Anyone remember "beenz"?

No? I didn't think so.

The oddly named online currency was the hot e-currency of the dot-com boom in the late 90s. It was touted as the Next Great Thing in online commerce. Netizens were supposed to use beenz as a negotiable currency for online transactions.

According to Wikipedia, the Beenz management team raised almost $100 million from venture capitalists--including various European ventures and Larry Ellison of Oracle. Beenz operated in the United States, Sweden, France, Germany, Italy, Japan, Singapore, Australia and China. They had offices in 12 countries.

But although beenz crashed and burned in 2001, they weren't the only casualty. Other virtual currencies have met similar fates, most recently Zynga's ZCoins and their RewardVille marketplace.

Makes sense, right? A fiat currency backed by a corporation can't possibly compete with an established currency backed by a sovereign nation.


Legal tender online

Wikipedia describes bitcoin as a decentralized digital currency based on an open-source, peer-to-peer internet protocol. The cryptocurrency, which uses the acronym BTC, is the brainchild of a pseudonymous developer named "Satoshi Nakamoto" in 2009.

Bitcoin has no central bank and relies solely on the Net-based peer-to-peer network. The money supply is automated, limited, divided and scheduled and given to servers or "bitcoin miners" that verify bitcoin transactions and add them to an archived transaction log every 10 minutes.

While beenz has been consigned to the dustbin of history, but BTC seems more like a functional fiat currency than a glorified loyalty program. Bitcoin has no centralized issuing authority, unlike Hong Kong & Macau where major banks issue banknotes under the authority of a Monetary Authority, and unlike nations and nation-states.

So where's the essential trust-factor in this funny money?

The politics of arithmetic

Wikipedia again: the BTC network is programmed to increase the money supply as a geometric series until the total number of bitcoins reaches 21 million BTC, by issuing them to nodes that verify transaction records through intense bruteforce hashing with computing power. Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BTC the year 2017 and halved continuously every 4 years after.

This ruthless arithmetic continues until a hard-limit of 21 million bitcoins is reached within the year 2140, according to Wikipedia.

The advantages of this system? Politics don't intrude. There are no currency-pegs, no trade deficits, no tax-ecosystems, no squadrons of politicians howling at each other over budgets, no crowds of protestors in agony over their pensions. Bitcoin exists in cyberspace. Some view that as a vulnerability. Others view it as an asset.

But all fiat currencies require "meatspace" action that speak to their validity.

Please pay here

Bitcoin is an accepted currency for internet services such as Reddit, Wordpress and some VPNs.

Bitmit, an online Ebay-like service, allows users to trade goods and services for bitcoin. And various services have begun to offer grey market and legal gambling services that deal exclusively in the bitcoin currency. The online dice game, SatoshiDice, reported profits exceeding ?33,310 ($596,231) during 2012.

And this month, BTC got a boost from the financial sector.

Hedging your BTC bets

Jon Matonis, writing in Forbes Magazine: "Ever since the bitcoin cryptocurrency first launched and achieved initial success, institutional investors and hedge fund managers have secretly sought a regulated investment vehicle for bitcoin placements." What's new as of March 8, according to Matonis: "Malta-based Exante [has introduced a] new Bitcoin Fund.

Let's sum up this fiat currency: it's accepted by several businesses, and if you have enough capital, you can invest in a BTC-denominated hedge fund. The currency is backed by an algorithm rather than a nation or collection of nations. But perhaps in the wake of the Cyprus tax-all-bank-accounts debacle, having a currency free of government-meddling is a positive asset.

Pun intended.