Bitcoin – what is it?

IFO has been wanting to post some thoughts on Bitcoins, but there has been too much talk and not enough clear explanation about them for her to know what she was talking about. Until now.

Business Insider has found a great graphic from Reuters that explains almost all you need to know about this cryptocurrency that a small, but enthusiastic group of geeks and techies and investors is talking about. As defined in the graphic, Bitcoins are a digital currency system that has no central authority or middlemen controlling it.

You can easily see how IFO is attracted to it. She hasn’t jumped in yet, but may in the near future, try to buy something from the many websites that are accepting payment in bitcoins.

We’ve heard people say they “would never deal in bitcoins because they are too volatile.” They have no idea what they are talking about, they’ve just heard a few words on a TV or radio show, or read something by an equally-uninformed person saying that. These people are parrots.

We’re not saying the $ to Bitcoin values haven’t changed drastically, they actually have, as the graphic shows. This is early days in the development of a new currency. So, OF COURSE bitcoins are volatile – they just plunged to $220 according to the latest news, again at Business Insider. BTW, “volatile” almost always means “went down a lot,” but nobody wants to say that.

They are also much in the news. Googling the term, “Bitcoin” alone, produces some 42 million results.

Do you remember the beginning of personal computers? Yeah. They were just for kids playing games. They’d never catch on for anything serious. Old computers cost millions of dollars each. The new personal computers cost a fraction of that, but in return, the buyer had to know how to use them in their infancy. The industry blossomed. Companies making PCs proliferated. Then, the companies started to fail. Finally, just a few very, very successful companies remained. The same pattern held for suppliers, as well.

Or, for you older folks, remember the beginning of automobiles? A fad for rich people. Or tinkerers. Would never replace good, old dependable Daisy, the horse, for moving people and goods reliably. Besides, there were no decent roads for the new fad vehicles to go on, you had to know how to fix them yourself, you had to know how to start them. The industry blossomed. Etc., etc., the pattern described above repeated.

Our DS sent a link to an article by famous techie and venture funder, Mark Andreesson, that adds to our understanding as well, although IFO believes there is no substitute for personal experience.

What is the investment lesson here? Investing in a new technology or disruptive product is highly risky, but can be highly rewarding for the people who do their due diligence.

And now a perhaps irrelevant, but excellent quote from a brilliant writer: stormagnet – “Microsoft is better at building brand obedience than brand loyalty.”


About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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