I have to admit I know very little about Bitcoin. I do know it’s a digital currency and you can use it to buy stuff from others who accept it (more retailers are doing that now). Thanks to the February 2014 meltdown of the Japan-based Mt. Gox exchange, I also understand that bitcoin can be bought and sold like stocks or other currencies.
So, what exactly is bitcoin? For someone like me who grew up with hard cash as the only currency I knew, it’s difficult to wrap my head around the concept of a virtual currency created by a computer. Bitcoin is called a cryptographic currency because the creation of new bitcoin is controlled by computer protocols designed to protect the currency. Unfortunately, those protections didn’t keep someone from stealing $350 million from the Mt. Gox exchange, nor can the protections stop the volatility inherent in bitcoin usage and trading.
In 2013, just five years after we first started hearing about bitcoin, forecasts about its future value ranged from $10 to $40,000. Obviously, bitcoin can’t trade itself, so that’s where we the people come in. Because bitcoin can be traded, it can also be manipulated. Yes, there are scammers in bitcoin trading, too.
Yesterday, while doing a little research on this, I came across an interesting article about the “Wolves of Bitcoin” on Gawker. The article itself was interesting, but the comments were fascinating. The gist of the article was that there are some very influential people who can issue an advisory to their followers about an upcoming rise in the value of the currency (the pump). When everyone starts buying, the value of the coin rises, at which point the “adviser” tells everyone to sell their holdings (the dump). Most of the time, these pump-and-dump events take place in the span of a few hours.
There was a comment from someone who had once tried dabbling in bitcoin day trading. He said that he bought $20 worth of bitcoin and tried to get in on one of these pump-and-dump cycles. He was lucky and only lost $200. One of the other commenters was from a guy who made a great deal of money manufacturing bitcoin and who is now trading with automated trading software. His reply to the guy who lost money? “You get what you deserve.” Sound familiar?
Well eBay’s Johnny Ho has announced that eBay/”PreyPal” are going to get involved in bitcoins—that should ensure any fraud will become endemic …