• Steve H. Hanke
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Bitcoin Versus Gold

Tyler Durden's picture




 

Submitted by John Browne via Euro Pacific Capital,

Ever since President Nixon broke the US dollar's last link to gold, the world has been set adrift on a sea of fiat currencies that have been increasingly debased, serving the interests of governments and financial elites. For the last five years, central banks have imposed near-zero rates of interest that have helped push up stock, bond, and real estate prices, but have made it nearly impossible for savers to receive meaningful returns on bank deposits.

To make matters worse, the apparatus of national security has turned financial transactions into a massive exercise in government surveillance. Under the camouflage of 'protective' measures, such as the USA PATRIOT Act, governments have invaded the privacy of citizens and compromised banking secrecy in an unprecedented and often unconstitutional manner. Despite huge potential transaction-cost reductions achievable through advances in digital technology, banks continue to charge exorbitant transaction fees while maintaining transfer delays that reflect a pre-digital age. In addition, bank regulators, led by the IMF, have shown a willingness, in the case of Cyprus, to make depositors liable for poor banking decisions. Many private citizens may naturally see the status quo as a deliberate policy to crush middle-class savers and pave the way for centralized socialism. Some have sought a way out.

Gold 2.0?

Traditionally, investors have turned to precious metals such as gold to help protect and privately transfer their wealth. However, ever-increasing regulation, monitoring, and physical searches have eroded some of the key protections afforded by gold. Gold's weakness over the past 24 months has also spooked many former adherents. In such an environment, many have seen the recent arrival of digital crypto-currencies as the means to restore the monetary independence that has been co-opted by big governments. Currencies like the now-famous Bitcoin offer the potential for a store of value, low transaction costs, free movement, and anonymity. It's no wonder that Bitcoin has taken the world by storm. But all that glitters is not gold.

Wikipedia defines a crypto-currency as, "a peer-to-peer, decentralized, digital currency [or medium of exchange] whose implementation relies on the principles of cryptology to validate the transaction and the generation of the currency itself." In short, it is a virtual currency traded by private, unregulated internet exchanges. Despite the recent fame of Bitcoin, there are actually a number of other crypto-currencies that have been created in recent years. Names include Litecoin, Peercoin, Namecoin, and Primecoin. Bitcoin, established in 2009, is undoubtedly the most successful, and it became a breakout news story in 2013.

Bitcoin Pros & Cons

Bitcoin offers a few distinct advantages over conventional currencies: it allows almost instantaneous peer-to-peer transactions that completely avoid the expensive and cumbersome bank-run electronic payment systems, and it allows for fast international movement of funds outside foreign exchange controls.

Many investors are also betting that Bitcoin will offer a better store of value over time than serially printed fiat currencies. That's because the Bitcoin protocol automatically, and apparently irrevocably, limits the number of bitcoins that will be created to 21 million. In this sense, they are immeasurably more honest than US dollars. However, unlike US dollars, pounds sterling, or euros, bitcoins do not carry legal tender status, but rather rely on the network of merchants and individuals to continue to accept them as payment for goods and services.

Finally, by utilizing anonymous wallets, some users may think that crypto-currencies like Bitcoin offer increased financial privacy. I believe that this is largely an illusion. Governments have shown a great ability to crack any code no matter how well planned (just look at the British government's success against the Germans in the Second World War). I have full faith that the US Federal government can, over time, develop techniques to map all cyber transactions.

A Volatile Elephant in the Room

But it is Bitcoin's volatility that will likely be its immediate undoing. In recent months, as more speculators have moved into the market, prices have been unstable to say the least. On November 29th, Bitcoin reached $1,242 in Tokyo just as gold dipped to $1,240 an ounce. When those two values crossed, many began to speculate that Bitcoin had replaced gold as the premier alternative to fiat money. With relatively high transaction costs and delivery delays, precious metals are expensive to store and transport. In contrast, Bitcoin transactions are fast, cheap, and transnational. But little, if any, store of value is offered. That reality has been demonstrated in recent weeks as Bitcoin has dropped by some 50 percent in market value.

While crypto-currencies remain insulated from central bank manipulation, governments have thus far been tolerant, perhaps because their capability to track transactions is more advanced than Bitcoin believers admit.

Nevertheless, the advent of crypto-currencies represents the increasing popular demand for a currency insulated from political debasement and bank profiteering. Crypto-currencies represent a legitimate attempt by private citizens to reassert their sovereignty over such government actions. I appreciate the effort, and I believe it holds much promise. But for now, I will stay with the traditional store of value, gold.

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Fri, 01/03/2014 - 22:15 | 4298595 Uncle Sugar
Uncle Sugar's picture

I'm partial to goldcoin

Fri, 01/03/2014 - 22:30 | 4298617 lickspitler
lickspitler's picture

yer yer yer Gold going into a giant rally "again" and bitcoin is finished "again".

Fri, 01/03/2014 - 22:43 | 4298638 Stackers
Stackers's picture

Gold is money. Bitcoin is a finite supply currency competing against infinite supply currencies.

Comparing the two is pointless.

Fri, 01/03/2014 - 23:11 | 4298706 wintermute
wintermute's picture

Obviously gold is an excellent store of wealth. The problem with it is that modern economies require fast long-distance transactions. Gold is not suited for that, in fact its transactional shortcomings were felt in the 1600s when goldsmith's receipts became early paper money.

Bitcoin has a huge intrinsic value because it is the currency native to the world's most advanced payment system. Someone sitting in a grass hut in the Congo can easily move $100 million to someone climbing Mt Everest, in 1 second, irrevocably confirmed in 1 hour, for 5 cents of fees, no third party involved, no government permission needed.

This is a financial revolution and those that ignore it are going to be on the wrong-side of one of the greatest wealth transfers in history. The next decade will see an tidal wave of money go from fiat to crypto.

Fri, 01/03/2014 - 23:30 | 4298723 hmmtellmemore
hmmtellmemore's picture

Bingo.  I had to send a couple thousand usd to Hong Kong recently.  It was a pain in the ass even with Western Union or Bank Transfer.  If I had to actually airmail a gold coin to China it would be even harder (how do I get change if the price is not exact for the coin?).  Gold has basically never been a real currency, aside for kings and the ultra wealthy.  On the other hand, sending btc is a breeze, its almost free, and if done correctly is near anonymous.  Nothing comes close for sending money long distances.

Fri, 01/03/2014 - 23:34 | 4298753 fonestar
fonestar's picture

Yes, Bitcoin is pure awesomeness rolled in a blanket of bliss.

Fri, 01/03/2014 - 23:39 | 4298782 CrazyCooter
CrazyCooter's picture

Still waiting a response Fonestar ...

ZH: 2013-12-30 : Bitcoin as an Alternative Currency?

Regards,

Cooter

Sat, 01/04/2014 - 01:04 | 4298970 nope-1004
nope-1004's picture

Fone has made it clear:  He's not in it for profit <check out Bitcoin as it passes gold you metalhead losers>.  He's in it for spiritual and philosophical reasons <hey idiots, Bitcoin rules and will be 6 digits in a few years>  because he has the utmost respect for his fellow man <you losers will be left behind because Bitcoin is going vertical>

 

Sat, 01/04/2014 - 01:36 | 4299055 fonestar
fonestar's picture

Satoshi came to free you and instead you people chose to attack him and his most supreme creation.  I can only imagine the terror that will be struck into the hearts of those who opposed Bitcoin during the coming of the cyberchrist.  You have been warned.

Sat, 01/04/2014 - 06:56 | 4299348 malikai
malikai's picture

I have a lot of respect for Schiff. I know he's real smart.

But he and his people have been real blockheads by making the binary either-or argument WRT gold/bitcoin.

As the spiritual leader of the guns, gold, and beans cult, he would do his community a great service to realize that it's not one or the other. One can have many tools in their toolbox.

Sat, 01/04/2014 - 08:07 | 4299366 Supernova Born
Supernova Born's picture

Bitcoin devalues Zero Hedge.

Sat, 01/04/2014 - 08:24 | 4299400 Popo
Popo's picture

What was that nonsense in the article about Bitcoin's value being "insulated" from the prying hands of governments?  The problem with crypto-currency douchebags is they never stop and question their own quasi-religious tenets.  Not only did China send Bitcoin reeling with one stroke of a pen, BTC is the most traceable currency in the world.  It's more traceable than fiat currency.  By definition, the ownership chain must be stored and recorded for BTC to even work.   Anyone who thinks Bitcoin is free from the hands of governments is logically challenged.  And when you make this argument, you then get into the whole "but I hide my identity, and use base-64 bazillion encryptomumbojumbo on my transactionz" arguments.  As if the past year of revelations about encryption, identity and network infiltration never occurred.   Bitcoin is *nothing* compared to gold.  In fact, its so incredibly prone to the all-seeing eye of government, it almost makes me wonder if that's not the whole idea.   But carry on ye penny-stock cheerleaders.  Sink your cash into something that records every transaction and chain of ownership for your government to see -- if that sounds smart to you.  

Sat, 01/04/2014 - 09:11 | 4299452 GetZeeGold
GetZeeGold's picture

 

 

 

6000 years....and counting.

Sat, 01/04/2014 - 13:26 | 4299877 secured_party-c...
secured_party-creditor's picture

There's no wiser wisdom than that just stated... China knows it ... That's why they've went on a gold buying and hoarding spree... Signs and symbols are for the conscious mind...

Sat, 01/04/2014 - 14:37 | 4300001 dracos_ghost
dracos_ghost's picture

I believe China said don't be converting BTC into Yuan. We forget that China has been printing(internally) like Bernanke on steroids and generating huge excess utility capacity. Why not have citizens create BTC with the excess -- but convert them into foreign currencies, not yuan. If they convert into yuan it would defeat the purpose of distributing the excess utility capacity and inflation associated with it. It's better to capture foreign wealth via BTC transactions outside the mainland.

Who needs to float the yuan when there is BTC. BTC is China QE4Eva. Don't be fooled.

Sat, 01/04/2014 - 09:15 | 4299459 fiftybagger
fiftybagger's picture

Just because you know how to use the word encryption doesn't mean your not a blockhead.  It's as anonymous as you make it.  Now tell me who does this address belong to that received 150 million dollars in one transaction? 

12sENwECeRSmTeDwyLNqwh47JistZqFmW8

Look, I even gave you a link to the blockchain site.  Now you just need to figure out what you are looking at blockhead.

The Bitcoin Channel

Sat, 01/04/2014 - 09:32 | 4299482 Bendromeda Strain
Bendromeda Strain's picture

So - you are on the record as stating that nobody outside of the two parties involved can identify them? Based on what... your own inability to do so?


Sat, 01/04/2014 - 11:41 | 4299674 13thWarrior
13thWarrior's picture

HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH Laurie Law, Susan Sabett, Jerry Solinas National Security Agency Office of Information Security Research and Technology Cryptology Division 18 June 1996 http://groups.csail.mit.edu/mac/classes/6.805/articles/money/nsamint/nsa...

Sat, 01/04/2014 - 16:58 | 4300203 Popo
Popo's picture

And just because you've got a black box algo that's supposed to encrypt something doesn't mean it's not readable.

See ultimately you're employing faith and not logic.

Here's what we know with certainty:

1) The NSA has compromised numerous encryption technologies.
2) The NSA currently earmarks 100's of millions in congressional funding for the influence of commercial security and encryption systems.
3) Bitcoin uses an elliptical encryption algo.
4) the original creator of Bitcoin (you call that entity "Satoshi" because you were told to, and like all believers the belief starts with dogma) has never cashed in or spent any of the original 200 million in Bitcoin value it owns.

Now you're proudly pasting in a long meaningless alphanumeric string and like a jackass you're prancing around and challenging me to decipher it.

Seriously?

Is that actually how limited your understanding of the issue is? By that argument, why not just paste something in Hungarian, Finnish, or encoded with a primitive 1 to 1 cypher.

The reality is you don't have the foggiest idea whether or not your Bitcoin is safe. And virtually all of the evidence we now have regarding compromised encryption technologies would suggest that it is probably not safe -- and at the very least *may* not be safe.

But you have your faith.

As to your other inane arguments about the current price point, you sound just like an idiot homeowner in 2007 rejecting the idea that homes are overvalued because you're in the black.

How smart you are.

I actually understand encryption extremely well. You on the other hand sound like he kind of person who knows how to slap a button marked "encrypt". And when the result is unreadable, you're happy.

Trust no one. Especially someone else's tech. (Never mind tech produced by a body with no identity, no real world contacts, and a nebulous motive which is decidedly not wealth.)

Sat, 01/04/2014 - 10:00 | 4299512 malikai
malikai's picture

Popo, have you heard of this date? April 5, 1933.

Also, that whole China 'stroke of a pen, reeling' nonsense you spew, did little more than cause a lovely dip that many of us were able to use to 'restock' our 'shelves'.

I'm having a hard time seeing who the 'douchebags' are. Are they the cryptoanarchists, who are actively trying to solve the problems you speak of, or the people doing fuckall about it and praying for a new gold standard so that days like 5/4/33 can happen again?

Also, last I checked, bitcoin was valued at $884. That hardly sounds like a penny stock to me, but you can go ahead and call it what you want.

Sat, 01/04/2014 - 13:18 | 4299855 secured_party-c...
secured_party-creditor's picture

Not to mention the State Compact Act that followed up and was implemented the following year... Nothing secure in digital/crypto land.. Every server in the world is plugged in to the prying eyes of government.. Just check out the east and west coast where our "Am3riKa" s' international internet cables run in/under the ocean... Them lines don't go straight to our homes or the local 7/11.. They go through government sponsored corporations... I.E., phone companies, google...etc

Sat, 01/04/2014 - 17:25 | 4300240 SeattleBruce
SeattleBruce's picture

And the government can't pull a 1933 on bitcoin or the Internet? I'm not against BC. We need to be ready for all contingencies.

Sat, 01/04/2014 - 18:31 | 4300346 malikai
malikai's picture

They certainly could fuck the internet up real good.

Arguably, they already have.

But be sure, if they do, it'll be time to switch to the end game.

Sat, 01/04/2014 - 11:02 | 4299605 Murf_DaSurf
Murf_DaSurf's picture

 

 

 

" In fact, its so incredibly prone to the all-seeing eye of government, it almost makes me wonder if that's not the whole idea."

 

BINGO , Popo, BINGO

Sat, 01/04/2014 - 11:52 | 4299684 funthea
Sat, 01/04/2014 - 09:31 | 4299487 Bindar Dundat
Bindar Dundat's picture

Or is it the mark of the beast?  

Relax fonestar, like you, I am a big fan of BTC but -- some clergy friends have been asking me about the one world currency and the 6 number hat shows up 3 times in the definition....mmmm they have a point and is the cyberchrist the antichrist?

Religion aside there is the question of which we should invest in -- gold or digital currencies ?

I think the anwser to BTC or Gold is simple -- BOTH should be held at 10% gold and 5% didital currencies made up of BTC , Litecoin and peercoin.

Sat, 01/04/2014 - 11:16 | 4299627 Papasmurf
Papasmurf's picture

I can only imagine the terror that will be struck into the hearts of those who opposed Bitcoin during the coming of the cyberchrist.  You have been warned.

Before, I just thought you were a bitcoin zealot.  Now I know you're a loon.

Sat, 01/04/2014 - 01:36 | 4299057 Deacon Frost
Deacon Frost's picture

How does bitcoin encryption fit in with the coming NSA quantum computers that can break encryptions?

Sat, 01/04/2014 - 01:45 | 4299078 wintermute
wintermute's picture

That is many years away and Bitcoin can be modified to use different algorithms which are QC immune.

 

Sat, 01/04/2014 - 09:40 | 4299497 Beam Me Up Scotty
Beam Me Up Scotty's picture

Ahhh, so Bitcoin can be modified? How do you know there will only be 21 million produced? Who is the gate keeper to enforce that? And even if that's true, there are an infinite number of "coins" that can be produced (litecoin etc.)

Also, if gold was at its real price in terms of dollars, you wouldn't have to move very much gold at all to move a lot of wealth. That's why they want to keep a lid on it.

Sat, 01/04/2014 - 10:10 | 4299529 tmosley
tmosley's picture

Bitcoin can only be "modified" if more than half of its users agree.  In reality, it isn't a modification, but a fork.  Bitcoin continues to exist with its current rules, but there is now a "bitcoin-q" that is safe against quantum attack.  If someone forks a "bitcoin-inf" no-one will accept it, because it goes against the first principles of the currency.

When there is a fork, people who owned bitcoin prior to the fork will now own both types of bitcoins.  The market will select one over the other, or allow both to continue operating if there is a need/desire for both.

As to the fact that there can be more cryptocurrencies--so what?  There can be more fiat currencies.  That doesn't stop you from using them.  You can use metals other than gold to store wealth, that doesn't make gold less valuable.

Bitcoin IS money.  It's just not as good of a form of money as gold, but with more adoption and a longer history, it could surpass gold on an absolute basis.  But it has DIFFERENT PROPERTIES, which means that there is, and always will be, a need for both.  Gold reigns supreme for long term deep storage of wealth, and will continue to do so until we start mining asteroids, at which point you will want to own space miners and other prodctive capital, and use the proceeds from that to vacuum up all that new gold supply.

Sat, 01/04/2014 - 01:50 | 4299083 fonestar
fonestar's picture

Nothing can stop Bitcoin and you should buy Bitcoin.

Sat, 01/04/2014 - 01:55 | 4299096 DoChenRollingBearing
DoChenRollingBearing's picture

If you know the blockchain well, gmail me sometime or comment then delete at my blog (I get the email even if you delete a comment on an old article, hint, hint).

I am working on "Part Six" and can use all the help I can get (subject: blockchain).

Sat, 01/04/2014 - 02:05 | 4299124 fonestar
fonestar's picture

I enjoy your blog and I will do that.

Sat, 01/04/2014 - 01:53 | 4299098 Tinky
Tinky's picture

You are such a bore.

Sat, 01/04/2014 - 02:12 | 4299120 fonestar
fonestar's picture

Rest now, for Satoshi has revealed himself to me in a dream but a fortnight ago.  Satoshi emerged from a blazing red sun to find the neishin buried up to their necks in sand.  He removed his jewel encrusted Katana from the sheath and began to slice through the necks of his doubters.  Their heads were collected and used to construct a temple near a waterfall.

I take this as a sign that there will be retribution coming for all those that doubted Bitcoin and Satoshi's might.  Soon you will wish you had listened.

Sat, 01/04/2014 - 02:01 | 4299109 akak
akak's picture

Fonestarcoin, bitecoin my bitcoin.

Sat, 01/04/2014 - 02:08 | 4299125 Canadian Dirtlump
Canadian Dirtlump's picture

as I've said before just as facebook replaced myspace which is fading - what stops bitcoin from being if not supplanted, then joined by guntcoin, aidscoin or fartcoin?

 

either way it's a welcome nuisance to tptb.

 

p.s. what does this new nsa quantum computer bode for cryptocurrencies? Every government from here to vietnam should be mining these things with reckless abandon, on the taxpayer dime.

Sat, 01/04/2014 - 09:14 | 4299462 jimmytorpedo
jimmytorpedo's picture

I like Neal Stephenson's solution in Cryptonomicon.

We just need to find all the Nazi gold in the Philipines first.

Anyone up for a trip?

Sat, 01/04/2014 - 11:03 | 4299609 chemystical
chemystical's picture

Do you mean Japanese gold?  (aka Yamashita's gold*).  Or were you using this as a snipe hunt metaphor?

The Commonwealth of the Philipines actually gave sanctuary to Jews who left Nazi Germany.  You'd be hard-pressed to find significant Nazi activity there much less a military presence there or near there.

* the Marcos' vast wealth (and Imelda's collection of > 1200 pairs of shoes) reportedly came from finding some of that gold (USA patronage and Marcos' oppression and corruption notwithstanding)

Sat, 01/04/2014 - 06:45 | 4299343 Reptil
Reptil's picture

good question

did anyone check the latest Chaos Computer Club conference?
I think it's informative
here's one of the presentations: https://www.youtube.com/watch?v=b0w36GAyZIA
some radical stuff at the end

Sat, 01/04/2014 - 08:26 | 4299403 Popo
Popo's picture

The encryption protects only your ownership -- it does not conceal ownership or transactions.   The issue really, is the latter when it comes to the long arm of the law.

Sat, 01/04/2014 - 11:44 | 4299672 imbtween
imbtween's picture

The idea of using bitcoin to evade taxes  or hide from the law is misguided, and anyone who participates in a cryptocurrency scheme with that goal will be disappointed and probably end up in jail in whatever country they reside.

Unless you are willing to meet people in dark alleys and exchange BTC for cash using your smartphones, the record of you wiring money between your mtgox/btc-e/cryptsy account and bank account will be on both the blockchain's record and your bank statement.

BTC and it's crypto peers are brilliant as a conveyance of capital. They will probably develop into a useful alternative to costly - and obsolete - traditional finance mechanisms (like international wire transfers and credit cards).

I really don't understand the active antipathy some people have for cryptocurrencies. If you don't like them, think they're a ponzi, think they're an NSA project or some Rothschild scheme to implement one world currency, just stay away. Problem solved.

Sat, 01/04/2014 - 09:34 | 4299491 Bindar Dundat
Bindar Dundat's picture

What makes you think they are not already using it?

Sat, 01/04/2014 - 02:07 | 4299061 DoChenRollingBearing
DoChenRollingBearing's picture

If you have to only pick one (too poor to own both), then pick gold.  If you do not understand Bitcoin, then pick gold.

If you decide that holding both BTC and gold is right (like me), hold more gold.

Gold and BTC complement each other, but have more in gold.

 

YMMV

Sat, 01/04/2014 - 10:12 | 4299532 tmosley
tmosley's picture

EXACTLY.  Gold is savings, bitcoin is a free market checking account.  You don't keep all your money in a checking account.

Sat, 01/04/2014 - 12:43 | 4299807 Rubbish
Rubbish's picture

Ok I'm an old man and BTC may be a new trick, but I'm not investing $10 bucks in it. I'm trying to get off this fucking grid not marry it. Besides I've seen more than my share of pyramid schemes. The early pumpers did well, I applaud their ingenuity.

Sat, 01/04/2014 - 17:08 | 4300209 Popo
Popo's picture

"I'm trying to get off this fucking grid not marry it. "

I believe we have a thread winner.

Sat, 01/04/2014 - 17:19 | 4300220 akak
akak's picture

Unfortunately, it seems that the bulk of the sheep are moving in the opposite direction, and that most Westerners and East Asians will not be happy until they can have their Borg implants installed and surrender their individuality to the collective hive mind.

Which I might not mind so much, except that they are forcibly dragging the sane minority of us along for the ride.

Do NOT follow this link or you will be banned from the site!