Gundo Money on Bitcoin

math-behind-bitcoinI have a bit of a confession to make…I love to gamble my money away playing poker. I go to Vegas around three times a year and generally spend more money playing than I make. The last time I visited Vegas my friend wanted to use a Bitcoin ATM. At the time I didn’t know much about Bitcoin. I had heard the sound bites on the news about it being a bubble but that was the extent of my Bitcoin wisdom.

It seems rather fitting to have Bitcoin readily available in a place like Vegas. Just as your odds of winning money fluctuate wildly, the day to prices of Bitcoin have been known to fluctuate wildly. So far, it hasn’t been a run away success currency due in part to people’s mistrust of it. We certainly fear what we don’t know and the older generation of fund managers and investment gurus tend to shrug at the mention of “cryptocurrency,” “P2P,” or “blockchain.”

As a young money writer I consider it my duty to get the conversation started about virtual currencies, how they can help/hurt, and what to do with them.

What is Bitcoin?

Bitcoin is essentially a digital currency. You an use it anonymously, trade it anywhere in the world, and exchange it at any time for cash. Unlike traditional fiat, it doesn’t have to go through a bank. In this way it is truly peer to peer. It’s the Uber or Airbnb of money.

A software developer once tried to explain to me how bitcoins are exchanged and created on the web. After the explanation I sort of stared at him with this space cadet look. I fancy myself to be a smart woman but I am not a computer scientist. Here’s the promotional video to simplify it for you

How to use them

One of the main selling points of BTC is that it can be transferred anywhere, regardless of country or region. We don’t usually think of our fiat currency as being regional but it really is. Years ago in the U.S. different states and even different cities had their own currency and trying to convert those currencies was a big problem. In theory BTC solves that problem on  a global scale.

If you don’t have to transfer your currency through a third party like a bank it frees you from the old fee structure we know well. Imagine being able to send money to someone in belgium with a couple clicks. That’s what BTC seeks to do.

So far it hasn’t been easy for BTC in finding merchants who will actually accept it. Time.com reported last year that some big companies like Dell and Paypal were now accepting BTC. The web software on which I am now typing, WordPress, even accepts it now. The thing is, they aren’t accepting BTC itself they’re actually accepting cash and the BTC gets run through a third party website that converts it to cash and vice versa.

Having BTC ATMs around could help solve the problem but I would venture to guess that people don’t want to hassle with it. They want to use their credit card and go. I think this calls for some new company to develop an easy BTC payment system. Like a BTC debit card that you can just swipe. Easy.

For now Bitcoin lovers might have to move to Berlin, which has one of the highest concentrations of merchants accepting BTC. Anyone speak German?

The Value of Bitcoin

Coming back to my Vegas trip, we approached the Bitcoin ATM on the gaming floor of The D (formerly Fitzgerald’s). The screen of the ATM read 1BTC= $460. My friend was very excited about this development, as Bitcoin had been trading around $200 just three months earlier. In fact, last July BTC was trading around $250. Today it’s at $674. I’m sure my friend is very happy he bought $1,000 worth of BTC when it was low.

The media has been critical of the radical price swings of BTC and with good reason. No one will trust a currency that doesn’t hold value well. After all, I’m not going to buy bitcoins if I think they’re overvalued. I’d much rather just use cash. It sort of goes back to this idea of deflation: if people think the price of a good will go down tomorrow they will put off buying it. The trouble with BTC price fluctuations is, much like stock market fluctuations, most of us don’t know what an overvalued or undervalued price looks like.

Still, the investor in me is intrigued by any commodity that has the potential to trade 200% higher in just one year. I do a lot of investment reading and I can hear the voice of Ben Graham saying “buy cheap and sell dear.” I have read other value investors who like volatile stocks because they can take advantage of the highs. If you have a sense of when to buy then you can come out on top, no matter how bubble-y it may be.

My Thoughts

It seems to me that Bitcoin is very much still in the realm of obscurity. A lot of young tech minds have embraced it just as they were the first to embrace Facebook and Twitter. That comes, I think, from a deeper understanding of how BTC actually works.

It’s tougher to embrace Bitcoin for the average joe because it’s our money at stake. No one wants to throw their money in a slot machine and no retailer really wants to put their trust in revenues from a currency that could be worth $300 less tomorrow.

My favorite aspect of Bitcoin is that it’s slowly becoming more scarce. New Bitcoin is created when transactions are verified by people called “miners”. When a transaction is verified by a “miner” a special string of code called a block is created. The miners are rewarded for their efforts by receiving free Bitcoin and thus new money enters the system.

After every 200,000 blocks or so the Bitcoin reward is halved, over and over again. Analysts believe new BTC creation will reach zero around 2140. That means that the currency is pretty much guaranteed to go up in value. As it becomes more scarce, the value will just go up and up.

Of course, there will be limiting factors to this. If no one trusts the currency then it may not even be around in 2140. We definitely have seen a lack of confidence thus far so it’ll be hard to tell if it’s going to catch on more than it already has.

My opinion is that BTC will stay around but it may not be embraced by the average citizen. Instead, it’ll exist in the world of finance as another security to trade. Banking should have particular interest in it since it’s so international and it’ll cut down fees a lot. If investors can figure out a good way to time the buying and selling, BTC could make a lot of money for them. Such prospects are exciting, after all who doesn’t want to make money from something that doesn’t even exist? Well, exists only digitally I suppose.

As the years go on more will be revealed to us about the practicality of BTC. It brings up for me how truly intangible and digital everything is becoming. For years, industry and governments have talked about cash becoming completely digital and this might be the first evidence of that beginning to happen. If cash were completely digital, would it fluctuate wildly like Bitcoin does? It’s hard to say. Without physical paper lying around t’s easier to see that the value of money is pretty much what people say it is.

In any case, this millennial is going to keep learning and listening and I shall report back to my readers what I find. Writing about money makes me want to go back to the poker tables and waste more of my money! If you didn’t catch my article Is Money Your Drug? I’d highly recommend it. Maybe I’ll go to Coinbase.com and buy some BTC and gamble my money that way.

 

 

7 Comments

  1. James says:

    Nice rundown of what Bitcoin is, its uses, and your thoughts on its viability for more widespread use. About a year ago I researched it and gave some thought to buying some Bitcoins. Ultimately I decided against it. However, I’m certainly interested to watch its progression … or regression.
    James recently posted…Soul Over Matter – A SavvyReviewMy Profile

  2. Elsie says:

    It’s funny, when I wrote this draft two weeks ago 1 BTC=$740. Then brexit happened and everything tanked. So clearly bitcoin is demonstrating its volatility.

    I can’t figure out exactly why bitcoin is so volatile because ostensibly it shouldn’t be. I think it just happens to be highly speculative and that may be the reason the price isn’t constant. Thanks for stopping by James!

  3. Kyle says:

    I enjoyed the piece, just a few typos and such. Do you have someone proofing for you? Other than that it was a good read! As someone who is tech say and enjoys investments and finance bitcoin has bee fascinating to observe. The volitility is the very reason I haven’t thought it a viable investment option.

  4. Rudy Cakes says:

    I get bitcoin through mining shares purchased online. A tiny bit of bitcoin and Ethereum coin land in my digital wallet every day. I have yet to buy anything. Just holding on to it for the long term to see what happens.

  5. Elsie says:

    Sounds like I need to hire you as a proofreader Kyle! Thanks for the thoughts

  6. Elsie says:

    That’s interesting I hadn’t thought about that option. I don’t know much about the mining. More research to be done in that area.

  7. Gail says:

    Bitcoins fascinate me. The recent issue with the bitcoins that were stolen from the Hong Kong market surprised me. I know they usually implement a lot of security for bitcoins and bitcoin tradings, so I was taken aback by the theft. It’s a very interesting concept to me. Thanks for the read!!
    Gail recently posted…Saving for Retirement? Discipline Yourself with a Self-Directed Retirement DietMy Profile

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