Enter the terms you wish to search for. The sudden drop in the bitcoin macdonald of Bitcoins, the hot new Internet currency, has added urgency to the question of whether Bitcoin is the way of the future, or just another bubble. Not to keep readers in suspense, the answer is a bubble, but a particularly interesting example of one.
In particular, Bitcoin represents what ought to be the final refutation of the efficient-markets hypothesis, which still guides most regulation of financial markets. Before going any further, what is Bitcoin? As with any question nowadays, Wikipedia provides a good initial explanation and plenty of references. By analogy with gold, the producers are called miners. Since the number of new bitcoins allowed halves every four years, and computers are getting steadily faster, the complexity of the computation required to produce each coin is increasing rapidly. Once bitcoins have been produced and authenticated, the miners are free to exchange them for U.
Alternatively, they may use them to buy goods and services from anyone willing to take bitcoins in return. It might seem that Bitcoin is just like a fiat currency issued by governments. In that respect, it’s not so different from fiat currencies like the dollar or Euro, but whereas governments back such money, Bitcoins lack central control. But this is a misunderstanding of what money does and where it came from. Because of their power to tax, governments can make money by fiat, simply by declaring their willingness to accept that money in repayment of tax debts.
Historically, money arose from, and in conjunction with, this power. This point has been made repeatedly over the years, most recently in David Graeber’s controversial Debt: The First 5000 Years, a surprise publishing hit for an anthropologist. That would be fine if Bitcoin were simply a unit of account, used to keep track of transactions. But all the interest in Bitcoin is in the idea that it is a store of value, one that may be expected to show steady appreciation rather than depreciation. So Bitcoin needs to be evaluated as a financial asset. Viewed in this way, Bitcoin is perhaps the finest example of a pure bubble. It beats the classic historical example, produced during the 18th century South Sea Bubble of “a company for carrying out an undertaking of great advantage, but nobody to know what it is.