Two and a half months ago, I heard of a start-up virtual currency called BitCoin. Back then, it had recently soared to a trading value of $22 to 1 coin, elevenfold what it was worth just a month before. Probably some kind of overhyped newcomer, I conclude.
A bit of research vindicated my cynical viewpoint and I decided it was a largely useless bubble that was going to burst anytime soon. Yes, you can use it to pay for your pizza at over one online pizza store(s), but this new virtual currency seemed like little more than the lovechild of an over-excited computer scientist and a curious economist.
Two months later, the practical applications of a BitCoin remain about as widespread as the WiiU, but what I failed to anticipate was the sheer momentum of a bandwagon, particularly when mass speculation is involved.
In the 1630s, the Dutch went nuts speculating on the seemingly innocent commodity of tulips. Fortunes were made and lost as the price of a bulb fluctuated from that of your average pretty little flower to that of your average country estate, and back down again. With speculation playing an equally key role in the price of a BitCoin, what’s to stop the virtual currency becoming today’s Dutch tulip?
Well, frankly, very little. Whilst the security system behind the storage of the coins is very clever, so are today’s hackers. If your booty gets plundered, you can’t do anything about it – much like if your newly acquired tulip bulb failed to flower.
What’s more, in the age of instant trading, the currency is even more susceptible to huge price swings. A few weeks ago, it fell from $260 to $160 over the course of an hour.
So, is this to say you shouldn’t try it out? Maybe I’m just bitter because my cynicism cost me a potential 900% return over 2 months, or maybe I’m hoping for it to fail because the Winklevi (remember the twins from The Social Network?) reportedly have a holding of $11million. Either way, let’s take a look at what BitCoins have to offer.
Its real strengths come from the smart coding behind the scenes. First off, it’s completely anonymous. The ‘transaction code’ is used once and immediately destroyed, and the links back to bank accounts are virtually untraceable. That means it’s absolutely ideal for giving your friends surprise birthday presents, or for drugs deals and money laundering. Your call.
Secondly, it’s completely untaxable. The ‘currency’ belongs in the mysterious world of the internet which, conveniently, is not under the jurisdiction of any particular government.
Finally, it’s unique. This is the first major foray into the world of virtual currency trading. Whether it will expand to become a significant presence in online retail is yet to be seen, and realistically it’s only a matter of time before a holding gets legally classified as a foreign bank account or equivalent. For now though, it’s untraceable, untaxable and unique.
So, what’s that worth to you? And, more importantly, what’s that worth to other people?