Bitcoin would be helpful for people who regularly submitted expenses internationally; other services-like PayPal-charge hefty fees for moving money overseas, but with bitcoin people could send money for free. Bitcoin allows me to transfer money to you online, instantly, for free. I agree with Blodget and Salmon that the bitcoin market is a bubble; at some point, as in all bubbles, prices will stop rising and they’ll likely plummet, and a lot of people will lose a lot of real and imagined money. And until then, while prices are going up, you could make a lot of real money from this digital funny money. Will Bitcoins Make Me Rich? Meanwhile the price just kept going up: Early last week the value of bitcoins soared past $100 each. Still, though, one week into my bitcoin trade, I’m very, very pleased with myself. I’m certain that I’ll be able to double my investment, and I might even hold out to triple it. One morning last week, I stopped at my bank, filled out a withdrawal slip for $1,027.51, and walked away with an envelope full of cash. And as of last week, that benefits me directly. What’s more, last week, shortly after bitcoins hit $142, MtGox was hit by a denial-of-service attack that took it offline for several hours.
This leads to higher prices-and as prices go up, people who currently hold bitcoins develop greater and greater expectations for the currency. Barrett wanted to let me know that his firm would soon let people submit expenses and get paid by their employers in bitcoins. Hence, my disclosure. No one is quite sure why the price of bitcoins has spiked so quickly, but one of the leading theories is that it’s been hit by what Quartz’s Zach Seward calls a “demand crisis.” The world’s supply of bitcoins is essentially fixed, but because people in the media keep talking about it, demand keeps rising. Correction, April 10, 2013: This piece originally misstated the value of 24,000 bitcoins. Partly due to its growing legitimacy as a currency but mainly because of speculators like me, the value of bitcoin is entering a bubble phase-its exchange rate with real-world currencies is hiking up at an incredible, likely unsustainable pace. It exists only in computers, minted at a regular rate by a network of machines around the world, and its value isn’t regulated by any government. Thus, by writing about bitcoin, I’m serving, in some small way, to raise its price.
Bitcoin, of course. Bitcoin is a “digital currency” invented in 2009 by a cryptographic expert who went by the pseudonym Satoshi Nakamoto, but whose true identity remains unknown. One afternoon I had lunch with a partner at Andreessen Horowitz, the large Silicon Valley venture firm, who told me that he’d been fielding pitch after pitch for start-ups that offered bitcoin-related services. Over the next few months, I expect that we’ll see better, more secure services for transferring dollars into bitcoin exchange systems. If you want a bitcoin today, it will cost you about $235, and if you wait till tomorrow, it will be more. Update, 3:13 p.m.: The bitcoin market is extremely volatile today, with the price ranging from a low of $120 to a high of $266. Why do I think prices will get that high? Because at the moment, it’s a logistical nightmare to turn dollars into coins.
And-as we saw in the housing and dot-com bubbles-it’s when the masses get involved that bubbles really take off. But before I could get started, bitcoin took over the media. As a result, it’s perfect for the black market-a couple of years ago, it became a media sensation when Gawker reported on its use as the central currency on Silk Road, a site that sold virtually any drug in the world. Henry Blodget was calling bitcoin “the perfect asset bubble.” Felix Salmon published a lengthy treatise on why the bubble was sure to burst. A dispatch from inside the digital currency bubble. Indeed, I don’t care at all for bitcoin as a currency. The New Yorker spoke to some of bitcoins’ leading boosters about the future of the currency. Bitcoins are like cash in that they aren’t tied to your identity, and transactions made with bitcoins are irreversible and untraceable. Instead, I wanted to buy bitcoins as pure, shameless speculation.
