Sunday, April 14, 2013

Bitcoin.


I’ve spent some time today reading/researching about a topic that never called my attention until now... bitcoin.

And it is funny I didn’t dig on the subject as this blog lately has been filled with economics topics among other things. Someone pointed to me that my blog has been showing how my mind has evolved...

Nevertheless, (I’m not going to argue about me evolving because I haven’t) I wanted to share some ideas about this bitcoin thing.

Currently we are living some kind of “gold rush” as the bitcoins prices are climbing... as any other currency, it has it’s ups and down; but the interesting thing is what actually bitcoin is.

Bitcoin is a “virtual currency”.

Somewhere in 2009, a hacker with a Japanese name had the idea of a decentralized currency. Ironic, since the financial crisis and all. Anyways, instead of a central bank, bitcoins are issued by anyone and everyone with a personal computer that is willing to. It is mined by solving cryptographic problems related with the transactions that are broadcast between the users; enforcing chronological order, protecting the neutrality of the network and limiting the amount of bitcoins available.


This is a very good idea as bitcoins are in and on itself a hybrid between commodities and fiat currency. Some have invested heavily in these bitcoins for various reasons... (some articles point at them as a shel to hyperinflation) and the prices are of the chart. A bitcoin now worth 99 (last week it went over 250 US$) and something US dollars.

But the point of this post is NOT go ahead and build/buy a mining rig by any means.... some people have been building mining rigs since 2009 when it came out and with every bitcoin mined, the harvest algorithm increase it’s difficulty exponentially; so today only CPU power is not enough to get a couple of coins...
Powerful gaming GPU’s are been used nowdays to build mining rigs..


but wait... what about the power cost?

Powerful gaming GPU’s are power hungry; and at this point, i’m sure it doesn’t worth to setup a mining rig as the processing power might be just too high... even if each bitcoin worth 100 bucks.

Now... what is the real relevance of this bitcoin thing?

Well.. one is obvious. NO BANKS INVOLVED.

And this is why I think this bitcoin phenomena will become determinant in the future... and let me explain.

Before... as in long time a go, money was gold (or silver... depending of the case). Some blacksmith became bankers as they had big vaults to save their minerals and the whole thing is history...

Today, every single currency in the world is fiat... which means is not backed up by gold or any metal... in fact, money worth nothing... but the trust people put in them. The US dollar stays valuable as long as people want it.

Now.... even if it is virtually produced, the mining process is hard and time consuming... so you can’t create a stunning amount of bitcoins just because... it is, by design limited... (theorical limit is 21 millions as far as I know); but been a virtual good means you can have it on your smartphone... (or usb drive) and encrypt it etc. etc... so nobody has to know you have it with you...and the means to exchange it are available to everyone with fairly cheap equipment.... your bitcoin wallet may be in the cloud too... think about it

they can’t steel it... yet is as portable as a buck (or a credit card), and hence is not centralized, it is controlled by everyone and no one.

As it is limited, and decentralized, no government or bank can devaluate it by “printing it out of thin air” and the total amount will stay fixed once it reach it’s theorical limit.

This is a very interesting concept; and I’m sure something like this will replace fiat currency in the near future.... but it implies other thing if you think about it... (more to come on another post)


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