Friday, February 23, 2018
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Yes, it’s here cyber money “Bitcoins”. I’m not saying they’re a scam. I just don’t understand how this works.

For the uninformed, Bitcoins are a made-up digital currency not backed by the full faith and credit of any government.  Sounds a lot like the “Fiat Paper” we are currently using!!!

What are Bitcoins?

Bitcoins are a new type of money – a ‘digital currency’ that is being increasingly used all over the world. Unlike traditional money that is printed or minted in industrial facilities, bitcoins are created by lots of people around the world running computers, using open-source software that solves complex mathematical problems. Bitcoins are the first example of a category of money called cryptocurrency where the production, transactions and issuing of the money is carried out collectively by the network of people that use it.

This digital “currency”  allows users to conduct transactions online. In just five years the virtual currency has gone from being worth pennies to nearly $600 apiece. It has funded nascent democracy movements as well as a huge underground marketplace for illegal drugs and weapons.

More information on This video is a short animated introduction to Bitcoin, made possible with donations from the Bitcoin community…

Who Invented Bitcoins?

A reclusive software developer that goes by the pen-name of Satoshi Nakamoto is credited with inventing the bitcoin system. His idea was to engineer an electronic payment system that relies on mathematical proof and that was independent of a central authority. His vision was to produce a currency that could be transferable electronically  – more or less instantly – and that had very low or no transaction fees. Because the bitcoin system is based on an ‘open-source’ protocol, anyone in the world is free to review the source code of the system and offer improvements and suggestions to Nakamoto’s original design. Indeed, when flaws are spotted, the community of bitcoin developers solves them, meaning that bitcoin is designed by the people to suit the needs of the people.

Investing in bitcoin is getting easier for those who have little understanding of its basics. And that’s been fantastic for speculators, as such demand has driven up the price, which fuels more interest, demand, and even higher prices.

The question is: Does bitcoin really have a sustainable future?

The bullish case
SecondMarket, known for its role in trading private company stock and coloring the value of non-public companies, launched the Bitcoin Investment Trust in late September. The trust allows accredited investors to invest a minimum of $25,000 in bitcoin like they would a commodity. Though, as Felix Salmon explains, the fund comes with extra fees that could take away plenty of the potential upside. With its launch, SecondMarket also published a hopeful slide deck with the following table:

If Bitcoin Equals the Value of… Basis for Comparison Current Value Implied Value Per Bitcoin
Western Union  Money movement and transmittance platform $11.5 billion $966
PayPal Leading online payment network $22.8 billion $1,916
Monetary base of Turkey Emerging market currency $95 billion $7,983
5% of gold Primary global store of value $450 billion $37,815

source: SecondMarket.

At bitcoin’s current price, lately hovering around $300 from just $150 in October, the fund has performed extremely well with a net asset value per share of rising from $12 at its inception to $31 today.

The bear case
On the end of bitcoin skeptics, Western Union had its own presentation (link opens PDF) outlining the current issues of the digital currency. The company highlighted bitcoin’s lack of liquidity and adoption, the immature consumer interfaces, and the regulatory issues that need to be addressed before it would be ready as a form of international money transfer.

However, Western Union has to bolster its case to stick around. New competition has forced Western Union to lower prices, and as a result, the operating margin for its consumer-to-consumer business, which makes up 80% of its revenues, fell to 19% from 25% for the latest quarter compared to a year prior. And Western Union is “keeping an eye on further developments” with bitcoin and other digital currencies.

The bull versus the bear
With each uptick in price, interest in bitcoin increases, and interest in keeping it around increases. There is plenty of financial interest backing its success, and for payment processors like Western Union, the opportunity to disrupt the current hegemony of credit card processors and banks might be more tantalizing of a prospect than fighting bitcoin’s proliferation.

Bitcoin fills a niche of digital and frictionless exchange of value. While online purchases require the regular credit card authentication requirements of a billing address, bitcoin can be used as easily as handing over cash. There is value in this.

However, regulation is the largest question mark. State governments take in 22% of their revenue from sales taxes, the largest source outside of transfers from the federal government. Protecting this would be in their best interest.

The takeaway
The interest in new currencies will take awhile to die down, especially as they swing in price to their actual value. The unanswered regulatory questions add further complexity to investing in the currency. And there’s reasons for established organizations to both trample it and champion it. Bitcoin’s future is up in the air, like it’s current price.

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About Darlene Dancy

Darlene Dancy is the owner of Affordable and Historical Art. Darlene's goal is to educate, motivate and empower people of African descent to learn the rich history of African culture - past & present. Discover Black History written, researched and preserved by African American Scholars. Lectures, Documentaries & Auto Biographies on DVD's and Historical Black Print/Poster art

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