sent the price of bitcoin soaring.
I wasn’t trying to manipulate an underground economy. I was just doing my job as a blogger for the website Gawker when I broke the story of the online underground illegal drug market Silk Road, on which bitcoin was the only accepted currency because of its relative anonymity. The article went viral and introduced hundreds of thousands to bitcoin.
Senator Charles E. Schumer, Democrat of New York, helped, too. During a news conference a couple of days after my article was published, he called bitcoin “an online form of money laundering.” I suppose a lot of people thought that sounded pretty cool. The price of bitcoin surged to $14.
Huh, I thought, maybe I should buy some bitcoin.
But I didn’t, and as of this writing, one bitcoin is worth around $880. Senate hearings held to discuss regulating bitcoin earlier this month were “lovefests,” according to The Washington Post. Abroad, Chinese investors are flocking. Bitcoin seems on the brink of respectability.
Still, there’s a zaniness about the currency. Bitcoin is built on a weird mix of the most old-fashioned kind of speculative greed, bolstered by a contemporary utopian cyberlibertarian ideology. Boosters say that bitcoin is the currency of the future. I’d argue that the phenomenon is a digital gold rush perfectly emblematic of the present.
Some of bitcoin’s appeal comes from the fact that it does not physically exist. Each bitcoin is just a string of numbers. Instead of a bank, a decentralized network of computers ensures the authenticity of bitcoin and issues new ones by doing complex calculations. This allows bitcoin to be traded peer to peer, bypassing credit card companies and payment processors. It’s digital cash, offering the same relative anonymity and freedom as a paper sack of bills. WikiLeaks began accepting bitcoin donations in 2011 in order to bypass PayPal and credit card companies, which had frozen payments to the organization.
The WikiLeaks episode hints at the utopian promise built into bitcoin by its creator, a mysterious programmer called Satoshi Nakamoto, whose identity is a subject of dispute and intrigue. The ideas behind bitcoin can be traced to a 1988 tract called the Crypto Anarchist Manifesto, which loftily predicted a future where anonymity-protecting technology made state control of the market impossible. Everything would be for sale to anyone all the time, 100 percent tax-free. Many of bitcoin’s hard-core fans see the currency as a revolutionary step toward this anarchocapitalist wonderland.
I’m skeptical. I don’t think we’ll all be paying in bitcoin for tickets to Kanye West’s 2024 presidential victory tour. You can’t use bitcoin for much today besides gambling in online casinos and reserving seats on Virgin Galactic spaceflights, and a vast majority of it is held by speculators. Even with the imprimatur of government regulation, the promise of bitcoin seems to end with helping online retailers avoid credit-card processing fees. Bitcoin is mainly innovative in the way of credit default swaps: new ways to gamble with money.
Bitcoin is most interesting on an emotional level. Its sheen of technomagic has let uber-rational geeks treat the casino-floor frenzy as a serious technological story. Tech blogs breathlessly track the price of bitcoin. Each new business that accepts bitcoin is heralded with the fanfare of a despot opening his country’s borders to a new, previously outlawed luxury. The drumbeat suggests that getting rich is as simple as being an early adopter.
So many have bought in because the Internet is very good at stoking the fear of missing out. There’s even a trendy acronym, FOMO, to describe the anxiety inspired by scrolling through the social media accounts of people having more fun than you. Bitcoin fosters a particularly potent brand of FOMO. Recently there was the story of the Norwegian 20-something who discovered that his long-forgotten bitcoin, bought for basically nothing, was worth so much that he traded some of it to buy an apartment. Bitcoin holders have taken to posting screenshots of their swollen accounts. I know a guy who bought a few hundred dollars’ worth of bitcoin as a sort of joke years ago. Now he’s made enough to buy a nice car.
All I can say is that the crash is going to be great. Bitcoin is too dependent on speculative mania to be of practical use as a currency. But as a symbol of the misguided dream that one can tap into the global data stream and download riches like a pop song, it’s gold.
Adrian Chen is a freelance journalist and an editor at The New Inquiry.
COMMENTS:
MillyBitcoinAtlantic CityNYT Pick
It is a bubble on top of volatility on top of a steady increase. Just because the price is in a bubble at the moment does not necessarily mean the who thing is a bubble or it is going to crash to nothing. the media likes to cover the anarcho-capitalist angle while the investors and innovators see it as fixing a broken payment system.
Nov. 27, 2013 at 8:15 a.m.RECOMMENDED8
CapelaavaBangkokNYT Pick
The original thought to use bit coins a a a form of payment and avoid many fee associated with at has up to this point failed. At is inception in functioned in that way especially on sites such as Silk Road. Now it is to expensive to be used for payment purposes. It has become a speculative type of commodity and the commodity is "dreams with nothing behind except the next person buying it. A form of 'Ponzi"
It is at $864 per BTC now. More than apple or goggle stock. You can lose or gain dramatically in a single day. One day the Chinese will be hit hard and the price will drop hundreds of dollars in 1 day. Ponzi, stock, commodity, dreams, gambling, greed, foolishness. adda few more adjectives if you want. The more expensive it gets the harder it will be to sell . Risking 10 bucks BTC is not like risking $900 per BTC. Who can continue to play the game at that price.
Nov. 27, 2013 at 8:18 a.m.RECOMMENDED25
Fintan CostelloIrelandNYT Pick
I'm not organised enough to use BitCoins: if I bought any I would surely lose track of the keys identifying them at some point. However, I don't think BitCoin is going to have a significant crash. This is because BitCoins have at least 2 sources of value: speculative value (someone thinks "I'll buy BitCoins now because they will go up in value and I'll be able to sell them at a profit later") and intrinsic value (someone thinks "I'll buy BitCoins now because I want to buy something illegal, and with BitCoin I can do that without being traced"). The more effective enforcement and tracing procedures for standard currency becomes, the greater the intrinsic value for BitCoin will be. Since it is hard to imagine these enforcement and tracking procedures becoming less effective in the future, it is clear that BitCoin's intrinsic value will rise. Since BitCoin's intrinsic value will rise in the future, by this reasoning, BitCoin will continue to have a speculative value in the future also (people thinking "I know BitCoin's intrinsic value will rise in the future, so I'll buy some now and sell them at a profit later").
Nov. 27, 2013 at 9:36 a.m.RECOMMENDED6
Jeff BNYCNYT Pick
Truly, we must be living in that dystopian future predicted in so many bad sci-fi novels when people take Bitcoin seriously.
Their leading exchange (MT.GOX) was originally a trading platform developed to sell online Magic the Gathering cards (it really does stand for Magic the Gathering Online Exchange). Not real Magic The Gathering cards, mind you but their online facsimiles!
The curious thing about the rise in the price of Bitcoin is that it's major use (buying narcotics via the Silk Road) is impossible now because the FBI shut down the site and arrested its founder for soliciting the murder of three people (paid, of course, through Bitcoin).
In addition to the fact that it can no longer be used to buy narcotics, the various exchanges are no longer able to cash out Bitcoins into US dollars or are limited in doing so. Mt. Gox and the other sites have difficulty cashing out into USD. So all you can do with your Bitcoins is...buy more Bitcoins (and keep the price soaring upwards with miniscule amounts of trading).
At this point, in order to get your money out (you know, so you can pay bills and buy food) I guess if one wishes, you could go to Vancouver and use the ATM some bitcoin fanatics installed in a coffee shop to transfer their bitcoins into an actual useful currency.
In the end, maybe people will learn that rampant and hype-fueled speculation based on something without any social utility is not a sound investment strategy.
Nov. 27, 2013 at 9:38 a.m.RECOMMENDED29
JP TolinsMinneapolisNYT Pick
In any speculative commodity or asset bubble, when they start writing about it in the NY Times, it's too late to climb aboard.
Nov. 27, 2013 at 9:38 a.m.RECOMMENDED60
William FairmanColumbia, MONYT Pick
Monetary instruments in the form of gold, US dollars, bit coins are all worth only what people will "pay." Your precious gold cannot be eaten and cannot be transported very far on your back, but it does have some intrinsic value as trinkets or a great conductor of electricity. US Dollars work as long as people the world over believe that the US Government will fulfill it's commitments and that our government will continue to transfer power peacefully and that our economy continues to hum. Bit coins have other virtues (especially for illegal transactions) and are worth what folks will "pay."
Anyone one who believes one form of currency is absolute in it's worth is fooling themselves. Every form of currency is a bet; some more volatile than others.
When dollars are valued in bit coins instead of bit coins valued in dollars, I'll be impressed.
In reply to karlostjNov. 27, 2013 at 9:51 a.m.RECOMMENDED22
David TroyBaltimore, MDNYT Pick
Yes, Bitcoin, as a currency and value store, will prove to be very volatile and yet another fad. However, to focus on *holding* bitcoins is missing the point. What's interesting is its transactional aspects. Bitcoin may be the future of digital transactions, which means it can potentially disrupt everything from Square, Paypal, EFT, ACH, banks, etc.
Consider developing nations, where banking infrastructure is poor or does not yet exist. In the same way that those places leapfrogged wireline technology and went straight to wireless, they can bypass banks and go straight to peer-to-peer electronic transactions using a smartphone. That's truly disruptive.
Nov. 27, 2013 at 10:14 a.m.RECOMMENDED19
Jameson LoppNCNYT Pick
Um, Bitcoin is not "too expensive" to use for payment purposes, as it is devisible to 8 decimal places. It's perfectly feasible to perform microtransactions via Bitcoin in amounts that equate to pennies.
In reply to CapelaavaNov. 27, 2013 at 10:14 a.m.RECOMMENDED9
CraigChelsea, NYCNYT Pick
Part of the system design is a controlled release of coins through mining up until a certain amount. After which, no more will be made.
http://en.wikipedia.org/wiki/BitcoinIn reply to William DavisNov. 27, 2013 at 10:38 a.m.RECOMMENDED1
JeffNew YorkNYT Pick
Unfortunately, the situations are exactly comparable. A limited supply of a commodity, demand growing to increase price, increasing price causing speculators to buy them to ride the increasing price, price rising above underlying value. Classic definition of a bubble. And they always have to crash. Something will happen to cause some big holders to sell, the price will start to fall, the bulk of the populace will try to get out before losing their investment and the crash happens.
The creators of Bitcoin guaranteed that result by limiting the total number that will be created. Unless they change their mind and remove the cap on Bitcoins, and allow the quantity to fluctuate, tulips and Bitcoins will forever be entwined it economic studies of completely unnecessary bubbles.
In reply to portwineboyNov. 27, 2013 at 10:40 a.m.RECOMMENDED15
CAMichiganNYT Pick
It's not at all clear why shiny rocks should enjoy a monopoly on value. I mean, I seem to have an amazingly easy time exchange these pieces of paper in my pocket for goods and services considering how worthless they supposedly are.
Gold is admittedly sometimes nice to look at, depending on one's taste, but what's the functional difference between a Bitcoin, a ”peice of paper”, and a shiny rock?
I will say, at this point, only one has a military, police force, and banking institutions to protect its value, and it's also the only one you can use to pay your taxes. That's about as real as money gets, even if it is "only" paper.
Constitutions and contracts are printed on paper too. Care to argue those aren't real either? Would you have us chisel them onto gold tablets before you concede their reality?
But, you know, if you're so convinced of the worthlessness of paper currency, I volunteer to take the inconvenient stuff off your hands free of charge!