Bitcoin and Litecoin from a Programmers Perspective
I’ve been programming for about 18yrs … give or take a few months. I’ve been self employed or running businesses for over 20yrs and so when it comes to code and business, I know at least a little bit.
Speaking of ‘bits’, let’s quickly talk about the latest ‘investment’ vehicle: bitcoin.
What is Bitcoin?
It’s a number … yes, just a number. These numbers are mined/discovered by very powerful computers running mathematical equations. Once they solve the equation, you have a Bitcoin.
Yes, a bitcoin is just the result of a major math problem!
What is the value of Bitcoin?
Bitcoins are as valuable as the market would have it. People say it is valuable since there is a limited supply – this is false.
Bitcoin and Litecoin are just a couple of examples of the many, many digital currencies that are floating around out there. You, me and anyone else can come up with a new digital currency pretty easily (killerCoins?) … and as long as other people buy into it, they will circulate and go up in value.
Bitcoins & Tulips
Bitcoins have gone up in value because (some) people have bought into the idea of Bitcoins – the notion of a lonewolf non-government currency. This appeals to people because they are pissed off with government manipulation of currencies – they don’t like that the VALUE of US dollars can be manipulated by central bank money printing.
The Bitcoin lover/believer, understands the nefarious nature of fiat currency, so they are starving for something free of that. I am sympathetic of this point of view but what the Bitcoin lovers don’t understand, is that they are trading apples for smaller apples.
… Bitcoin is not manipulated by government (yet) but Bitcoin is manipulated by a much more volatile and pernicious element: a small group of gamblers. When you ‘invest’ in Bitcoin, you are gambling. Or as bankers would call it: speculating.
Tulip mania tells you everything you need to know about Bitcoin. Once, a single Tulip was worth more than a mansion during that mania. Yes, people argued that certain tulips were rare and so they were valuable. Tulips looked great and if you had tulips planted in your front yard, it was a sign of wealth and prestige. Then one day, people realized that tulips where just flowers – and the market crashed.
Can Bitcoin go up anymore? Sure. Will it crash and burn … yes, one day. What is valuable about Bitcoin is not Bitcoin, instead it is the system surrounding digital currency that we should appreciate.
Eventually, governments will move to using a Bitcoin like protocol/system to move money. Lessons learned from the Bitcoin mania will eventually allow for a much more solid implementation of this method of exchange.