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Bitcoins offer interesting conundrum

By From page B7 | January 19, 2014

I’m trying to remember; isn’t there some kind of athletic event on television later today? Oh, I know – it’s figure skating at 1 p.m. After all, wouldn’t most guys around here rather watch figure skating than the 49ers in a playoff game against the Seagulls, which is what a friend called them? I hope you’re reading this early enough in the day so you won’t be distracted by the game.

Now that I – hopefully – have your attention, let me talk about one of the strangest financial “ideas” I’ve ever heard.

If the classic book on the world of crazy investment bubbles that ended in disaster were being written today, this would be Chapter One. The book is “Extraordinary Popular Delusions and the Madness of Crowds,” which describes such feeding frenzies as the Dutch Tulip Bulb Scandal and the South Mississippi land wipeout of the 1700s. The current issue of Bloomberg BusinessWeek makes it a cover story, titled “Bitcoin Dreams.” It has a subtitle that asks, “Why are investors so crazy for an alternative currency invented by a phantom?”

If you’ve heard, or read, about Bitcoins, you’re either as amazed as I am, or, perhaps, wondering how you can get in on the action.

Let me relate the BusinessWeek explanation of Bitcoins to give you a better idea of what they’re all about: “Bitcoin is the digital currency that thrills nerds, inspires libertarians, and incites the passions of economists who debate the value of maniac money made from nothing but ones and zeroes.”

Well, you might ask, who issues and stands behind this new currency? For starters, Bitcoins are not a physical currency, like the dimes and dollars we are used to. If you’re not a technology type, you might wonder how a “currency” that exists only on the Internet can be accepted as if it were a good old $10 bill.

So, is Bitcoin actually used to buy and sell goods and services? Surprisingly, yes. According to BusinessWeek, “It’s accepted as payment by online dating service OKCupid, at a café in the Netherlands, and by Richard Branson’s Virgin Galactic.”

There are many questions about Bitcoin, such as:

  • Are they really serious?
  • Can you exchange them, if needed, for old-fashioned dollars and cents?
  • What are they ‘worth’?
  • Who invented them?

Yes, tech nerds are deadly serious, some devoting their waking hours to “mining” for Bitcoins on their powerful computers. They can be exchanged for greenbacks, to use an outmoded term, if you can find someone willing to take them. As for what they are worth, volatility is the operative word. The so-called value of a Bitcoin climbed from $100 last July to $1,000 in January.

If you have time on your hands, you can “mine” Bitcoins on your own computer if it has enough power. But, no matter if you mine Bitcoins and enter the world of regular users, it’s unlikely you’ll ever find out who “invented” them, or even from what country they spread.

Who knows, maybe Bitcoins are here to stay, but, if any of you owes me 20 bucks because you bet against me on the 49ers-Seahawks game, don’t try to pay me in Bitcoins.

Hmmm, maybe between this morning and the 3:30 p.m. kickoff in Seattle I can mine a few thousand dollars worth and bet on the 49ers. And Seattle, Then, I’ll win either way. Do let me know, however, if you’ve successfully mined enough Bitcoins to buy a new car, and found a local dealer to accept them.

Bud Stevenson, a retired stockbroker, lives in Fairfield. Reach him at [email protected]

Bud Stevenson

Bud Stevenson


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