Bitcoins and a Human IPO: Interesting Alternative “Investments”
Back on June 20th, 2013 I ordered a 5 GH/s Bitcoin Miner from Butterfly Labs affectionally nick-named the Jalapeño. I also bought a USB cable for it and with shipping, I paid $312.99 for it. I just received it last week making the time between order and delivery eight days shy of six months! Had I gotten it when I paid for it, I probably could’ve made a few thousand dollars…especially if I had held the Bitcoins earned until the recent 10x surge that they went through. Ironically, had I merely bought Bitcoins with my $312.99 and held those, I probably would’ve made more money.
The problem is that Bitcoin hardware (and thus the difficulty of mining) has been growing at an exponential rate, so 6 months later, my hardware is already out-dated. It is running almost 50% faster than stated, but I’ll still be lucky to break even on the device. Unless, of course, Bitcoins continue to rise in value (which if it continues to catch on, it will).
There are a lot of websites that explain exactly what Bitcoin is much better than I can, but basically it’s a decentralized crypto currency that operates on open source code. There’s a set amount of 21 million Bitcoins that will ever be produced and miners are people that run software the validates the transactions of the network. For this work, they’re rewarded a pool of continuously decreasing Bitcoins.
What does a Bitcoin represent? Nothing. Other than it’s considered valuable by other people. But it’s just like any other fiat currency that’s in place today. US dollars are only valuable because the government says that taxes have to be paid in them and they’re legal dollars. But the government can inflate the money supply anytime it wants to in order to “maintain stable prices”.
I consider myself a lazy student of monetary policy; I studied economics in college and even helped to start Grand Valley’s first ever team that went to the Fed Challenge at the Federal Reserve Bank in Chicago. There we pretended like we were on the Board of Governor’s and talked through what we thought should happen for our nation’s monetary policy. I learned enough about it to call Bull Crap on the whole thing. I don’t believe that a fiat currency is a good thing; it allows the government to redistribute wealth however they like. And when inflation happens (meaning they pump more money into our economy), the value of our money goes down. That is, more money is chasing the same amount of goods. This is good for borrowers and bad for savers. If you loaned me $100 which I had to pay back in a year plus $10 interest, but the money supply inflated so that when the year came due what $100 could buy last year now took $120 to buy the same goods, then essentially you paid me $10 to be able to use your money for a year. The problem is that the government is an unbiased participant: the federal government is the single largest borrower in our system, therefore it has a incentive to inflate it’s way out of it’s current budget problems (and likely this is the only remedy for them).
Now, you may or may not agree with me about my monetary policy views, but the beauty of Bitcoin is that you don’t have to. We now have an alternative free-market peer-2-peer driven currency that’s global and has no transaction fees. I don’t know if Bitcoin will work, but I am very excited to see what happens with it.
I don’t really consider Bitcoin to be an investment so much as it was a speculation; I told my friends when I ordered it that either I would:
- Actually make money. In this case I would get my original speculation back and then I’d be playing with house money to scale up my hardware. Or,
- Not make money. In this case I would have a pretty cool story to tell either at dinner parties or on my blog.
Either way, by putting some money on the line it has encouraged me to read up a lot more on Bitcoin, and I do love learning about things that could change the world someday!
I think one of the reasons that Bitcoin intrigues me is that it closely resembles Darknet Credit in Daniel Suarez’ amazing techno-thriller Daemon. It’s well worth the read, and it’s one of the books that I recommend to anyone that asks for something cutting edge.
If you want to learn more about Bitcoins, there’s a good (long) panel discussion that was recommend to me by a friend called Virtual Currencies: Gold Rush or Fools’ Gold which I’d recommend watching if you have an extra hour and half to spare!
The second alternative “investment” that I recently made was to buy 3 shares of a Human IPO. Straight out of another book that I highly recommend The Unincorporated Man this is all about how one man decided to incorporate himself.
You can check out his site here: http://www.kmikeym.com/
It’s more of a gimmick because he doesn’t issue dividend payments on the money he makes; what he does allow if for shareholders to vote on proposals the he puts in place. He’s had to do some crazy things: his shareholders decided that instead of being a Democrat he should register for the Republican party.
He also had his shareholders vote on his romantic partners; his current girlfriend was approved and even managed to negotiate options of Mike! As soon as I signed up and bought my shares, they tweeted the transaction to the world. I re-tweeted and then was quickly told to stay tuned as there will be a new proposal that he needs my vote on soon! I can hardly wait.
(Note: Clicking and buying through the Amazon links above will result in a small kickback to me from Amazon…thanks in advance!)