Tuesday, January 23, 2018
Story of The Year: The Astonishing Rise – and Implications – of Bitcoin

WASHINGTON, D.C. Dec. 22 (DPI) – It’s easy to get mesmerized by CNN’s obsession with Trump. And all that, you know, National Hype Over The National Jerk.

But The Jerk is not the Story of The Year. That award goes to the crypto-currency known as Bitcoin.

Bitcoin, as most of us now know, has increased in value about 14 fold against the USD this year; in recent days it’s reached a nearly 20x run-up. That would amount to a speculative frenzy for any asset – but it’s truly nuts for something that exists, quite virtually, on our computer screens.

It’s possible the 2017 run of Bitcoin will end soon, ruining many speculators, and this whole story will get rushed into business school texts as the world’s first truly global financial bubble.

Or perhaps Bitcoin is just beginning its run.  Whatever the case, it is something well worth watching, something to watch instead of The Jerk.

The story of Bitcoin is less than a decade old, and its impact is already earth-shaking: It’s a completely unregulated and uncontrolled store of value, a bit like gold only less bulky and apparently easier to trade. It’s value fluctuates wildly, but the supply of Bitcoin remains the same.  Quite apart from Bitcoin’s volatility and unpredictability, those who speculate in it (you don’t call such people ‘investors’) still face serious risks, including theft of their dealer’s account via hacking.

The presence of Bitcoin is beginning to have political implications: Authorities in China, who have been screwing small Chinese investors for years by forcing them into low-yielding state banks, want to ban trading of Bitcoin; the attempts at prohibition only make the independent currency more popular there.

In a sense Bitcoin is thumbing its nose at the established order: Nations with currencies and central banks and M1 and M2 and massive tax-collecting and regulatory bureaucracies. Suddenly the borderless trading of Bitcoin explains why leaders like Trump and Putin are friends: Both share an interest in presiding over their sovereign nations, however different they may be; an uncontrollable global asset and medium of exchange is a real threat.

Clearly Bitcoin is on the rise. At some point soon, Bitcoin will begin to be used in the US and Europe for ordinary purchases.  In a nod to its growing popularity, major securities exchanges are creating derivative products based on Bitcoin.  Pretty soon there will be Bitcoin accounts at your local bank.

In a notable side-effect, it turns out that Bitcoin and its Blockchain data structure requires lots of computer power, which means lots of electrical power. Right now, the global Bitcoin trading environment calls for electrical power roughly equivalent to the power demands of Denmark. In a year or two, it might be the equivalent of Germany.

Does that mean an energy producer like Exxon or a utility like Duke Energy will have every motivation to see Bitcoin grow? You can bet they’ve already held meetings about it.

Of course, corporations have nothing to do with the origins of Bitcoin. Bitcoin’s presence –  and the Blockchain architecture underlying it – are the handiwork of the global community of open-source software developers. You know, the nerds who never left home, who helped get Linux and other open applications up and running, guzzling Red Bull while working 40 hours straight in front of their monitors.

There’s mystery too. Bitcoin’s founder is a someone who goes by the Japanese-sounding name of Satoshi Nakamoto, but whose actual existence can’t be verified – by anyone.  The inventor of Bitcoin the crypto-currency is Nakamoto the crypto-person; Wikipedia though has plenty of nerdy speculation on who Nakamoto may actually be.

In the early years Bitcoin was dismissed as a beyond-the-law medium, apparently used by drug dealers, say some authorities, but who knows? That shady reputation is giving way to legitimacy in a hurry.  Bitcoin is a blip on various web sites like coinbase.com. Bitcoin, as a currency, is not yet there with national currencies as a true medium of exchange.

But Bitcoin’s disruptive implications, especially its impact on sovereign nations that try to control their citizens and their currencies, are wonderful to consider:  Bitcoin is a completely super-national currency free from the the supply manipulations of central banks, which have a bad habit of either printing more of their currency, or arbitrarily changing the price of the stuff – i.e. rising and lowering interest rates.

As Bitcoin stabilizes and becomes a reliable store of value, there will have to pressure on states’ currencies,  which may impact tax revenues, national economic activity, trade regulation, and weaken central banks. The political implications are truly seismic.

In some respects Bitcoin is less important than the technology innovation that underlies it. As everyone knows, digital information – you know, stuff on your computer – can be modified, changed, monkeyed with. Not surprising that many of us have regarded skeptically the integrity of digital information, from our first logon. All photos, after all, can be Photoshopped, and every text can be changed or deleted.  Yes, bank balances are generally accurate, and stay accurate, but that’s only because your bank goes to great lengths to keep its ledgers intact – and secure from hackers and outsiders.

“Mr. Nakamoto” – whoever he is, or they are – came up with an open-source code that essentially makes data unchangeable, in a so-called blockchain, which fixes data in a sequence that cannot be modified except by the entire community. As the data-chain grows, it becomes virtually impossible to modify, at least in theory. (Of course there are already claims of “insider trading” of Bitcoin.)  And all that computing power, as mentioned, is sucking up a shocking amount of electricity.

In any case Bitcoin is popular because it keeps going up in value – or at least it has been. But it has plummeted 25% in value just in the last 24 hours.

With its wild gyrations, and its growing legitimacy in the face all attempts to discredit it, Bitcoin is just beginning the disrupt our world. And it will get more interesting in 2018.





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