Have you ever wished that you got in on a Ponzi scheme at just the right moment? If so, we may have some bitcoins to sell you.
In case you haven’t heard, Bitcoin is the brave new world of global currency in the digital age. It is a peer-to-peer payment system that takes place via an encrypted public log. The owner of bitcoins is registered on this log and can make transactions with merchants who accept bitcoins by exchanging what are essentially credits with one another. The administrators of the log (known as the “blockchain”) are known as “miners” and they are rewarded in bitcoin for their systems management work.
Although bitcoin may be exchanged for dollars at participating exchanges, it is not yet considered an official currency by the U.S. government. As of this writing, 1 bitcoin = $728.65. And its value continues to rise.
Since the value of bitcoin is boiling over, it is attracting a great deal of interest among investors and high-tier property sellers. That’s right, one gentleman has recently listed his 4-bedroom, ranch style home in the Hamptons for $799,000 — payable in US dollars or bitcoin. You can also jump into China’s housing bubble with bitcoin if you wish to double down on your real estate speculation.
As with any investment, some due diligence is in order before you start stockpiling the newfangled currency. Paul Krugman recently called it “evil.” While we may not moralize so dramatically about the concept, Bitcoin’s faults are pretty glaring.
Bitcoin is undeniably built on a deflationary economic model. Once 21 million bitcoins are “mined”, production stops — this is a condition built into the code, instituted by the creator of Bitcoin.
While Bitcoin may be an intriguing and efficient medium of exchange, problems with the currency crop up when it is considered as a store of value. The dollar, which is still the world’s premiere safe haven currency, is backed by the full faith and credit of the United States government. If the value of the dollar goes into a tailspin, the Federal Reserve will buy them back. Even gold (a terrible standard) holds economic value stemming from its aesthetic uses.
Bitcoin, on the other hand, attempts to create a store of value by placing a finite ceiling on the creation of the currency. In other words, Bitcoin’s value comes from its built-in scarcity. Since the amount of bitcoins in circulation is inherently limited, its value will continue to appreciate as the initial fever to acquire the currency runs hot. Its value appears to grow, which creates a deflationary spiral as users hoard the currency rather than spend it, perpetually waiting for it to gain more value.
Basically, it’s a speculative game of hot potato. The idea here is to get the currency while there is still demand for it, and then exchange it for dollars or assets (real estate) before its value falls. Whoever is the last in will be left holding lines of worthless code. The smart ones will have converted their funny money to real cash long ago.
So, what do we think about purchasing real estate with bitcoins? If you own bitcoins now, convert it into something that acts as a reasonable store of value as quickly as possible. Real estate is a good idea…that’s if can you find a seller who will take your bitcoins.
Otherwise, save them for the doomsday-preaching, anti-government gold bugs. They’ll have some fun with the fantasy “independent” currency while the dollar marches on by fiat.
Bitcoin is not just a cryptocurrency but also a real game changer in the financial sector..Many analysts ask why is blockchain taking so long? But it is super fast compared to the banking system…
This article makes a good job at concisely and precisely explaining what Bitcoins – a feat that is not easy. However, I do not agree with the conclusion. First as to the baking: the US Dollar and most other currencies have NO backing. Most of these currencies started on an uncontrollable inflationary spiral decades ago, they effects of which are starting to materialize and will continue to worsen. The backing for these currencies, as far as the general population is concerned, disappeared roughly at the time of World War I (One). Since then, most of their value is “psychological”. In fact, since WWI, the US Dollar has lost close to 100% of its value. Moreover, BitCoin has true market support it does not depend on backroom deals in order to preserve its value. From a backing and market point of view, BitCoin is far superior to the US Dollar. Working people and business people alike need a reliable, independent store of value which is increasingly being denied to them as Central Banks (in particular the Federal Reserve) continue to manipulate the currency to the detriment of everyone. BitCoin being peer to peer is impervious to manipulation by one entity alone, such as in the case of the US Dollar. BitCoin represents the future and it is the second real chance that we all have at a real currency that really represents the market participants. It is our second chance, our first one was the Tally System, used in England from about 1100 to about 1850, when it was abolished courtesy of the Bank of England. The Tally System, has been the most successful ever system of currency and exchange in existence. BitCoin provides the first valuable system based on which a new Digital Tally System may come to fruition.
Based on its track record since 1960, hoarding U.S. currency wouldn’t be much better than hoarding bitcoin. A candy bar that cost ten cents in 1960 costs $1.60 today. Hoarding water would probably be the least risky way to preserve wealth, but obviously impractical to store and deliver. Real estate gets taxed, although prop 13 makes it more attractive. But the maintenance, ugh!
Gold has pretty much dropped to its aesthetic value, which makes it an excellent candidate. Relatively easy to store and protect. Always valued. Look what the market value has done since 1960!