BECAUSE GOLDBUGGERY JUST ISN'T LOONEY ENOUGH:

The Rise and Fall of Bitcoin (Benjamin Wallace, November 23, 2011, Wired)

Through 2009 and early 2010, bitcoins had no value at all, and for the first six months after they started trading in April 2010, the value of one bitcoin stayed below 14 cents. Then, as the currency gained viral traction in summer 2010, rising demand for a limited supply caused the price on online exchanges to start moving. By early November, it surged to 36 cents before settling down to around 29 cents. In February 2011, it rose again and was mentioned on Slashdot for achieving "dollar parity"; it hit $1.06 before settling in at roughly 87 cents.

In the spring, catalyzed in part by a much-linked Forbes story on the new "crypto currency," the price exploded. From early April to the end of May, the going rate for a bitcoin rose from 86 cents to $8.89. Then, after Gawker published a story on June 1 about the currency's popularity among online drug dealers, it more than tripled in a week, soaring to about $27. The market value of all bitcoins in circulation was approaching $130 million. A Tennessean dubbed KnightMB, who held 371,000 bitcoins, became worth more than $10 million, the richest man in the bitcoin realm. The value of those 10,000 bitcoins Hanyecz used to buy pizza had risen to $272,329. "I don't feel bad about it," he says. "The pizza was really good."

Bitcoin was drawing the kind of attention normally reserved for overhyped Silicon Valley IPOs and Apple product launches. On his Internet talk show, journo-entrepreneur Jason Calacanis called it "a fundamental shift" and "one of the most interesting things I've seen in 20 years in the technology business." Prominent venture capitalist Fred Wilson heralded "societal upheaval" as the Next Big Thing on the Internet, and the four examples he gave were Wikileaks, PlayStation hacking, the Arab Spring, and bitcoin. Andresen, the coder, accepted an invitation from the CIA to come to Langley, Virginia, to speak about the currency. Rick Falkvinge, founder of the Swedish Pirate Party (whose central policy plank includes the abolition of the patent system), announced that he was putting his life savings into bitcoins.

The future of bitcoin seemed to shimmer with possibility. Mark Suppes, an inventor building a fusion reactor in a Brooklyn loft from eBay-sourced parts, got an old ATM and began retrofitting it to dispense cash for bitcoins. On the so-called secret Internet (the invisible grid of sites reachable by computers using Tor anonymizing software), the black-and-gray-market site Silk Road anointed the bitcoin the coin of the realm; you could use bitcoins to buy everything from Purple Haze pot to Fentanyl lollipops to a kit for converting a rifle into a machine gun. A young bitcoiner, The Real Plato, brought On the Road into the new millennium by video-blogging a cross-country car trip during which he spent only bitcoins. Numismatic enthusiasts among the currency's faithful began dreaming of collectible bitcoins, wondering what price such rarities as the genesis block might fetch.

As the price rose and mining became more popular, the increased competition meant decreasing profits. An arms race commenced. Miners looking for horsepower supplemented their computers with more powerful graphics cards, until they became nearly impossible to find. Where the first miners had used their existing machines, the new wave, looking to mine bitcoins 24 hours a day, bought racks of cheap computers with high-speed GPUs cooled by noisy fans. The boom gave rise to mining-rig porn, as miners posted photos of their setups. As in any gold rush, people recounted tales of uncertain veracity. An Alaskan named Darrin reported that a bear had broken into his garage but thankfully ignored his rig. Another miner's electric bill ran so high, it was said, that police raided his house, suspecting that he was growing pot.

Amid the euphoria, there were troubling signs. Bitcoin had begun in the public-interested spirit of open source peer-to-peer software and libertarian political philosophy, with references to the Austrian school of economics. But real money was at stake now, and the dramatic price rise had attracted a different element, people who saw the bitcoin as a commodity in which to speculate.

Posted by oj at November 27, 2011 5:08 AM
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