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Bitcoin: Silicon Valley Vanities Invent Cyber-Currency That Crashes Like A Hard Drive

Whether tulips in the 1600s or bitcoin today, get rich quick schemes usually fail.
 
 
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Photo Credit: Shutterstock, Copyright Igor Stevanovic

 
 
 
 

When Holland’s tulip-buying mania and market bubble  crashed in the 1630s, at least buyers whose finances were ruined could watch pretty flowers grow from the ashes.

“At least then you got a tulip, now you get nothing,” said Nout Wellink, former president of the Dutch Central Bank,  speaking last December before the price of the cyber-currency known as bitcoin began plummeting and $480 million in electronic-only wealth  vanished late last week due to hackers on Tokyo’s biggest bitcoin exchange.

Should anyone who isn’t drunk with images of fast and easy money be surprised? After all, investments that are too good to be true usually turn out not to be true at all.

The bitcoin craze is no exception, even though it has generated a global following among wealthy high-tech devotees and libertarian entrepreneurs who love the  idea of an Internet-only currency that’s not tied to any government and is supposed protected by encryption. Except, in the collapse of the Japanese exchange last week, it was not safe and secure—as hackers apparently stole the digital keys to $480 million in other people’s money.

“The news that Mt. Gox, the Japanese virtual currency exchange,  had lost 850,000 bitcoins, worth $480 million, through hacking, is extremely troubling,” the  Sacramento Bee editorialized, saying real people were hurt. “This led Mt. Gox’s chief executive officer, Mark Karpeles, to seek a very non-libertarian solution: filing for bankruptcy. He did bow right before his news conference. Nice touch.”

On Thursday , the Associated Press  reported that Autumn Radtke, a 28-year-old American who was the CEO of a Singapore-based Bitcoin exchange was found dead of what looks like a suicide. Her firm, First Meta, allowed people to trade real cash for the cyber-currency. It issued as statement saying that it was "shocked and saddened.”

There will be no shortage of articles about bitcoin’s risks—and possible upside if it ever grows up and become a real currency backed by real assets. But for now, several things are worth noting about the cultural vanities that have led many otherwise smart people to create a 21 st century computerized currency and believe that it was trustworthy.

The idea that government cannot be trusted is nothing new in libertarian and tech circles. Right-wingers, including many AM radio hosts selling another overpriced investment, namely gold, are always looking for a safe harbor as they predict the dollar’s collapse. That political and financial paranoia runs headlong into Silicon Valley’s central vanity, which is that computer technology holds the answers to everything—and that today’s leaders don’t wait for the future but invent it instead. 

The biggest and most profitable inventions in Silicon Valley are tech platforms that other people use—such as microchips, computers and devices, software and other tools. So it was inevitable that Silicon Valley would want to create the most ubiquitous tool of all—its version of money. And especially cyber-money not tied to any government.

Bitcoin was introduced first in papers and then as a virtual currency in 2009, according to Wikipedia, which  notes how many supposedly super-hip and super smart techies and groups quickly embraced it. The Electronic Frontier Foundation, which fights for online civil liberties in court, started taking donations in bitcoin. So did Wikipedia. Meanwhile, large-scale drug dealers found it useful, according to the FBI and DEA. In late 2013, the first bitcoin ATMs were introduced. In 2014, the Sacramento Kings basketball team was planning to accept payment for concesssions in bitcoin. 

On November 29, 2013, bitcoin hit its all-time high of trading at $1,242 per coin, which was $2 more than an ounce of gold in that day’s spot markets, Forbes  said. But late last month, Tokyo’s leading bitcoin exchange was badly hacked. In a flash, many of the same people who had grow used to staring at their computer screens and feeling that they were super-saavy investors gettng rich, could not access their cyber-currency.

 
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