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Guest Post: Bitcoin As Cryptographic Gold?
Submitted by Detlev Schlicter via DetlevSchlichter.com,
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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Too many people criticize Bitcoin without really understanding what it is. Bitcoin is basically a giant, global accounting ledger that can't be duplicated or changed without authorization. It will be fascinating to watch it's development.
authorization
So with authorization, it can be duplicated, changes, manipulated, etc?
I think people looking for an alternative want (a) money that can't be manipulated and (b) on their person. They also want money backed (c) by something. Bitcoin is better than dollars, but fails several tests. I don't want any. Also
Well, only if you lose your computer or e-wallet, and it is unprotected. Otherwise, it cannot be altered. You still have to take care of your belongings, like any other currency.
I was going to say, also the government can come in and reprice it at 1:1. 1 bitcoin per Bernanke Buck. What's to make people think the Federal Reserve will easily give up its monopoly over money? This is going to be a hard fight, and hiding money will be part of it. Can you bury a bitcoin? Can you keep any off the books? If it's decreed 1:1 USD or JPM finds a way to short it, are you safe? It's neat. I like it better than Bernanke Bucks, but if it takes off it will just become the new Bernanke Bucks. Until the money has intrinstic worth this will keep happening.
Well, this is the same as banning it's use. Of course, governments can always do this, but it isn't a weakness of Bitcoin.
I hope it works. I'd rather have anything than Bernanke Bucks.
It just doesn't have all the properties I want in currency so I can't get too excited. Back it by something I can cash it in for and we're talking. Right now it's backed by a promise of rarity, which is just as bad as the promise of the current iou's.
Hiding your wealth in Bitcoins is probably very secure if you use crytography in all storage. What is more likely, should Bitcoin take off as a true global currency- the governments will just levy taxes on your Bitcoin denominated income. In any case, you can't well hide the car or house you purchased using Bitcoin, and government can just assign you a tax liability based on your "apparent" income.
You are incorrect. Bitcoin is vulnerable to manipulation via a "51% attack." Such an attack would be trivial for an entity such as the US Government, or even for many well-funded private interests.
It's open source so how can they lay claim against copiers?
Are bitcoins the same as credits on the star trek show?
This article ALMOST convinced me to buy gold. I still think rice is much better.
The best buy is 30 year food storage imo.
Unless you own land and can plant--then seeds.
I got it! Edible Bitcoyne!
Slogan: If they wont accept it , eat it!
I should have realized, Bitcoin so ridiculous it had to be worth buying. Too late now.
I have yet to hear anyone that actually understands Bitcoin denigrate it. If you understand Bitcoin, you know why it's worth more than fiat.
And then there are those poor, benighted savages that shriek and jump around the first time they see a cigarette lighter.
Why is it everyone who religiously advocates BitCoin think they have the biggest brains in the room and tell everyone else that if you don't like BitCoin it's simply because your feeble brain doesn't 'understand it'?
sodomites all.
Because it's the simple truth.
Do you understand Bitcoin?
Why is it everyone who religiously advocates X think they have the biggest brains in the room?
If they thought they were the dumbest, they would not advocate X.
Um, no..
Just how *exciting* will Bitcoin be in the next Carrington event? Nasa isnt the only one predicting it's coming.
Bitcoin would have never survived the last Carrington event.
So lets just say Bitcoin is not as durable
And when the next Carrington event hits, causing Obama phones, EBT and SNAP cards and electricity in general to go down for good - holders of both BitCoin and gold are going to have other things to worry about. You don't want to be within 100 miles of a major urban center when that happens.
If it were to be like the last event, the voltage surges will cause both the electrical wiring and copper plumbing in most residences to become major sources of combustion. Figure the electrical grids destroyed globally, 2-3 billion people dead within 60 days, most dwellings burned down, and the entire planet knocked back to pre-industrial days. The most valuable commodities will be lead and brass, along with delivery systems of the same, for probably several generations.
The Amish and aboriginies will get by OK. Most everyone else won't.
I doubt plumbing will be affected, as it is generally well grounded. The reason that power, and phone lines are vulnerable is due to their isolation from ground.
Every 500 years, need it or not!
Ok here's where the whole article falls flat on its face.
FACEBOOK had the 'first mover advantage'?
Sorry but are you fucking kidding me?
MYSPACE was the first largescale social network, and it died pretty quickly once facebook started up.
So the question is, what is the next facebook to bitcoin (myspace)?
FaceCoin
The only value bitcoin has is it enshrines anonimity in the way bearer bonds use to.
Not true at all. Bitcoin's so-called anonymity is subject to contextual analysis. Therefore it is not anonymous.
Everyone ! everyone gets a trophy/ Bitchez
Shit Coins<
Gold is much easier to use than bitcoins if you want to do online transactions and if you want to go to another country carring 1 million in bitcoins you will be stopped by customs whilst it's easy to take 1 million in gold bars with you on the plane. So bitcoin is clearly useless.
/s
The melting point of silver and gold is also higher than all materials used to make crucibles.
My gold bar got hacked the other day and now I cant use it. /s
Since BC is open source how can they legally stop the copying of their software for use in a competitor digital coin?
Who is they?
The answer is they cannot. There have been rivals that use the same code base that have vanished, such as solidcoin. There are rivals that flutter about, such as litecoin.
Alternatives need to be significantly better in some way to generate a userbase. Without userbase there is no demand, without demand, no value in the alternative.
In order to undermine it, someone - say The Fed - drives up the price of a competitor, maybe even while selling its BC holdings, and the realization hits that BC is dilutable.
Done.
That is why I got out, the system is too lawless to trust in something you can't put in a sock and swing at a PC tard's head.
They do not need to be "better" - they simply need more valuable network effects. Another reason why Bitcoin is a #fail - no barrier to entry by well-financed competitors. What if WALMART decides to make their own brand of bitcoin? Exxon? What if such variants become as commonplace as Affinity Cards? What if Visa and/or Mastercard make their own version? Holders of bitcoin will be left holding the bag.
The only real currency would be one that is tied to a unit of labor. Seeing the wild flucuations of bitcoin values over short terms, it is not a real currency. All currencies, paper, precious metals, gems, etc are victims of speculation and manipulation. They are meant to replace a direct barter system, but quickly diverge from that sole purpose. Labor of some sort creates things to be consumed by the creator or traded for other things that labor creates. There are various ways to create things that might change the amount of labor required. So they can change in amount of labor traded for them. Adopt the lowest labor method or be undersold. Instead, many decide to just vary the value of labor, in total or in selected areas. That is when any currency representing labor is debased. Real inflation of price can exist and is fair. Materials become rare requiring more labor to extract. Items can decrease in value when an item requires less labor. I speak of labor as the entire chain from raw resource extraction to finished item / service and all steps along the way.
I agree with you
In the USSR many manufactured goods were sent into a landfill, just to keep the population in 100% employment. What was all that labour worth if the end result is garbage? Nothing.
Not all non-jobs are done behind a desk.
Who would decide what price to place on labour?
Would skill factor into the price, or is all labour valued equally - from the floor-sweeper to the tool, and die worker?
Would it be based on an entry-level unit - like one burger-flipper-hour?
Who would be in charge of distributing the units?
How would you redeem an hour of labour if no-one will agree to work for that unit?
Why not just ignore the government, and work for cash/PM and not pay any taxes?
I personally am sick to death of reading the entire bullshit bitcoin argument presented repeatedly in the same highbrow circular logic when in fact bitcoin is what it always was and will be, silicon based cyber masturbation. Real Value attached to video game points dependent on an electronic network creation, distribution and security? WTF?
Damn man, lets just all swap high score on Space Invaders. I had alot of beer fueled practice on that one at the corner pizza joint 3 decades ago. I coulda been rich instead of drunk.
Good luck with it, I ain't play'n.
Sounds like my Dad when he first heard of the Internet, compared it to CB radio. Ten years later and he was browsing the web for 4 hours a day.
Another sign of how early we are in the adoption cycle. I wonder what the BTC/USD exchange rate will be by the time he comes around.
He will have to sell his Penny Farthing to buy some.
It will be worth ZERO, because people who think critically will not hold bitcoins for any length of time due to their many risks:
1) redemption risk (hard to cash in without reliable exchanges)
2) Volatilty risk (value of coins can decline before you can cash them in)
3) Lack of anonymity (due to contextual analysis)
4) Jump Risk (value can go to 0 in a 51% attack)
5) Risk of being labeled a terrorist for using it
6) Risk of going to jail for moneylaundering
7) Risk of it going to zero if a competing brand of Bitcoins becomes more popular
etc.
Comparing bitshit to one of mankind's greatest achievements?!
Nobody is forcing you to play, or even asking. Frankly, nobody gives a rat's ass about an opinion from someone that doesn't know the slightest thing about the subject being opined about.
Personally I'm tired of hearing bullshit from people that don't know jack shit about BitCoin...
Did Jack Shit buy Bitcoin too? Never would of thought of Jack as a Bitcoin type of guy...
How about this whiz. We won't mention NWO or a one world sovereign nationless currency.
What happens when the lights go out where you are, where I am, anywhere or everywhere? And they dont come back on today, tommorrow, the next day, this week or this month. Go buy a red bull then.
Think it can't happen? Think we are too advanced? Think infrastructure, nature or gubermint can't fail us? Think again..
Matter of fact I just heard a transformer blow here in the hood as I type. 2nd one this week, sunny day, no air conditioners running. Infrastructure components made in china I suppose. I suppose the utility can buy a new one with bitcoin have it here FedEx tommorrow.
Which would you rather have had during Hurrican Katrina - bitcoins or silver/gold coins?
We tech nerds should work out a system to back a digital decentralised currency with gold, that way the Central Bankers for sure will be screwed, lets do it!
goldmoney.com
Gold money is centralized, isnt it? I dont think it's peer-to-peer.
Never cared for the idea of replacing hard currency with bits. Sounds too much like a governments wet dream.
Our friends at NSA can break any crypto code... eventually, or they can have the government go and arrest and intimidate for a trapdoor (as they did with PGP) and our friends in the government control the internet.... physical is the only reality... cyberspace is the realm of the government and hackers.. or the government who may be one and the same as hackers..
Surely the real objection to bitcoins is the limited supply. So a bitcoin world becomes a deflationary world, with bitcoins an appreciating store of value. Sort of like the 19th century gold standard world, only more so because the supply of bitcoins is bounded.
Liquid money should not appreciate in value, it should be penalized by gradual erosion of purchasing power, else it becomes too attractive to just hold passive cash.
YOUR opinion is 'liquid money should not appreciate'. There is no natural law that makes this happen.
The natural state of technological progression results in deflation. This argument that people will hold onto cash forever expecting lower prices is bunk.
How many people 'held on' to their cash waiting for the next iPad? If that was the case Apple should have sold only the iPad 1 and then nothing since then while everyone waits for a cheaper faster iPad 2/3/4.
Secondly, how many days can you go by without eating? Can you hold onto your cash waiting for food to become ever cheaper?
In a deflationary environment, people will still act the same way. They have to weigh the cost of current consumption (with future expected lower prices, i.e. future higher purchasing power if they don't consume now) in the same way in an inflationary environment they may also consider (assuming interest rates are not suppressed) current consumption now, vs earning a positive real return on their income (ie future higher purchasing power if they don't consume now).
The other argument you then have is does deflation lead to lack of capital formation? and the answer would be no. If I hold onto cash and put it in a vault with the expectation of it returning e.g. 3% real return a year due to deflation, and an opportunity comes to invest in a company that may have a real return of 10%, am i going to hold onto my cash for another few years?
So the last argument you have is what about 'sticky wages'. Well companies would not have to constantly increase their wages or prices. They could keep base rates the same and reduce benefits, in exactly the same way companies do now in an inflationary environment. Employees would see their wages constant but their benefits decrease, they then have a choice to fund those benefits themselves or go to another company.
Whent they get hired at a new company, the new company has an option to offer them a wage the same as existing employees or a lower wage due to deflationary pressures on prices. However they would only hire that new employee if he was able to contribute more to productivity of the company than his wage+ benefits cost. If they offered him the same benefits but a lower wage, would he take the job or not? Well likely he'd take it, else he would not have left his previous company in the first instance. He can demand a higher wage, but the newer company has no obligation to him at all.
The ultimate result is the same behaviour as if he was in an inflationary environment. Companies don't hire marginal workers in an inflationary environment just for fun. Higher revenues in inflationary world also leads to higher costs, so the REAL return the employee provides has to be positive, be it in an inflationary or deflationary situtation, otherwise he wouldn't get hired.
And for what its worth, everyone forgets, effectively bitcoins are not bounded. bitcoins can be divided up to 7 decimals. And there is no limit to the number of new blockchains someone can start with a different encryption scheme.