Oh, dear God, I'm starting to sound like an early-twentieth-century economist with these post titles.
Right, anyway. One of the criticisms that's been levelled at Bitcoin is that the early miners, and speculators who rushed in and bought them cheaply, will end up filthy rich if it succeeds and a bitcoin reaches its potential value of hundreds of thousands of dollars or more.
Why should people who were lucky / foolish enough to rush in at the beginning be rewarded quite so handsomely, while children are starving in the slums of South London?
This is an interesting question indeed.
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A central part of the Bitcoin economy has been the formation of foreign currency exchange markets, where you can trade your bitcoins for US dollars, Euros, pounds Sterling, or many other currencies.
These things are important, because:
- They let people transfer their money from the fiat economy into the Bitcoin economy, allowing it to grow.
- They let people transfer their money out again, making Bitcoin a safer store of value; you're not stuck with it when you want to buy something that can't be bought with bitcoins.
- They let us measure the "current value" of a bitcoin (to some approximation), thus making it easier to price things in bitcoins
- They provide endless pretty graphs and statistics to look at.
However, one particular aspect of "the markets" that is commonly not understood is what is known as "market depth", so I'm going to give a quick introduction to how the markets work to lay the foundations, then dive into what the market depth is all about.
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Currently, there's lots of interest in Bitcoin as a speculative investment, driven by the meteoritic rise in its value this year.
However, to make Bitcoin actually do what it's capable of - working as an international Internet currency for free trade - we need to back that up with a vibrant economy in Bitcoin itself, rather than just trading it to and from ordinary currencies on exchanges.
This economy should be composed of many kinds of activity, all reinforcing each other and together making bitcoins more and more useful.
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A few folks lately have asked me what Bitcoin mining is all about, and how it works, and I've not seen an explanation that focusses on this at the right level, so I'm writing my own.
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The existing financial industry isn't exactly welcoming Bitcoin with open arms. Paypal regard bitcoin as a currency and their terms of service disallow currency purchases, while where I live in the UK, Bitcoin exchanges keep having their UK bank accounts closed (which is a problem, as wire transfer is generally the best way to get your pounds sterling into the Bitcoin exchange).
Clearly, there's a strong case for the current banking system to see Bitcoin as a competitor, but it's a bit more complex than it seems; Bitcoin only competes with part of the banking business.
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Cryptocurrency | alaric | 
Wed 10th Apr 2013 8:18 pm | 
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