Most of us have heard about Bitcoin. Bitcoin is a digital currency alternative designed to facilitate online transactions between users providing a sort of currency neutral medium of exchange between buyers and sellers worldwide.
What it has turned into is a media circus and mechanism of speculative frenzy. With all the attention Bitcoin is getting, I decided do a little investigation in an attempt to shed some light for those of us who exist predominately in the real, as opposed to the virtual, world.
Before I get started, this “research” is entirely for fun at this point. While the Bitcoin concept will almost certainly have a role in the future of the world, right now this technology is relegated to “curiosity” status. Like Bigfoot, the currency is not accepted enough to assign Bitcoin research complete legitimacy (but maybe a reality TV show).
Money, or currency, has two functions. It serves as a medium of exchange and should serve as a store of value. So when evaluating Bitcoin, these are the standards.
First question, how do I get some Bitcoin? Like any currency in order to obtain Bitcoin we can exchange dollars from them, we can do something (i.e. work) for payment or we can sell something for Bitcoin.
Referring back to the curiosity observation, I was not willing to exchange some of my hard earned dineros for Bitcoin, so that left earning some or selling something.
In order to earn Bitcoin one must become a “miner.” Mining Bitcoin is complicated and involves committing some personal computing power and Internet bandwidth to facilitating the Bitcoin “collective” by dedicating the technology to processing transactions and tracking user value.
I have to admit, I did not have the patience for this. But my research partner, (i.e. my buddy Dan), was able to sort through this process. After the better part of a Sunday afternoon he proudly announced he was mining; he then announced he was earning Bitcoin so slowly that the process was “a waste of electricity.” OK, I’ll try option two.
I happen to have a one ounce pure silver coin stamped by some Nevada casino in my sock drawer. It seemed the perfect item to sell for Bitcoin, one alternative currency for another.
So I signed up for a Bitcoin wallet at one website, set up a Bitcoin store at another and listed my coin for sale in Bitcoin. And I waited. I listed the item two weeks ago; I still have it. Any eBay user knows my silver coin would have sold quickly for dollars, but no one wanted to offer Bitcoin for it. This makes me wonder if anyone is actually doing business in Bitcoin right now. Oh, and how much Bitcoin is my silver worth? .0181 Bitcoin. At this point, I’d rather keep the coin.
So as a medium of exchange I’m not impressed, how about Bitcoin as a store of value?
Well this is actually the reason Bitcoin is receiving all the attention. The dollar value of Bitcoin has been fluctuating wildly in a speculative frenzy. This week’s swing alone is about 20 percent up and down. While this might make traders and speculators drool, the currency is certainly not serving its store of value function well at this time.
Conclusion, while Main Street may be ready for Bitcoin, Bitcoin is hardly ready for Main Street. Maybe later.