No sooner had I written a short story last week about Chicago coin dealer Harlan J. Berk deciding to accept bitcoins in payment for purchases, than something happened to call into question the very essence of the new currency.
The CNBC financial network reported that a major bitcoin exchange halted withdrawals late last week to solve a technical problem.
The result was a massive $170 tumble in the price of a bitcoin from $850 to $680.
Bitcoins have only been around since 2009. There are bound to be problems with anything, let alone something that claims to be a new currency.
The bitcoin has no tie to any country of the world and is not overseen by any central bank. It just is. It exists in limited quantity and only electronic mining can add to the supply.
Also, the ultimate supply is capped.
If timing is everything, bitcoin couldn’t have picked a better year to arrive in than 2009 when the integrity of the U.S. dollar and every other paper currency in the world was in question because of wild swings in the marketplace.
However, its initial value of roughly 75 cents compared to its current value, means it has appreciated to 1,133 times its original value.
That alone is a strong indicator that bitcoin is anything but a currency.
Imagine taking out a mortgage in bitcoin in 2009. Whatever the size of your debt at the time, you would now be on the hook for 1,133 times that.
A useful currency shouldn’t do that.
Part of the bitcoin claim to fame is it cuts out the transaction fees that credit card companies require for the convenience of that method of payment.
No transaction costs are a good thing for consumers.
But however good a mechanism for the conduct of transactions it is, that function alone is does not make it a currency.
Bitcoin takes its value from what others will pay for it. The fact that it has rocketed in value means it has proven to be a good investment. However, a good investment does not mean it is a good currency.
The jury is still out on bitcoin’s future. Some people like it and accept it. Some countries have cracked down on it.
But I think it is apparent that though it has proven to be a good investment and a better electronic payment mechanism, it is not a currency – yet.
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”