On Bitcoin

Time to make a short digression from my usual subject. When I bought my current computer rig, I got it with a decent display card for the purpose of calculating Bitcoins to offset the hardware and electricity costs of keeping it running. If you haven't heard of Bitcoins yet, you really should get out more (or less, depends). I'll not rehearse the concept as you're likely to find out all about them whether you want to or not just looking for recent news (or Googling should you have found this blog entry in the distant future... Hi, future me!).

However, I was first sold defective memories (though I now hear all of OCZ's memories and SSD's were defective anyhow... though the computer store adviced me it couldn't be the memory, and after trying three sets of OCZ I concured.) and couldn't get it running stable, so I barely got any run-time out of it. It wasn't until several years later that I got different set of memory just to test it out, and got it running. By then, Bitcoin's prize has already inflated so high it could no longer offset the price of the electricity to generate it...

Or so I thought. Little did I know, as this week Bitcoin price hit 1200 dollars or 900 euros per Bitcoin. Had I kept the computer on churning out Bitcoins I suppose I'd more than made up for the electricity cost, at least until this week.

Anyway, despite the faulty memories I had managed to mint out a few Bitcoins and all but forgotten about them, but reading the news on the price and seeing exponential rise price graph I figured it was high time to cash them out before the inevitable - even if possibly temporary - crash.

The news media were all over Mt. Gox, the trading-card-site-turned-money-exchange, reputed as the most popular exchange with the highest exchange rate, so it was natural I would send my hard-earned Bitcoins over to Mt.Gox. Now if you've been following Bitcoins at all you should know you need to check, doublecheck and then check once again the reputability and terms of anywhere you're sending yout bitcoins out to.

I suppose I have myself only to blame, but I tried to do this with Mt. Gox, though apparently little poorly, as after I had exchanged my bitcoins to cash I found out that it was practically impossible to get my money out of the service. It would take weeks to - possibly - clear my identification and proof of residence, and only then could I even enter a months-long waiting-list to transfer part of my meager price on my bank-account.

Naturally I then converted my money back to Bitcoins to get them out and cash them out through some other service - incurring another 0.6% exchange fee. It was then that I discovered you can't even get your Bitcoins out of Mt.Gox before your identifaction & proof of residence clear. This is the main reason for the blog post, to enchance the change of anyone else finding warning that Mt.Gox is basically one-way street; as of the writing of this blog entry Mt.Gox is basically one way street, you can check your Bitcoins in but you can't get them out in reasonable time or amount, and I want to help to get the word out.

Anyway, the next day China forbade official trade and use of Bitcoins, leaving it still legal for citizens "pending further review", sending Bitcoin prices tumbling as China's market is currently driving the prices. This, in turn, has had sveral major players in China including Baidu (aka "Google of China") and China Telecom to announce they no longer accept Bitcoins as payment due to its proven volatility and the very real risk they're left holding to worthless currency.

Naturally, this sent Bitcoins price down for further tumbles, including as of this counting at least three or four flash-crashes. During the worst of them Bitcoin's price hit about 400 euros (for those keeping count, that's less than half of the highest point just a day earlier). In the ensuing panic it would probably have dropped to near zero, but Mt.Gox also has a bad (or some would say serendipitious) habit of starting to lag showing prices and reject transactions when that happens.

During the worst flash-crash it went down for almost 3 hours showing frozen price-ticker everywhere until other exchanges finally recovered to stability... Fortunately, one would say, as otherwise there might be no Bitcoin today (okay, I exagerate, it keeps coming back, like a zombie). Almost as if by design, though it's certainly not unheard of for brick & mortar stockmarkets to suspend trading when faced with high volatility, nor is it for poorly designed web-services to fail under load.

Unfortunately, that outage also deprived Mt.Gox'ers from possible profits to be made from the volatility during that time, as well as protecting their money should the other exchanges have continued their fall towards zero meanwhile. Consequently from my short experience with Mt.Gox I certainly can't recommend it for anyone for any purpose.

Presently what remains of my Bitcoin assets are firmly in the Euros camp, I could turn a profit from the volatility of the market but that wasn't enough to fight the overall trend of their value and I found their net worth dwindling along with the value of Bitcoins. As a result I'm now down to half of where I intended to cash out.

Though I could re-buy at a low point and regain losses in number of Bitcoins, I don't think I will risk it. As of this writing Bitcoins have been rising again, but I can't imagine that trend continuing past Monday, as more and more businesses are likely to announce they're suspending Bitcoin payments pending technical review due to the volatility. With a verified Bitcoin transaction taking about a hour, I can't imagine any sane business taking that risk.

About only thing that could turn around the current downward spiral would be China announcing on Monday morning that upon review they've decided to re-allow banks and other government institutions to deal in Bitcoins and fully endorse them. However, that is to say extremely unlikely. There is even higher chance after the Bitcoin price has fallen low enough to make it palatable, China is going to announce that to "protect the citizens" they're completely forbidding dealing in Bitcoins.

Is this the end for Bitcoin? I doubt it, the technology is still solid (though comparatively slow and un-economical), but the volatility and burst bubble seem almost by neccessity forcing Bitcoin back to nerd-curiosity. There are numerous alt-coins based on same principles as Bitcoin but with different problematic aspects fixed, one of them could overtake Bitcoins, but it's hard to fix their prime fail - price volatility. With that fault they're neither feasible currency nor investment, but pure gamble.