Baffled by bitcoin; give me lotto

Holiday season financial news has been dominated by the Republicans’ tax plan and rush to bitcoins.

Both leave me scratching my head.

The Atlantic Monthly and Fox News agree the tax plan will mean lower taxes for just about everybody. At least next year, maybe. The mainstream media, however, say the plan is a disaster for the middle class.

I don’t know who to believe.

If the Republicans’ tax plan is confusing, bitcoins are baffling, but I wish I had bought a few back in January when their value was $894 per coin. On Friday, the value per coin was $15,197.49.

That would have been a return on investment of 1,790 percent. That’s even better than the return I got from a Nevada lotto machine once — $400 back on a 25-cent bet. That’s 1,600 percent.

The problem with bitcoin is that within a month or two, the value could plunge back to $894 or less.

It’s a matter of supply and demand.

Supply is known. Mathematics dictates that only 21 million bitcoins can ever be available. Already, 16.8 million have been mined. Yes mined.

You mine bitcoins with a machine that can cost anywhere between $250 and $7,000. You connect it to the internet and wait as it pumps a few thousand very complicated calculations per second into the internet.

Your machine competes against others like it to be the first to match a number associated with a new block of bitcoin transactions, then prove the math that produced the matchup.

The upside: There’s a winner every 10 minutes. The downside: the value of each win has shrunk from 25 bitcoins to 6.25.

Your machine might win once or twice a year. At current bitcoin prices, that will pay for even a $7,000 machine several times over. But those prices soar or plunge unpredictably.

Buying a $7,000 bitcoin miner, to me, is the same as buying 7,000 lottery tickets.

The other determinant is demand, or how many transactions of what sizes people want to make with bitcoins.

They exist only as very secure ledger entries online and are useful when transactions must be anonymous.

That’s why bitcoins are associated with the “dark net,” the hidden internet that deals with questionable activities like Wikileaks and crimes like drug trafficking, smuggling and North Korean government.

You wouldn’t want to touch bitcoins if they were physical, because you don’t know where they’ve been.

By the way, North Korea is now suspected of stealing bitcoins through hacking. The hackers, I assume, are geniuses who work best with guns at their heads.

Bitcoins can simplify lots of legitimate commerce, too, though.

In recent weeks, bitcoin exchanges and even a futures market for bitcoins, like the ones for grains and pork bellies, have popped up.

Now, would you buy someone special a bitcoin or a bitcoin mining machine for Christmas?

I would opt for the 7,000 lottery tickets.

Happy holidays.

Steve Hansen writes about our life and times from his perspective of a retired Tucumcari journalist. Contact him at:

stevenmhansen

@plateautel.net