Virtually bags of appeal – Bitcoins

by Shane Dillon

AS ANY Dutch readers familiar with the year 1637 would tell you, bubbles tend to burst, spectacularly. (Stick with me – my jumping back several centuries is very relevant to this piece about tomorrow’s technology, today, I swear!)
After all, that was the year that the infamous tulip bubble burst, with February, 1637 seeing the ridiculously inflated value of tulips fall swiftly and spectacularly, reducing many speculators and investors to absolute ruin.
Why am I rambling about a questionable craze for a particular flower (which, at the height of their popularity, sold for more than 10 times a decent annual income – each) from several centuries ago?
Well, a number of business pundits have raised the spectre of “tulip mania” creeping in to the sudden explosion of interest in Bitcoins – the virtual currency that’s been around for just a few years, but which has driven, if not bulldozed, into the media and public interest this year.
Economic drivers are definitely raising the currency’s profile, and although I don’t want to jump on the me-too media bandwagon, I know that some readers would like to know more about this topic.
So. What are Bitcoins? The short answer is that they’re a virtual currency – or virtual token, to be pedantic – that is caluclated by increasingly complex computer algorithms, which generate a unique identity – or Bitcoins, to you and me.
Because of the ever- increasing complexity involved in creating the currency, there is a limit to the amount that can be generated, as, in short, the ever-more-complex algorithms to create them will, basically, be unsolveable.
Although there are approximately 11 million Bitcoins already in existence, their production is already facing some “drag” on more coins appearing.
Once created, Bitcoins are then stored in special wallets, effectively running as bank acocunts to trade from – assuming you find a trader that’ll accept them, there’s an increasing amount of outlets to use them at, and products to buy.
So far, so straightforward, right? However, now that you know what Bitcoins are, things turn a little … messier.
Here’s why we’re not all rushing to use Bitcoins: although they’re used all over the world, they’re not really issued by anyone in particular – there’s no central bank or government behind them and, as such, no financial regulation or security.
Bitcoins only have real-world value because (and – crucially – as long as) their users still believe they have value, with a number of Bitcoin markets that trade them acting as rudimenary (virtual) stock markets.
If, however, for whatever reason, people lose interest in Bitcoins, then the global market could crash – and crash spectacularly, rapidly and uncontrollably, without the standard mechanisms that conventional currencies operate under.
For example, in March,  the average Bitcoin was worth $47 (already a significant jump from being worth about $20, not too long beforehand).
However, by mid-April, Bitcoins had leapt to a value of $266 each at one stage – before their value collapsed again.
It’s clear that while a number of investors and speculators may have been making – and losing – significant amounts of real and virtual wealth in the past month alone, Bitcoins appear unlikely to be appearing in most of our (virtual) pockets any time soon – not even to buy tulips with …

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