Wednesday, August 24, 2011

What is a BitCoin? Where did Mybitcoin go?

On the way into St. Thomas University this morning, I heard an NPR piece about the Bitcoin. We live in a world where the value of money is uncertain, so some are looking for alternatives to the dollar, right? See, IMF Calls for Alternatives to the Dollar. The aim is to lessen volatility associated with the dollar as a currency and payment device, those economic and political. Some investors have rushed to gold as the easy alternative causing a rise in the value of gold, only to find that gold also has market swings tied to the dollar. See, WSJ, Gold Ends Lower on Dollar's Strength. I understand the goal. An electronic wallet, no intermediaries, completely anonymous.

So, what about the Bitcoin? A Bitcoin is simply a made up cash in an online universe. You use an online exchange in order to trade dollars for Bitcoins. Apparently, some restaurants in New York city will even accept Bitcoins in payment for lunch. Not so fast, though. "Hackers" allegedly hit MyBitcoin back in June, making off with $500,000 in funds. And now, MyBitcoin itself is processing claims to liquidate the remainder of the accounts. Apparently, that will be somewhere around 49% of their deposits. In the NPR piece, Ron Mann commented (correctly of course) that he would not expect Bitcoin to be around in 5 to 10 years. Well mostly correct, as at least mybitcoin was gone a mere months after the original interview. Perhaps others will take up the space left by mybitcoin, but how secure is any payment system?

Here is the story of one mybitcoin user who lost a substantial amount of money from his e-wallet:

As I advise my students, be wary about any new (or even existing) payment device . . . scammers . . .or anywhere you park your money for that matter. There are no quick fixes or easy roads to avoid market volatility and economic instability.



Anonymous said...

You are wrong. Bitcoin by itself was never hacked. Check the facts. (the one you point lost 51% of its user's money) was a 3rd party service.
The guy with 25000 BTC stolen had his computer compromised for at least a week before. And who with his right mind would keep such funds on an internet exposed machine?
Remember, with bitcoin you are a bank of your own.

Jim Chen said...

Chuck Jaffe of MarketWatch just named BitCoin the "Stupid Investment of the Week." Rough translation: Retail investors have no business touching this new market, no matter how sexy it may seem.

Young said...

You raise some interesting points. Although Bitcoin might not last, I think its a turning point and that a shift in our definition of money is going to occur in the near future. If you are interested, I have written more about this here:

Jennifer Martin said...

The matter of the bitcoin reminds me of any other speculative financial product, be it tulips, .com, real estate etc. Don't invest money you cannot afford to lose. There are places to put money at are low risk, but a bitcoin would not be one of them.