Digital gold rush is talk of the town but Geoffrey Somers warns this get-rich-quick craze is bound to end in tears

By now most of us have heard jaw-dropping rumors about lucky punters in Tsim Sha Tsui or Taikoo Shing who pocketed $10,000 or more in the great Bitcoin bonanza. In elegant clubs and swanky restaurants on either side of the harbor, would-be investors are swapping the latest get-rich-quick stories and salivating at the thought of themselves pocketing a juicy festive-season bonus. But the hard fact is they must somehow acquire a Bitcoin at a "reasonable" figure and - after adding their whopping profit - quickly dispose of it to another enthusiastic punter. Presumably, an important part of this rip-off must be for the seller to steel himself against bursting into laughter or licking his lips in a greedy grin as the deal is sealed.

When negotiations are balanced precariously, some of these sellers talk up the temptations of their Bitcoins by reverting to simple sales pitches from yesteryear such as: "You've got to be in it to win it" or "If you don't speculate you'll never accumulate".

Whatever the smooth pleas of such urgers, the bottom line is that they are asking for $20,000 or more for something about which it cannot be said that "it's not even worth the paper it's printed on". Reason - as "cryptographic currency" it's not printed on anything and however much it cost, you still can't feel it in your hand.

So what's the truth - is Bitcoin a valuable little asset that will keep on hugely increasing in value or is it part of a grand swindle by greedy and smooth-talking punters? Let's start by putting Bitcoin under a microscope and try to find a true picture of its financial "pedigree". It came into being back in 2008 when cynics in various countries began predicting that the present global financial structure was on the verge of complete collapse, with mass unemployment about to be triggered as the economy of every single country ceased functioning.

But these alarming predictions of total gloom and ruin are now almost a decade old and no country's economy has yet to go into an irreversible tailspin. Several years ago the financial affairs of Greece were in deep disarray, with its government in Athens floundering in a sea of debt, but somehow the Greeks overcame their very serious problems and have since shaken off the noose around their necks.

The Bitcoin saga had an inconspicuous start almost a decade ago when a faceless proponent said to be named Satoshi Nakamoto propounded in a financial treatise the introduction of an electronic cryptographic cash system to replace the present global financial system of every country; all transactions being carried out through Bitcoin. Such an enormous change would have seen government-backed currencies such as the US greenback, British pound, euro and so on all subsumed and replaced by transactions limited to Bitcoin. On top of all this the countries involved were to have no controls over these dealings, which would presumably operate under - gulp! - a system of mutual trust.

However, it is claimed Bitcoin has built-in safeguards to ensure all transactions are non-reversible - suggesting countries or investors might be trapped in promising-looking deals that eventually fail. Instead exponents of this make-believe money claim that since there is no single location where information on investors' details and deals is stored, such data cannot be hacked.

Looking ahead, can you imagine the panic and chaos that would result in any country should it be naive enough to make such a suicidal switch to its financial system? Banks would likely close their doors, trade deals with other countries would be endangered, and that country's financial system would self-destruct.

Last year, the Chinese mainland gave a lead to the world when its central bank prudently banned trading in Bitcoin, ending what was becoming a Bitcoin trading free-for-all that was running out of control. The bank cited the "abnormal volatility" the situation triggered.

The rationale behind Bitcoin is nothing more or less than the basic human emotion of greed, and a lust for quick and rich pickings tinged with a strong element of one-upmanship. Sadly, in Hong Kong this has led to foolish risk-taking involving very serious amounts of money. Surely it would have been common sense for the special administrative region government to have followed Beijing's lead last year when it imposed a ban on transactions on the mainland.

Furthermore, such action by the government should have been accompanied by a publicity campaign illustrating the many ridiculous aspects of this imaginary currency, detailing cases where investors had seriously "burnt their fingers" and lost their savings by playing with such an inflammatory "investment".

Interestingly there are at least two other cryptocurrencies in existence - Ether and Litecoin. Neither name would inspire much confidence in investors - "Ether" is particularly formless since, being an anesthetic it is scarcely an appropriate name to give a cryptographic currency supposedly destined for global use. "Litecoin" suggests the opposite of the solidity expected of a currency.

(HK Edition 01/15/2018 page8)