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Lost in Translation: A Bitcoin Economics Puzzle

NEW YORK (TheStreet) -- I have been thinking a bit about bitcoin lately. I personally don't get it, just as I don't get the fascination with gold as an alternative currency.

I view a currency as being a zero duration, full faith and credit obligation of a sovereign; meaning, whether I like politicians or not, at least I have rule of law, taxing authority, land and other assets behind my money.

I don't understand exactly who I should have my faith and credit invested in if I buy bitcoin. Proponents of the virtual (two) bit tell me that is the precise value proposition. As George Costanza would say, "It's a (currency) about nothing."

Consulting Merriam-Webster:


Must Read: Bitcoin Believers Keep the Faith

adjective \ˈvər-chə-wəl, -chəl; ˈvərch-wəl\

: very close to being something without actually being it

: existing or occurring on computers or on the Internet

So a "virtual" currency is very close to being an actual currency without actually being one. This is fine as long as we treat it as we would Zynga (ZNGA) game tokens. If one wants to spend real money on virtual money, I guess that is their privilege.

But now there is talk of a bitcoin exchange-traded fund. This really got me thinking because as we leave the virtual world and effectively turn a digital object into a public security, it brings a couple of issues to the fore.

Just as the SPDR Gold Trust ETF (GLD) created demand for spot gold (easier to hold, don't need to hassle with storage and can hold alongside other portfolio instruments at your brokerage), the bitcoin ETF could be assumed to do the same for similar reasons (replace cost of storage with cost of cybersecurity).

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