Are Bitcoin's Better Than Gold? Crypto-Future of Trillion Dollar Digital Trading & Exchange?
London, UK - 30th November 2013, 10:45 GMT
Dear ATCA Open & Philanthropia Friends
[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]
The price of one Bitcoin -- a mathematically designed digital crypto-currency -- is now within a stone's throw of the price of a troy ounce of gold at more than USD 1,200 per unit. That marks a gain of over 5,000% from the USD 20 level at which Bitcoin was trading at the start of this year. At that time, not many businesses accepted the digital coins as actual currency. Since then, the currency has seen a boom that rivals the dotcom bubble of the 1990s. Demand for Bitcoin has been particularly strong in China, where the leading search engine, Baidu, now accepts the currency for certain services. As Bitcoin's value has grown, well-known Internet names, including OKCupid, Reddit and WordPress now accept the currency on their sites. Physical stores, including some Subway sandwich shops and some pizza shops let customers pay with Bitcoins instead of cash. Virgin Galactic, Sir Richard Branson's commercial space travel venture, has begun taking Bitcoins as payment.
Bitcoin versus Gold
Bitcoin has received a measure of support from top officials at the US Federal Reserve, including chairman Ben Bernanke, who said the currency "may hold long-term promise" as part of the international payment system. In the United States, lawmakers have been examining potential regulations for Bitcoin. Some proponents say government regulation would be a positive for Bitcoin, since it could lead to wider adoption of the currency. But others argue that Bitcoin is decentralised by design and governments should leave Bitcoin alone. The Nobel laureate economist Milton Friedman, once said, "I think the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash.”
Is Bitcoin becoming a de facto world currency in the digital economy? The privilege of anonymity that Bitcoin offers to its users -- given that it still remains aloof from government monitoring to a large extent -- has added merit to the currency. But there also remains the threat that the virtual nature of the currency may prevent it from gaining widespread commercial acceptance in the near future, though it may not be an entirely insurmountable barrier. Bitcoin owners have increasingly come to see the virtual currency as a viable alternative to paper currencies. This is reminiscent of the idea of competing currencies explored in detail by Austrian economist Friedrich von Hayek in his 1976 work, 'The Denationalisation of Money.'
Research into Bitcoin
Can Bitcoin ever be a hedge against inflation? More and more financial institutions and fund managers are approaching the mi2g Intelligence Unit about this cryptocurrency and others like it, and the mIU has been performing due diligence on Bitcoin, Litecoin, Peercoin, Namecoin etc researching issues such as encryption and looking at the open source code for more than six months. The dispersed location of Bitcoin exchanges -- with the largest Bitcoin exchange in the world being located in China, and not in the US -- and the usage of technology have added further complexity to the task of keeping tabs on the currency. The algorithmic program behind Bitcoin was created anonymously and introduced on the internet in 2010. Unlike traditional paper currencies, Bitcoins are a peer-to-peer currency not managed by a central authority -- such as a central bank -- and exist only in cyberspace as digital tokens with no intrinsic value other than the exponential effort it takes to mint new ones. Bitcoins are "mined" by powerful computers that solve complex mathematical problems. The total quantity of Bitcoins is capped at 21 million, and about 12 million are currently in circulation.
Why is stability not there yet? Bitcoin, which trades non-stop on the Mt Gox exchange and other online markets, has been extremely volatile. It rose to what was then an all-time high of USD 900 earlier this month, only to fall back to USD 500 in the span of 28 hours. Seasoned investors say Bitcoin is highly speculative at present and volatile, and should not exceed 1% of a portfolio.
"Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments!" - Leon Louw, Nobel Peace prize nominee. We agree with those sentiments both at ATCA 5000 and at the mi2g Intelligence Unit.
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