Warren Buffet, the brains behind Berkshire Hathaway, has said that he doesn't invest in companies if he doesn't understand what they do. There's a lot of sense in that.
Other, mainstream investments I understand. Equities? Bonds? Mutual funds? Options and other derivatives? I understand the basic principles. And, on the macro level, I understand the risks and rewards. And what drives prices up and down.
But Seriously...I don't get it. As near as I can tell, there are two reasons to invest in it:
- To hide money, income or transactions.
- All those great stories of other people who got rich as Bitcoin traders. Berkshire Hathaway ain't gonna get me a lambo.
The first reason doesn't apply to me. No more elaboration needed. The second? Yeah...It's kind of tempting to try to make an easy fortune. But there's that risk/reward tradeoff. Too much is at stake. I suppose, in theory, I could invest a little bit of money in the things and forget about it. Then, some years later come back and see what happened. But I seem to recall reading about someone who lost a large bitcoin investment because he threw away the hard drive where he stored some critical information. Is it seriously the case that it's that easy to screw up and lose your investment? Like a winning lottery ticket? No...I can't believe that. I gotta figure there are some kind of services that will track your investments for you, through which you buy and sell. Aren't there? That guy who lost everything -- he was just being a dumbass. Right? Please tell me I'm right?
But, anyway, the fact that I have to seriously ask that question indicates how little I know about the Bitcoin Market. So, yeah, it's artificially-created currency, tracked on computers through some kind of (presumably) tamper-proof coding to ensure the accuracy of record-keeping.
Other than that?
Is "bitcoin" synonymous with "crypto-currency"? Or is it a subset?
Are there different types of bitcoins whose prices move differently? Or is it all the same?
What drives prices? Is it seriously just supply and demand? If so, are we talking tulip bulbs or something more real?
I hear talk of "mining" bitcoins, which I assume means there's some means of creating new ones. How in the hell does that work?
I suppose I can look it up on Wikipedia to get some answers. WHich should not be interpreted to mean that I'm actually going to invest in the things. Just that I'm curious about the mechanics.
Bitcoin is just one of many types of crypto currency. It is prolly the most well known. Over the years there have been several attempts at creating a crypto currency but until recently they have been plagued with technical flaws that limited their usefulness. Current crypto currency implementations are based upon a technology called blockchain which largely fixes those technical problems.
ReplyDeleteIn fact, blockchain is the real marvel here. Bitcoin is just one application of it. Its like comparing the Internet to online banking. Online banking is great, but really tough to do without the Internet.
From that foundation, it follows that, yes, there are different currencies (but only one called "Bitcoin") whose prices are completely independent, in theory. In fact, there is a well known academic author (hint, hint) who just published a paper showing just how correlated, or uncorrelated, are crypto currency prices.
Mining Bitcoins is something I personally find extremely distasteful. Basically, you get a powerful computer to just sit and spin for a long period of time doing nothing. You are rewarded with Bitcoin. It is called "proof of work". That's it. It's stupid. Just buy big iron, feed it lots of electricity, and watch the little hamster run. You can't even do something useful with the cycles like calculate digits of Pi or analyze electromagnetic signals for SETI. There are some proposals to remedy this but for now, proof of work, is what passes for Bitcoin mining. Some hardware companies, like NVIDIA, are making a lot of money because their equipment is popular with miners.
Oh, and BTW, everyone, not just terrorists and actuaries, needs to be able to hide money and transactions. But, you know me, I am Mr. Libertarian.