Why I almost bit on bitcoin and nearly bought into the Butterfly Labs scam

I almost got hooked on the bitcoin gold rush, but my Spidey-sense eventually told me to walk away. Other than a few lost hours exploring the idea, and a few lost hours talking things over with my wife, I didn’t lose a penny. Others were apparently not nearly so lucky.
Bitcoin is a form of digital currency (yes, you could call it fake currency, but it’s traded for money, so there’s that). Although it has no physical existence (like gold does), it does have some value. Like any other currency, that value is derived based on a set of standards that everyone who trades in it agrees upon.
In bitcoin’s case, its algorithm is interesting. Each bitcoin comes to life once enough challenging CPU-intensive calculations have been made. Each bitcoin requires computational work to be expended in order to exist. This computational work is called “mining” because you have to grind and grind and grind processors to generate the numbers that become a bitcoin.
Of more interest, especially in our little scam story, is that as time goes on, each bitcoin is harder to make. What might take, say, five million CPU cycles to make the 900th bitcoin might take 50 million CPU cycles to make the 980th bitcoin.
In other words, every minute, the game gets harder to win.

This post was published at ZDNet on September 30, 2014.