This is the story of a $6 million pizza. Two of them, actually.It begins in 2010 in Jacksonville, Florida. A software programmer named Laszlo Hanyecz had, to his happy surprise, persuaded someone to accept 10,000 Bitcoins in exchange for two pizzas. And why not? By Hanyecz’s reckoning, the Bitcoins he had been “mining” on his computer were worth about 0.003 cents apiece. He got his pizzas for $30 of found money.
You may know the rest. Bitcoin, the digital currency that has since captured attention around the world, exploded. By November, it had leapt to $US1242 ($A1392), roughly the price of an ounce of gold.
It has been a wild, wild ride. Up and down, down and up. Last week, Bitcoin fluctuated again as China clamped down, concerned perhaps that digital currencies could mean the end of government control over money.
Digital currencies like Bitcoin will get even bigger, or collapse if the music stops.
Hanyecz, 32, has no regrets about his pizzas. “It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool,” he said. “No one knew it was going to get so big.”
Bitcoins are created, or mined, according to a set of computer algorithms, and the coins are stored in, and traded among, digital wallets. You can buy real things with them, at least from people who accept them, or, as many people seem to be doing, sit on them in the hope that the price will keep rising.
So, money doesn’t grow on trees, but it does grow on the internet – Hanyecz grew his with open-source software. However, mining Bitcoins becomes more difficult over time. Only about 21 million of them can ever be created – which is why so many people have been chasing after them.
Bitcoins are now accepted as payment at almost a thousand retail outlets and websites, including OKCupid, Reddit, and another pizza chain, Pizza Rodi in Montreal. But what has really grabbed attention is how volatile the price has been. The value has gyrated wildly. In the last month alone, the Bitcoin market value has swung between $14 billion and $7 billion.
But to Bitcoin believers, that really isn’t so surprising. They are taking the long view . The one in which Bitcoin, despite the ups and down, keeps appreciating in value and eventually becomes a serious currency.
“People talk about the volatility with surprise, but it’s exactly what you’d expect from a new global asset class whose regulatory landscape is still developing,” Tyler Winklevoss told me. He and his twin brother, Cameron – famous for their involvement in Facebook – have invested heavily in Bitcoin. By some estimates, they own 1 per cent of the market.
“We have never sold a single Bitcoin – we started buying in the high single digits and we’re in it for the long haul,” Winklevoss said. “We don’t look at it in terms of day-to-day. We look at in terms of years.”
The Winklevosses are not the only ones who are bullish for Bitcoin. The Bank of America recently put out a report saying Bitcoin had clear potential for growth and “may emerge as a serious competitor to traditional money transfer providers”.
However, Mark Williams of Boston University has insisted that the value of a Bitcoin will pop, falling as low $10 next year. Others say it is all just another bubble.
The real question is not what Bitcoin will be worth next week or next month. It is whether digital currencies like this have promise. Digital currencies – whether Bitcoin or something else – could make it cheaper and easier to move money around.
“While there are questions about the future of Bitcoin, there is clearly going to be a digital currency that can be used for remittances, micro payments, and across borders,” Susan Athey, professor of economics at the Stanford Graduate School of Business, said.
With small transactions, the cost to spend money can be more than the actual money people are spending. People are charged credit card fees, transfer fees and other expenses that go to a middle man. This is why there are no 10-cent apps on the app store; many companies try to clump small transactions together online.
With virtual currencies, by comparison, there is no middle man. With Bitcoin anyone running the software on his or her computer also acts as the bank storing the exchange information.
”It is clear that there is a need for this type of tender online,” Professor Athey said.
Figuring out which digital currency will catch on could make you very rich.
source : www.watoday.com.au
