The Bitcoin thing is getting weird

Last month, I suggested that one problem with Bitcoin is that anyone can set up an alternative currency similar to it, and there is no practical obstacle to people switching over.

By comparison, there are lots of practical obstacles to switching from other currencies. If, say, you decided one day to stop using US dollars and do all your business in Japanese Yen — and you’re based in the United States — you would have a lot of problems. All your US-based vendors and customers would either have to pay currency conversion costs, or stop doing business with you, and you’d have problems paying your taxes and government fees and utility bills and a whole bunch of other stuff. Similarly, if you had a lot invested in a corporate-backed virtual currency, such as a store gift card or iTunes credits or Linden dollars, you might have to sell them at a discount to get rid of them, and you might lose access to that particular marketplace.

So, if something came along that was just like Bitcoin but sexier, what would keep folks from switching over? Especially if, with the new currency, they got in early enough so that they’d be able to mine it, or buy it on the cheap.

I was thinking of something like Biebercoin.

But it turns out that reality is even stranger!

On November 27, an Adobe exec tweeted: “Investing in Dogecoin, pretty sure it’s the next big thing.” He was making a joke, referring to a popular Internet meme of a Shiba Inu.

Dogecoin we trust.

Did I mention it was a joke?

Well, that joke is, as of this writing, worth US $7.4 million.

Yes, Dogecoin is now a real cryptocurrency, trading on various Bitcoin exchanges, with more than 13 billion Dogecoins already mined out of a potential maximum of 100 billion Dogecoins.

The technology and algorithms behind these cryptocurrencies is open source. So if you like a particular type — Litecoin, for example, an improved version of Bitcoin — you can easily make a clone of it, attach it to whatever the latest hot thing is, and release it into the wild.

I just didn’t expect it to be based on a dog-related Internet meme.

 

 

maria@hypergridbusiness.com'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China.

  • Oddje Otoole

    Oddycoin!! Imma gonna be rich!!

  • Hannah

    I’m putting all MY money into WAFFLECOIN!
    http://www.youtube.com/watch?v=JGstHASo1t4

  • Fartcoin for me please.

  • I never thought I’d ever read a story that begins with the words “Meme-based cryptocurrency…” but Dogecoin keeps making it into news headlines. Today, it’s because Dogecoin was hacked to the tune of $12,000. Okay, that’s not a huge amount of money compared to some of the large Bitcoin hacks, but still a nice piece of change.

    Read full story here: http://readwrite.com/2013/12/26/dogecoin-hacked-millions-of-coins-stolen#awesm=~oraiWt0T4u6UAd

  • hack13

    I really understand how people are not wanting to trust these crypto currencies, and while yes i understand that. However, I know I might be looked at crazy for saying this, but I am more prone to trust a crypto currency than the US Dollar. I hate how currencies like US Dollar, Euro, Pound, they are all proof of how our currency fails today.

    Here in America, we are suffering from major inflation. A bank, which is not even part of our government has the right to print money, and make our dollar worth less and less. With these crypto currencies, that is a thing of the past. No one can jut print money, it is made as it is bought and sold. It cannot be inflated, the only way it can be exploited, is by hackers stealing other people’s wallets, or worse, playing the economy, the same way you do with the US Dollar or Euro. Take down the biggest exchange for a day, watch the price drop, buy in, wait for it to go back up and cash out.

    Now, i am not saying go invest to all the different ones out there. But I am saying go with the ones that are starting to be accepted by real companies and masses of people using. That would be at the moment Bitcoin. Which more and more companies around the world are starting to take, and honestly its the same as any currency honestly. The value is what people give it, I mean you can argue that the US dollar is backed and the Euro is backed. But let me point out right now, what you guys can choose to ignore but it is true, but it is already known, if our dollar inflates to much, shipping companies have already warned they will no longer accept the US Dollar, they will require good old fashion GOLD BARS for payment instead. So then lets break it down even more, gold bars only have worth because we give them worth, same as other things.

    What I am trying to get to is the dollar is just paper, gold is just gold, sand is just sand. We as a society over time, to become more “civilized” have choosen to switch to currencies backed by gold or silver because those are things we use to measure worth. But honestly, they have no real world value, only what we have attached too them. I mean if you give me a gold bar, what can i really do with it? Melt it and make it a necklace, or bracelet, other than that just sell it. It has no worth.

    I guess I am a strange person in this world who chooses not to be rich or live a crazy expensive life. I just want to live comfortable, and that is maybe a small house, do my job and make people happy. I don’t want or need nice things, life is a one shot pass through, and instead of fighting for the best and biggest, I want to just live life and enjoy it while i have it, not waste it climbing too the top.

    • Actually ” I mean you can argue that the US dollar is backed and the Euro is backed” is no longer true.

      http://en.wikipedia.org/wiki/History_of_the_United_States_dollar#United_States_Notes

      http://en.wikipedia.org/wiki/Gold_standard

      I don’t have anything to add about bitcoin as I am to poor to speculate in such things.

    • Switching from the US Dollar or Euro to Bitcoin because you’re worried about inflation or other kinds of volatility is like finding a scratch on your finger and then amputating your whole arm.

      The big miracle about our financial system — and why it (overall) works better than any other one in history — is that the process of creating money is linked to economically beneficial activity.

      Most people think that money is created when the government prints it.

      In fact, money is created when banks lend it out. So when you build a house, start a business, get a college education, or buy a new car — you borrow money from the bank. You now have that money in your hand to give to your university or contractor or employees and suppliers. Meanwhile, the people who deposited the money in the bank ALSO STILL HAVE IT. The bank has, in effect, doubled money (well, not exactly doubled, since they need to keep some reserves).

      To control the amount of money in circulation, the government increases or decreases these deposit limits, and changes the interest rates they charge for interbank loans.

      As a result, the amount of money in circulation marches — almost — in lockstep with the amount of money needed. It’s not perfect. It’s a hugely complicated system, and hard for mere humans to manage exactly, and there are a lot of mistakes made along the way. But it’s a system that’s helped lift over a billion people out of starvation-level poverty over this past decade around the world as almost every country has switched over to this approach.

      If you look at the volatility of national currencies, they’re actually pretty low compared to historical data – and ESPECIALLY low compared to Bitcoin!

      And about inflation and deflation… a small amount of inflation means that people and companies are encouraged to buy things now, because they’ll be more expensive later. It also means that the real value of wages drops over time, unless they’re corrected for inflation. Both of these factors help balance out against the fact that everything is also getting cheaper, due to competition and technical improvements. Again, it doesn’t line up perfectly, especially recently, and especially with the minimum wage not keeping up with inflation.

      Deflation, however, is an economic nightmare. This is what happens when there is a limited supply of currency. The value of the currency goes up, so you can buy more stuff with it. This incentivizes people to hoard the currency, because if they wait long enough, everything they’ll want to buy is cheaper. As a result, it discourages economic activity. This is, in fact, happening with Bitcoin now — people are holding on to their Bitcoins instead of using them.

      So economically, Bitcoin have two big strikes against them. Their creation does not stimulate economic activity (it rewards hackers for hijacking millions of computer to create botnets that mine Bitcoin). And it’s deflationary, so people don’t want to spend it.

      I know its hard to think positive when our economy is in the dumps, unemployment is high, congress is incompetent, and the news is full of Kardashian butts. But remember that the economic issues are temporary. And, because George W. plunged us into the toilet, we were able to get Obama and national health care out of it. Which, regardless of how you feel about it politically, will significantly improve economic life for US citizens and companies.

      Similarly, income inequality — a big contributor to today’s economic problems in the US — is a political issue, a factor of tax rates and other problems. I think this needs to be solved in the voting booth and, hopefully, will be.

      But neither inequality or unemployment are issues that can be solved with Bitcoin. Bitcoin does not improve the lot of poor people, and does not stimulate economic activity and create jobs.

      • hack13

        though the things you say are valid points. I know how official currencies work, and how they keep economy afloat, but honestly what I am trying to say isn’t that. I am trying to put into perspective the same issue here.

        while to help the economy we need to spend money and what not is great and things, but I don’t nor do I like to keep my money in american banks. mainly because the value of our bill keeps fluxing too much for my comfort. But i don’t like to spend money at all, and I don’t do loans or credit. I buy things straight up, because of this I don’t have credit, but credit is something the US founding fathers never wanted to begin with.

        All I am stating is people like me don’t take much value from currency. I just want to have enough money to feel comfortable. I like the crypto currencies because we have seen it happen more and more the money corruption. This prevents that, and why punish the all for the few, I think it is unfair. To face it, all currencies have their flaws. Bitcoin however is already starting to be backed by big name banks in countries like Germany.

        • I’m not seeing how cryptocurrencies can help avoid corruption — if anything, there’s a great deal of criminal activity associated with these currencies, both in generating them, and in using them (Silk Road and the like). And if you don’t like keeping your money in US banks because of fluctuation, you DEFINITELY don’t want to be keeping your money in Bitcoin. Diversify into the Euro or the Australian dollar or something. The fluctuation in price of Bitcoin is several orders of magnitude greater than that of the fiat currencies.

          Right now, Bitcoin is popular and getting a lot of attention, and many companies are jumping on the bandwagon just for the publicity. That doesn’t mean that Bitcoins are actually becoming useful — that might happen, or it might not, but don’t go by the hype.

          If I was to invent a new currency from scratch, I’d want something backed by some really large international institution, like the UN and the IMF, but I don’t think the world is ready for something like that yet.

          As it stands today, Bitcoin is today’s version of the Beanie Baby. Limited supply, hot demand, skyrocketing price, lots of fluctuation, and no intrinsic value.

          It’s too early yet to know whether it will actually turn into something useful and valuable.

          Meanwhile, do not invest any more money than you can afford to lose.

          • hack13

            Again you are taking what I am saying as jump into an trust now. I know it is young, and more and more governments are starting to come into it and accept it. I do disagree with you with currency limitation, I like a cap on how much there can be earned. I see where it could become problematic, but it is kinda the point of what bitcoin is compared to other currencies.

            Yes some people botnet, but some people do it legally. I mean I can say the same thing about any currency, people do a lot of illegal transactions in america. Scams, drugs, etc.

            I am not saying to switch to this currency, I am merely saying don’t put all your money in once currency. Not even just all in the same bank. Yes some banks are FDIC approved, but do you realize how bad that could hurt the economy if too many banks had to hit on the FDIC if/when they collapse.

            Invest in euro, pound, bitcoin, just a bit of what you feel comfortable with. hell many people invest in Lindens and other forms of exchange. It is not really much different.

          • “Yes some banks are FDIC approved, but do you realize how bad that could hurt the economy if too many banks had to hit on the FDIC if/when they collapse.”

            It’s already happened. Did you forget about the massive federal bailout a few years back?

          • Purdy

            Oh the beanie baby comparison – how original! Make sure to mention tulips into your next comment.

            There’s no such thing as intrinsic value. Value is derived from utility, supply and demand. On a desert island gold has no utility it is less useful than a coconut which you can use as a tool, a drinking vessel, make fiber from and eat.

            Your comparison to ”beanie babies’ is ignorant in the extreme. The value of bitcoin comes from its utility as an instant frictionless international peer-to-peer payment mechanism devoid of any controlling authority that solves the double-spend problem without the intervention of a trusted third-party processor by the use of a ‘proof-of-work’ algorithm. This is a technology that was thought impossible 10 years ago. And you say this has no value. This value of this technology is qualified by its adoption. The more it is adopted the more value it will have because of the network effect. This is a novel disruptive technology that shakes up archaic way that value is currently transferred. Bitcoin is the first mover in this technology, it remains to be seen whether it will become the dominant version (it is in the lead at the moment), but one this is for sure – the cat is out of the bag for crypto-currencies, they cannot be uninvented. They will change the world.

          • I agree that there’s a great deal of potential here,and that the technology is really interesting.

            And you’re right that Beanie Babies are not the correct comparison, since they are difficult to use as a medium of exchange.

            One problem however with Bitcoin that I haven’t yet seen addressed by any of the cryptocurrencies is the uniqueness problem. Fiat currencies are unique by definition — this is the only currency that’s mandated as legal tender in this particular country. Linden Dollars are the only medium of exchange on the Linden Marketplace.

            Bitcoin’s technology is open source and, as Dogecoin and Litecoin and the dozens (maybe hundreds by now) of various imitators are showing there is really little obstacle to setting up another, similar currency.

            What makes one of these currencies preferable to another? Bitcoin, because it’s the oldest? Litecoin, because it has some security improvements? Dogecoin, because it’s attached to a cute meme? Ripple? Peercoin? Sexcoin? Hobo Nickels? If it’s based on an open standard, then anyone can create a duplicate system based on the same technology and let it loose into the wild.

            Is it based on the network backing it? If there are no switching costs, then the network is no guarantee of safety, no matter how large.

            I’m not saying that these are insurmountable problems. They might be overcome.

            But they haven’t been overcome yet. Which is why I’m saying that, right now, investments in Bitcoin or similar alternative currencies are orders of magnitude riskier than investments in almost any other asset class.

          • Purdy

            “Bitcoin’s technology is open source and, as Dogecoin and Litecoin and the dozens (maybe hundreds by now) of various imitators are showing there is really little obstacle to setting up another, similar currency.”

            Sure and there’s nothing to stop me creating my own brand of cola, or style of burger joint or opening up an online auction site and trying to compete with Coca-Cola, McDonald’s, or eBay. But there’s a reason why there are genuine competitors to Coca-Cola and McDonald’s but not to eBay. EBay’s busness model relies on the network effect (http://www.valuewalk.com/2011/11/power-network-effect/). If I want to sell something online at the best price I can get I have to go to the site where I’m likely to find the most potential buyes, and if I’m a buyer vice-versa. If I opened up my own online auction site I would have to offer something that eBay can’t do otherwise there’s no incentive for anyone to come to my site instead of eBay. If I did that I mgiht then deserve to be the market leader, but I’d still have a massiv struggle to overcome eBay’s dominance.

            Each of the new-batch of crypto-currencies, most of which are forked from Bitcoin has some unique feature (so you’re point about uniqueness falls flat there) – Litecoin has a shorter transaction time; peercoin mining is more energy efficient etc etc. They are all trying to offer something that Bitcoin doesn’t. But there’s also no partcular reason why some of the special features of these forked coins cannot be adopted and merged back into bitcoin’s code. Ripple is not competing with Bitcoin, it’s completey different. Ripple allows any currency, fiat or virtual to be traded against each other and imported/exported out of the Ripple network through a gateway. I’m actively engaged in trading using Ripple and much of that trading involes Bitcoin. Now it’s very early days and things could change but at the moment Bitcoin is the only cryptocurrency that has gained traction outside of pure speculation. The market capital of Bitcoin is currently about 9 billion USD and it is seeing exponential growth in adoption by merchants. Litecoin (the nearst competitor ignoring Ripple) has a market cap of half a billion (http://coinmarketcap.com/) and has seen hardly any adoption by merchants. There has to be a good reason for a mass switchover from one cryptocurrency to another that offsets the network effect created by the current level of adoption (and liquidity omn the exchanges) and I don’t see one at the moment. If one does appear and it overcomes the network effect then it probsbly deserves to be the crypto of choice, but to acheive that network effect it would have to exceed the market capital of bitcoin. That would not be an overnight change.

            “I’m saying that, right now, investments in Bitcoin or similar alternative currencies are orders of magnitude riskier than investments in almost any other asset class.”

            this is where most people underestimate Bitcoin. Bitcoin isn’t simply an asset – although it can be treated like one – it’s a technology. It’s like SMTP for email, or MPEG for movies and MP3 for audio files. Those technologies are ubiquitous now because they make possible the transfer of information in various guises. Bitcoin does the same for another type of information, one that carries uncorruptable record of the possesion and transfer of value. But it’s more than that – it’s programmable money and THAT has never existed before!! The bitcoin protocol has a lot of currently dormant features built into it that can be used for things like escrow, contracts, proof of ownership, and automated meditation. No-one’s interested in these things right now. But it’s worth understnding the potential. It really is a revolutionary technology.

          • OMG, Beanie Babies. *groan* I was working as a shift manager in the local McDonalds when those things took off. I’d swear that people were buying them, expecting to pay for their kid’s college tuition with them. I forget how the TY corporation nipped that in the bud, but I’m glad they did! Can you imagine people making everyday purchases using Beanie Babies?! *yikes*

    • Ocho

      Your so cool , I agree with you !00%.

  • I had gotten into the Bitcoin thing “early”, I suppose. Ran the program. Stopped running the program, crashed my PC. Wiped the drive, and discovered I still had my wallet backed up with my other data. Tried mining, and discovered quickly that it costs more than the return. Hit a few of the “pay with bitcoin” survey sites. I think my total Bitcoin worth is somewhere around $25, US.

    Crypto-currencies being what they are, the bigger test for me is going to be how companies like PayPal, Square, and Google will incorporate any digital value into their wallet systems. I want to be able to say “I have 0.08 in Bitcoin, L$747 in Lindens, and $6 in US. I’m going to Walmart to buy a loaf of bread, and a gallon of milk, and a package of bologna. I want you to calculate how much to deduct from each to cover the cost, as I pass through the scanners on my way out the door, using BLE (Bluetooth Low Energy).” THEN I’ll consider crypto-currencies to be of potential every day value.

  • james wrider

    Minuscule website you feature. Do you already suffer Bitcoins? I would recommend to part up at who-accepts-bitcoins.com. They give create the interchange you beggary as their database is ofttimes searched by bitcoin spenders. It’s footloose tho’!

  • And now it’s weirder STILL. A group of wild and crazy guys launched something called Coinye West yesterday, a unauthorized tribute to Kanye West. The actual West immediately sent his lawyers after it, but what can the do? The software’s been released into the wild, and now it has a life of its own!

    Quick, invest now! But ONLY as much money as you can afford to lose, of course!

    You can even get into the mining game, since the group behind it is offering a mining program, coinyeminer, designed to make it easy for anyone to get into the act of creating their own Coinye coins.

    Official website: http://coinyeco.in/