Tuesday, May 7, 2013

Are You Using Bitcoins?

If you aren't and are wondering what bitcoins are, well, they're this online currency some people use. Not backed by a bank or a government or anything; it relies on cryptography to work. You earn bitcoins by going out and getting a miner. Long story short, it looks for suitable cryptographic hashes, of which there are only so many, and the only real way to find them is to dive in and look until you find some. As time progresses, there are fewer and fewer new hashes to find, and eventually they'll run out. (For a more detailed answer, go here and click on 'What exactly is Mining?')

If you are using them, first off, dude, WTF. (That 'not backed by bank or government' thing is kind of deliberate.) Because there's no bank or government banking, there's no real protection from wild, uncontrolled price swings for no good reason or even malevolent reasons. You're about as protected as you were when people traded in Beanie Babies and you know how that went. And I come to you today to note that just because it's not regulated now, that doesn't mean it won't or can't be... or that the idea of same is not currently being considered by Bart Chilton of the Commodity Futures Trading Commission. This is just speculation for now, as a bunch of formal steps plus consent from the others on the commission need to be lined up, but it is on Chilton's mind.

That's right: commodity. There is no physical bitcoin, and because there isn't, bitcoins, as Chilton sees it, are not a cash market and therefore fall within the CFTC's scope of operation, same as gold, silver, oil, cattle, corn and frozen concentrated orange juice. Yes, Trading Places wasn't lying to you. That is a real commodity. It's fungible, meaning any given source of oranges is close enough in property to any other given source of oranges to end up in any given carton of orange juice together. Oil's the same- Venezuelan oil, Saudi oil and Kuwaiti oil is probably all in your gas tank right now. And that describes bitcoins as well; all bitcoins are alike.

This isn't even math we can use for anything else, for Pete's sake.

Few outside the bitcoin market would argue that the market looks a bit like the Wild West. It may soon get a sheriff.

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