Bitcoins have been a bit of a hot topic in media lately as all of you will surely know, The biggest headlines of which recently surely include the company Mt. Gox, one of the largest Bitcoin Exchangers.
Mt Gox will be the topic of my brief posting today, as many others have exhausted great efforts to get the facts, such as Hackingdistributed.com, which is always my go to site for the real story as soon as i hear ” hackers stole my credit cards” mentioned on any of the mainstream media.
click on the picture above to be linked to their excellent article alluding to what can firmly be ruled in/ out of the realm of plausibility.
Now, Mt. Gox’s little failing has brought doubt into the concept of crypto currency of course, which is to be expected, But i personally dislike calling the bitcoin an actual currency, it’s more of an asset really.
The use of bitcoins is more like bartering than anything else really, take a moment amongst yourselves to postulate why i would say this.
Times up, The bitcoin has no physical value, literally none, doesn’t exist at all. It’s entire value (similar to currency) is drawn from its value to other people. An analogy i like to use when explaining the concept of a bitcoin to someone is likening it to a coin, a rare collectible coin, or even a postage stamp, or really any collectible.
Imagine a bitcoin is like a defective print penny with lincoln’s head having 6 eyes or something. You could take this coin into any store and spend it as a penny, its value is 1cent, however to a coin collector, this value could be much much higher, stemming into thousands of dollars depending upon the rarity. After some research you find an interested buyer willing to purchase your poorly punched penny to the tune of $5,000. this item now has 2 values, it’s endorsed, regulated CURRENCY value, which guarantees that this backed item will always be worth the amount it depicts (1 cent), and it’s situational value, which is the 5,000 the buyer you’ve found is willing to pay.
I think you should be able to see now the difference between currency, and an asset. an asset is only ever worth it’s value to the buyer, Currency on the other hand is worth what it’s creator and backer DECREES that it is worth, and promises for all of time that if you return it to its source, that its value will be the same.
So now, we’ve got the difference between an asset and a currency pretty well defined. Lets look at the qualities of a bitcoin.
A bitcoin is worth exactly what the buyers and sellers say it is. the source of a bitcoin isn’t ever going to guarantee that if you buy a bitcoin for 5$ that if you return it you will get your $5 back, So a bitcoin is just that, an Asset, It has value, but it is not a DEFINED value much less a BACKED value.
So what could possibly make a bitcoin with no guaranteed value attract so much interest and attention to the point where it is actually USED as currency? Well, for the exact reason that it is an asset, not a currency. It is not federally regulated, It is not taxed ( though it is technically an asset which needs to be listed for tax purposes) and most of all it is secure, from the perspective of theft anyway.
The online world is a completely different monster from the cash based world we grew up with. Before online shopping, you handed cash currency to store keepers in exchange for goods and services, which is about as secure as you can get, unless it is physically take from you.
Credit cards came along and made online shopping possible, but presented for the first time the issue of sending secure data over the internet. No petty challenge indeed.
Here comes another analogy, imagine you’re sitting at long feast table, you are at one end and the king of the land, amazon is at the other end. You cannot simply get up and walk over to the king or his guards will have you slain, so your only option is to pass your credit card to him along the table, hoping along the way that nobody pulls out a piece of paper and jotts down that all important number. What needs to be done is to have your information passed along in such a way that nobody else can alter or get any information from it.
Thats where the bitcoin excels A bitcoin may not have a set value, but it is secure. it consists of two keys, the first key is passed along the table and anyone could indeed write it down and try to claim it, however nothing changes hands until you recieve your notification that someone tries to claim it,, see the account number of whoever is claiming it, which you can confirm belongs to king amazon, and then type in your OWN password key, that has never left you.
without both of these keys a bitcoin cannot change hands, and therefore nobody’s assets are transferred.
For the holder of the coin and the recipient it could not be more direct and protected, however much like real currency, You need a bank, a place where the bulk of your money is stored and handled, and an account exists with your name on it whose ledger says you have 12 bitcoins. Enter MT Gox, who act as the Bitcoin equivalent of a bank, your coins sit safely in their vault until such a time as you go to claim them.
Needless to say, security At Mt. Gox needs to be just as stringent as any other place that holds assets for its customers. Mt. Gox did not have that, Lackluster security and poor practices abounded, and as a result their vault was robbed, completely outside the consumer’s hands. Just like any credit card company, bank, or loan provider, They are tasked with protecting your assets, and MT. Gox failed to do so.
In reality the failure of MT. Gox has nothing to do with the plausability of the bitcoin concept, it was merely a bank that left it’s vault open with doors unlocked and the security cameras turned off.
A lot of fault likes to be assigned by mainstream media onto their new favorite scapegoats ” Mysterious computer hackers” which often fills me with fury, because it spreads the message that. ” These poor poor businesses that did nothing wrong and some horrible life destroying hacker came in and ravaged our virgin data.” when really, the blame falls to the companies offering the services.
Why do you store Money in a bank rather than under your matress? Because you know that if your house burns down, the money is safe in the bank, protected. So that someone robbing the place gets ahold of only petty cash and not your life savings safely stashed away at the bank.
That is what you are paying credit card companies, companies that ACCEPT credit cards, and bitcoin holders for. I firmly place 90% of the blame for high profile “hacks” such as the sony debaucle, the christmas credit card gathering at target, and now the coin loss from Mt. Gox on the companies that promise to protect your data, and failed, (through gross neglegience.)
If you don’t take steps to protect my data, what the hell am i paying you for?