I’m not a fan of Bitcoin, I think it’s nothing more than a virus masquerading as a fake money-making opportunity. I have felt this way for quite some time, and now that the price is dropping, others may be finally seeing it for what it is: a scam.
To understand Bitcoin better, I downloaded a Bitcoin wallet and looked at the mining process. So without getting too technical, Bitcoin is written in Java. You download a java program called a wallet to your computer and it connects you to other computers to allow you to trade in Bitcoins. If you engage in Bitcoin’s mining process, in which you trade computer resources for free Bitcoins, you can earn money, suppossedly. The problem with mining is that it costs more to extract the coin in terms of electricity and computer processing, than you make in coins.
The actual coins are data stored in the wallets. They can be trasferred from one machine to another as long as they obey the protocol. The interesting part is that there is no central database of coins or coinholders. Because the currency is a digital file that transfers from machine to machine, it is completely unregulated and uncontrolled. It operates completely anonymously.
So if it’s just a piece of data, what gives a Bitcoin it’s value? The short answer to that is: idiots. The ones who think it represents more than what it is, which is nothing more than a data transfer protocol. There is no inherent value in it, only that which like-minded people agree upon, and more often than not, like-minded people who are completely ignorant of what it really is.
I know that sounds kind of harsh, but I feel I need to be. Too many people are going to lose big money over Bitcoin. It caught on like Beatlemania and people jumped in with no idea of what they were really doing, just happy to be a part of it, often even confusing the ownership of the coins with ownership in the company, since it traded electronically like a stock. It was the nature of the electronic transfer and ease of trading that let it grow like wildfire, along with the idea that you were getting in on something.
One group of people were a little bit wiser about Bitcoin. These are the money-launderers and criminals who needed a way to move money around with the government knowing about it. Which government? Any government. In other words, no goverment control whatsoever. That means no taxes, no regulation, no safety net.
I’m not a big fan of taxes, they corrode everything they touch, but a system outside of government answers to no one, and when it comes to your money, this is a really bad idea.
All currencies are based on something, usually it’s the idea that the issuing government is able to manage the currency by collecting taxes and regulating the money supply. In reality, this is a pretty bad system too, but at least it is based on something. Bitcoin has air behind it. It is the all-time greatest hack/virus the world has ever seen.
The founder created a protocol, gave himself a million coins, then patiently waited as the foolish and suseptible drove the value up to $600 per coin. So he got $600 million in value at its peak, with no obligation whatsoever to the criminal underpinnings of the transactions, no responsibility to the drug money, the gun money, and who knows what else got moved around because of Bitcoin. He gets to walk away clean. My guess is that when Bitcoin hits zero, he will disappear quietly, with his millions hidden away in foreign bank accounts.
Bitcoin will hit zero, make no mistake about it. The currency has nothing behind it except the confidence of the limited number of people who trade in it. Now we are seeing that confidence shaken. When it hits a tipping point, the bottom will drop out. I think it’s coming sooner rather than later.