Second Money

Today I read that the FBI has closed down a site called Silk Road, with possible impact on Bitcoins.

I hadn’t heard of a Bitcoin. Apparently it’s a “virtual currency”. You buy bitcoins with real money, and use them online to buy stuff. When I heard about this, I was puzzled. I’ve heard of Second Life – a very useful resource for people who don’t have a first life. This sounded like a Second Income – for people who don’t have real money.

It turns out to be more like a Second Expenditure. Bitcoins are actually quite expensive. And then their value jumps up and down, like a real currency, even without the Feds taking an interest.

Which still leaves two questions. (1) Who determines that they are worth anything at all? And (2) Why not buy (online or otherwise) with pounds or dollars?

On the first point, the BBC explains that bitcoins “have value because enough people believe they do and there is a finite number of them”. Like Premiership footballers, or Royal Mail shares, or houses, or hostages, or snooker results. Or real money, come to that. Terry Pratchett wrote of “the fairy dream that the gold is there, at the end of the rainbow, and will continue to be there forever – provided, naturally, that you don’t go and look.” (Does anything have intrinsic value? Another topic, another day.)

On the second point, an important point is that you can use bitcoins anonymously. It’s about privacy. Some people prefer to buy stuff without divulging their identity. That’s why I wear a balaclava when I go to Tesco. That’s also why money-launderers like bitcoins: and that’s why the FBI are interested in their use.

And if the bottom falls out of the Bitcoin? I guess the bad guys will just have to go back to trading in snooker results.