TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Digital coins gain currency

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

Daily Photo Galleries

'American Coyotes' Series

Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

Saturday, Dec. 14, 2013, 9:00 p.m.
 

The rise of Bitcoin and other so-called “cryptocurrencies” is understandable when you consider the developments involving currency and precious metals over the last several decades.

Major central banks have been debasing their currencies since 1971. Governments, under camouflage of “protective” measures such as The Patriot Act, have invaded the privacy of citizens and banking secrecy since 9/11 in an unprecedented manner.

Regulators have shown a willingness in recent years, as demonstrated in the case of Cyprus, to make depositors liable for bank failures. Today, central banks are crushing savers with manipulated low interest rates in an effort to stimulate spending and salvage reckless borrowers. The future holds the risk of exchange controls.

In the past, prudent investors turned to precious metals such as gold to protect themselves from currency issues and to move their wealth. However, ever-increasing regulations, monitoring and physical searches have eroded some key protections afforded by gold.

It's no surprise then that some investors, using the Internet, have turned to cryptocurrencies such as Bitcoin for perceived anonymity to gain some protection from governments. These are digital currencies traded by private, unregulated Internet exchanges through which physical, privately minted coin can be obtained.

A number of cryptocurrencies have popped up. Many have failed. Bitcoin, established in 2009, is the most well-known survivor with $9.3 billion invested at the market price and a projected issue limit of 21 million coins. Players include Litecoin, Peercoin, Namecoin, Yacoin, Nowacoin, Primecoin, Feathercoin, Anoncoin and Dogecoin.

As the granddaddy and largest, Bitcoin can be purchased through some 32 exchanges because of its support from New York City financial markets. Alternatively, Bitcoins can be “mined” on the Internet using sophisticated software and hardware to repeat the performance of the complex cryptology algorithm, SHA-256.

In the end, Bitcoin is not backed by anything except the agreement of merchants who accept it. Bitcoin prices have been volatile because it attracts speculators. On Nov. 29, a Bitcoin reached $1,242 in Tokyo just as gold dipped to $1,240 an ounce.

On Thursday, Silicon Valley venture capital firm Andressen Horowitz infused $25 million into Coinbase, the largest investment ever in a bitcoin company. San Francisco-based Coinbase is trying to develop simpler ways for merchants and consumers to use digital currency.

Two days earlier, JP Morgan filed a patent for a Bitcoin-style payment system. Gold has relatively high transaction and storage costs, but Bitcoin transactions are cheap and transnational. Use of anonymous email addresses offers a sense of anonymity. However, the so-called “blockchain” tracks all Bitcoin transactions covertly.

Steven Strauss of Harvard has suggested that bitcoin be outlawed. Governments, including the United States, Germany and China, remain remarkably tolerant — for now.

While Bitcoin serves as a vehicle for speculation, it remains extremely high risk as an investment.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at johnbrowne70@yahoo.com.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Stories

  1. 4 ejections, benches-clearing scrum mark Pirates’ win over Reds
  2. Steelers’ Harrison awaits go-ahead from Tomlin before practicing
  3. Zimbabwe alleges Murrysville doctor illegally killed lion
  4. Slot cornerback Boykin should give Steelers options in secondary
  5. Pirates notebook: Burnett says ‘surgery is not an option’
  6. Inside the Steelers: Roethlisberger strong in goal-line drills
  7. Steelers notebook: WR Bryant sidelined after minor procedure on right elbow
  8. Pa. breeding ground for corruption, experts say
  9. Pittsburgh airport improvements noted as CEO tries to expand activity
  10. 2 teens drown in Lawrence County creek
  11. Making environmentalism divisive