Tired of hearing about the Harlem Shake? Don’t know what it is, much less care? Well, if you’re a financial news junkie, you’ve had an equivalent fix over the past few weeks: the Bitcoin.
Without getting too technical—www.bitcoin.org offers a good primer, and Google can point you to all else you’d ever need to know—the BTC is an encrypted, electronic currency without a country to call home. One mag called BTCs the equivalent of frequent flyer miles that have become a virtual currency used to buy a wide range of things, even magazine subscriptions.
Good as gold… not so fast. As such, the BTC has no central bank but is hosted as open source code on computers all over the world connected to each other via the Internet, like music and video file-sharing services. This makes BTCs especially attractive to libertarians and precious metal fans concerned about the debasement of fiat currencies by their central banks. As Garda’s Chief Information Security Officer, my first concern would be the security risks of connecting to this peer-to-peer network.
To mine new Bitcoins, users link their computers into a global peer-to-peer network. James J. Angel of Georgetown University points out that there's no way to know what else might be running on that network. "It could be downloading malware, or preparing the next big distributed denial of service or spam attack," he says in an article on Wharton’s website.
Paperless cash? Buyers can use BTCs, via an Internet-connected device like a PC, tablet or smartphone, to pay for anything someone’s willing to sell in exchange for them. Users keep their BTCs in electronic wallets, an application they download from Bitcoin’s website. Transactions are free, unless you, as a buyer, want to pay a small fee to speed up your transactions, although most take just 10-15 minutes. For merchants they work like cash: there’s no fee at all (versus the 3-4% major credit cards charge).
Although many think that the BTC is anonymous like cash, privacy and security experts are researching and finding vulnerabilities that allow both marketers and criminals to identify Bitcoin users and how they’re spending the electronic currency.
Extreme volatility. BTCs can be exchanged for sovereign currencies as well as precious metals and financial instruments. According to The Economist magazine, Mt. Gox, a Tokyo-based exchange, processes about 80 percent of BTC-USD (dollar) trades.
The problem with BTCs, however, has been their wildly fluctuating value in relation to currencies. Since their inception in 2009 a BTC ranged in value from $2 to $30. It started January of this year at $15, zoomed to $266 recently, then crashed by half one day later. Economies are hard to run with that much monetary uncertainty, although speculators love the action.
But would Mom like a virtual gift wrapped Bitcoin? For Mother’s Day, we suggest that flowers and chocolates are still more appropriate gifts. Or, for moms retired on a fixed income, living too far away to visit, a crisp Benjamin inside a Hallmark card will be a sure delight.