The electronic currency bitcoin has exploded in value. The value is changing constantly but a bitcoin traded for as little as $2.30 within the past two years and as much as $900 within the past few weeks. The gains from low to high topped 39,000 percent.
A bitcoin is worth whatever someone else is willing to pay for it and it behaves exactly like Warren Buffett says money should act.
In 2012, Buffet wrote “whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle.”
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At first glance, bitcoins are not that much different than seashells. Bitcoins are hidden in computers while seashells are hidden in the sand near the ocean. Each has a value when it is found although the shells are merely decorative and someone decided bitcoins should be used as a medium of exchange.
Speculators are buying them and exchanging them for goods on Amazon.com and other web sites. That makes bitcoins money, just like seashells would be if someone is willing to accept as payment.
Buffett was highlighting the weakness of gold in his comments as an investment. However, his wisdom is that an investment is whatever will go up.
Although Buffett isnt a fan of gold, it is a near certainty that gold will hold its value and appreciate in times of crisis.
Bitcoin demonstrates that there will always be demand for currency and if governments encounter a crisis, their paper may not be as valuable as metals like gold or algorithms like bitcoins.
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