Russians seem to be fascinated with currency trading.  When I traded currencies I did so with a company  owned by two Russkis in New York City that was the only legitimate one I found after trying with several others.  Now a Russki wunderkind has created the “Bitcoin” a medium of exchange that is based on the internet.

The “bitcoin” is the Geek World’s hot new item.  It is used to buy and sell goods and services over the net.  The heart of the operation is a computer program available to anyone that apparently gives value to what you want to sell by comparing it to similar transactions.  The problem here is that there is no computer or computer network in the world that has the capacity to store and manipulate the billions of transactions around the world that would be required to give a precise value to any good or service.  Thus the values given are only approximations.

The “bitcoin” has advantages.  First, it allows quick payment for goods and services sold over the internet.  Second, the value of the “bitcoin” cannot be manipulated by any government as with China’s control over the value of its currency nor is it subject to valuation by a currency exchange market.  Third, it allows transactions with countries which are banned by other countries, e.g. US forbids use of dollars to settle bills with Iran or Cuba.  Fourth, it can be used to launder money. 

Immediate problems are, first the “bitcoin” can be used for illegal transactions.  Second, it is easy to counterfeit or corrupt, all one has to do is manipulate the computer program on which it is based.  Third, governments can ban the use of their currencies to buy or sell “bitcoins.” 

However, the biggest limitation on “bitcoins” is that they exist only for cash transactions and do not provide for credit transactions.  For the average consumer this means no buying computers, automobiles, or homes.  It is totally useless for business transactions which are almost all done on credit, e.g building a new factory.  Ditto investment in infrastructure  Credits can be obtained in your local currency and in several international currencies but not in “bitcoins.” 

Nor does the “bitcoin” pose a serious challenge to credit cards.  For starters what currency does your credit card use for a purchase?  Answer, the currency of the country where the transaction takes place so the cards are as universal as the “bitcoin.”  The credit card systems, which are all private, do the exchange from one currency to another at a charge and thus do not have to value the purchase.  More importantly, the credit card offers what the “bitcoin” cannot, credit.

This I see “bitcoins” as a curiosity of the Geek World but not a serious medium of exchange.