BitCoin and International Currency

PHOTO: The use of the virtual currency, bitcoins, is one the rise.With all the banking problems, the growing distrust of big business, downfall of some economies due to their bad banking practices, and now the forced removal of funds in Cyprus means things for banks are not looking to bright. People are looking for other ways of transferring currency with less overhead, more trust, and a way of storing their money without just shoving it under their mattress. Bitcoin says they are the answer (to some of the problems).

A Bitcoin is a digital currency that is traded electronically and does not need government backing. Despite its name, there is no coin to put in your pocket.

Two weeks ago, one Bitcoin was worth $40, then a record high.

Today, it’s worth $72, largely because of “incremental interest” from euro and Russian ruble holders who are terrified by the situation in Cyprus, said Nicholas Colas, chief market strategist at ConvergEx Group, a financial technology company in Manhattan.

“The best-performing currency year-to-date has no home country, no central banker and no physical scrip,” Colas said.

With no home country, how does it stay propped up? Who backs it up? Who creates it? Well those questions are not really all that easily answered.

The Bitcoin reportedly was invented by a man who called himself Satoshi Nakamoto, and who may — or may not — have been a 23-year-old graduate student in cryptography at Trinity College in Dublin. He wanted people to be able to exchange money electronically and securely without a third party’s involvement. Although there are no physical coins, Walmart sells Bitcoin gift cards, and as Salon noted, WordPress and Reddit take payments in Bitcoin. It is very nearly a form of barter. The only way it does you any good is if someone else will take it, and they will only give you what they think it is worth. So its value fluctuates radically.

Diana Furchtgott-Roth, the former chief economist for the U.S. Department of Labor and a senior fellow at the Manhattan Institute, a conservative think tank, was unimpressed.

“It’s a gimmick,” she said. “The Bitcoin would never work in Cyprus because Cyprus is full of insolvent loans. Putting in different currency is not going to help. They would ideally have their own currency. Whether it’s digital or dollars, they need to separate from the euro and put in economic currency that will attract more investment.”

Colas was also hesitant about the Bitcoin’s future.

“Whether it succeeds or fails is hard to predict,” Colas said. “We’re clearly in uncharted waters. But one thing is clear: Bitcoin is one more lens with which to assess the ongoing European financial crisis.”

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  • […] value is skyrocketing right now, quite an interesting product. I compare it to bartering actually in my recent article. It has no hard currency backing, no gov't backing, so it is kind of […]

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