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Tech by VICE

Is It Time To Take Bitcoin Seriously?

Bitcoin’s value has steadily climbed over the past few months with no signs of stopping as the currency has managed to avoid major security breaches and expand its digital ecosystem.

Mar 5 2013, 4:11pm
The second bitcoin bubble may not burst. Image via Flickr/zcopley

Bitcoin’s value has steadily climbed over the past few months with no signs of stopping as the currency has managed to avoid major security breaches and expand its digital ecosystem. The dollar value of virtual decentralized cryptocurrency Bitcoin last week reached a new all-time high, eclipsing the previous high of $31.9099, last touched on June 2011.

The 24-hour average on MtGox now sits at $38.29 as of the time this story was published. If you spent $1 on electricity to mine bitcoins in the beginning of 2010–back when mining was still totally feasible at home–your stash would now be worth $53,300 and change.

The open source peer-to-peer currency has long divided opinion. It is at once the net’s most inspired invention or the most dangerous project ever. Skeptics call it a scam with no fundamental value, a ponzi scheme that enriches early adopters and provides no guarantee of value for those late to the party. Cyberpunks love it because it’s self-regulated by an elegant mathematical model, designed by a mysterious intellectual known only as Satoshi Nakamoto. Neo-libertarians support it because bitcoin operates outside the whims of central banks and pesky governments, the online version of hiding gold bars under your mattress. Darknet hoodrats use it for sex, drugs and gambling since it’s the digital equivalent of cash, nearly impossible to trace if you know what you’re doing. Tech nerds mine it, an easy way to make a quick buck if you’ve got the hardware resources. Bankers from Goldman Sachs and Morgan Stanley trade it because it’s their fiduciary responsibility to understand trendy new asset classes.

But the concept has yet to infiltrate mainstream culture. While bitcoin does boast a growing user base, the rest of us continue to enjoy the show, looking on curiously at this compelling, polarizing mix of freedom of speech, cryptography, decentralized open source computing, finance and politics. What we do know is that it seems like a big deal -- if it does end up working out -- one that could reconfigure our understanding of money, provide a true alternative to fiat currency, or at the very least allow us to easily send money over the internet and pay for things with minimal fees and oversight.

like the second dot-com bubble, there’s different feeling this time around. For one, the ecosystem supporting bitcoin is continuing to grow.

No matter your angle, bitcoin’s sustainability has consistently been called into question. Even as the hype begins to rebuild, this is familiar territory. Last time, the celebrations were premature. Shortly after the currency reached its previous high, it crashed, following a spate of high profile hacks that robbed users of hundreds of thousands of dollars worth of BTC. By the time the dust cleared, bitcoin was worth less than $2. Onlookers were quick to call its demise.

“I suspect [the decline] is terminal,” wrote Forbes contributor Timothy B. Lee. Wired published a story detailing of the “The Rise and Fall of Bitcoin.” Precious metals guru Doug Casey decided the p2p currency was “probably a dead duck.” Was the comeuppance of the purported ponzi scheme? Or the simple passing of a fad?

Since bitcoin’s revival following a period of relative calm, some doubters like Lee have reversed course. “So is the new bitcoin price rise a bubble?” he wondered recently. “I don’t think so. Nothing like bitcoin has ever existed before, so it’s not clear how to compute a 'fundamental' value for it.”

Of course, just because a few naysayers have changed their minds doesn’t mean this time is the real deal. But like the second dot-com bubble, there’s a different feeling this time around. For one, the ecosystem supporting bitcoin, as well as the number of notable participants, is continuing to grow.

Wordpress, Wikipedia, Reddit and Mega now all accept bitcoin. Pizza For Coins allows users to order Dominos using their digital funds. Gambling continues to be a killer app, and sites like Satoshi Dice can already offer online gambling while states grapple with regulations. The use of bitcoin sidesteps this issue since it’s not officially recognized as real money.

Across the spectrum, the bitcoin ecosystem is seeing vibrant growth.

Silicon Valley is also beginning to take notice. Bitcoin startup CoinLab last year secured $500,000 from well-weathered venture capitalist Timothy Draper. In France, regulators have approved the first bitcoin exchange that will operate as a bank. Bitcoin-Central will partner with real bank Credit Mutuel and payment processor Aqoba. And an exchange might not even be necessary if Ripple, a peer-to-peer financing network, ever takes off.

Elsewhere, an enterprising young NYU-Poly student has designed a specialized chip that can mine bitcoins 50 times faster. At that rate, you could pay off the initial investment of $1,500 in less than a week if you reached the Bitcoin Foundation’s estimates of $200 to $300 in daily profits. For those who just want to trade in their dollars, the world's first bitcoin ATM is already in the works. These developments are helping the currency earn credibility as a veritable asset class next to silver and gold. Across the spectrum, the bitcoin ecosystem is seeing vibrant growth.

All the while, bitcoin's value continues its upward trajectory. Bitcoin Magazine offers the oft-cited Gartner Hype Cycle as an explanation for bitcoin’s remarkable comeback. Still, there's no way to completely rule out another crash. Bitcoin could once again collapse under the weight of its own hype. Security issues haven’t fully been addressed.

Most importantly, no one has yet developed a killer app. Beyond the dark arts, curiosity or pure speculation, bitcoin still have yet to find a truly practical purpose–although the privacy angle offered by Wordpress, Mega, and the like is a big step. Still, if you're in a bind, good luck trying to buy food or other necessities with your bitcoin stash in a timely fashion. The biggest problem? Acquiring bitcoins or converting them to liquid assets remains a chore for newcomers. But if you happen to have a few bitcoins lying around, now is probably a foolish time to sell.