One of the most stressful things I’ve done with my money has been day trading. Watching investments oscillate up and down feverishly while I wait for the right time to sell was nerve-wracking. Compounding the whole mess were the fees when I pulled the trigger. The risk-reward wasn’t for me.
I’m reminded of those days while I prepare for this week’s article. I have a website opened to a page showing the current value of Bitcoin. In the past two minutes I’ve watched the exchange rate jump 2% from $680.00/1 Bitcoin to about $704.00. I’m taken back to my days of trading and the pyretic sweats I used to get just before a deal.
Bitcoin is a new, virtual currency which is gaining popularity for online trading and purchases. The technology has been available since 2009 and was created by Satoshi, an anonymous computer guy. Bitcoin’s value is based on demand rather than backed by gold like US currency. Because Bitcoins are technology based, there is no physical currency and they are traded electronically.
A traditional online purchase uses a credit or debit card tied to a bank. In order to complete a transaction the purchaser would input their card number and security code along with other personal information. The seller would have all information about the customer on-hand and the transaction would finalize with the exchange of US currency.
The opposite is true of Bitcoin technology. Making completely anonymous transactions is very possible; as well, each transaction is completely secure. Transactions are done using a smartphone app or computer software that generates unique identifiers for each user and each exchange.
There’s a couple ways of acquiring Bitcoins. First is to simply lay down cash and purchase any portion of a Bitcoin. Second is a little more convoluted and involves an outlay of money to purchase mining technology. Mining Bitcoins is basically using a proprietary computer hardware device to allow rental of your PC for Bitcoin’s mathematical processes.
I’m going to stop right here for a while and rest. I’m getting worn out by all the mumbo jumbo about how they work and how to get them. I made a very long calculation about an hour ago to see if it’s worth my investment. If my calculation is correct (and I love higher math) it would take about two years to break even on the initial mining hardware investment. And that’s not taking in to account electricity and internet costs.
Phew, now back to it. A year or two ago an illicit site named Silk Road was shut down by the FBI. For fractions of Bitcoins users could trade drugs, weapons, and just about anything you can imagine. The founder and creator of the site was worth about US$19 million in Bitcoins when the site was finally closed. As soon as word spread the site was down the value of Bitcoins plummeted.
Bitcoin is extremely volatile. Value is primarily derived from an algorithm created by this guy Satoshi which artificially raises worth based on time and not economy. Secondary value is created by relatively small economic bumps like Silk Road’s closing. I’m not an investment expert, but if currency value is effected by a US$20 million drop then something seems muddled.
I’m going to leave you with this: What if you made a purchase today worth US$700.00 in Bitcoins and you sold during a Bitcoin recession? You stand the chance of losing a significant investment. What if Bitcoins were suddenly outlawed? While Bitcoin trade is being heavily regulated in many countries, I’m quite sure my US dollar will be welcome anywhere for years to come.
(Jeromy Patriquin is the President of Laptop & Computer Repair, Inc. located at 509 Main St. in Gardner. You can text him directly at (978) 413-2840 or visit www.LocalComputerWiz.com.)