Bitcoin mania worse than tulip craze
Updated: 2014-03-03 11:11
Some of Bitcoin enthusiast Mike Caldwell's coins are pictured at his office in this photo illustration in Sandy, Utah, Jan31, 2014. [Photo/Agencies]
MtGox, a leading bitcoin exchange headquartered in Japan, shut down deals on Tuesday. On Friday, the company filed for bankruptcy protection in Japan, with its chief executive saying it had lost around 850,000 bitcoins "due to weaknesses in the system."
Adding to the woes of global buyers, the chief executive of a Singapore-based trading website, First Meta, committed suicide for reasons not yet known.
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The bad news should serve as solid evidence of the great risks associated with the so-called virtual currency and even the very survival of bitcoin is currently under the starkest of challenges.
Does bitcoin qualify as a currency? Bitcoin.org, which claimed to be the first bitcoin website registered by "bitcoin core developers," said yes. "Bitcoin is an innovative payment network and a new kind of money," the website's homepage reads.
The origin of bitcoins is a process called "mining," which in essence is calculation of some complicated math problems.
Despite its digital nature, bitcoin has gained extensive publicity since 2013, with the price per coin having surged from around $13 at the beginning of the year to as high as $1,200 in November. Now it sells at more than $500 per coin.
Dramatic fluctuations have been commonplace for speculators, a dynamic that has arguably proved a thrill for buyers, and certainly made good money for some.
However, the mania around bitcoin looks even worse than the Dutch tulip bubble that peaked in 1637, when tulip bulb prices skyrocketed before suddenly collapsing.
The tulip speculation, although irrational, at least had a concrete target product with some value. In contrast, bitcoin may end up to be nothing but some digital symbols.
With no government, organization or person claiming to be responsible for its security, the much-hyped bitcoin is simply a test field for the Greater Fool Theory, in which a participant assumes he or she can sell it later to a "greater fool."
After the nerves of participants were frequently stung by painful incidents, the trust crisis in bitcoin will continue to deteriorate.
A self-evident truth is: If the entire bitcoin system is attacked by hackers, just like the case of MtGox, or the so-called "core investors" evaporate with buyers' hard-earned money, there seems to be little buyers can do.
As warned by China's central bank, bitcoin is not money or currency as it was not issued by a monetary authority, so it cannot and should not be used in circulation as a currency.
It is about time for speculators to see through the illusions of bitcoin and refrain from falling into any potential money-making scheme set by others.
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