Is bitcoin currency ‘worse than tulip bulbs?’


VIRTUAL MONEY — Standing as the most independent
form of currency, investors take risky measures as they claim
bitcoin to be the next profitable opportunity. (LifeWire)

If you’ve recently heard much about the business world, the term “bitcoin” may have come across your radar one time or another. As of Monday, bitcoin reached its all-time high value of $11,773.83, according to CoinDesk. Former Fortress hedge fund manager, Michael Novogratz, predicted on CNBC’s “Fast Money” it could easily reach up to $40,000 by the end of 2018 while also being “the biggest bubble of our lifetimes.”

Across the globe, bitcoin has become the most popular virtual currency that allows people to buy goods and services and exchange money without involving the government, banks or other third parties. Also known as a cryptocoin or generally cryptocurrency, it was simply created by intensive mathematical algorithms and monitored by millions of computer users called “miners.” While there is nothing tangible to collect, this form of digital currency, composed of numerous lines of computer code, holds monetary value.

Serving a questionable origin, it was initially used by hackers so they could purchase illegal drugs online. However, it has become popular among current speculative investors.

Bitcoins are of high interest because they serve similarly to measures like stocks. Recoded on CoinDesk, their value fluctuates significantly. While its price can start at $11,000 in the beginning of the day, it can quickly dip down to $9,800 later in the day.

Additionally, bitcoins attract other groups of individuals, such as libertarians, tech enthusiasts and even criminals since transactions can be made anonymously. Up to a certain extent, transactions and accounts can be traced, but the account owners are anonymous. But in the future, when bitcoins are converted to regular currency, investigators may be able to track down the owners.

There are two general reasons why bitcoin is appealing to individuals. People can use it as currency or an investment to store value. While some businesses have transitioned to accept the bitcoin trend, such as Overstock, its popularity is still nothing compared to cash and cards. Other major companies, such as Amazon or Wal-Mart, will likely never accept bitcoins for payments especially considering regulation barriers.

The digital currency is ultimately a matter of debate. Some high-profile banking executives disagree upon it as JPMorgan Chase CEO Jamie Dimon has called it a “fraud” and being “worse than tulip bulbs.” Billionaire Mark Cuban has also expressed his remarks, as he told Vanity Fair that it is acceptable to invest as much as 10% of savings in high risk investments (such as bitcoin). Cuban essentially proclaimed that individuals should perceive it like they have already lost their money. It is no different than throwing “the Hail Mary.” Tony Robbins, a well-known business strategist, told CNBC’s “Fast Money” that investing in bitcoin is “like going to Vegas.” Individuals should only bet on what they can afford to lose. It’s a profit to win, but if not, at least only the discretionary funds were lost.

On the other hand, other big names on Wall Street have engaged in the bitcoin trading. Embracing the virtual currency include individuals such as co- founder of Fundstrat, Tom Lee and value investor Bill Miller, who is running a fund with about a third of its assets in bitcoin.

The security of bitcoin is also a skeptical issue as it merely relies on a trust system. The network is structured by tech-savvy users (miners) who keep the technique honest by contributing their computing power and IT skills into a blockchain, a global running tally of every bitcoin transaction. This blockchain prevents disrupters from spending the same bitcoin twice and miners are rewarded for their efforts with additional bitcoin. As long as miners act as internal control within the blockchain, counterfeit bitcoins should not be an issue.

An advantage to bitcoin is that it can be stored offline on a personal hardware, also known as cold storage. This protects against theft of the digital currency, acting as a personal “safe.” Conversely, known as hot storage, the currency can be stored on the internet where there is a high risk of it being stolen. A major issue with the bitcoin is its “virtualness” such that if the hardware that stores an individual’s bitcoins is damaged, the currency is simply gone forever. Up to $30 billion in bitcoins were estimated to have been lost or misplaced by miners and investors.

A controversial implication with bitcoin is its lack of government enforcement. By transferring the power of monetary value from central federal banks to the general public, a decentralization results in bitcoin accounts that cannot be monitored by government officials, so this encourages behavior in the black market.

Overall, as bitcoins bypass government control, central bank access and monetary banking systems, they appear as a threat to high-end government officials in charge of regulation. Bitcoins are changing the value of the physical dollar as they are designed to put the control of personal wealth back into the hands of individuals. As packages of complex data with virtual value, bitcoins are their own independent currency. With this in mind, bitcoin tractions are irreversible. Conventional payment methods (such as credit card charges or personal checks) do have the benefit of being insured, reversed by the bank or having the freedom to cancel a transaction. With bitcoins, once a trade is made, the result is finalized with no form of records.

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