I was asked recently, “Should I invest in Bitcoin?”
My answer was, no, but if you want to gamble on Bitcoin, only gamble what you can afford to lose.
The question remains, what is Bitcoin? Why are people so excited?
Bitcoin is a crypto currency. I know, this may not really clear anything up. Let’s try this. Bitcoin is an artificial currency, unconnected to any government. Bitcoins are mined by running very complex math problems on linked computers.
The limitations on Bitcoin are that the mining operation consumes vast amounts of computer time. This mining operation is, at its core, a nonsensical computing exercise whose only purpose is to limit the production of bitcoins. In addition to the nonsensical mining operation, there is an absolute limit to the total number of bitcoins that can be in circulation at any time. The limit is 21 million bitcoins.
The other element of Bitcoin is a block chain ledger system. . A block chain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, allowing market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the block chain, which is downloaded automatically.
Originally developed as the accounting method for the virtual currency Bitcoin, block chains – which use what's known as distributed ledger technology (DLT) – are appearing in a variety of commercial applications today. Currently, the technology is primarily used to verify transactions, within digital currencies – though it is possible to digitize, code and insert practically any document into the block chain. Doing so creates an indelible record that cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the block chain instead of a single central entity.
Thus we have an artificial currency that has no intrinsic value which cannot be used to pay taxes and is not legal tender for repaying debt. Why would anyone accept this currency? There are three reasons: the first being some folks feel that when government debts become unmanageable central banks will print currency and cause massive inflation in order to repay past debts with cheaper devalued new dollars.
The second reason is that Bitcoin is unregulated and anonymous. This makes it ideal for computer hackers who want a ransom payment to unlock a hacked computer. Bitcoin is also the payment method of choice for drug dealers, arms smugglers and human traffickers, as well as for sanction evading state actors.
Finally, some people believe they can use Bitcoin to hide from the IRS.
Because of the large demand for hidden payments by the criminal class, many people feel that there will be a growing demand for bitcoin and therefore an increased price.
Bitcoins are valuable because people are willing to accept them and trade them for real currencies such as dollars. If people quit accepting them, they will have no value. One way to think about bitcoin is to remember the plastic poker chips that you play with at charity casino nights. On casino night you can play with the chips, trade them, and exchange them for prizes. The following morning, they have no value.
This is not an investment. It may grow in value but I cannot recommend it because it may well disappear. I also don’t like the criminal connection.
Guy Williams is president and chief executive officer of Gulf Coast Bank and Trust Company. Their Kenner branch office is located at 3410 Williams Boulevard. Marcel Gonzalez, vice-president and branch manager can be contacted at 565-3656. Brian Behlar, vice president and commercial lender, can be contacted at 565-3661. Visit Gulf Coast Bank and Trust’s website at www.gulfbank.com.
Article Posted On: February 15, 2018 - By: Allie Munster