Bitcoin or bitcoin – warning signs

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bitcoin20140310Because there is so much commercial activity going on in the internet, the need for a viable means of payment for goods and services has been growing exponentially in the last few years, especially when the likes of PayPal are not good enough.

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Enter Bitcoin in 2009 as a digital currency and peer-to-peer payment system.

A brainchild of developer Satoshi Nakamoto, Bitcoin was originally an open source software.

In the last five years, Bitcoin has grown into a worldwide technological phenomenon.

As the old saying goes, “there is no idea more powerful than an idea whose time has come.” And in so many ways, Bitcoin is one such idea.

On the negative side, however, are the warning signs from various quarters. At its simplest, Bitcoin is a form of currency. There is inherently nothing wrong with this. But lack of a regulatory body means that there are no safeguards against its fluctuating values.

At worst, it could be a bubble that will burst at the worst possible time, when millions of consumers around the world have already placed their hard-earned—and very real—cash in Bitcoin.

A physical currency has, in fact, been created from Bitcoin and its called bitcoin. The word with the capital B refers to the software, while the one with the lower case b refers to minted gold coins.

The wild fluctuations in its value has been causing nightmares to some sectors.

In 2011, for example, its value rose from 30 US cents, to $32! This very quickly sank back to $2.

Then, in 2012, the bitcoin price went to a heady $266, before crashing back down to $50.

In any language, such volatility is dangerous. While a handful of investors may have made millions, perhaps even billions, a lot more consumers would have been left holding empty bags.

In a sense, bitcoins (lower case b) can be likened to precious metals like gold, while Bitcoin (capital B) can be treated as a stock traded in the local stock market. At present, there are some 12 million bitcoins in circulation.

Here’s one rub: former US Federal Reserve chairman Alan Greenspan has called Bitcoin/bitcoin “a speculative bubble.”

Worst, there are suspicions that it may be nothing more than a technological Ponzi or pyramiding scheme.

Filipinos are no stranger to Ponzi schemes. Every so often, one crops up where the victims are usually innocent-minded folk in the provinces who have been promised spectacular returns on their investments.

The European Central Bank has already stated that Bitcoin shares some, but not all, the characteristics of a Ponzi scheme. Meanwhile, the European Banking Authority has warned that Bitcoin is lacking in consumer protection.

Like another old saying goes, “if it’s too good to be true, then in all likelihood it is.”

Meanwhile, our giant neighbor China has recently implemented rules regulating bitcoin exchange for local currency.

As for the Philippines, use of bitcoin has been pretty limited but shows signs of growing. As with any investment, the best course of action is not to dive too quickly into the fray, but rather study the risks involved. Then and only then should one decide.

 QUOTE OF THE WEEK:
“Any sufficiently advanced technology is indistinguishable from magic.” – Arthur C. Clarke

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