How Secure is Bitcoin?
NEW YORK ( MainStreet) Is Bitcoin the currency of the elite and the survivalists? Is it valued by the avant garde prep school graduates, those who are waiting for the next great global depression or some economic catastrophe, and the computer geeks?
Many who use bitcoins certainly fit into those categories. Besides, every revolution has its vanguard, but bitcoins certainly have a lot of critics too.
Recently, the former president of the Dutch central bank compared the bitcoin craze to the tulip mania that swept his country in the seventeenth century. The difference, he said, is that with the tulip mania you at least had a tulip.
He is right. A bitcoin is just that a "bit" of information - computer codes and electrical energy - used as coin. Who is backing it? Where is the transparency? There are unaudited bookkeeping transactions, backed not by gold, not by the faith and credit of the good old U.S. of A., but rather by someone or some group called Satoshi Nakamoto and the concurrence of others that they will accept this in payment of debts for goods and services.
Do bitcoins really sound like the place you want house a few million bucks?
Bitcoins seems to have the worst aspects of bargaining and wire transfers. What happens if someone or some company makes a third party transfer for a few million bitcoins and one party says, "What transfer?" " Never got it pal."
What about somebody who starts loaning them out? What do you use for interest rates- LIBOR? We see how that turned out.
One of the more disconcerting aspects surrounding bitcoins is the idea that money is determined by solely by social convention.
Whatever one accepts in payment of something is considered money.
Well, yes and no. Here is a easy to understand definition of money provided by the Philadelphia Federal Reserve Bank for educators:
"Throughout history, man has traded or exchanged goods, services and resources because he expects to be better off. Initially, trading was carried out through barter, the direct exchange of goods and services. Barter is an inefficient means of trading primarily because of the problems of divisibility and the need for each trader to have what the other wants. Commodity money was introduced by societies in order to fix some of these problems. Commodity money is a good that has value both as money and as a good. As with barter, commodity money was not a perfect medium of exchange. Depending on the commodity, there were problems with goods being portable, divisible, acceptable, durable, relatively scarce, and stable in value. Today, these problems are largely solved through the use of fiat money, money declared by government to be acceptable for the exchange of goods, services, and resources. U.S. currency and coins are examples of fiat money."