Tired of banking transactions? There’s a new money concept out there.

Bermuda is a complex financial environment. We tend to forget this fact, until we have to trudge down to a bank teller for travelling money, or negotiate a foreign currency transaction online with our computer. Once in an FX menu, have you ever clicked on the wrong currency, and ended up with say Australian dollars when you wanted something completely different? And, then when you try to reverse the transaction, don’t understand why the amount isn’t the same that you started with? If you are like me, you have no shame in using Google as a currency converter while resenting that foreign exchange fee to the government, the commission on the transaction itself to the bank (why do I have to pay a commission when I’m doing the work), and the fluctuation in the value from the currency value you thought you should get.

It’s never happened to you? You know exactly you will receive in Canadian dollars or British pounds. Genius — but the rest of us struggle with fractions, and decimals to four places, maths concepts taught so long ago that we’ve forgotten why we needed to learn them in the first place.

Trust me, you will need decimals if you are ready for new world currency called Bitcoin, but as a trade-off you won’t need the bank (and fees) for currency transactions.

Bitcoin is an alternative, digital cryptocurrency. There is no tangibility to Bitcoin (although some companies do issue ‘real coins’). Bitcoin exists primarily in the electronic world where understanding of abstract computer technology concepts is very important, along with owning a powerful computer.

According to Investopedia: “Bitcoin operates in a P2P2 technology decentralised authority where all functions are carried out by a network without a central agency to oversee operations.” There is no Central Bank of Bitcoin, or a Bitcoin Reserve to manage the fund flows or establish monetary policy, nor do Bitcoin balances have Bitcoin Deposit Insurance.

Bitcoins, as developed by its unknown founder(s) S. Nakamoto, will be issued to a cap of 21 million, with each Bitcoin divisible to eight decimal places.

How do you use and get Bitcoins? Purchases, payments, transfers online just like a credit/debit card without the middleman and the higher transaction fees. The catch: you must create a digital wallet, purchase Bitcoins from a Bitcoin currency exchange and find Bitcoin vendors willing to accept your transactions.

Bitcoin values are volatile, creating uncertainty as to the eventual purchase price of any item. Bitcoin prices are still set by the basic concept of a willing buyer and a willing seller (on an anonymous basis) effecting a transaction value at that time. There is no marketmaker to provide stability by acting on one side of the trade. Consequently, valuations swings may also generate investor losses.

Is it worth the ancillary costs and value uncertainty? Perspectives are is that it is too soon to tell. The lack of oversight, the complete anonymity in trading platforms and the significant increase in activity in Bitcoins has generated increased interest by government regulatory and crime prevention agencies concerned about money laundering, fraud, tax evasion and other illicit activities. Major news media at end of October 2013 reported that the US Department of Justice closed the website Silk Road, a drug black marketeer, seizing an estimated $28 million in digital bitcoins from the alleged owner.

Bitcoin may be another currency choice at some point in time: confidentiality, lack of government interposition, universal currency across all borders. You’ve better open that maths text book, though. It won’t be easy to purchase that Armani embossed wallet priced at 50 US Dollars on a BitMit Website for, are you ready for this fraction? 0.19138BTC based on yesterday’s BTC value. What do you do if the Bitcoin value changes? Can you do that multiplication in your head — to eight places? No? Neither can I.

Coincidentally, the BitMit website also announced that it is shutting down in a few weeks. The reason, the BitMit operators think “that such a site should be run by a more professional business entity.”

Fascinating, audacious, possibly speculative, subject to exploitation, almost guaranteed anonymous, with cryptocurrency, you may never carry cash or a credit card again, but don’t lose your cell phone. It will be your new Mobile Wallet. Bitcoin is certainly the new, new thing!

This article could not begin to cover all things Bitcoin. Want to learn more? Forbes has a number of excellent articles, among them: How Bitcoin Works, by Investopedia Staff: Forbes, Personal Finance, 08/01/2013. This is a fairly technical article that explaining the basic structure of cryptocurrency. http://www.forbes.com/sites/investopedia/2013/08/01/how-bitcoin-works/

Living on Bitcoin for a Week: Bitcoin is the internet Applied to Money (and I Survived It) by Kashmir Hill, Forbes Staff: Forbes, Tech, Starting May 1, 2013 and running for seven days. The first article is called, The Journey Begins.

Ms Hill does an enthusiastic superb job of chronicling her weeklong experiment in Bitcoin living authorised by her Forbes editor, who stated, “Don’t just buy Bitcoin. Live on it for a week.” Meaning — you can’t use any other form of currency tender.

Challenged Ms Hill was, as we read of her initial purchase of Bitcoin from a Bitcoin exchange; her search for stores (especially food) that accepted Bitcoin; her encounters with public transportation, taxis and a landlady who would not, so she ended up riding a bicycle, asking for rides, and moved out of her apartment; her notes on the multiples of individuals in various retail industries who never heard of Bitcoin. Finally, we read of her real concerns about the fluctuating value of Bitcoin every day versus the original planned amount in dollars she invested, even though this was a weeklong experiment!

The link is here: http://www.forbes.com/search/?q=living+on+bitcoin+for+a+week

Martha Harris Myron JP CPA PFS CFP is a Bermudian journalist and a cross border financial planning specialist focused on offshore financial perspectives for international citizens living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre.

President of Pondstraddler? Life™ Consultancy.

International consultant on cross border financial planning; Publications, Presentations & Workshops.

www.pondstraddler.com

Email info2pondstraddler.com