Bitcoins are all the rage right now. Their value jumped another $120 in less than a week, and the craze just won’t stop. But everyone is referring to them as a “virtual currency.” If something is a currency, it means you use it to pay for products or services. But would you make a payment using bitcoins?
Right now it’s certainly not advisable. How do you measure their worth? At the moment of this writing, bitcoin exchange Mt. Gox listed the last price of bitcoins as $252 and their high at $266.
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What if the value dropped to 1 cent tomorrow and you had cashed in all your U.S. dollars for bitcoins? You wouldn’t be able to pay your bills. A loan you took out in bitcoins a year ago would now be impossible to pay back.
The argument has already been made that bitcoins are more of a commodity than a currency. People just arbitrarily decide how much they’re worth, and that’s their value. However, bitcoins do provide a way to make payments that are untraceable and nonrefundable.
So, if you’re a consumer wanting to pay for something that you don’t want others to be able to trace and you don’t care how much it costs, then you could, theoretically, use bitcoins if the merchant accepted them. Also if you’re a merchant who takes bitcoins, there’s no such thing as a chargeback. The system is basically unregulated at this point.
Forbes contributor Timothy B. Lee calls bitcoins a “disruptive technology,” and he may be right at this point. Currently people just don’t know what to make of them. They’re a ‘curiosity,’ so naturally they’re garnering the attention of investors.
In order for bitcoins to be any good for people other than investors, their value must become relatively stable. So just think of the Internet as a nation and the bitcoin as its currency. Once a nation’s citizens start jumping ship on its currency, the value of that nation’s economy goes down the tubes. Just look at what’s happening in Japan and Cyprus right now.
Meanwhile the rest of the world looks on and gets their money out while the getting is good.
But then we are in the middle of a technology revolution, and like the bitcoin, the Internet’s economy is also going up and up. The “gross domestic product” of the Internet is through the roof compared to where it was when its adoption began. Online retailers like Amazon.com, Inc. (NASDAQ:AMZN) are putting brick and mortar retailers out of business.
So some would say that bitcoins could be worth $1.5 million, but the world will likely have to recognize the Internet as a legitimate “country” with its own currency before we learn what bitcoins are really worth.
But before that happens, will investors tire of it just as they tire of everything else? Just look at how quickly they turned on Apple Inc. (NASDAQ:AAPL). Then when they do get tired of bitcoins, the bottom will fall out and whoever’s left holding all the bitcoins will be left penniless.
So what we’re really looking at with bitcoins is a race against the clock. Perhaps bitcoins are what the world needs to unite all currencies in a fashion similar to the euro. But that begs another question, what if the economies of all of the world’s nations depended on each other because they all used the same currency?
You could be looking at a situation similar to the U.S. Some states have a higher cost of living than others. The economy of some states is stronger than others, even though they use the same currency. However, it’s also much easier to travel from state to state because of the single currency.
So now what do you think bitcoins are worth?