This week there has been tremendous buzz about Bitcoins surpassing the $500 value per unit. In case you are not familiar with Bitcoins, they are essentially a decentralized online currency. Over the past year Bitcoins have sky-rocketed from approximately $25 in value to $500. [1] I could not definitively tell you why Bitcoins are experiencing such amazing growth, but I can see reasons why it is growing. For one, it is a currency that is extremely challenging to trace to a real-life person. While this can be seen as a safety precaution for online shopping, it has also opened up a market for the online distribution of illegal drugs via a black-market site called The Silk Road. Despite the hype, I have reason to believe that it is a stretch from becoming a currency.
As far as I am concerned, the limitations for Bitcoins are currently far too great. Rarely do online retailers accept them as a form of payment and more importantly, practical purchases such as food, clothing, and rent cannot be purchased via Bitcoin. Instead it requires the owner to convert their Bitcoins into currency so they are able to purchase the above items. To me, they seem more like a commodity than a currency. They have no innate value, but because there is enough demand for them, prices soar and people “hop onto the bandwagon”. This is the very definition of a “bubble” and by that very nature, they eventually burst.
Original article: Seeking Alpha
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[1] Bitcoin Charts
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