A little bit of this, a little bit of that

When I was in high school, we used a cheer to fire up our football team: “Two bits, four bits, six bits a dollar, all for Fenger stand up and holler.”

We also had a candy bar called Bit-O-Honey.

When my father talked about a bit, it was for his drill.

And how often do we hear someone ask for a little bit more? As some would say, those were the good old days. We all knew what a bit was. That was then; this is now.

All of a sudden, there is a new Bit, one that some say is cryptocurrency floating around somewhere in a computer. And yet, this new Bit is raising eyebrows, generating questions, creating interest and making many wonder what this Bit is all about.

This new phenomenon is called Bitcoin. It has a nice ring to it, but is that all there is to it? A word that is fun to say?

Actually, there is a lot more to it. Bitcoin is a complicated subject with as many supporters of the concept as there are those who believe it would be best for it to go away.

In an effort to try and understand what Bitcoin is all about, I went to where everyone goes, online. I found tons of information.

The concept of Bitcoin was introduced in a 2008 paper by pseudonymous developer, “Satoshi Nakamoto.” A Bitcoin, or peer-to-peer cash system as Nakamoto dubs it, is known as a cryptocurrency using a cryptographic protocol that is independent of any central authority for its creation and transfer. Users can transfer Bitcoins through computers and smartphones without relying on an intermediate financial institution.

So is it a form of money? Do you actually feel it in your hand like you can a coin or a crisp dollar bill? Can you take it to a credit union or a bank and deposit it? Can you go to a grocery store and buy a candy bar? Or can you use it to pay a utility bill? You can’t.

Yet, some use Bitcoins to make and receive payments. Goods and services are being exchanged between buyers and sellers with payment being made in Bitcoins. As long as there are enough Bitcoin users, it is conceivable that at least in the short term the system can work for those accepting the concept.

The value of a Bitcoin has been all over the place. As low as $13 and as high as $236. As a result of this fluctuation, some see Bitcoin as a speculative investment. Others view it as a Ponzi scheme. As long as there are participants, the Bitcoin market will continue to sustain itself. If users disappear, then all bets are off.

As a regulator, I do have some concerns: Will the Bitcoin be used for illegal purchases? Do you really know who you are dealing with? Does a Bitcoin purchase get sales taxed? Is a Bitcoin insured when deposited like money at an NCUA federally insured credit union? Will a greater number of people use Bitcoin payments to avoid transaction fees, thereby weakening the system we now have in place? Should we register Bitcoin transmitters like money services businesses? These are just a few of the questions.

Our currency system was once backed by countless bars of gold in Fort Knox. Today, our system is backed by the full faith and credit of the U.S. Government. This system has worked well for generations. It is probably the best in the world. After all, when people flee to safety, they put more Ben Franklins and Abe Lincolns in their wallets.

So is Bitcoin a flash in the pan? Will it go the way of the Edsel, Corvair and DeLorean? Fifteen minutes of fame and then poof? Only time will tell.

If it should go bye-bye, I have a substitute. It looks and feels like cash, everyone has at some time used it, and it is easy to carry. It’s called: Monopoly money.

Michael Fryzel

Michael Fryzel

Michael Fryzel is the former Chairman of the National Credit Union Administration and is now a financial services consultant and government affairs attorney in Chicago. He can be reached at ... Details