Monthly Archives: March 2013

Bitcoins

Bitcoins are a relatively new form of currency incorporating aspects of cryptology, networking, and economics. For a more in depth understanding, check out this link off of Hacker News.

Bitcoins offer a mix of unique options. Their use is secured like other monetary transactions, but they’re also anonymous, as each bitcoin transaction is linked to unique public bitcoin key.  Furthermore, bitcoins are governed by an open source algorithm, not a government, meaning that they cannot be arbitrarily created or destroyed, affecting the economy due to policy initiatives.

It can be difficult for people to accept that something that has no intrinsic value can work as a currency. While there are lots of fiat currencies, those currencies are often enforced by a government (Federal Reserve Notes must be accepted by law in the United States).  But if enough places begin to accept bitcoins, and many websites are, their value will continue to grow.

The real question right now is whether the meteoric rise in bitcoin value is part of a bubble or not.  Of course, since the value of any currency is based on what people’s perception of the currency is, as well as what you can buy with it, calling it a bubble is pretty easy; bitcoins’ value is of course artificial, there’s no denying that.  The beginning of the rise in bitcoins’ value occurred when more websites started to accept bitcoins as payment. Whether the improved liquidity of bitcoins warrants their value at close to $70/coin is a more difficult question. I know I’m not buying any bitcoins right now, but knowing whether speculators will move out of the bitcoin space in the near future is almost impossible to tell.

Still, this is a very interesting topic, and if you want to learn more, I would check out the bitcoin subreddit as well as bitcoin.org.