Blog Archives

Why the case for Bitcoin at $340 is not that crazy after all

Bitcoin Price Skyrocketing

Bitcoin price is currently over $350 per coin. The recent move far exceeds the previous highs of $266 seen in April. It appears that demand has been increasing in China.

Is this a bubble or is the price going even higher? The supply is very limited so bubble of not, I wouldn’t rule out $500 in the not too distant future. I will keep you informed of further bitcoin price moves.

Bitcoin Price Again Trading Above 200

In April of this year, Bitcoin hit an all time high of $266 per dollar. This was during the time of the crisis in Cyprus. If you recall, at that time depositors in Cyprus banks had trouble withdrawing money and ultimately some lost significant portions of their deposited funds.

At that time, as the Bitcoin price moved up, there was speculation that Russian depositors who used Cyprus to store money offshore, were now turning to bitcoin. After the crisis was resolved, the price declined more than 60%, falling below $100.

Since that time Bitcoin slowly recovered and began trading above $100. The price has since been trending upward with the price now $203.

Is Bitcoin headed for another crash or is it heading higher? Only time will tell, but I believe over time the trend has only been higher. The supply is very limited and Bitcoin offers an alternative to fiat currencies and is easily moved over the internet. It will be very interesting to see the price a year from now. Caveat: I own a couple of Bitcoins that I purchased around $100. I basicly bought them and socked them away, but I did so knowing the price could one day be closer to 10 than 100.

I believe the future of Bitcoin depends on more widespread adoption. That being said, transactions denominated in Bitcoins already number in the billions of US Dollars.

The Pros and Cons of Bitcoin

Yesterday I gave a very basic description of what bitcoins are and how they can be sent from one person to another. The obvious question is, “I have a credit card or paypal account, why would I need or want to use bitcoin?”

Bitcoin supporters argue it has several advantages over fiat currencies:

1) Since there is no intermediary between 2 parties, a transaction done in bitcoins has almost 0 in transaction fees. This is a big advantage for merchants, since credit cards generally charge fees of up to 2-3%.

2) There is no central bank or government controlling the supply of bitcoins. In the current economic environment with many central banks greatly increasing the supply of their currencies, some worry that eventually the purchasing power of their currrncy will be eroded by future inflation. Bitcoin creation is slow and gradual and the supply is ultimately fixed. No one can devalue bitcoin by vastly increasing the supply.

3) Bitcoins can be sent to anyone over the internet anywhere in the world virtually instantly.

4) Bitcoin transactions are virtually anonymous. What shows up on the ledger is simply the wallet ids of the parties and any one person can have multiple wallets.

What about the disadvantages of bitcoin? Detractors point to the following?

1) Because of the anonymity of transactions, bitcoins can easily be used for various nefarious activities such as money laundering, or drug dealing.

2) The value of bitcoins versus fiat currencies can fluctuate dramaticly over short periods of time. As a merchant, do you want to accept something as payment when its value is subject to high volatility? When I wrote yesterday’s article, 1 bitcoin was trading for $106-107. A little over 24 hours later 1 bitcoin fetches $111.

3) Since bitcoins exist in the digital world, they can be lost just like any data. Bitcoins are stored in digital wallets. If you have yours on your home computer and your hard disk crashes, without a backup, the coins are loss. If your spouse has a significant amount of the family’s saving in bitcoins and has never shown you the location of the wallet(s) and or passwords, the coins are lost. Of course, a bit of precaution and planning can eliminate these hazards.

After thinking about the above, if you decide to take the plunge, how can you obtain some bitcoins? Other than mining them, which at this point is quite difficult without specialized moning gear, they can be bought on an online exchange, the largest of which is Mt Gox.

You will also need a wallet to store your coins. Here you have 3 choices, an online wallet, a wallet that resides on your computer or a wallet on your android based smartphone (Sorry Iphone users, apple has decided not to allow any wallet app). A good guide to obtaining a wallet can be found here.

What does the future hold for bitcoin? At 4 years old, bitcoin is going strong. The current size of the bitcoin economy is estimated at over 1 billion USD and growing. However as the currency has grown in size and acceptance, so has government scrutiny, especially in the US. From the SEC, the IRS, the FBI to Homeland Security, many government agencies are looking for more regulation of bitcoin. I believe the coming year will see greater regulation of bitcoin. It will be interesting to see how the bitcoin community reacts and evolves under greater government regulation.

What is Bitcoin

Bitcoin is an electronic cryptocurrency. The origin of bitcoin dates back to 2008, when a paper written by Satoshi Nakamura laid out the design for the new currency.

How does bitcoin work? Bitcoin is a digital peer to peer electronic currency. In other words, people can receive and send bitcoins to and from anyone on the network. There is no central authority or intermediary involved. Whenever a transaction takes place, it is broadcast to the entire network, and added to an electronic ledger known as the blockchain.

As the blockchain grows and transactions are verified, new bitcoins are generated. When the bitcoin network was first launched, new bitcoins were generated at the rate of 50 coins per block. This rate is halved every 4 years until it finally reaches 0 in the year 2140. At that point there will be 21 million bitcoins in existence.

The process of creating new bitcoins is known as bitcoin mining and involves solving extremely difficult mathematical problems. This difficulty increases over time. Some enthusiastic miners have created mining rigs that are devoted solely to mining coins. There are even companies now which sell nothing but bitcoin mining gear, such as Butterfly Labs. With bitcoins currently trading at $106 per coin, you can understand the attraction bitcoin mining has.

Tomorrow I will discuss the pros and cons of bitcoins, how they can be obtained and what the future may hold for bitcoin.

%d bloggers like this: