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It might buy you a pint, but Bitcoin is a bubble of trouble

THIS week the first bitcoin ATM opened in Dublin. It came as the Baggot Inn became the first Irish pub to accept bitcoins – the new digital currency – for pints.

So do these developments mark yet another stage in the inexorable advance of the bitcoin, or is it just a short-lived fad?

First things first – just what is bitcoin? Good question.

Bitcoin was first created by software developer Satoshi Nakamoto in 2009. There is apparently no record of Mr Nakamoto prior to the creation of bitcoin.

New bitcoins are created by a process known as "mining", in reality using blocks of high-end computers running 24/7 to unearth the algorithms or sophisticated numerical sequences that correspond to each individual bitcoin.

There are a maximum of 21 million such algorithms, and it is estimated that all possible bitcoins will have been "mined" by 2040.

The value of the bitcoin has fluctuated wildly since 2009. After peaking at more than $1,200 (€865) last November, it has fallen sharply.

It fell first on the news that the Chinese central bank had barred financial institutions in that country from conducting bitcoin transactions, and then last month Japanese bitcoin exchange Mt Gox announced that 850,000 bitcoins – with a value of approximately $474m – had gone "missing".

No, I'm not making this up. Mt Gox has since filed for bankruptcy.

Things got even murkier last week when Autumn Radtke, the chief executive of Singapore-based bitcoin exchange First Meta, was found dead in her apartment. She had apparently committed suicide.

A founder about whom no-one seems to know anything, a currency whose wildly-fluctuating value depends on nothing more than a series of numbers, one exchange having gone bust after a massive fraud, the chief executive of another apparently committing suicide and the central bank of the world's second-largest economy refusing to have anything to do with it.

SUSPICIOUS

Would you trust your savings to such a currency?

Yet that's exactly what proponents of bitcoin are asking us to do. Maybe I'm just a suspicious old so-and-so, but that seems to be taking a heck of a lot on trust.

In comparison with such castles in the air, the paper money issued by the world's leading central banks strikes me as being rock solid. And that's only part of the problem with bitcoin. As an online currency, the only record of whose existence is anonymous algorithms, bitcoin is ideal for drug-dealers, gun-runners, money-launderers and other ne'er-do-wells wishing to hide their ill-gotten gains.

This isn't just a theoretical concern. In January, Charlie Shrem, vice-president of the Bitcoin Foundation, was charged with money-laundering and "knowingly contributing" to anonymous drug sales.

It is alleged that he sold more than $1m of bitcoins to users of Silk Road, the online black marketplace that was shut down by the FBI in October 2013.

Given what we now know about bitcoin, it's hard to disagree with Robert Shiller, winner of the 2013 Nobel Prize for Economics, who recently described bitcoin as a "bubble".

With virtually no regulation or ownership records, bitcoin is wide open to just about every sort of scam. Anyone contemplating wading into such a fetid witches' brew needs to have their head examined.


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