01/12/2017
“Should I buy into the current bitcoin scheme?”, I was asked for the umpteenth time this week. My experience shouts “No!” – and especially not if you are labelling it a ‘scheme’. But am I like the horse-riding mayor of yesteryear, sneering at Henry Ford? Let’s take a look.
“Should I buy into the current bitcoin scheme?”, I was asked for the umpteenth time this week. My experience shouts “No!” – and especially not if you are labelling it a ‘scheme’. But am I like the horse-riding mayor of yesteryear, sneering at Henry Ford? Let’s take a look.
Blockchain for Dummies
Before we get into digital currencies we have to first understand blockchain which is the enabler of all of this hoopla.
Here’s how I visualise it. Remember the library books you took out as a kid? The date was stamped on a piece of paper in the book and the librarian would tap earnestly into his/her big box of a computer. But those records were only visible to the person with the book. And the librarian.
Now imagine a village library with 20 books. And 50 residents. Each resident has their own colour of Lego bricks. Let’s say I’m yellow. And each book has its own Lego base, or docking station, in the village square. Every time someone borrows a book, they add a Lego brick of their colour to base 1. Which is then stuck down tight and can’t be moved. When I return my book and someone else takes out that book they add their different coloured Lego brick on top of my yellow brick. And so on. After a year, there is a tower of Lego blocks, so we have a publicly visible record of ownership. Who last had the book and who has it now. And you can’t fiddle the blocks because the other 49 people in the village are watching.
Now imagine that the librarian of the past was Robert Mugabe. You don’t trust him and the computer which only he sees and controls. Or imagine the librarian is a dodgy land registrar in Costa Rica, open to bribes. This is the appeal of a decentralised record of ownership. It removes the impact of a bad egg. Expand that thought process to all those people in banks sitting in Canary Wharf tapping away, entering the same invoices and the same money movements into each of their computers multiple times, because they don’t trust each other and it’s MY WAY OR THE HIGH WAY! That all – in theory – becomes redundant with blockchain. There’s a central, public record not owned by any one bank or Government.
BITCOIN
Bitcoin and other digital currencies are enabled by this blockchain which keeps a public record for all to see – except they just see you as holder of yellow Lego bricks, not Holly Mackay. So public but hidden. This crypto-currency has doubled in value in less than 2 months from $5,000 to $10,000 this week. By way of comparison, the biggest year for US stocks was in 1915 when the Dow Jones industrial average went up by 82%. One-tenth of bitcoin’s rise this year.
As always, the price of everything and anything is simply down to supply and demand. A) How much is there. B) And how much do people want it? That logic applies to Cristiano Ronaldo (A. Only one and B. a lot). Cabbages. (A.Tons and B.not a lot). And bitcoin. (A. Some. B. Loads). (Honestly don’t ever let an economist tell you’re their job is hard ever again!) This new currency is seen as an alternative to gold as a place to store money outside the control of governments and banks and it’s running hot. Lots of people want it right now. There’s also good old fear of missing out. “OMG it’s going gangbusters let’s all pile in!!!”
WHAT’S THE PROCESS?
To research this piece I read up more and ended up at www.blockchain.info I don’t like writing about what I don’t know and curiosity killed this cat. So I set up an account with Coinify and spent £200 on bitcoin. (£200 which I wouldn’t be surprised to lose so this is all in the name of research, not greed). What a laborious process! Passport uploads. Full address entered. Phone numbers. Codes sent to mobile phones. First card flat out declined. Second card triggered an immediate fraud alert and call from the bank. And after all that - a one day verification process but an emailed receipt from Coinify in Denmark. Blimey!! I suspect the drug dealers don’t hang out here – this site knows more about me than my sister! Anyway. I am now the sceptical owner of 0.02603156 BTC. Oh high and happy day.
SHOULD I BUY?
Every bubble follows a pattern. And when non-experts like myself write blogs such as this for non-experts like most of us – well we’re typically in the Greed stage of the bubble. Which usually comes before meltdown. I reference South Sea bubbles, tulips and the dot.com crash. So although more than $5 billion was traded on bitcoin exchanges last Sunday, I prefer to sit this one out, allocating the bare minimum to be able to write about the process and experience. There are so many regulatory risks, risks of the unknown and risks of a panicked run in Bitcoin that I’m not prepared to take the punt.
Anyone who does want to buy in at this stage should treat it like gambling and only put in what they can afford to lose.
PS Just when you thought your brain might fry, the Chicago Mercantile Exchange will launch Bitcoin futures in December. So people can short bitcoin. Which one fund manager I spoke to today thought could further boost the price as people bet on it falling, it doesn’t at first and then people are forced to close out their positions and…..ouch…..
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I am 35 and working part time on a reasonable salary. I've recently taken out a Stocks & Shares ISA with Wealthify (from reading the recommendations on Boring Money) where I pay in £40 per month. However, I'm wondering if I should be doing more? Should I be diversifying and using more than just Wealthify? Or is it better to increase the amount into Wealthify?
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Could you be kind enough to let me know what would be the best instant access savings account for me. I would like any interest to be paid to me monthly. Thank you
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Could you be kind enough to let me know what would be the best instant access savings account for me. I would like any interest to be paid to me monthly. Thank you
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