Guest Post: Bitcoin As Cryptographic Gold?

Tyler Durden's picture

Submitted by Detlev Schlicter via,

Could Bitcoin Be The Money Of The Future?

The crypto-currency Bitcoin is still merely a speck on the global monetary landscape. It is young, experimental, and for all we know, it may ultimately fail to break into the monetary mainstream. However, on a conceptual level I am willing to call it a work of genius and arguably the most exciting development in the field of money for more than 130 years. Let’s say since the start of the Classical Gold Standard in 1879. Does this sound like hyperbole? Well, let me explain.

The Decline and Fall of Capitalist Money

The 20th century was, broadly speaking, a period of almost constant monetary decay. At around 1900 most economists, politicians and bankers would have correctly stated that global capitalism – an international market economy facilitating the free exchange of goods and services across political borders and thus allowing extensive human cooperation through trade – required an international, apolitical, and hard form of money. Such money was gold. It was the basis of the capitalist economy and it imposed strict discipline on all market participants. Crucially, that included governments and banks. Governments had to operate pretty much like private businesses. They had to balance their books, i.e. live within the means provided by taxation, and if they borrowed money in the marketplace their lenders were at full risk of default as no government could print money (gold) to repay loans or even meet interest payments on loans. Banks, of course, issued banknotes or bank-deposits that were not backed by gold but still used by the public as if they were money proper – these were and still are ‘money-derivatives’ – but again they did so at full risk of default as nobody could ‘print’ bank-reserves (gold again) to bail out the banks in case the public tired of the ‘derivatives’ and wanted to hold gold instead.

Over the course of the 20th century – or to be precise, from 1914 to 1971 – the monetary system was completely changed as a consequence of a number of entirely political maneuvers, all of them undermining the quality of money. Today, hard, international and apolitical money has everywhere been replaced with entirely elastic, national and politicized money, with money that central banks issue under a territorial monopoly at no cost and with no meaningful constraints on issuance, and that the central bankers use to ‘manage’ the ‘national’ economy (itself increasingly an out-of-date-concept), and to fund the state and grow the domestic banks (which, under the protection of a lender-of-last-and-first-resort, now issue unprecedented amounts of money derivatives).

Today the global monetary map resembles a patchwork of local, “nationalistic” paper monies, each of which is a political tool, often openly manipulated in an attempt to benefit the local export industry at the expense of foreign competitors or to ‘stimulate’ the ethereal concept of ‘aggregate demand’. Not surprisingly, the global economy is drowning in debt (increasingly public sector debt), suffers from a bloated financial sector and international trade tensions, and stumbles from one crisis to another, each one worse than its predecessor.

Bizarrely – but not entirely surprisingly – politicians, bankers and modern ‘enlightened’ economists now tell us that this unhinged financial system is to our benefit, really, just trust us.

Truth be told, the present monetary system is a hindrance to free trade, properly functioning markets and human cooperation across borders, and it might already be on its last leg. Yet a powerful but entirely misguided, consensus seems to have taken hold of public opinion, namely that ‘elastic’ money could be beneficial if money’s supply was only managed astutely by some clever monetary central planners.

I wrote Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown to challenge that consensus, to show that ‘elasticity’ of supply is always a negative for money. Elastic money is not needed. It is entirely superfluous. Moreover, elastic money is always disruptive. A monetary system based on an inherently elastic and constantly expanding supply of money is unstable and ultimately unsustainable. The reason why gold made such good money for thousands of years is precisely its essentially inelastic supply.

The word ‘Bitcoin’ does not even appear in my book. The reason is simply that I had not heard of Bitcoin by the time I handed in my final manuscript in early 2011. But when I learnt about Bitcoin soon afterwards I was immediately fascinated. Like many others, I could conceive of ‘internet money’ or ‘virtual money’. As I had explained in the book, money does not have to exist in physical form and the fact that most money today is electronic money poses no problem for the monetary theoretician. The problem with this type of money is not that it is immaterial but that its supply is completely elastic, and I simply could not see how money that was not based on a nature-given and strictly limited commodity could have an entirely inelastic supply. It was Bitcoin’s inelasticity by design that I saw immediately as one of its greatest strengths and its true genius.

My work rehabilitates the gold standard. It shows that it was a mistake to abandon gold as the basis of our financial system and replace it with entirely elastic state fiat money. When (not if) the present fiat money system finally ends we could and should return to gold. The only alternative I now see, at least on a purely conceptual level, is Bitcoin, or something like Bitcoin: Hard, apolitical immaterial, virtual money.

Bitcoin is cryptographic gold

By now most readers will probably have heard of Bitcoin and have some notion of what it is. But in any case, let me give you a quick run-down. The economist Nikolay Gertchev, in a blog on the Mises Institute website, explains it quite well, although Gertchev, like many other members of the “Austro-Libertarian” movement, is somewhat reserved when it comes to embracing Bitcoin. I am surprised by the extent of scepticism in that community and believe that in general it is unfounded. But first the description:

“A bitcoin is a unit of a nonmaterial virtual currency, also called crypto-currency, by the same name. (Bitcoin is a medium of exchange that only exists in the virtual world. DS) They are stored in anonymous “electronic wallets,” described by a series of about 33 letters and numbers. Bitcoins can travel from a wallet to a wallet, by means of an online peer-to-peer network transaction. Any inter-wallet transfer is registered in the code of the bitcoin, so that the record of its entire transaction history clearly identifies its owner at any single moment, thereby preventing potential ownership conflicts. Bitcoins can be further divided into increments as small as one 100 millionth of a bitcoin. The current outstanding volume of bitcoins is above 10 million and is projected to reach 21 million in the year 2140.”


“This brings us to the truly fascinating production process of the bitcoins. They are “mined” based on a pre-defined mathematical algorithm, and come in a bundle, currently of 25 units, as a reward for carrying out a large number of computational operations that aim at discovering the solution to what could be described as a randomized mathematical puzzle. The role of the algorithm is to ensure a declining progression of the overall stock of bitcoins, by halving the reward every four years. Thus, somewhere in the beginning of 2017, the reward bundle will consist of 12.5 units only. Also, the more bitcoins are produced, the harder are the randomized mathematical puzzles to be solved.”


Bitcoin is immaterial money yet strictly limited in its supply. Once 21 million units are in existence, probably in 2140, that’s it. No more Bitcoin can be issued. In fact, the supply of Bitcoin is more inelastic than the supply of gold. Also, the available supply of Bitcoin at any moment in time is substantially more transparent than that of gold.

If Bitcoin ever became money in its own right (how it could do so, I will discuss below), then it would be international, hard and entirely inelastic money. Like gold it also does not decay, is homogenous and (almost) perfectly divisible. Bitcoin fulfils all the requirements of good money. In the long run, gold does not have to fear fiat money, which is always suboptimal as it always is national, politicized, manipulated, unstable and inflationary money. For one thousand years, state paper monies have come and gone. Gold (and silver) stayed. Gold just has to sit still and wait for this, the latest and most audacious and arrogant, experiment with global free-floating paper money to fail, and it will come back. But now it faces, potentially, its first meaningful challenger: inelastic crypto-currency, Bitcoin.

Money of no authority

There is no central authority that issues Bitcoin and can manipulate its supply for its own gain or for any alleged ‘greater good’ of society. Positively cringe-inducing, although sometimes unintentionally funny, are the embarrassing attempts by establishment spokespeople to discredit Bitcoin on account that, unlike all that astutely managed state fiat money, Bitcoin would not constantly be losing purchasing power. In fact, just as in the case of gold, Bitcoin’s purchasing power can reasonably be expected to constantly appreciate over time.

But, so we hear the assorted ‘enlightened’ economists of the Keynesian persuasion exclaim in horror, that would mean we would all suffer from dreadful deflation, from which only an elite of highly-qualified government-appointed central bank bureaucrats and a well-oiled printing press can save us. Apart from the fact that these self-appointed money masters have neither proper economic theory nor the experience of a thousand years of financial history on the side of their destructive agenda, they obviously do not even comprehend how far their system of manipulated funny money has already discredited itself.

Inelastic money can satisfy ANY demand

As I have explained in Paper Money Collapse no society (not even a healthily growing one) needs a constantly expanding supply of money. Money is a unique economic good. Because it is the medium of exchange, money is the only good that is demanded exclusively for its exchange value, not for any use-value its substance (if it has a substance at all) may also have.

Nobody who has demand for money has demand for a certain quantity of paper notes, or a certain weight of gold, or a certain number of digits on a computer hard-drive. Money-users have demand for the exchange value that these items contain in exchange for other goods and service, i.e. qua being accepted by others as money. Demand for money is always demand for readily exercisable purchasing power.

Once a good is widely accepted as a medium of exchange (whether that good is gold, paper tickets, or sequences of digital ones and noughts), the public can, at any moment in time, hold precisely the amount of money – readily exercisable purchasing power – it wants to hold. If the demand for money goes up, the public will sell non-money goods for money or reduce money-outlays for non-money goods. As a result, the money-prices of non-money goods fall and the purchasing power of each monetary unit (whether gold, paper tickets, or digital code) will rise. This process satisfies – automatically, instantly and naturally – the higher demand for money. The public now holds more readily exercisable purchasing power in the form of money, not because a clever, über-prescient money producer has created new money units, but simply and much more straightforwardly, because the exchange-value of the existing money stock has increased.

Once a good is widely accepted as money, no further production of that good is required. In fact, as I also demonstrated in Paper Money Collapse, any attempt to flexibly inject money into the economy in order to ‘stabilize’ money’s purchasing power, or, as is declared policy today, to constantly debase it at an officially sanctioned rate, must not only fail in its primary objective (‘price level stability’) but must cause grave distortions in the wider economy. Furthermore, the steady secular deflation that is to be expected under inelastic money, such as gold or Bitcoin, is not only not economically disruptive, it is even beneficial. Just consider one aspect: as money will then have a moderate positive real return, people who have no knowledge of financial markets and investing, and who do not have the resources to hire professional advisors, can save by simply holding money. This is impossible in our fiat money economy of constant inflation and increasing monetary instability.

Truly international

As Bitcoin has no issuing authority it has no country of residence or origin. It is truly global money. It can be used for payment anywhere in the world without going through banking systems or foreign-exchange markets. It is undeniable that the multitude of local paper monies poses a considerable hindrance to free trade and thus the rise of living standards in large parts of the world as this system necessarily introduces an element of partial barter into international trade relations. Today’s massive foreign-exchange markets are nothing but a make-shift, a crutch to deal with the suboptimal and politically motivated arrangement of various local currencies. This market ties up capital (both financial and human) without adding any real wealth to society.

If Bitcoin were to get widely accepted – and that is still a big if – it could become a great platform for connecting potentially any two counterparties in the world in direct financial transactions. It is the ultimate disintermediator: no banks needed.

At this point it might be objected that it only connects people who have access to the internet or smartphones but this is obviously a rapidly shrinking barrier. On my travels in Africa last year, I found that internet access was usually more ubiquitous than bank branches. And by the way, Kenya and Tanzania already have M-Pesa, the world’s most developed mobile payment system that uses the mobile phone network to facilitate money transfers. These countries could easily make the transition to smartphone-based payment systems without ever making the detour through clunky bank branch networks.

On the issue of tying down capital, Bitcoin wins hands-down against any other financial system, including a gold standard. Bitcoin does not require any physical storage, which naturally is always expensive. Bitcoin is monetary raw material and payment system in one. (Although, fascinatingly, the free market has already created physical Bitcoins.)

Money requires trust. We presently do not live under a gold standard but, as Jim Grant has observed so astutely, a PhD-standard, a system of flexible, state-sponsored money, managed by people like Ben Bernanke and his team at the Fed, who enjoy the privilege of implementing policies based on their own faulty monetary theories and hair-raising interpretations of economic history, while a cheap-money-addicted class of speculators plays them like a fiddle and laughs all the way to the bank. The appeal of gold has always been that it does not require the public to put trust in a ‘money elite’ but that it only has to trust gold’s creator: mother nature. With Bitcoin you only have to trust the algorithm, and as this is open software, there cannot even be a hidden agenda. Bitcoin, just like a proper gold standard, is hard, capitalist money with no politics, no Federal Open Market Committee meetings, no monetary policy, no central banking bureaucracy. It is free market money.

Common objections to Bitcoin

Given its free market and ultra-hard-currency credentials, the scepticism towards Bitcoin in parts of the Austro-Libertarian community is somewhat surprising. I think some of the objections are easily refuted. There is, first of all, the idea that Bitcoin could have many imitators, which would undermine its uniqueness and reduce its attractiveness. If Bitcoin itself cannot be inflated, what about the concept of crypto-currencies, could it be inflated by too many different currencies on offer?

This argument strikes me as weak. By all accounts Bitcoin’s design and cryptographic robustness are an exceptional accomplishment. It is not as if any hacker of medium talent could pull off something similar tomorrow. But even if he could, the argument completely underestimates first-mover advantage in the area of goods and services with substantial network effects. How many people have launched a second Facebook or a second Twitter since these inventions kicked-off the social media craze, although technologically, these inventions are much simpler than crypto-currency? – Nobody. The network effects of these goods are immense. Once they have a certain acceptance it is hard, if not impossible, for late-comers to break in. These goods and services have value for their users predominantly because others use them too, and the more people use them, the more valuable they get. There is no good for which this is truer than money – the general medium of exchange. Customized money is an oxymoron. Consequently, once a form of money is accepted, it is very difficult to take business away from it.

This feature of money is obviously a problem for Bitcoin in its fight against established state paper monies but is equally a big plus when it comes to keeping potential new entrants into the crypto-currency arena at bay. Bitcoin now dominates the market for crypto-currencies (it pretty much IS the market for crypto-currencies, in my view) and I believe that only the discovery of major flaws in Bitcoin – none seem to have surfaced in its four-year life up to now, and every day they are less likely to appear -, or if some vastly superior crypto-currency came along but I am hard-pressed to see in which aspect it could outperform Bitcoin. But just launching another crypto-currency – a Bitcoin clone – is certainly not going to put a dent into Bitcoin.

Menger and Mises would love Bitcoin

Many ‘Austrians’ get thrown off by Menger’s theory of the origin of money and Mises’ so-called ‘regression theorem’, and somewhat rashly conclude that Bitcoin can never achieve money-status because it did not originate from a non-money commodity. Mises was correct when he stated that something could only become money if it had previously, that is, before it was used by somebody as a medium of exchange in its own right for the first time, established some value in trade. For if that had not been the case, how could the first person to employ the commodity as money have any point of reference by which to assess its value and determined its exchange value for the first monetary transaction? However, this theorem, which remains unrefuted in my view, does not apply to Bitcoin. Bitcoin can simply piggyback on established forms of money that already have exchange-value and derive its original value from them before it does, over time, establish its own value.

The same has, in fact, happened in the case of paper money. The paper notes that are used as money today did not start their ascent to widely used and generally accepted monetary assets from humble beginnings as commodities – that is, as mere paper – but started out as paper-claims on physical gold. Gold was money and the paper tickets simply a technology to transfer ownership of gold. When the first banknote was used it did not derive its exchange value from its paper content but from the fact that it could be exchanged for a fixed amount of gold. That was the necessary reference point – in accordance with Mises’ regression theorem. Paper money started as payment technology and as the public got used to paying with paper rather than with gold coins and gold bars, the underlying gold content could be reduced over time and ultimately the link to gold completely severed. What gives value to these paper tickets today? – The fact that the public still accepts these paper tickets in exchange for goods and services. That is all. And in fact, it is all that is needed. Any form of money –even gold, which still retains some functionality as industrial commodity or consumption good (jewellery), although that functionality is now irrelevant for its role as monetary asset – any form of money derives its money-value from the trading public and the public’s willingness to exchange the monetary asset for goods and services.

And herein lies in fact Bitcoin’s biggest challenge. However, this challenge is not of a conceptual nature. The concept of Bitcoin as money is, as I have tried to show above, extremely compelling. But Bitcoin has to offer something to the average money-user that state paper money cannot offer. Just as the banknote bestowed an instant and discernible benefit to each money-user relative to heavy gold coins, that allowed it to become a widely used medium of exchange in its own right and ultimately even operate without any link to gold, so Bitcoin has to set itself apart from fiat money and overcome fiat money’s powerful network advantage. The fact that fiat money is suboptimal in terms of its inflation characteristics and its disruptive effects on the broader economy is not something that bothers the average money user at the moment he desires to engage in monetary transactions, and do so as conveniently, securely and easily as possible. The state paper money system today offers easily useable ‘computer money’ and the broader public is still happy to use it. Why switch to Bitcoin?

Will Bitcoin get accepted by the wider public?

It is my impression that the community of Bitcoin users, although apparently growing strongly, is still largely composed of those who are fascinated by the technology as such and who want to be part of something new, and those who like it for ‘ideological’ reasons, i.e. those who detest state paper money or dislike the banking system. Thus, there is apparently still a big contingent of computer ‘nerds’, hackers, crypto-anarchists, anti-government libertarians and Occupy-Wall-Street-types among its user base (which is not to say that there are not many who do not fall into any of these categories). How could Bitcoin attract a broader base of money-consumers beyond these groups?

One powerful aspect is cost. Bitcoin transactions are free, so Bitcoin could become – or maybe it is already – the Skype of payment systems. Another attraction could simply be the usually reasonable, and with some effort potentially considerable, anonymity and untraceability that Bitcoin offers. This seems to be a hotly debated topic. On the one hand, Bitcoin is incredibly transparent. All transactions are literally in the open domain. However, each ‘user’ is only identified by his ‘address’ and the number of addresses is practically unlimited. One could use a new address for each transaction. This may not mean instant untraceability from ‘the authorities’ but then again, certain techniques and add-ons, some of which are still being developed, have the potential to increase anonymity and untraceability even further. Additionally, it is possible to acquire Bitcoin for cash – rather than via the established and already regulated exchanges – and thus anonymously.

This means Bitcoin could be used, as is a frequent charge against it already, for illegal transactions involving drugs and guns. But people do not have to be drug or arms dealers, or even ordinary tax cheats, to appreciate a certain degree of financial privacy. As bank secrecy laws disappear everywhere and as almost all governments are waging a ‘war on cash’, by which any transaction that involves more than just petty cash is to be moved to electronic systems within the state’s fiat money network, so that ‘the authorities’ achieve full ‘transparency’ as to what the citizenry is up to at any moment, there could well be a widespread demand for ‘outside’ electronic payment systems offering privacy. For example, a range of ‘activities’ exist engaging in which may not be, or not yet be, illegal but considered a major potential embarrassment to the parties involved if made public (gambling, pornography, escort services), so that many people would not want to have payment for them on their permanent records. This potential development is not lacking in irony: Our modern information society with its trends towards the ‘transparent citizen’ and unlimited data storage holds many threats to a free society, privacy and individual liberty. It would be fitting if countermoves to these trends emanated from the same technology.

An additional boost to Bitcoin may come straight from the crumbling state paper money infrastructure itself. The cases of Iceland and in particular Cyprus have driven home the point that ‘money in the bank’ is far from safe, and even if your deposits have survived the bank collapse and the ‘bail-in’, you may not get them out of the country any time soon as capital controls are likely be imposed. As the overstretched paper money economy staggers towards its inevitable demise, more of these instances will occur providing an additional opening for Bitcoin. To the best of my knowledge, Bitcoins cannot be confiscated and Bitcoin accounts cannot be frozen Additionally, you store Bitcoin yourself rather than put them into a fractional-reserve bank that would conveniently use them as ‘reserves’ for its own ‘money derivative’ production.

What are Bitcoins worth?

I agree with Jon Matonis that nobody can give a reasonable answer but that the outcome is probably binary: Either Bitcoin ultimately fails and the individual Bitcoins end up worthless. Or Bitcoin takes off and Bitcoins are worth hundreds of thousands of paper dollars, paper yen, paper euros, or paper pounds. Maybe more. Those who buy Bitcoin as a speculative investment should consider it an option on the future success of the crypto-currency. At time of writing, Bitcoins are trading at $127 and £83 at Bitcoin-exchange Mt. Gox.

On a personal note, my biggest ‘liquid’ asset continues to be physical gold. As I explained on numerous occasions, I consider gold to be the essential self-defense asset in the ongoing paper money crisis. Gold is not being used presently by the wider public as a medium of exchange either but its two-thousand-plus year history as global money means that it retains monetary asset status and that its historic function as a liquid and lasting store of value – a function that fiat money cannot fulfil – remains unrivalled. By comparison, the brand-new crypto-currency Bitcoin has to first earn its stripes as a monetary asset by proving itself as a ‘common’ medium of exchange. That is why I view Bitcoin very differently from gold, although the attraction of both has its origin in the demise of entirely elastic, politicized state fiat money. I will certainly continue to follow the Bitcoin revolution with interest and sympathy.

In the meantime, the debasement of paper money continues.

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Lost Wages's picture

I refer to the price of Bitcoin as the "Craptographic Stupidity Index." It tells me how many wanky college students and wannabe libertardians had money burning a hole in their pocket.

kushmere's picture

Aye, many did in 2010-2011. I was one of such. Many others are now far richer than they thought they would be in such a short time. Just because you don't understand it doesn't mean its bad.

It just means your stupid.

infiniti's picture

It just means your stupid.  YOU'RE



kushmere's picture

Aye, I really shouldn't post while enjoying evening delights.

nmewn's picture

Can you stop at any gas station with a bitcoin and make a purchase? Lowes, Publix, Walgreens? Most tansactions of bits are made on-line.

Now who's stupid?

aphlaque_duck's picture

Can you spend gold at the gas station? Same fucking difference.

Harlequin001's picture

I can take my gold and exchange it with anyone that will accept it, just like you can with Bitcoin.

Problem is no one accepts bitcoins, unless you have a computer, and even then they're very few and far between.

and I prefer to at least have the ability to purchase something as basic as water even during in a power cut, and if I buy it with cash, or gold, no one knows it's me that bought it.

Muppet of the Universe's picture

HEY YOU!  Just wanted to grab someone's attention on the way down - The world's supply of gold is not going to run out in the next few months.  This is nearly impossible.  This is called dip buying, and its nearly over as prices are back at 1500ish.

Do not listen to ZH - They have become charlatans. They have literally become pump and dumpers. Do not let the dealers hoodwink you, they say they have no gold b/c they want you to pay insane premiums.  Why do all of you dunces buy silver eagles when you could buy engel or matthey for < half the over spot cost?  Its all metal - stop being stupid.  In 5-10 years, and more likely 15-30 years, there will be supply issues.  But the economy won't even last that long.  Don't let dealers hoodwink you.  You woke up and learned about investment and barely scratched the surface on finance and asset prices. 

& FFS, the comex isn't going to blow up.  Look at when JPM added its gold position to the comex and when it dumped it?

That would mean JPM lost a fuckshitton of money.  Guess what its actually for the comex reserves, which reflect the price.

Now whether Comex has the stuff or not?  I can't honestly say.  But I would bet a million to one, that you and all you buddies heard comex doesnt have the gold/silver from a bullion youtuber who is prob a phys dealer.

Phys dealers wnt you to think Comex will crash so you buy phys and not paper gold.  It makes them money.  They have a financial reason to make you believe comex = crash.  Remember the banks can print money in zirp environment, they can literally buy as much phys as they want and put in the comex, there was 10 million ounces produced in us alone last year.

China goes long metals b/c china wants a hedge against a us dollar blow up.  But china has to hold dollar if china wants us to buy all their worthless shit.  Its a mutual benefit that will net profit china immensely in 5-10 years.  But right now people just buy on dps and trade paper price in futures., so they can live comfortably.  Get it?

You aren't gonna crash shit by buying phys.  They can PRINT MONEY.   GET IT?  We will have hyperinflation b4 we run out of phys. Get it?  Asset prices and bubbles are everywhere begging you to participate, get it?

Do some more learning, and look to other commodities and assets for opportunity.  The goal is to make money, not sit on a bunch of metal thinking that when the sheeple lose their shit in the fan you'll be rich.  That's fucking stupid.  Money is mostly made b/c the sheeple haven't lost their shit, and you won't make any money if they do.  I know you hate the guy, but for fucks sakes if you had gone for the money bernanke would have made you a small fortune.  & guess what?  Its qe4eva.  They may at some point actually lessen qe, or go one talking about ending it but it will never stop, and even if lessened, will likely go right back to increasing. 

Think don't panic, and then zerohedge will stop posting retarded sht designed to make muppets panic.

Harlequin001's picture

No I don't get it.

I have not the first fucking clue what you're trying to say here...

TwoShortPlanks's picture

With a few exceptions, Gen-Y can't tell the difference between the real world and the online world, so don't expect them to be able to distinguish between Real Gold and Fools Gold.

Time for some Pre-1970's common sense on money and wealth.

BitCoins are not physical. Their existence relies upon data which in turn is based upon 1s and 0s moving as traffic between parties. Their value is based upon trust between the holders of that data and pricing is determined by what the collective deem as fair price, nothing more.

Fiat Currencies are not physical (with the exception of Base Money which is merely paper pointing to a promise). Their existence relies upon data which in turn is based upon 1s and 0s moving as traffic between parties. Their value is based upon trust between the holders of that data and pricing is determined by what the collective deem as fair price, nothing more.

Physical Gold & Silver are physical. Their existence relies upon the Laws and Forces within the universe at steady state. Their value is based upon the physical possession of the matter itself ("Trust" is not a consideration, security is), and pricing is determined by what the collective deem as fair price, nothing more.

  1. Fiat currency is a promise to pay
  2. Bitcoins are a promise to pay
  3. Paper Currency is a physical note pointing to a promise to pay
  4. Paper assets are a promise to pay
  5. Credit Cards are a variable negative promise to pay (Card is merely your identity)
  6. Physical Gold is itself the payment

The key difference between Fiat and Physical is this; Fiat requires 'Trust' in order to uphold it as a store of value whereas Physical requires 'Security' in order to uphold it as a store of value.

In bad times trust is weak, in good times it is strong. Therefore, your choice of medium should reflect your perception of current and future reality (Bad luck Gen-Y).

The events of Cyprus affect Fiat. The events of the Gold Takedown affect PMs. They are skimming and stealing from both ends.

As the global slow down progresses (30 years to bottom without a crash), there will be a progressive erosion of 'Trust', with it, you should possess a diminishing sense of 'Security'. Since possession is the ultimate form of security (which is different from ownership mind you), Fiat becomes risky whereas Physical becomes less risky. Risk then moves to hiding said possession in a safe location (even Dogs know how to hide a bone for security). The ultimate safe location has no security, something which is hidden (Boating accident included).

The Central Planners understanding of the term 'Ownership' and 'Property' is subjective, so your understanding of 'Trust' and 'Security' should be iron clad.

Knowing the full extent of 'Trust' and 'Security' in both today's and tomorrow's terms, will determine your medium of choice today and with it, your plan of acion.

But know this; both the dog with a bone and a 4 year old child with a Lollipop know the difference between 'Trust' and 'Security' you?

PS. If Fiat Currency is a promise to pay, and a Credit Card is a negative promise to pay, then we must observe that the difference of rates offered between your savings and you CC debt is robbery. Your promise to pay and their promise to pay should be roughly the same. Banks are modern Vikings; they rape, they pillage, but most of all, they stink!

fonestar's picture



Gold - The money of kings

Silver - The money of gentlemen

Copper - The money of beggars

Debt - The money of slaves

Paper - The money of con men

Bitcoin - The money of hackers

wintermute's picture

Zerohedge is clearly a well-balanced blog:

Tyler Durden is a freaking GENIUS mega-trader, while most of his commenters are PIG-SHIT thick swamp-dwelling dinosaurs.

Bitcoin is the most important development leveraging the internet since the world-wide-web. It has the capability of restoring sound money, forcing all governments to run balanced budgets, shrinking government, shrinking banks, shrinking the surveillance state, liberating individuals, reinvigorating capitalism.

Too bad so many dinosaurs cling to their 5,000 year-old lumps of shiny metal and continue to simply bleat about the greed, thievery and stupidity of governments and banksters while the solution is staring them in the face.

Jack Napier's picture

Not disagreeing with the importance of BitCoin, but it is still at the mercy of things that these powers can influence; your electricity and your Internet connection. On the grid as they say. Not the place to be dependent on when you're in a jam.

Lore's picture

TwoShortPlanks -- That was a great post (above).  The generation that grew up texturbating on shiny, blingy, debt-enabling smartphones has trouble grasping the qualitative distinction between information processing and wealth.  By extension, this is why the crisis that looms is so hard for many so-called experts to understand.  Trillions of dollars in "book value" are attributed to nothing but keystrokes.  What a stupid, amazing con! 

Evil comes in many guises. BitCoin is another sucker's game, like Carbon Tax or Medieval Catholic Indulgences: SOMETHING FOR NOTHING.

People willing to trade their freedom for temporary security deserve neither and will lose both. - Ben Franklin

TwoShortPlanks's picture

Thanks Lore,

These fucktards, who can't see beyond their own iCock, don't even realize that much of the world's internet traffic passes through the United States....Bitcoin can and will be crushed like a bug if it ever shows to have legs. Even the blocking of a fraction of Bitcoin transactions will cause investors to flee.

JimBowie1958's picture

So how would they crush bitcoin, genius?

Taking over the servers? It's an international peer-to-peer network and bitcoins can be saved to a cd; so that wont work.

Crushing the main exchanges with DDOS and fake account spamming? They tried that and failed.

Will they crush it with rumor-mill, astroturfing campaigns and loss of confidence? Yeah, that has been going on for a year now and it still hasnt worked.

Man up and face the facts; you dont know what you are talking about and are reacting from fear/suspicion of things you do  not understand.

Tapeworm's picture

I do not recall the helpful poster's name that put up the link for USD/FRN prices of bitcoin and the tremendous arbitrage opportunities with it.

 To me that says that it might be very well worth fooling around with it for arb gains, but spreads like that coupled with the recent price crash make it unsuited for real commerce payments at this time.

 That is not to say that I dismiss bitcon altogether. It would be great to capture even half of the arb between dealers, or whatever they are called.

i-dog's picture


"Not the place to be dependent on when you're in a jam"

... or when you're in a rural backwater ... or any less-developed country ... 

Btw, how long does it take to clear a Bitcoin transaction? Milliseconds, seconds, minutes?

Lore's picture

You make an interesting point. Electronic payment complements "green" Agenda 21, which attempts to herd everyone like collectivist cattle into "densified" apartment ghettos.  If you aren't equipped for e-commerce at approved outlets, then you can't shop at the local retail outlet for the global plantation.  Evil, isn't it?

TwoShortPlanks's picture

"PIG-SHIT thick swamp-dwelling dinosaur", sounds like you know me, uncanny!

Oldballplayer's picture

I show my insane, 90 year old mother in law a silver dollar and she knows what it is and where it came from. I show her a metal bar and she might "get" that it's silver, but she would be suspicious about what it was worth. That is what the premium is for: being able to sell it easily because it is well known and trusted.

Panafrican Funktron Robot's picture

"they can literally buy as much phys as they want"

Because there's an unlimited supply of gold!

Oh, wait.

Libertarian777's picture

you're absolutely right!

damn US Mint are so stupid, they haven't actually run out of 1/10th oz gold coins... there are infinite supply on Comex for those, they can easily just print more.

alien-IQ's picture

I know with 100% certainty that 1 oz of gold will have the same purchasing power in 50 years as it does today, if not greater. Can the same be said for bitcoins?

kito's picture

very bad call to say with 100% certainty..............very bad call......................

Harlequin001's picture


Has it ever been worth less after any 50 year period?

TPTB_r_TBTF's picture

bah! I canT wait for 50 years!

alien-IQ's picture

Give me one example of a time in the last 2000 years in which gold had no purchasing power and I will recant my statement.

ball's in your court. have at it.

I think I need to buy a gun's picture

in the end

one us dollar's value is -0-

one bitcoin      value is -0-



Lore's picture

Kito is just being argumentative, demonstrating lack of study. I like the classic suit example. You can always get a nice suit for the same amount of metal.

malikai's picture

Sounds to me like Kito's just being pragmatic.

Tapeworm's picture

You seem to be the type that ascribes "intrinsic value" to glod. The POG is a faith based system nearly as much as the "value" of a FRN "dollar".

 Gold has no more intrinsic value as any other commodity of fiat "money".

 Gold acts as money because of the faith of many people in a metal that has been money in the past. There is enough of it out there to smooth supply/demand fluctuations which indeed makes it more "moneylike".

 I really do not care about the number of junks that I will get for pointing out the obvious to metal worshipers. I find that Au/Ag are the best vehicle for money in that they fulfil the requirements of a commodity money system.

A Lunatic's picture

In the not too distant future........


Me: Dear Mr. gas station attendant, I do not have any Dollars but I will give you an ounce of GOLD for twenty gallons of fuel.

Mr. gas station attendant: Fuckin' A DUDE!!!! Here, take a bag of chips too........




Me: Dear Mr. gas station attendant, I do not have any Dollars but I will give you these here bitcoins for twenty gallons of fuel.

Mr. gas station attendant: (racks 12 gauge) Get the fuck outta here douchbag!!!

Harlequin001's picture

'an ounce of GOLD for twenty gallons of fuel'

That doesn't sound like a good deal at all...

but at least you would get your fuel...

taniquetil's picture

Me: Dear Mr. gas station attendant, I do not have any Dollars but I will give you these here bitcoins for twenty gallons of fuel. Just...hold on, gotta wait for the confirm...just...ok....hold on....I just....give it a second





ok there's 1, to wait for 5 more...

malikai's picture

Or, buyer sees price quoted on gas station screen in U$D and BTC. A QR code is displayed which buyer scans using his phone. Buyer hits send and transaction is complete either immediately (low value) or after x confirms (dependent on value).

Even a rig buying 100+gals can use this process quickly. And the transaction fees will still be lower with near-zero chance of doublespends(chargeback). As opposed to a standard credit card transaction where visa/mastercard get their nice fat cut, not to mention gas station's intermediate provider. And then there's chargeback risk, which visa/mastercard and the providers are all too willing to pass down to the gas station.

Now, if that rig was hauling a supercomputer with enough power, bandwidth, and luck to execute a 51% attack.. Well, I guess the driver would have better things to do than steal gas.

Harlequin001's picture

'Or, buyer sees price quoted on gas station screen in U$D and BTC.'


JimBowie1958's picture

In the not too distant future........

 Me: Dear Mr. gas station attendant, I do not have any Dollars but I will give you an ounce of GOLD for twenty gallons of fuel.

Mr. gas station attendant: Fuckin' A DUDE!!!! Here, take a bag of chips too........

Not too distant future? Well, then surely gas stations somewhere are taking them NOW.

Which ones would they be? Name and address, please.....

Nah, I didnt think so.


nmewn's picture

"Can you spend gold at the gas station?"

Hell yes, its got the denomination right on it. I garon-fucking-tee you they would, happily so. If I were so stupid or in need of what they were selling.

With or without internet access and the power being on.

I'll bet YOU (as a matter of fact) if the power was out and I needed gas I could get the cashier or manager to lock the fucking door and stick a hose in their OWN gas tank, in their own car and siphon the gas out for a single gold coin.'

Can a bitzer say that?

I didn't think so.

Harlequin001's picture

"Can you spend gold at the gas station?"

I think it speaks volumes about the mentality of Bitcoin investors that one could actually make a statement like that...

simo.smo's picture

I think it speaks volumes about the presions precious metals investor, when every argument about bitcoin ends up with "What will you do if there was no power?" ;)

Lore's picture

Have you examined the condition of your nation's infrastructure lately?  It's a wonder that there aren't more brownouts.  (Expect that soon, in the interest of cutting costs.) How much worse could it be in time of war? 

This discussion reminds me of an article following a snowstorm in my area a couple years ago.  Two dingbats wrote a column subsequently complaining how the local internet was down for hours, leaving them unable to check the weather forecast, and when it came back up, to their consternation, the site wasn't updated.  They were serious.

Goner's picture

Bitcoins can be stored on your cell phone so even if the power went out you could still make payments. While I agree with you that our infrastructure is crumbling, cell service is not often effected by things like snow storms or brown outs.

This is not to say I would have my life savings in bitcoin, far from it.

Harlequin001's picture

so what WOULD you do if there was no power?

dark pools of soros's picture

And most of your stupid comments are made online... Perhaps just talk in realms where you like your money, mmmkay?

TraderTimm's picture

The problem with mises regression theory is it fails to recognize the intangible as being worth something. Such as binary zeroes and ones. Most commerce flows through that virtual conduit, including the major exchanges that set the price of gold.

Gold and Bitcoin work together very well, and will continue to do so.

Aeternus's picture

I do not advocate storing your wealth and units of labor in BitCoins. I did however buy 1,000 bitcoins when they were trading near $5.00.


What did I do with those 1,000 bitcoins when they reached just over $120 per bitcoin you might ask?


I exchanged them at an online bullion store that accepts BitCoins and recieved phyzz in exchange. One of the best trades i've ever made.


Other than that, FUCK BITCOIN.