Bitcoin mania: What tulips can teach us about online currency.

In 1637, tulips were a hot commodity to the Dutch. They had been recently introduced to the region, and were something of a rarity and novelty. They sold for a pretty decent price. They were selling for around 10 florins (for a sense of scale, the average craftsman’s annual income was ~300 florins). Tulips became a status symbol, and as the demand rose for these flowers, so did the price, soon they were going for 20, 30, then 50 florins. Many people saw the opportunity to make a profit off of these by investing in tulips, and even signing futures contracts. The price continued to soar. At it’s height tulip bulbs were selling for 2,500 florins.

Then one day someone woke up and said “Why the hell are we spending so much money on flowers!?” and the world saw it’s first speculative bubble. It was known as Tulip Mania

With the skyrocketing cost, eventually it had to hit a point that no one was willing to pay. A similar phenomenon is happening with the online currency Bitcoin. A Bitcoin used to only be worth a few cents, but are currently trading for around $7.50 (You can see the exchanges rates at a site like MtGox). People are starting to invest money in bitcoins, because like the tulips, they believe they can resell them for a profit at a later date. And if you were someone who was an early adopter, then congrats on your profit, but this isn’t sustainable.

Bitcoin value over time (in USD)

How far will this go before people wake up and say “Why the hell are we spending so much money on encrypted files?”

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