Firth’s take on tech: Bitcoin remains a risky and uncertain investment

David Firth

Whether or not the bitcoin operation out at the former Stimson Lumber Mill site is “the largest blockchain security data center in North America” or not, almost everyone knows someone who is either mining bitcoins or wants to invest in bitcoins.

My 14-year-old son was running his new super-fast gaming laptop in the basement 24-7 for the last two months mining bitcoins. Each morning he would check the price of bitcoins to see what he’d earned the day before. If a 14-year-old is investing in bitcoins, should you invest in bitcoin, too?

Forget bitcoins for a moment. Let’s start with something that is much more familiar and local. Here in Missoula a common vehicle that the 18-30 crowd would like to own themselves is the Toyota Tacoma. It is not as common a vehicle as the ubiquitous Subaru Outback, so we’ll have to think a little more about the issues. Step 1 is to reframe our question about bitcoin to be: “should I invest in Toyota Tacomas?”

Our next question is: “what attributes do we look for when we are buying used Toyota Tacomas when we intend to resell them?” Even if you’ve not been in the buying and selling of cars, I am sure that you know that you should be thinking about the vehicle’s mileage, general vehicle condition, color, features, where the vehicle is for sale, did it live on the street or in a garage, and maybe even something about the prior owner. So, it turns out, most of us know what goes in to deciding on whether or not to invest in Toyota Tacomas.

What do you know about bitcoin? Do you know who operates bitcoin? Do you know who developed the encryption that makes bitcoin secure, or the type of encryption used? Did you know that if 51 percent of people on bitcoin are colluding with each other then bitcoin is not safe at all? Do you know what would make bitcoin more valuable the same way you know that a car with low mileage is nearly always more valuable than one with high mileage? Do you know that China does most of the bitcoin mining? Did you know that there are a limited number of bitcoins available, ever, and that mining is how new ones are dug up from that limited supply? Do you know how this affects the price of bitcoins?

Even if you have the answer to all these questions (which I don’t) then it is still largely unknown what the price of bitcoins will be tomorrow just like it is for the price of oil or how much one dollar will buy you in British pounds. So, should you invest in bitcoins? I’d suggest getting into the Toyota Tacoma business instead.

Dr. David Firth is a professor of Management Information Systems at the UM College of Business. He has two degrees in Physics from Oxford University and is an English Chartered Accountant. He was a managing director of a global technology consulting firm in San Francisco before getting his Ph.D. at the business school at UCLA.  You can reach him at montanaprof@gmail.com