Friday, November 25, 2011

Bitcoins

I have been following the raise and fall of bitcoin for a while now. If you have never heard of it, here is a quick video clip that introduces the concept: http://www.weusecoins.com/

Ideas of this kind are intriguing since they offer something better than statusquo. But governments are worried that if this gains traction, it may help drug trafficking, arms trading, and such outside the realm of established systems. For those who are uninitiated, bitcoin is a virtual currency proposed by a purported Japanese hacker named Satoshi Nakamoto (which is clearly not his/her real name) that could be created by running a computer program. So, if you like, you can download a program from the weusecoins site listed above, run it on your computer to generate this money. But as people allover the world "mine" this virtual money, the algorithm used to generate it becomes increasingly complex making more money generation difficult. So, by design generation is expected to plateau around $21 million. There are bitcoin exchanges where you can go and pay regular money to buy bitcoins (like you buy stocks) and the price of 1 Bitcoin goes up and down like a stock price. It went as high as about $30 for each bitcoin and then has fallen down to some $17.

 The interesting feature about bitcoin is that similar to cash (and unlike credit card or check based trasactions), once the "money" changes hands, it is not traceable. So, it has created strange bed fellows that include privacy advocates (that are against media and MNC companies tracing all our activities online to target us for more selling/advertising), counter culture population, business people, geeks to drug lords..! Since people can use bitcoins to pay for products and services online without allowing any law agencies or governments to trace them down, it has been a concern for governments.

There have been several concepts proposed on the web that never gained legs. The "internet time" proposed by Swatch could be cited as one such example. Checkout http://en.wikipedia.org/wiki/Swatch_Internet_Time if you have never heard of it. :-) But the idea of software generated currency that is hard to trace seemed to have gained some currency :-) and even has multiple variations now. See http://solidcoin.info/five-reasons-to-own-solidcoins.php for another example. Looks like some version or other of this virtual financial instrument is here to stay. It will be interesting to see if it tuns out to be a boon or a curse.

No comments:

Post a Comment