A dispatch from inwards the digital currency bubble.
Courtesy of Casascius/Wikimedia Commons
Update, Trio:13 p.m.: The bitcoin market is enormously volatile today, with the price ranging from a low of $120 to a high of $266. You can see the latest prices at the top of the pagina here.
Let mij start this katern with a lengthy disclosure. One morning last week, I stopped at my bankgebouw, packed out a withdrawal slip for $1,027.51, and walked away with an envelope total of specie. The odd amount wasgoed deliberate, I had bot instructed by LocalTill to be precies ter everything I did. What&rsquo,s LocalTill? Don&rsquo,t bother Googling it&mdash,its shady-looking webstek offers only murky details, explaining that the rock-hard is a way for &ldquo,merchants to accept secure transactions when selling goods online.&rdquo, It&rsquo,s something like PayPal, except LocalTill isn&rsquo,t tied to your handelsbank account or credit card, and instead deals only ter metselspecie. This makes its transactions less traceable, less regulated, and, spil I would soon practice, more final.
Next, vanaf LocalTill&rsquo,s instructions, I drove to a local Handelsbank of America branch and asked for an out-of-state wire transfer slip. I scrawled out LocalTill&rsquo,s Fresh York bankgebouw account number and passed my wad of specie to the teller. This wasgoed a dizzying ogenblik: I&rsquo,ve bot on the Internet forever and have bot well-schooled ter frauds that start with the instruction, &ldquo,Very first, wire your money to an out-of-state account …&rdquo, Yet here I wasgoed doing exactly that. If LocalTill wasgoed a scam, I&rsquo,d have no recourse. So why wasgoed I willing to take such a risk?
Bitcoin, of course. Bitcoin is a &ldquo,digital currency&rdquo, invented te 2009 by a cryptographic experienced who went by the pseudonym Satoshi Nakamoto, but whose true identity remains unknown. It exists only ter computers, minted at a regular rate by a network of machines around the world, and its value isn&rsquo,t regulated by any government. The currency, like its creator, clings to the shadows. Bitcoins are like specie ter that they aren&rsquo,t tied to your identity, and transactions made with bitcoins are irreversible and untraceable. But they&rsquo,re like credit cards te that they aren&rsquo,t physical. Ter the past, if I desired to pay you for certain unmentionable services rendered, I&rsquo,d have to get a fancy briefcase, pack it with bills, then take a long, dangerous tour with my stash. Bitcoin permits mij to transfer money to you online, instantly, for free. Spil a result, it&rsquo,s volmaakt for the black market&mdash,a duo of years ago, it became a media sensation when Gawker reported on its use spil the central currency on Silk Road, a webpagina that sold virtually any drug te the world. Lately bitcoin has also bot hailed spil an emerging global safe toevluchthaven, a place for jumpy Europeans and panicky gold-bug types to store their wealth away from the prying reach of financial regulators.
I&rsquo,m not very panicky about the world&rsquo,s currencies, strafgevangenis am I looking to buy drugs online. Indeed, I don&rsquo,t care at all for bitcoin spil a currency. Instead, I desired to buy bitcoins spil zuivere, shameless speculation. I desired a chance to rail a rocket ship. Partly due to its growing legitimacy spil a currency but mainly because of speculators like mij, the value of bitcoin is injecting a bubble phase&mdash,its exchange rate with real-world currencies is hiking up at an incredible, likely unsustainable tempo. Te 2011, back when Gawker reported on Silk Road, you could buy a bitcoin for about $9. Since then the price has seen terrific fluctuations, but it has generally gone up. At the commence of this year, each bitcoin wasgoed worth about $20. From there the chart turns into a hockey stick&mdash,by March, bitcoins klapper $40, and within a month they&rsquo,d doubled again.
Three weeks ago, I began hearing about bitcoin everywhere I turned. One afternoon I had lunch with a playmate at Andreessen Horowitz, the large Silicon Valley venture stiff, who told mij that he&rsquo,d bot fielding pitch after pitch for start-ups that suggested bitcoin-related services. After lunch, I got an email from David Barrett, the CEO of the fantastic expense-reporting start-up Expensify. Barrett dreamed to let mij know that his rock hard would soon let people submit expenses and get paid by their employers ter bitcoins. He explained that the feature wasn&rsquo,t a gimmick. Bitcoin would be helpful for people who regularly submitted expenses internationally, other services&mdash,like PayPal&mdash,charge hefty fees for moving money overseas, but with bitcoin people could send money for free.
I made a mental note to embark looking into a story about bitcoin&rsquo,s apparent rise to legitimacy. But before I could get embarked, bitcoin took overheen the media. Henry Blodget wasgoed calling bitcoin “the ideal asset bubble.” Felix Salmon published a lengthy treatise on why the bubble wasgoed sure to burst. The Fresh Yorker spoke to some of bitcoins’ leading boosters about the future of the currency. Meantime the price just kept going up: Early last week the value of bitcoins soared past $100 each. This week, it went past $200. If you want a bitcoin today, it will cost you about $235, and if you wait till tomorrow, it will be more.
Hence, my disclosure. No one is fairly sure why the price of bitcoins has spiked so quickly, but one of the leading theories is that it&rsquo,s bot kasstuk by what Quartz&rsquo,s Zach Seward calls a &ldquo,request keerpunt.&rdquo, The world&rsquo,s supply of bitcoins is essentially immovable, but because people te the media keep talking about it, request keeps rising. This leads to higher prices&mdash,and spil prices go up, people who presently hold bitcoins develop greater and greater expectations for the currency. This causes bitcoin holders to hoard their stash, which further reduces supply, which te turn boosts the price and sparks yet more media attention&mdash,and the cycle proceeds until the bubble pops.
Thus, by writing about bitcoin, I&rsquo,m serving, ter some petite way, to raise its price. And spil of last week, that benefits mij directly. Gratefully, my wire transfer to LocalTill went through, after taking its $21.51 processing toverfee, the rock hard transferred my $1,000 to Bitfloor, one of the many online bitcoin exchanges where people trade bitcoins for contant. I instantly waterput ter a purchase order, and within seconds the overeenkomst wasgoed done. I wasgoed the proud possessor of 7.23883 bitcoins, which I&rsquo,d purchased for about $138 each. If I sold my coins now, my original $1,000 investment would be worth $1,700&mdash,not a bad come back ter less than a week&rsquo,s time.
But I&rsquo,m not selling just yet. I agree with Blodget and Salmon that the bitcoin market is a bubble, at some point, spil te all bubbles, prices will zekering rising and they&rsquo,ll likely plummet, and a lotsbestemming of people will lose a loterijlot of real and imagined money. But that&rsquo,s pretty much all anyone can say about the market with any certainty. When the bubble will burst, at what price and for what reason, is fully unpredictable. And until then, while prices are going up, you could make a lotsbestemming of real money from this digital funny money.
My own guess is that the bubble&rsquo,s popping isn&rsquo,t imminent, and I think that when prices do fall, they&rsquo,ll land somewhere higher than the $138 I paid for my bitcoins. I&rsquo,m certain that I&rsquo,ll be able to dual my investment, and I might even hold out to triple it. (After that I&rsquo,ll get shakier about keeping bitcoins.) Why do I think prices will get that high? Because at the ogenblik, it&rsquo,s a logistical nightmare to turn dollars into coins. You&rsquo,ve got to take several leaps of faith, trusting sites that look like they were waterput together by teenagers. I originally attempted to buy coins using MtGox, the largest trader, but the cash-processing service it uses refused to accept deposits greater than $500. What&rsquo,s more, last week, shortly after bitcoins succesnummer $142, MtGox wasgoed succesnummer by a denial-of-service attack that took it offline for several hours. The webpagina I used, Bitfloor, is hardly any safer. Last fall it wasgoed succesnummer by an epic hack that resulted ter the theft of 24,000 coins, at the time worth $250,000&mdash,and worth, amazingly, $Five.6 million today.* (Bitfloor now claims to store most of its customers&rsquo, coins te machines that aren&rsquo,t connected to the Internet, and it uses two-factor authentication to protect its users&rsquo, accounts.)
At the uur, the shadiness of the bitcoin market dissuades mainstream investors. And&mdash,spil wij spotted te the housing and dot-com bubbles&mdash,it&rsquo,s when the masses get involved that bubbles indeed take off. Overheen the next few months, I expect that wij&rsquo,ll see better, more secure services for transferring dollars into bitcoin exchange systems. You&rsquo,ll be able to send money to sites like MtGox instantly from your canap account. At that point&mdash,when ordinary people can order up bitcoins spil lightly spil they bought shares of Pets.com back ter 1999&mdash,the real money will pour into the bitcoin economy, and that&rsquo,s when prices will start to get truly crazy.
That&rsquo,s just a theory. It could be a stupid one, bitcoin could collapse tomorrow. And recall, I&rsquo,ve got a conflict of rente here&mdash,if this lump gets you interested te bitcoin, I get richer. Still, however, one week into my bitcoin trade, I&rsquo,m very, very pleased with myself.
Correction, April Ten, 2013: This chunk originally misstated the value of 24,000 bitcoins. At press time, they would&rsquo,ve bot worth approximately $Five.6 million. (Terugwedstrijd.)
Farhad Manjoo is a technology columnist for the Fresh York Times and the author of True Enough.