Fore-note:
Tuna! is a metaphor for the buying and selling of everything without concern
for the consequences. There is much coverage of this concept here in this Blog
as well as in other media under the moniker of "It's All Tuna!"
Bitcoin.
That ubiquitous intangible currency which is all the rage in speculative
investing circles. The proponents all claim an investor can become fabulously
wealthy with 1000%, $2000%, and even 10000% gains. What they do not say is the
buying and selling of Bitcoin is a game of musical chairs where everyone keeps
circling the available seats until the music stops. Then is when someone loses.
Another attribute
of Bitcoin is any gains you make equals the losses of one or more unfortunate
investor. When the stated price goes up it is because other investors are
willing to pay the higher price while hoping the price will go even higher. No
one is "setting" the price. As with all pyramid, or Multi-level
Marketing schemes the people who get in (and out) early make all the money
while the rank and file investors fret over the volatility and massive losses
the value can present.
When the
highly secretive inventor of Bitcoin first employed blockchain data principles
to make a crypto-currency it ostensibly was for the purpose of buying and
selling tangible goods and services, not the currency itself. In those early
formative days of sub-hundred dollar prices, one could buy their morning
Starbucks coffee with the touch of their smart phone. Vendors would accept the
value from customers' digital wallets to their vender digital wallet. From
there the vendor could use the stored value to buy other supplies, or get the
value paid to them in Dollars. Mostly the customers obtained their Bitcoins by
either buying them for Dollars or by accepting a payment with it.
It Costs
Money To Spend Money
Well
actually to be more accurate, it costs money to accept money. There is an
entire supply chain to follow which diminishes the value of the cash. It takes
time to receive the cash from the hand of the customer, then return any change.
One must deposit the cash in a drawer and register the transaction. One must
watch the cash drawer and the cashier all day. At the end of the day the cash
must be collected, counted and aggregated into a single pile for transport to a
bank. A small store might just drop the bag in a Night Depository while a
big-box store will have an armored truck come to get it with armed guards. This
process repeats every time a large enough pile of cash is created. Stores will
segregate out of its daily receipts sufficient cash to stock the cashier
drawers for the next day. Accountants, bookkeepers and managers are all needed
in order to handle cash.
Paper checks
have their own procedural chain to follow which likewise costs money, a small
fraction of the daily receipts.
Credit cards
and Debit cards reduce the demands of the handling of cash but themselves
require a fraction of the daily receipts. The bank which sponsors the cards
charges a fee to the vendor to accept and process the cards. Unless the
retailer is huge and can negotiate a better deal, the typical fee is 30 cents
plus 3 percent of the total. There remains the cost of card scanners, computer
networks to connect them all up. And a staff of people to keep the whole thing
running.
On the other
side of the Credit/Debit card transaction there is another entire process
needed to route the transactions to the correct customer and actually bill them
for their purchases. All of the 16-digit card numbers+vendor
id+date/time+amount+other coding must be transmitted to one or more card
processing hubs and distributed to their respective destinations. This cost is
part of the service fees charged by the account holding banks. Hundreds of
millions of such transactions are processed each day.
Bitcoin
sidesteps a lot of that process by making the transaction peer-to-peer. Without
a bank at the center of the hub there is no central processing, per se. The underlying technology of the
Blockchain allows for thousands or even hundreds of thousands of small private
providers to process the Bitcoin transactions on their own computer hardware,
with their own software and most importantly their own labor and electricity.
This paradigm
shifts the cost of processing away from a bank and the currency and to hopeful entrepreneurs
who invest their funds, time and resources to earn a share of the global pie
metaphorically referred to as Bitcoin Mining. It's a pretty good deal if you
can get it. For the Bitcoin crypto-currency system, that is.
Bitcoin
started out as a means of purchase in the real world. Introduced in 2009 it
gained value to $0.08 by 2010. By the first quarter of 2011 it had reached
$1.00 and by mid-year exceeded $30.00.
The price fell to a new low of $2.00 by year's end. While Bitcoin prices stayed in that two-digit
range it was reasonable to actually use it to buy stuff. At $0.08 anyone who
used Bitcoin at a Starbucks for a $4.00 coffee used 50 Bitcoins for it and paid
the equivalent of more than $800,000 to $1m for it (at top 2017 prices.) This
is not to say Starbucks accepted Bitcoins while the price was below a Dollar.
Today with
the ever optimistic chatter about the future value of a Bitcoin one would be foolish
to relinquish one in a frivolous transaction. But just as likely as the price
continuing to increase, there is the possibility of an implosion.
As soon as
the trading marketplaces get firmly established, short selling can be
implemented. Short selling is a process of margin trading where one borrows the
equity shares rather than cash and selling the shares, in this case Bitcoin, in
anticipation of the price going down. The transaction is complete when the
lower priced Bitcoins are bought back and returned to the brokerage. In this
process one extracts value from the investors who bought as the price went up.
Such a system is ripe for panic and manipulation.
If you are
inclined to get involved, good luck, you will need it. BTW, buy my eBooks at Bit.ly/CARLSON, I accept Bitcoin.
