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A Clear, Concise Look at Bitcoin

  • bitcoin
June 15, 2011

Tags Money and Banking

BitCoin, the world’s “first decentralized digital currency”, was devised in 2009. Unlike other virtual monies it does not have a central clearing house run by a single organization. Nor is it pegged to any real-world currency yet it can be used to purchase real-world goods and services however it is also just as fiat as it is not pegged to any solid commodity.

Inflation is a central point for the next 20 years as 300 coins are mined every hour on average. “Every four years, though, the minting rate is set to fall by a half. It will drop to 25 coins per block in 2013, to 12.5 coins in 2017, and so on, until the total supply plateaus at 21m or so around 2030.” The very definition of inflation until the plan of their plateau becomes a reality perhaps 20 years hence. Ceteris paribus even though it never is.

The instability is also key at this moment as just this last Friday Bitcoin suffered a massive crash from falling from just over $32 to just over $10 for each Bitcoin. Congratulations to all of the profit takers. I expect more of the same due to this small and fragile market.

Not to mention a Bitcoin developer admitting that with sophisticated software the system is not so anonymous anyway and the Silk Road folks signaling their willingness to work with “authorities” if necessary.

Caveat emptor.

Update: More cause for concern, a half a million dollar hack. The original post.

Update II: Popular Bitcoin exchange Mt. Gox was hacked and the price dropped to mere pennies. That won’t be happening to gold unless alchemy turns out to be a reality.

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