Wednesday, April 10

on money

So recently there's been a bit of a Bitcoin renaissance, bubble, or what-have-you.  I mined a little, myself, a year or two ago, and then kinda lost interest.  It was novel, I suppose.  But of course the news that they had gone from $30 to $200 each, in a about a week, got me thinking about the whole thing again.

It's an interesting concept, one big experiment in money from nothing and arbitrary value, which, as anybody can tell you, is pretty much how online economies work, whether it's official as in Second Life or unofficial as in World of Warcraft.  With Bitcoin it is more hidden even than in gaming - at least with WoW you know your illicit gold was some Chinese person or bot farming high-end monsters for hours on end, that sort of thing.  In mining Bitcoin you could be donating your processor time to hacking PGP hashes or brute-forcing somebody's Facebook password for all you know.  But the reality is much less glamorous - your computer is just guessing random numbers.

So it's doubly curious to me the sort of people who seem to be driving the recent demand.  Much like the way peoples' fear drives "investment" in gold, Bitcoin seems to offer Libertarian-types security, anonymity, and freedom from intervention by the government / the Fed / banking cabals. The process of "mining" guarantees scarcity and finite supply (the world has mined ~75% of the geometrically-approached limit of 21 million Bitcoins total, last I heard).  They're very open about the whole thing - the mining algorithm is intentionally similar to the decreasing returns of mining actual gold - so it's not a conspiracy or anything like that (as far as I know).  It's just so blatantly abstracted and artificial that you'd think even the folks taken in by diamonds or gold wouldn't trust it so easily.

I suppose currency is just a difficult concept for people, though it should be simple: money is only ever worth what other people are willing to give for it.  This is true whether it's chickens, seashells, dollars, Bitcoins, gold, gold-pressed latinum... whatever.  So Bitcoin (again like gold) is not a haven at all.  They're vulnerable to hacking and theft, traceable in a variety of ways, and (surprise surprise) still very much able to be affected by global banking trends (and Fed policy, and taxes, like any other currency-exchange capital gain over $200, I'm sure).  But the larger issue is that they're connected to reality and perception just like any money anywhere - if there is one thing we've seen in the last few years it's that, for better or worse, we have a global economy.  If Europe has troubles, we have troubles.  A slowdown in the US causes slowdowns in Asia.  Currency may seem to the uninitiated like a zero-sum game: if the dollar weakens, it means some other currency went up in value, right? But economies are, at their root, still based on reality in some regard.  If new businesses are started, or towns grow, or people spend their time on WoW, value has been added, and the associated things will be worth something to someone, whatever the currency used to purchase said product / house / purple sword.  Ultimately, I think the only "real" currency is well-spent time, though obviously even that is subject to differences in perceptions, but you know that when time is spent there's no way to get it back.

So go, invest in Bitcoin - it may yet be very valuable indeed.  But it's no magic shield against being interconnected with the fates of others.  It turns out that when it comes to that weird, perception-driven, necessary evil of money, nothing is.  Whether it's gas for your post-apocalyptic car with guns, or the latest iPad, most likely you won't have quite enough money, whatever the currency.  It's just the way it goes.

1 comment:

katz said...

I suppose bitcoins can't be taxed until the government recognizes them as legal tender, can they? Because I presume, from the government's perspective, they're actually a good and bitcoin transactions are barter.