Bitcoin's flash-crash lesson: Number-based currencies don't 'cure' human nature
The price of bitcoins has fallen considerably from the recent high of around $130 in late May, with a dramatic drop from $108 to $91 in the past 24-hour period.
As of around noon Eastern time Sunday, the bitcoin price stood at $98 (£64.61).
Why the big drop? There could be any of a number of reasons -- more likely a combination of several: unsubstantiated rumors run amok, the market fluctuations you'd expect for a relatively new commodity, herd mentality, greed, panic.
All of the above were apparent in the comments by redditors discussing today's price plunge. It was FinCEN (the US financial regulator) cracking down on bitcoin, some said. No, it was new verification requirements at Mt. Gox, others speculated. No, it was spineless noobs dumping their currency because they don't know what they're doing in the first place, others said.
Comments like these prompted others to offer their own tongue-in-cheek theories, such as this one from seedpod02:
"Here's what I'm thinking since last week when I realised that Peter Thiel was on the Steering Committee of the Bilderberg Group--see here--that is currently on the go: That he and others et al (Amazon, Google, etc) are being pretty persuasive to the billionaires, royalty and mega-powerful movers about the need to take bitcoin seriously, and that these really really REALLY big kids on the block will start to think they should perhaps take all this hocus pokus (sic) about bitcoin that they are hearing but don't understand very seriously, just in case, and so have been dashing out of meetings at teatime with instructions to set the market for a big buyout, before returning to more sessions of Thiel selling his all-seeing Palantir eye as the panacea for moving to the new platform."
(All this underscores a critical lesson in this day and age: it's more important to get the news right than to get it first. Just think CNN's beyond-embarrassing botch of the US Supreme Court ruling on Obamacare.)
Here's what we probably can learn from this latest bitcoin flash crash:
While Satoshi Nakamoto's brilliant Bitcoin protocol might have solved the Byzantine Generals' Problem, it did not do away with the basics of human nature. Essentially, people are prone to:
a) believe rumors
b) spread rumors further
c) act without thinking
d) panic in large numbers
e) seek to cut their losses or profit from the losses of others.
It would be good to remember that all those apply whatever we're transacting in: fiat or purely number-based cryptocurrency.