Unless you are a Winklevoss twin or are still trying to hide your Internet credit card purchases from your wife, chances are you have already decided that Bitcoins are largely irrelevant to your life and aren't much use except as a talking point for a nerdy, 20-something's tumblr. The Web-based currency has littered mainstream news throughout 2013 -- from "what exactly is a Bitcoin?" to "Largest Bitcoin exchange already proving to be a giant failure." But it may be this most recent event that has the largest implications for the anonymous, government-defying Super Mario coins.
"You just don't get it"
If your first thoughts upon reading my opening paragraph are that I am naive and probably had to have this article transcribed by someone literate, then I suppose time will tell. But for those who are also skeptical -- i.e., nearly everyone who isn't directly involved in funding the Bitcoin revolution -- let's examine the latest reason that this is a giant pile of e-nonsense.
As fellow Fool Dan Newman pointed out in his piece on the virtual currency, Bitcoins have had a decent run this year -- to the tune of 1,200%. As of this writing, the currency is worth a little less than $130. What that buys you, other than carefree adult entertainment, I'm not sure. Perhaps there will soon be a Bitcoin Redemption Center, where for 1,000 Bitcoins you have the choice of a Styrofoam helicopter, a stuffed Pikachu doll, or a sharing-size box of Everlasting Gobstoppers.
But seriously, don't be enticed by the undeniably awesome run-up of Bitcoin valuations. Because, as with Magic: The Gathering cards, when some vague entity in a cellar or Bitcoin exchange releases the latest guidebook on values, your virtual currency could be worth, well, what it's worth in the real world -- absolutely nothing.
Think I'm being hyperbolic? Here are plenty of reasons.
Plenty of reasons
As most know by now, the largest Bitcoin exchange, Mt. Gox, is in the government's crosshairs to the degree that regulators have frozen many of the firm's financial accounts. It's not because there was a big expose or because Mt. Gox did something with criminal implications; Mt. Gox simply didn't file the right paperwork. Mt. Gox claimed that it had set up an account with Wells Fargo in May 2011 as a money service business. And when asked on the questionnaire whether it dealt or exchanged in money for its customers, the firm answered, "No."
Now, I hate paperwork as much as the next disorganized person, but if you are creating the currency of the future, you should probably let someone know (via paperwork) that you are, in fact, creating the currency of the future.
This week, Costa Rica-based online currency transfer business Liberty Reserve was busted by the feds, who alleged that the firm was responsible for a $6 billion money-laundering scheme. Federal prosecutors said the firm had become "a financial hub of the cyber-crime world, facilitating a broad range of criminal activity. ... Liberty Reserve does not require users to validate their identity information."
Similar to Liberty Reserve, Bitcoin allows users to spend real money on these untraceable, unidentifiable units. Even if we do find out that Bitcoin is more trouble than it's worth, there's no one from whom to seek restitution. Bitcoin was fathered by an invisible man who goes by the name Satoshi Nakamoto. No one really knows who he is or what his real name is.
Please for you to make a donation to me
Do you ever get that message from John St. Crucible, the missionary from Nigeria who uses far too many articles in his requests for $70,000 sent via Western Union to the Church where he works? Check your spam -- I guarantee you he thinks your investment will pay off in the millions within two weeks. This is the same league.
The truth is, we know nothing of what goes on at Bitcoin headquarters. We know that people like Cameron and Tyler Winklevoss -- two man-children who, had they invented Facebook, would have actually invented Facebook -- are major backers of the currency. We also know that if you lose a life while playing Mortal Kombat, your $129 Bitcoin can probably buy you another.
Please, Fool reader, do not be intrigued by the Pig Latin of currencies. There are vast amounts of publicly traded companies that make stuff and earn cash by selling it. It may be traceable, but that's because it's real.
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