| NEW YORK, June 26
NEW YORK, June 26 Pat Chen made a Bitcoin the
other day. But he didn't mine it the way you are supposed to by
following a set of instructions using a specialized algorithm to
create the digital currency, then waiting to snag one of the 21
million Bitcoins that will be generated by the year 2140.
Developed in 2008 by Satoshi Nakamoto, a pseudonym, each
Bitcoin gets a serial number and ownership is transferred
between online accounts called wallets. They can be traded via
online markets and accepted for payment by merchants.
Instead, Chen ginned one up on his 3-D printer. It is a
bright yellow, grooved disc with a raised B on one side.
"It's just a toy," he says, showing it off at the regular
Thursday night Bitcoin Meetup in New York City.
Chen only owns one "real" Bitcoin, but he's interested in
accepting the currency at his tech shop, xCubicle, on the Lower
East Side of Manhattan, and in disruptive technologies in
general. Chen once speculated in Iraqi currency because he
thought it would go up in value as the country rebuilt, like the
German currency after World War II. But that did not happen.
"Bitcoin is like the lottery. It's a gamble," Chen says.
What Bitcoin is intended to be, however, is a currency - a
virtual currency that exists independently of any government.
Bitcoins are "mined" by software running a set of algorithms
and their release is tightly controlled, mimicking a central
banking system's control over the minting of money. There are
just over 11 million Bitcoins in circulation now, currently
worth an estimated $1.2 billion.
And while some people insist it's just a fad, Bitcoin
enthusiasts say it is the future. But with extreme volatility in
the price of Bitcoins since the start of 2013 - they went from
$13 in January to a peak of $266 in April to around $100 today -
the outlook is hazy, even as trading gets more popular.
Since the beginning of the year, Bitcoin wallet accounts
have grown to over 300,000 from 50,000, according to
blockchain.info, which collects Bitcoin data.
Security is an issue, though. Two high-profile thefts, from
Bitcoin Savings and Trust and Instawallet, amounted to more than
$10 million in estimated losses. And seizures of virtual
currency accounts, plus the shutdown of some exchanges by U.S.
authorities on money laundering allegations adds regulatory
uncertainty to the mix.
JUST GETTING STARTED
At the Meetup, Chen is joined by about 40 others in his
demographic - mostly male, tech-savvy, under 40 - looking to
build the kind of ancillary businesses that will serve the
Bitcoin market. Some are building trading websites, others are
working on information sites and some are working on charity
Pierre Roshard, 23, just graduated from the University of
Texas at Austin and is on his way to a job at Deloitte & Touche
LLP in the fall. He has no 401(k), no Roth, no other
investments, but he has some Bitcoins. He's building a website,
bitcoinadvisory.com, full of information on topics such as tax
implications and custody issues for financial professionals
"I would hesitate to even use the word investment," Roshard
says. "It's how I motivate myself. It's like having stock
options in the company that you work for."
DANGERS OF THE BANDWAGON
New York City-based investment advisor Josh Brown, who is
known on the Web as The Reformed Broker, keeps an annual list of
the top investing fads and themes that have petered out. The
list for 2012 included homebuilding stocks and the market's
obsession with Apple. Contenders for 2013 are country specific
exchange-traded funds, especially Japan, and new dividend equity
Bitcoin is unlikely to make his list because he does not
think it even rates as a fad yet.
"It's too sophisticated for the masses," Brown says. "The
thing that will strangle it is that every large tech company is
working on currency to be used in its own eco-system."
For Bitcoin enthusiasts, it is more about being part of a
movement and potentially having that get-rich-quick moment that
will catapult them past entry-level jobs.
"It's like Columbus discovering the New World," says Philip
Nemirovsky, who travels from Philadelphia to New York each week
to meet with others interested in Bitcoin. "It's a paradigm
shift, like Napster."
When it is pointed out that Napster did not have a long,
successful history, Nemirovsky shoots back: "Napster might be
dead, but Sean Parker is still rich."