Bitcoin isn’t worth the headache

Dear readers: Meet bitcoin, the self-proclaimed currency of tomorrow, which has become the currency of today at a casino in downtown Las Vegas. The D unveiled a bitcoin ATM last week, becoming the first establishment in the city to roll out the technology.

But what is it, exactly? You might have heard the mysterious dough described as an open-source version of money traded between consumers and businesses for goods and services. Tech-savvy people use computers to solve math equations to “mine” for bitcoins.

How much is it worth? That depends. At one time a bitcoin was worth $13. Then it was worth $900. Now, it’s worth about $520. Insiders blame the fluctuation on a number of things, including a lack of regulation and central bank.

When I first heard of this magical coinage and how people “mine” it, I thought about Super Mario, the superstar Italian plumber of Nintendo’s most popular franchise. Mario jumps up and appears to smash the top of his head into the bottom of a box labeled with a “?” to knock loose coins inside.

I remember playing the game as a kid and thinking, “That would cause a mean headache.” The more I think about bitcoin, the more I feel the same.

Jonathan Parker, a finance professor at MIT, nicely summed up the bitcoin dilemma in a recent column for the San Francisco Chronicle, citing the most important characteristic of viable currency: A store of value, held to be able to make future transactions.

Bitcoin does not have that. And as Parker points out, that spells trouble: “Basically, bitcoin lacks a mechanism for setting the supply equal to the demand. That is needed in order for bitcoin to maintain its value.”

That’s usually where a central bank comes in to supply money to meet the needs of spenders. In the world of bitcoins, there is no central bank.

We’ve seen this happen throughout history, particularly when the dollar was backed by gold. As miners found more gold, “discoveries led to inflations and collapses and to recessions and even financial crises,” Parker wrote.

I applaud the D for partnering with a local company — Robocoin — to roll out what seems like the ATM of tomorrow. Vegas might be the perfect place to do it, given its anchor to a budding tech community. Where better to take a gamble, eh?

But is it too soon? Parker, someone with a mind for all things money, says yes. “As long as people are people and as long as the economy is volatile, the demand for money is volatile and bitcoin will have an unstable value,” he wrote.

Tags: The Sunday