Bitcoins:Ever heard of it before?

Adam Smith, the father of modern economics, distinguished between “value in use” and “value in exchange” – in his own words: “The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called ‘value in use’; the other, ‘value in exchange’. The things which have the greatest value in use have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any use-value; but a very great quantity of other goods may frequently be had in exchange for it”.

According to Smith, the value in exchange is the power of a commodity to purchase other goods and whose objective measure is expressed in the market. A virtual adaptation of this want-based value in exchange now exists, also called – “Bitcoins” (Currency: B). Ever heard of it before? Perhaps you have not been labeled as one of those into-the-digital world technology geeks whose life revolves around the digital space and virtual worlds. Not that I am one either, but hey, then we all know that curiosity killed the cat. I came to know of Bitcoin’s existence while with a media and entertainment start-up, previously in my career, with which I was engaged with, devising and supporting partnership strategy for payment gateways. That’s how I foremost got introduced to Bitcoins; that’s how the inquisitiveness built-up.

So what is a Bitcoin? – It is world’s first digital currency that was devised in 2009 by a programmer called, or atleast he/ she is believed to be called, Satoshi Nakomoto. Bitcoins are digital currencies (coins) that are earned by solving real-time networking security problems. These coins then can be traded for real currencies on exchanges (where Bitcoin’s are traded), or for goods from certain businesses that accept them. Now read this: Bitcoin is a concept run by internet users and not by any business or bank. The concept of exchanging Bitcoins needs only a computer, an internet network, and a flash drive, which also acts as your locker. Since the concept has been devised on open source, anyone can view the code and hence you must have basic computer security knowledge to ensure that there is no digital theft or hacks. Still confused on how it works? Ok so try this analogy – ever heard of peer-to-peer music sharing – hello Napster: the bane to the media and entertainment industry, and a boon to the pirates. If you haven’t heard about Napster, then it is about time to you get your basics right. Coming back to the point, the Bitcoins work like peer-to-peer music sharing networks, except that they are a decentralized internet society. The demand for the same grows as long as the internet users use Bitcoins and circulate it.

Bitcoin has no banks to report to, nor it is associated with one (remember I mentioned, the concept is driven by users and users alone), so you just end up saving extra $$$ that you always wanted to in order to avoid paying those extra commissions and fees to set-up and maintain an account. In other words, it has no central monetary authority to monitor the transactions online, which only means that is unlikely to expand beyond a few niche segments such as the online gamblers, hackers and other ill repute behind the screen underground characters. Some good things about the use of this digital currency are that transactions across the globe become easier – and moreover it is free. Also your account is never frozen or kept inactive – so you can now plan on an epic timeless expedition across the globe without stressing about what happened to your account. It also forms a great way of conducting easy transactions for petite and freelance businesses. Wouldn’t you want to have such a thing when you aren’t investing that much? And yes, you need not worry about the inflation, since the supply of the digital coins is done at a predetermined rate. At the time the concept began the value of one Bitcoin was approximately about 60 US cents, and at the time of this blog post, it is already trading at approximately US $15. You may want to check the website ‘Mt.Gox’, that allows trading of US Dollars (USD) for Bitcoins or

Bitcoins for USD, 24/7 – now wouldn’t you want such a hassle-free, round-the-clock control on your money?

Upshot: Stock markets interest me in general, and I found the concept of Bitcoin quite fascinating and interesting especially looking at the two year currency valuation. As per Reuters, approximately $130 million worth of Bitcoins are now in existence, but the number is not expected to explode enormously. But like any other currency, a Bitcoin’s worth also fluctuates with demand. Since Bitcoin is a system run by users, the understanding is that it will either see an extensive recognition or it will not. It will by no means go away until people decide to bring it to an end. It will keep running as long as the users have the will and ability to keep it going. Bitcoins, a very good concept, is probably attracting large number of eyeballs in the digital space, but because of the lack of a central monetary authority they are probably disaster-prone. It is all but a giant digital ponzi scheme ready to burst soon.

p.s: the views disseminated by the author remains his own or based on his understanding over the content widely discussed in the digital world. The author has also taken into account some information which are publicly available. Image source: from varied sources on the internet.

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Anand Rao

About Anand Rao

Anand Rao has written 9 post in this blog.

Anand Rao currently works with a business and technology consulting firm in his capacity as a business consultant. Anand previously worked for Churchgate Partners, an IB & PE firm. Prior to Churchgate, Anand was associated with a digital media & ent. start-up, based out of Bombay, where he was responsible for strategy & product management. Anand's prior experience includes Infosys' technology, media and telecom group based out of Europe, where he advised clients on strategic product & technology engagements. He was also selected to attend the highly selective Global Consulting Practicum in The Wharton School, University of Pennsylvania. During this time he worked on business feasibility, partnership development and valuation for a major Spanish firm. Anand received his MBA from IE Business School, Madrid, and a BS in Computer Engineering from the University of Mumbai.

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  1 comment for “Bitcoins:Ever heard of it before?

  1. March 30, 2012 at 7:27 pm

    Cryptocurrencies like Bitcoin will be the future of payment.

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