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Kim Coindashian? How bitcoin is going the way of the tulip

Defenders of digital currencies seem to believe bitcoin and its ilk will continue to gain value forever. You know who also thought along those lines? Dutch people in 1637.

Bitcoin has reached an important milestone. The digital currency is renowned, or rather infamous, for its dramatic speculator-driven price surges. Only this week, its value plunged from US$700 to US$540 when a key exchange discovered a software flaw that could allow thieves to withdraw twice the correct amount — and not that long ago it was up at the US$1200 mark. Well, now bitcoin has been linked to another notorious source of irrational speculation: tulips.

Thanks to a start-up flower-seller called BloomNation, you can now buy tulips with bitcoin. We’ve built the whole thing now, folks. We can all go home.

The bitcoin community hates it when the supposedly ever-rising value of their darling digital disruptor is compared with the Dutch tulip mania of 1637, but for those who haven’t been drinking the Kool-Aid the parallels are obvious.

There’s the fact that we’re talking about the price of something that has no real value in and of itself — although that’s true of all fiat currencies. There’s the almost religious belief that the price will keep on rising. There’s the matching claims that any drop in price is just a temporary aberration. There’s the wild-eyed enthusiasm of first-time speculators.

And now there’s the extravagant evolution of varieties and cross-breeds — an almost Cambrian explosion of digital currencies that’s creating a gloriously exploitable dreamscape for speculators and con artists alike.

The computer software that supports bitcoin’s peer-to-peer transactions is open source, which means that anyone can copy it to create his or her own clone currency — or tweak it to create something with a slightly different dynamic, depending on your beliefs about monetary theory and inflation versus deflation.

As the rather pretty Map of Coins shows, more than 200 of these “altcoins” have evolved since the publication of the original bitcoin paper in 2008, and you can click through to their websites and their program source code.

Some, like Litecoin, are serious competitors to bitcoin — and presumably intended to give a new round of players the same early-adopter advantage that turned the initial investors in bitcoin into multimillionaires.

Others are, as during the tulip mania, purely decorative or even whimsical — such as Dogecoin (based on the internet meme of captioning pictures of shiba inu dogs), and currencies featuring Kanye West and Kim Kardashian. Even the notorious website goatse.cx is cashing in on the digital currency boom — and it’s OK to click through today, trust me.

Others still must surely be nothing but scams. After all, we’re talking about communities that are already riddled with get-rich-quick enthusiasts, drug dealers, tax avoiders and other assorted criminals, and where anonymity — or at last pseudonymity — is pervasive.

Those elements create an environment that, at least for now, often overshadows more honest folk interested in the future of digital transactions and undercutting what by modern standards are the outrageous fees charged by the legacy banking and credit card behemoths.

Note the example of young Australian bitcoiner TradeFortress who, when he lost a million dollars worth of Bitcoin to thieves, didn’t bother calling the police. As I wrote at the time, the digital currency community has a trust problem it needs to address.

As former president of the Dutch Central Bank Nout Wellink said a few months back, “This is worse than the tulip mania … At least then you got a tulip.”

All that said, there have been signs from outside the altcoin community that these digital currencies are gaining more cred. For example, last month the Californian legislature introduced a bill to legalise bitcoin.

This bill makes clarifying changes to current law to ensure that various forms of alternative currency such as digital currency, points, coupons, or other objects of monetary value do not violate the law when those methods are used for the purchase of goods and services or the transmission of payments,” read the explanatory note.

This Californian bill, like various other moves around the world to legitimise the idea of a currency that isn’t linked to a central bank, will certainly help address the trust problem.

But it also brings the altcoins into the same legal framework as all other currencies, with all the rules about transparency and money laundering and detecting potentially criminal transactions and, yes, taxation. That suddenly makes the altcoins less attractive to their most ardent supporters — and that will surely decimate their value, no?

13
  • 1
    Merve
    Posted Friday, 14 February 2014 at 1:14 pm | Permalink

    No money has any real value. What is our money in a bank but a few variations in a magnetic field on round, brown rusty disk.

  • 2
    Stuart Coyle
    Posted Friday, 14 February 2014 at 1:52 pm | Permalink

    Not even a brown rusty disk anymore. Electrons in a transistor in flash memory…

  • 3
    zut alors
    Posted Friday, 14 February 2014 at 4:52 pm | Permalink

    Cash in the hand will always guarantee more mileage. Good luck seeking any favours from a waiter or a porter using bitcoin.

  • 4
    Paddlefoot
    Posted Friday, 14 February 2014 at 4:58 pm | Permalink

    All the hallmarks of a pyramid sell. Remember the Airplane Game ? It’s only value was to identify which of your ‘friends’ were arse-clowns.

  • 5
    AR
    Posted Friday, 14 February 2014 at 5:21 pm | Permalink

    Fiat currency, unfortunately the catch cry of the tinfoil hat brigade, is nonetheless what it is.
    Anyone remember various attempts at LACS? Even gold is only an agreement to lock arms & lie that it has intrinsic value.
    The only true values are skill & empathy, devalued at the moment but… I’m patient.

  • 6
    Ada Vainikainen
    Posted Saturday, 15 February 2014 at 3:03 am | Permalink

    BTW, we want to provide our users with the information in the best way. That is why there is a DOWNLOAD link (bottom-right corner of the mapofcoins.com), clicking that you can download beautyful picture of the site! No need for ugly print screens! Thanks for attention! Enjoy mapofcoins!

  • 7
    supermundane
    Posted Sunday, 16 February 2014 at 8:21 am | Permalink

    Stilgherrian is (pun intended) on the money with regards to Bitcoin and other crypto-currencies that are artificially scarse.

    Bitcoin, like gold or property is a store of value - a way of hedging against inflation. As such it’s a terrible medium of exchange. So-called ‘fiat currencies serve as a medium of exchange and a unit of account but because they’re inherently inflationary, they are poor stores of value. What makes Bitcoin attractive to some people is that it’s not a government issued currency but the reason why it will never be mainstream is precisely that reason.

    A government issued or sovereign currency such as the Australian dollar is potentially limitless and its imprimatur arises from the government’s requirement that we pay our taxes, duties and fees in Australian dollars. We use it because we have to.

  • 8
    Posted Monday, 17 February 2014 at 8:29 am | Permalink

    I cannot actually believe you attached a link to goatse.cx

  • 9
    brian b
    Posted Monday, 17 February 2014 at 10:28 am | Permalink

    What is lacking here is a distinction between the Bitcoin protocol and the bitcoin currency.

    The protocol is a set of rules for doing things, in this case transferring data / value across a network without having to rely on a third party or institution.

    This has never been achieved before and is a solution to a long standing problem (the Byzantine Generals problem. This is also where the ‘value’ lies as this method can now not be un-invented and it is far, far away from a ponzi scheme, pyramid scheme or Tulip Mania.

    The bitcoin currency on the other hand uses the protocol to transfer value across the internet. It does this will basically no fees and instantaneously. No trust is needed between two (previously) unknown parties because the network verifies the transactions.

    Are there speculators in the currency? Yes, like in the stock market where people invest in new technologies, balancing risk v reward.

    Is it volatile? Yes, because the market is still only small.

    Are there competing alt-coins? Yes, like there are competing soft drinks, stocks. Why? because this is a new industry and people are coming up with new ideas, inventions etc based on what a decentralised system allows.

    Will Bitcoin fail? It is possible, but equally possible that it will become the Internet of Money.

    To re-iterate, the protocol is an invention that will not go away and while the currency may or may not fail, the method can not be un-invented.

  • 10
    Daniel Davids
    Posted Monday, 17 February 2014 at 6:40 pm | Permalink

    Please stop refering to Shiba as “Shibe Inu dogs”. Inu means dog in Japanese… ergo, one instance of the word is redundant… its a bit like saying ATM machine or PIN number and just makes people sound ignorant.

  • 11
    Daniel Davids
    Posted Monday, 17 February 2014 at 7:57 pm | Permalink

    Seriously… I think it’ll have more to do with the unweildy size of the blockchain after not too long. The enthusiasts insist this is not a problem… it is… and that improvements in the client and the storage of superfluous parts of the blockchain on a central server will fix the problem. Sounds a bit like the central bank model that bitcoin is supposed to circumvent to me.

  • 12
    Chris Mountford
    Posted Wednesday, 19 February 2014 at 9:58 am | Permalink

    The Bitcoin-as-tulip-mania article is still being rewritten?

    the parallels are obvious” indeed. Too obvious.

    What I hope of “technology writers” in Februrary 2014 is that they demonstrate some effort to understand the topic they are writing about. It’s not like the information isn’t available online for free. It just takes a little effort.

    Bitcoin is hyper volatile. Everyone knows that. It’s not a safe investment yada yada.

    As “brian b” noted, there is no distinction attempted here between the various bitcoin technologies: the protocol, the blockchain, the currency. Readers have little hope of understanding the essential features which enable them to understand the technology. Isn’t that the job of technology writers?

    What about the use of bitcoin for zero trust contracts? Multi-signature escrow? What about proof of existence? What about proof of stake? Decentralised, secure communications via bitmessage? Distributed stock exchanges? Efficient remittance services to third world countries which currently attract fees of up to 40% (a rate reserved for the poorest nations). What about just using the technology as a medium of exchange? What about bitcoin as simply a payment system? The amount of money wasted in fraud prevention inside the credit card system is astronomical.

    These technology topics are absolutely relevant to the value of bitcoin and other cryptocurrencies but their fatal flaw is that writing about them requires an understanding of the technology. Sounds like a job for a technology writer!

    Instead we get “bitcoin has a trust problem”. That’s so lame it’s not even wrong. If someone steals cash does this imply paper money has a trust problem? Do cars have a trust problem because they get stolen? Why not add something of value to the debate? Educate yourself STILGHERRIAN

    I’m not trying to convince anyone of the future value of bitcoin. Nobody knows.

    But for anyone who wants to make an informed decision, this article is of zero value.

  • 13
    jeffin sunny
    Posted Thursday, 20 February 2014 at 2:32 am | Permalink

    Must read…
    http://www.ihavebitcoins.com/featured/bite-me-disgruntled-iphone-users-to-apple

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