Guest Post: "What In The World Is A Bitcoin?"

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,

Earlier in the week, we wrote about an Argentine car rental agency that had started accepting Bitcoins as a means to bypass local capital controls.

We received a lot of questions about the article, the most common of which was “What in the world is a BITCOIN?”

Let’s start by looking at our current monetary system.

In most countries, a small tiny banking elite exercises total control over that nation’s money supply. And we’re just supposed to trust them to be good guys.

Yet central bankers around the world have conjured trillions of dollars out of thin air, debasing the money’s value. It’s a concept any six-year old can understand. If money grew on trees, it wouldn’t be worth very much.

This is one of the key reasons why people buy gold. You can’t just conjure gold out of thin air. It takes years of exploration and investment to pull it out of the ground.

In the information age, though, we have an alternative.

Bitcoin is digital currency. It doesn’t actually exist in our physical world… only in computers.

If this sounds esoteric and far-fetched, it’s not. The vast majority of our monetary system today is already digital.

A very small percentage of all the currency circulating in the world exists in physical notes and bills. The rest of it is merely accounting entries in bank databases. Most financial transactions are just a reshuffling of these database entries. Physical currency seldom changes hands.

Bitcoin is similar in this respect… nothing physical exists. But there are some key advantages.

For one, Bitcoin is not controlled by any government or central bank. And two, it’s private.

In the world of conventional finance, governments can see every time you use your credit card, withdraw cash at an ATM, or make a wire transfer.

Yet with Bitcoin, they don’t have this ability. And this is a key reason why Bitcoin has become so popular, especially in places like Argentina where people are getting squashed by their government.

A few days ago I wrote about an Argentine car rental agency that had begun accepting Bitcoins. My friend Sir Charles of PricedinGold.com was at their office; he snapped a photo and sent me some really great information.

The 1-day rental rate for a basic car was 380 Argentine pesos. At the government’s official rate, that works out to be $74 USD. In Bitcoins, the same car rents for 1.13 BTC… which is approximately $54 USD. This is nearly 30% cheaper!

The benefit for the rental agency is the privacy; they can avoid all the costly fees, bureaucracy, and debilitating capital controls associated with a normal transaction. Plus, they can hold Bitcoins instead of the rapidly depreciating Argentine peso.

If you think that these sorts of tactics– mind-numbing financial bureaucracy, confiscatory taxes, and capital controls– can’t happen where you live, think again.

I was just having a conversation this morning on the topic with Jim Rickards, author of the best-selling Currency Wars and one of the speakers at our upcoming Offshore Tactics Workshop.

Jim reminded me that, aside from Roosevelt confiscating gold back in the 1930s, the US government also imposed a confiscatory windfall profits tax on oil gains back in the 1970s. In addition, for most of the 20th century, capital controls were the rule around the world, not the exception.

To be fair, Bitcoin is not without its challenges. But the prospect of digital currencies presents an elegant alternative to fiat destruction.

If you want to find out more about Bitcoin, this website provides a lot of great introductory information

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CH1's picture

Cue the Bitcoin freak-out squad.

CH1's picture

I think it's a wonderful new tool.

The squad I refer to are those with a deep and burning desire to ridicule and squash that which they don't even understand.

otto skorzeny's picture

you or bitcoin is the wonderful tool?

Supernova Born's picture

Bitcoin, EMP, SHTF.

Like storing a year's worth of digital food and water.

McMolotov's picture

I think there'd be more support for bitcoins on ZH if they were called bitchcoinz.

Ahmeexnal's picture

What in the World is a Bitcoin?

Answer: YAPS  (Yet Another Ponzi Scheme).

TheCanadianAustrian's picture

Either you have no idea what a ponzi scheme is, or you have no idea what Bitcoin is.

zerozulu's picture

So what will happen if all the paper, fiat, confetti is shoved in to the Bitcoin? epic fail!!

kaiserhoff's picture

I like the concept of an alternative currency.  I really do.  But the reality is that this shit blows up, sooner rather than later.

Work with silver, tobacco, hooch, something that isn't a bad joke, and many of us will do our best to support it.

knukles's picture

Money doesn't grow on trees.
Nor server farms.

Matt's picture

How is a drilling platform or dregging equipment superior to a computer?

kaiserhoff's picture

You can't be that stupid.

francis_sawyer's picture

Never underestimate the STUPIDITY of BITCOINERS...

~~~

'Tiptoe ~ Through the Tulips'... ~ TINY TIM

wee-weed up's picture

It's very simple, actually...

Bitcoin relies on the Internet... and governments controls the Internet.

A no-brainer - stay away!

Half_A_Billion_Hollow_Points's picture

 

 

 

I'll pass on trying to explain bitcoins to the usual suspects today.  

 

It's like trying to explain nuclear weapons to napoleon.

 

Or trying to explain Euclid's theorem to an Orangutan.

wee-weed up's picture

Half_A_Billion_...  said... "I'll pass on trying to explain bitcoins..."

Oh please... do tell us what you will do when your gov't shuts down your Internet access?

What good will your bitcoin be then?

Half_A_Billion_Hollow_Points's picture

If the lights go out for prolonged periods we reach critical non-linearities in which the infrastructure of the gov't starts to break down rapidly.  Yes, they do have backup systems, but that will attract the hordes of zombies and they'll be facing a revolution in their hands.  

 

Even the internet, which is easier to plug off, will break command and control systems with the supply chains, banking systems, B2B systems, and numerous unpredictable second and third other effects.  

 

There are cybercafés in FUCKING ZIMBABWE and they worked fine throughout the hyperinflation.

 

BTW, you do realize that the spy agencies will soon be looking at *all* your financial transactions, don't you?

http://www.zerohedge.com/contributed/2013-03-14/all-us-intelligence-agen...

This is how I feel about that -->  http://www.quickmeme.com/meme/3tdp5k/

wee-weed up's picture

Yes, I know the spy agencies are already looking at EVERYONE'S financial transactions...

Do you?

And if you think they don't see your bitcoin transactions, you are VERY naive!

Half_A_Billion_Hollow_Points's picture

WTF

 

Here bro, all bitcoin transactions, out in the open  --> http://blockchain.info/

Haywood Jablowme's picture

I just bought another 1000 rounds of my favorite 77 grain ammo using BTC.  No problems here bitches....

gold-is-not-dead's picture

a great future is to be predicted for btc, math is good, i see several hundreds of people with similar calculations.... and the only opponents are the illuminati and the events in case the end of the world... even if we add anunaki the  btc shall prevail... :)

EscapeKey's picture

oh, yes, you're right; i see that address [1GxHj6ZNdmH8ukPpVCudwNMSNFaBbsTwfR] just received [15.57330929] BTC. however, i seem to be a little slow - perhaps you could tell me who owns that address, again?

Matt's picture

You do understand that you do not need the government to make and maintain computer networks, right? And what are the odds that all the rest of the world governments would cooperate with an American Internet Killswitch action?

unununium's picture

> do tell us what you will do when your gov't shuts down your Internet access?

On the plus side, without the internet, we won't have to listen to you.

sessinpo's picture

You don't need to.

 

Bitcoin itself, explains its own fallacy.

 

With limited production (of which you and I have no idea who controls since all that is said is the bitcoin number is created by a algorithm), bitcoin is susceptible to deflation. In other words, at some point no one would be able to get bitcoins, thus making it unusable to the general population - epic fail.

 

And we all know about algorithms. Who writes them, who can change them, who can hack them. Hell, for all we know, it could be someone that wrote HFT (High Frequency Trading) algorithms.

fiftybagger's picture

Do you always comment on things you know nothing about?  They are divisible down to 8 decimal places and the code is open source.  Maybe you need to do a little reading?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

EscapeKey's picture

substitute "bitcoin" for "gold" and google the answer.

silverserfer's picture

you can bet your sweet ass that at least cia is all up in bitcoin. They can see the transactions as they already own bitcoin. Go ahead and kid yourself till your your mom tells you its time to come inside for a homeade big mac. They know exactly what is going on with bitcoin. They are observing/developing it very closely.

EscapeKey's picture

kid yourself till your your mom tells you its time to come inside for a homeade big mac

yes, you sure make a sophisticated point, which is sure to be taken serious when you come across like a petulant little child.

Matt's picture

No, seriously. >99.99% of the work done in mining for gold is done by machines, powered by oil. Human Labor is an insignificant fraction.

You may say that dollar-wise, labor is a much larger fraction, but that is only because a person can do one hour of work and get paid in thousands of hours of labor worth of stored energy in the form of fossil fuel.

Bunga Bunga's picture

Was at the beginning a finite amount of gold just there and said 'Hi, I am the money' and nobody can mine it?

fiftybagger's picture

"So what will happen if all the paper, fiat, confetti is shoved in to the Bitcoin?"

Not that hard to figure out really.  Let's just use a round number like 1 trillion.  If that money flows into the roughly 10 million Bitcoins extant you get about 100k per coin.  You can extrapolate from there.

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

A Nanny Moose's picture

Rather than poison well fallacy, perhaps you might seek to elighten the unenlightened?

jeebus's picture

Either you have no idea what a fiat currency is or you have no idea whay a ponzi scheme is.

FeralSerf's picture

Aren't all forms of fiat money Ponzi schemes?

Kirk2NCC1701's picture

That is one of the reasons I'm trying to get the "Dr Paul Krugman" guy to take a stand on Bitcoins.  For or against?

Sleepless Knight's picture

Who created bitcoin?

How did THEY decide how many was enough?

How does the bitcoin supply increase upon usage and demand? What is it "tied" too?

If someone just created it out of 0's and 1's, then it sounds just like fiat.

What is backing the value of bitcoin? Faith in the bits itself?

My take is that bitcoin IS a fiat currency run by responsible people - so far.

Please enlighten me on this.

fiftybagger's picture

Start here

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

thisandthat's picture

If that could possibly become true, sooner would the opposite.

ACP's picture

Well, not really a ponzi, but somewhere between metal and paper. A bitcoin holder depends on a system, which can be destroyed by Krugmanites (similar to Elronners), but metal can't.

Edit: Shit, "Elronner" doesn't come up on google. Ref to scientology.

 

thisandthat's picture

So you can't hide gold from the gov, but you can bitcoins? Who told you they wouldn't go after them, as well, once they'd became a potential threat to the system - remember the swiss bank secrecy?

auric1234's picture

They can be encrypted. If you took care, the only deciphering key is in your brain. Confiscation is extremely complicated as it would require torture.

 

thisandthat's picture

So G-man comes to you, seizes the hashes, and you laugh at him because they're encrypted, and you expect it to end there?

Hero material, right there - you and all those "terrists", who just signed whatever "confession" they were handed, without even reading it, just to stop it.

But what tells you they can't just decrypt it? Have they told you their cryptanalysis secrets (including psychoanalysis, etc.)?

auric1234's picture

They can't beat math. Some problems are unsolvable, even by the government.