Bitcoins: managing an uncertain world

After traditional media gave notice of Bitcoins, many people started to buy and sell this “currency”. But the largest Bitcoin exchange was not able to manage the increasing demand and went down.  

It may sound great: Bitcoins is an algorithm based crypto currency, strong anchored on mathematical laws. Its volume development over time is a given function that predicts accurately its growing path. However, last week, the largest trading exchange of Bitcoins had to suspend all transactions due to a too high demand flux on its network. How did that happen? Was this event unexpected?

One of the few certainties of life is that tomorrow is quite unknown. Of course, we have colored graphics, mathematical sequences and long statistical functions to predict our future. But the window we can open to the time that has still to come is very small. In other words, we can expect that an event will take place, we can calculate the probability of the event itself, but we cannot be sure that this particular event will take place next week instead of next month. Managing the risk of uncertainly is a difficult activity.

A couple of weeks ago Bitcoins were, for the majority of people, a vague and unknown phenomenon. Bitcoin users were mostly computer literate and mathematics fans. The situation rapidly changed when traditional media started to report about a new internet hype called Bitcoins. Suddenly, the entire world started to search and to look for Bitcoins. A high number of new users were born. The MtGox exchange managed with difficulties the new situation and it was forced to close its doors for some hours, due to the large amount of traffics on its network. Actually quite funny, if we remember that the Bitcoin community was trying to create awareness for the new crypto currency already for some years.

MtGox clearly didn’t expect an increase of transactions in such a small time. Or better, if it was expected, it was not able to deal with it on time. On the other hand, managing risk in the Bitcoin world is not such an easy matter. Bitcoin is a mathematical creation, but it is such a different concept that it can barely be compared with anything else. Unlike gold, Bitcoin has a short history to rely on. That is the reason capital investments in Bitcoin businesses are made very careful and in limited amounts. Logically, if we think that most of the enterprises have a responsibility to their shareholders. And shareholders don’t like failures.

 

MtGox is at the moment the largest exchanges for Bitcoins. In a free market, growing profits lead to new entrants on a market. This will apply to Bitcoins too. But uncertainty is a big factor for Bitcoins and thus a barrier. Only enterprises that will be able to manage the unknown risks would be able to entry and stay in the Bitcoin market. Only managers with guts will make the choice to invest in Bitcoins services and infrastructure.

Whatever the future will bring, the coming year will be an important year for Bitcoins. In this year we will witness if the new currency is here to stay and remain.