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Tue May 6, 2014
Is Bitcoin Where The Smart Money Is Now?
Originally published on Tue May 6, 2014 1:38 pm
MICHEL MARTIN, HOST:
I'm Michel Martin, and this is TELL ME MORE from NPR News. Now we'd like to turn to matters of personal finance. It turns out that money is more than what you have in your pocket. Today we want to take a look at the digital currency known as bitcoin.
Digital currency has been around since 2009, but there are signs that it could be gaining broader acceptance in the marketplace. For example, there's an MIT project in the works to give each undergraduate student $100 of bitcoin in the fall. So we wondered if bitcoin is where the smart money is now.
Here to talk about that is Michael Casey. He is a columnist for the Wall Street Journal, and he's written extensively about bitcoin and other digital currencies. Welcome. Thanks so much for joining us.
MICHAEL CASEY: Thanks for having me, Michel.
MARTIN: So I understand that you actually own some bitcoin. How did you end up with this?
CASEY: Well, we talked about this beforehand where I had to give a disclaimer as if I am some sort of, like, big, high-rolling investor in bitcoin.
CASEY: Well, actually, I own about $40 worth. I bought $200 worth as part of a trip to Miami where there was a bitcoin conferencing on. And I figured I want to - if I'm going to write about it, I should figure out how it works. Of course I bought when it was at about $850.
I think I bought a few hamburgers and maybe a drink or two with bitcoin, and now it's all fallen down - all the way down to $400. So not exactly one of my most successful investments, but hardly one that's going to really break the bank.
MARTIN: Well, that's a relief. I'm so glad to hear it so we don't have to lend you some money to get back to the office. So first of all, what is it? I mean, is bitcoin the only digital currency?
CASEY: Well, no, it's not. It actually can be replicated fairly easily because it's an open source software. It's a program that can be reproduced. But what is it? It's - I was calling it digital cash. It's digital cash for a digital age - is the slogan some of us have fallen upon. The way to think about it is to focus on that word cash because what cash is is an absolute transfer of value between two people.
When you walk over to somebody in the street and you say, here's $10, as you may do to a complete stranger, no one's going to have to step in to the middle of that transaction and verify who either of you are and ensure that that money is truly worth what it is. You both recognize its value. We've never been able to figure out how to do that through, you know - through the centuries basically. And certainly, when we got around to the electronic age, we had to do it through e-commerce. And so we lay it on top of it all these banks and credit cards and payment processes and all these third-party institutions who had to verify the identity of the users and the credit worthiness of the various participants, all of which is extremely cumbersome and therefore very expensive and not necessarily visible.
Of course you do pay. You pay by way of higher prices for things. You pay by way of interest rates on credit. There's all sorts of ways in which the economy as a whole is burdened by the very expensive and cumbersome process of shifting money around the world.
Bitcoin is not necessarily going to be the answer. It has enormous flaws and all sorts of risks associated with it. But it goes to the heart of this particular problem. And the great promise is that it will liberate money. And that is profound because there are all sorts of people around the world who do not have access to the same financial infrastructure that you and I have.
MARTIN: You mentioned earlier that your own adventure in bitcoin has not always gone so smoothly, and that's been true of a lot of people. A major bitcoin exchange Mt. Gox went bankrupt earlier this year. They said that they lost 750,000 consumer-owned bitcoins. Only 200,000 have been recovered. Why do you think that is?
CASEY: It's unregulated. And it's a - it's unregulated because no one quite knows what it is, right. So we have a very - I wouldn't say antiquated - but we certainly have a regulatory framework that is out of touch with what this thing is. We don't even - we really can't quite conceive of it from a legal perspective. So as a result, the various businesses that have built up around it are operating in ways that - it's like the Wild West, you know. It's actually a kind of a lawless environment.
So Mark Kapeles, the CEO who was also the CIO and the CFO and the compliance officer kind of rolled into one and was running this thing without any of the checks and balances that needed to be there. So that's why people are now talking about the next phase of bitcoin or, let's say, the next phase of digital currencies.
MARTIN: So finally, another big development - Bloomberg announced at the end of April that it will list bitcoin prices on its data terminals. And as we mentioned, that whole - this idea at MIT to give the undergraduates, each of them, $100 in bitcoin because we assume that these students are early adopters will kind of figure out interesting things to do with it. Do you see those as significant steps or is that still kind of the, you know, we're let's say...
CASEY: Are we talking about our hovercrafts so now here?
MARTIN: Exactly. Right.
CASEY: Are we talking about our Jetsons flying...
CASEY: ...The cars. Maybe, you know, but I think it's - everything has to start somewhere. And these are important steps because it's all about being acknowledged and given legitimacy. The whole point about money is it needs to have trust associated with it. And trust is something that you earn. And you earn, in our contemporary society, through the recognition that comes from certain institutions.
And in the world of Wall Street, Bloomberg is a very, very important institution because it's on every trader's desk. So if you have a price now being quoted on Bloomberg - although you could've just found that same price on the Internet if you wanted to - it's now being given something of a stamp of approval. And that I think is significant. I mean, it doesn't sound like there's anything concrete there, and there isn't.
But money is a failing, you know, nebulous concept but yet an extremely important one. And so the extent to which we build kind of communal and societal faith in whatever it is we're going to use as money, the greater it can arise as an institution.
MARTIN: Michael Casey's a columnist for the Wall Street Journal. He was kind enough to join us from our studios in New York City. Michael Casey, thank you.
CASEY: Thank you, Michel. Transcript provided by NPR, Copyright NPR.