Thursday, May 9, 2013

Bitcoin Just Hit The Big Time -- Here's What Everyone Ridiculing It Doesn't Get

Henry Blodget writes: the electronic currency Bitcoin just got a big vote of confidence from one of the world's most successful venture capital investors.  Fred Wilson of Union Square Ventures just invested in a startup called "Coinbase," which facilitates Bitcoin transactions.  This investment doesn't mean that Bitcoin is guaranteed to become a mainstream currency, but it's a small step in that direction.  So it's time folks who just instinctively ridicule Bitcoin took a moment to understand it.

Bitcoin is an electronic currency--a new form of money. It's also, possibly, the next great asset bubble. (Or investment, depending on how the story ends. Or both, depending on when you get in and get out.)

Bitcoins are strings of numbers that can be electronically owned by and transferred among individuals and organizations. For now, the currency is primarily used for payments by fringe retailers or illegal transactions, but it is being accepted more and more widely (Coinbase was created to help that process). And organizations that exchange Bitcoins for standard currency are now being approved to operate as banks.   The premise and promise of Bitcoin--the part that appeals to folks who don't happen to be gold bugs, conspiracy theorists, or cryptography geeks (obviously they all love it)--is that electronic currencies have several advantages over paper currencies and that the current plan is for only a finite number of Bitcoins to be created. This latter attribute is in direct contrast to standard government-issued currencies, which governments can always print more of. If the supply of Bitcoins remains finite, this should theoretically eliminate inflation, which is one of the biggest drawbacks of paper money.

No comments:

Post a Comment