Bitcoinmania

rok_sad_bitcoins

My coworkers got bitten by a bitcoin bug. All they talk these days is the bitcoin exchange rate, how many bitcoins they bought, and Mt. Gox being attacked. And when the market doesn't go their way they look just like stock brokers after a bad day on Wall Street. rok_sad_bitcoins

With bitcoin value increasing ten-fold since the beginning of this year, we have a gold rush happening as we speak. There's more similarities between gold and bitcoins than just people loosing mind over them. Just like mathematical algorithms limit the maximum number of bitcoins to 21 million, there's limited supply of gold on Earth since all the gold on earth's surface has been brought here by meteorites. Another similarity is that both bitcoins and gold are being mined, the former by doing demanding calculations and the latter by digging deep in the ground. Since we already found more than half of bitcoins and gold on earth, it's exceedingly rare and costly to extract them, so the growth of amount of bitcoins and gold in circulation is limited to 2% per year.

While there's many similarities between gold and bitcoins, there's also one big big difference. Gold is physical while bitcoins are digital and can be send anywhere in the world with no costs and no supervision from governments. This makes them ideal not only to send remittance, but also for buying illegal goods, financing terrorism, and all sorts of money laundering. It's only the matter of time before governments start to ban bitcoins or at least heavily regulate them. While that won't make bitcoins go away entirely, it will severely reduce the market capitalization of bitcoins and decimating their value.

Somebody said that bitcoin will be for digital cryptocurrencies, what Napster was for online music. It might very well be that I'll live the day when central banks will hoard bitcoins instead of gold, but it will be a winding road shed with tears of geeks loosing all their money.

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