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Yesterday, I received an email from a friend with a plaintive questions: what is Bitcoin? She is hearing about it and is intrigued!

Bitcoin makes an appearance in Day Trading For Dummies, I’ve done work on it for some clients, and I even have blog posts on it. The fact that all of a sudden it’s in the news is alarming.

At the simplest level, Bitcoin is nothing more than a made-up currency. It’s unclear who started it, which is part of the problem. There’s a fixed number of Bitcoins out there, each of which is a different serial number (not an actual coin, so it works the same way as when you transfer electronic money to and from the bank rather than actual cash), and the number is uncovered through a series of increasingly difficult equations. The people who write the programs to solve the equations are known as miners, and there’s quite a bit of computing power involved.

The Bitcoins themselves aren’t particularly interesting, except to people who go down weird rabbit holes of conspiracy theory about the money supply. (And there are some real weirdos in the bitcoin world.) The thing that has the JP Morgan Chases of the world paying attention is the system used for making sure that each Bitcoin transfer is secure yet anonymous. That’s the so-called blockchain, which is a type of electronic receipt. It keeps track of every transaction using a Bitcoin, but not who made it, and the thought is that it may be applicable to a lot of transactions – it could be a better way to track money transfers, or music downloads, or patient records, or things like that.

I’ve never figured out the advantage of a Bitcoin as a currency – there isn’t really a need for another currency, you know? One argument is that Bitcoin isn’t tied to any particular government, but in a world where money is easily exchangeable, it’s not like that’s much of an issue. Some people who are into Bitcoin get excited about some aspects of currency economics and think they have discovered something new, but it’s covered in undergraduate economic programs. It’s not a big secret how money operates, it’s just that most people haven’t had a reason to think about it. If the US were to fall into civil war or nuclear conflagration, we would have much bigger problems than what currency to use. (We would use bottled water and batteries to trade.) And then you start getting into the craziness.

So that’s really it. Bitcoin is in a bubble – the exchange rate is going up because people see that it is going up and they want in. They aren’t using it for transactions, but rather to trade more Bitcoin. It’s classic bubble behavior.

I actually own some fractional amount of Bitcoin that someone gave me as a joke. The fee to exchange it would be more than the Bitcoin itself, even at the inflated prices. see the benefit of the blockchain technology, but the Bitcoin itself seems too much like monopoly money.

So, what is Bitcoin? If you have to ask, you really need to run away.