Is this the future? And what are bitcoins anyway?
According to an article in the Washington Post
Bitcoin is an online currency that allows people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit card issuers or other third parties. As a result, this exotic new form of money has become popular with libertarians as well as tech enthusiasts, speculators — and criminals. Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next.
One has only to look how money has changed over time: wampum, coins, precious metals, paper and electronic transactions to name of few of the forms, to realize that a bitcoin or something like it would be the next evolution. The bitcoin has been hovering around the edges of my consciousness for a while, but then I read about Hiawatha Bray’s using the new bitcoin ATM at Boston’s South Station.
The ATM at Boston’s South Station snatched the money from my hand and didn’t even give me a receipt. But my smartphone’s green glow let me know I had just invested $5 in the world’s most controversial, questionable, and exciting new currency, the bitcoin.
The machine, which is the first of its kind in Boston, was officially plugged in Wednesday morning — right next to Pinkberry — and began spewing bitcoins, virtually.
“You can think of it as Internet cash,” said Chris Yim, cofounder of Liberty Teller, the Boston company that operates the new bitcoin ATM. “This is just a more secure way of buying things online.”
The five-year-old currency is not backed by any central government, but can be spent just like dollars in a small but increasing number of places, including some local restaurants and the popular online retailer Overstock.com.
Bitcoins are stored by users in so-called digital wallets, and each coin has a unique online address. Transactions are managed by thousands of computers linked in a worldwide network, helping to ensure their integrity.
There is also the benefit of privacy. While purchases are shared with the entire network, creating a permanent record, users don’t have to personally identify themselves — the same way someone handing over cash at a register doesn’t have to provide the clerk with a name. The hackers who stole millions of credit card numbers from Target during the holiday season would have a much tougher time cracking the bitcoin code.
OK. Sounds interesting. If you are worried about your credit card information being stolen at Target, while making an online purchase, or even buying fries at McDonalds you might want to switch to cash for face to face transactions. But then you can get your pocketpicked, your purse stolen or left behind and you can’t cancel cash as you can a credit card. Bitcoins may be the future answer.
Bitcoin’s promise of anonymity has proved attractive to criminals. It was the favorite currency of the now defunct outlaw website Silk Road, a global trading post for illegal drugs and worse. But now much of the bitcoin action comes from legitimate — and greedy — financial speculators. They have helped drive the value of a single bitcoin from a few dollars in 2011 to as high as $1,242 in November. Since then, it has plummeted, and as of Wednesday the price was about $630.
Unfortunately, your new currency may be worth less than you thought, thanks to the rapidly shifting value of bitcoin. Last week I spent $100 for 144 millibits. Ten minutes later it was worth only $97.61.
Kind of like stocks which fluctuate in value. But since it is like cash, it would be difficult to know exactly how much money you have to spend.
And then this happened. Mt. Gox, one of the big names in the bitcoin world collapsed and filed for bankruptcy. The Washington Post explains
It’s not entirely clear what happened to the Tokyo-based exchange, which has sometimes been criticized for poor security. It suffered a crippling theft in 2011, and several experts have since accused the exchange of ignoring warnings about a software glitch which could enable hackers to silently drain the business of its bitcoins. The glitch was recently fixed, but not before Mt. Gox imposed a ban on bitcoin withdrawals, feeding speculation that the exchange was out of money.
Those fears appear to have been confirmed late Monday when bitcoin enthusiast Ryan Selkis posted an 11-page-long “Crisis Strategy Draft” allegedly leaked by a Mt. Gox insider. The draft appeared to show the exchange secretly trying to grapple with the loss of more than 740,000 bitcoins over several years — a titanic sum several times the value of its assets.
Some people are said to have lost all their money. American prosecutors are looking into the bitcoin world. According to the New York Times
…American prosecutors are stepping up their inquiries. Prosecutors in the United States have issued subpoenas to several other digital currency companies, including Mt. Gox and the Internet Credit Union, based in New Brunswick, N.J., and one in Japan, said several other people briefed on the matter.
Prosecutors hope to better understand how money is transferred in the digital realm and converted from dollars to Bitcoin. The people briefed on the matter said they would not be surprised if authorities subpoena other companies and institutions involved in money transfers.
It remains to be seen if all of this will mean the end to the bitcoin or if it is just a hiccup. One thing is pretty certain however – eventually there will be an electronic currency. Which bring us back to the little girl who got bitcoins from the toothfairy and Hiawatha Bray who are both still looking for someplace to spend them.
But most consumers aren’t ready for bitcoin. They’re frightened by a currency whose value can fluctuate wildly from hour to hour. Besides, what can they buy with it? Few retailers accept bitcoins, even though they could save a fortune on credit and debit card fees and offer customers greater security.
South Station’s ATM will certainly thrill passing geeks, but it’s the nearby merchants who will really decide the fate of virtual money. When I can spend my freshly purchased bitcoins at the yogurt stand next door, I’ll become a true believer.
Cartoon: Dan Wasserman for the Boston Globe
I doubt that retailers want bitcoins that much. Sure, they want their customers’ money by any means available, but those value fluctuations are a problem. If the currency can devalue by few percent in a few minutes, they may lose more than in credit card fees – unless the plan is to sell the bitcoins immediately during the transaction.
The fluctuation in value is one of the major problems to be overcome by any new currency that gets introduced. That is why, according to my limited knowledge, having a country back a currency can help stabilize it.