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Bitcoin Versus Gold
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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Let's be honest, the great utility of Bitcoin is transferring money or speculating in it, not necessarily for saving it. If Hayek's vision of a free market in money is realised I think the market will always settle on commodity money. Why trust anything else? Hell, why did we even get off precious metals in the first place? Those of us that actually want a free and stable society know why, the rest want to play God and dictate to the people what is - and what is not - valuable. Bitcoin is great, so long as you know gold is far superior. Any doughnut can sell you numbers after all, but only Rumplestiltskin can reliably make gold. One is real, the other ethereal. But hey, let's have the market decide!
There are no markets of course, but those people willing to play God are two a penny.
Bottlecaps....steel takes gold...
Has anyone consider that maybe the Fed/central planners (created bitcoins) and are happy with bitcoin because it deverts money that would be going into PM? How much money has gone into bitcoins and not into PM
I guess I'll repost my earlir comment as a reply to this: To all the people who think the NSgAy is behind bitcoins, please consider the nature of open-source. If they did write it, then at some point someone will find that backdoor. Or that piece of code will be replaced in an update. Then the spooks will have lost all control. I don't think even the nsa is dumb enough to release a competitor to the USD that they couldn't guarantee control of.
It doesn't matter if it's gold, tulips, or bitcoin. If it challenges the dollar hegemony it will be taken down Sadam/Gadaffi Style. And you can take that to the Central Bank.
You people trading in this swag better give Uncle Sam his pound of flesh or you just might become guests of the state - capisce!
+1 for throwing in "capisce" ... a nod to us dagos.
Signed,
Joey Bagadonuts
for the anonymity:
Structure and Dynamics of the Bitcoin Transaction Graph"Bitcoin is a decentralized, digital currency that is built upon a peer-to-peer (P2P) network. Monetary transactions are secured by a proof-of-work concept originating in cryptography. Due to this basis, all transaction need to be known to all participants. Therefore, the bitcoin transaction data set is a rich, complete, and consistent data set of a particularly interesting social network, namely one of economic transactions. In this contribution, I want to discuss recent results obtained in a comprehensive study on the structure and the time evolution of the transaction graph."
advertisment on xing when searching bitcoin (rhein-Neckar, local german outback, there will be more sophisiticated studies)
the adresses are anonymous but the transactions are not. with enough computer power and correlation the blockchain is an open book
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.
At the time Nixon abandoned the gold standard, it had already been abandoned by the marketplace. The official price was $35/oz. The real market price was around $70 per ounce. And France started demanding payment in gold rather than in dollars ... because the dollars would only buy 1/2 as much as the government said it would. The disconnect came through inflation ... trading promises the government made and broke because they couldn't collect enough taxes to pay their expenses.
I'm not sure what this poster means by "crypto-currency", but private currencies have been around forever and are nearly ubiquitous.
On gold, fiat and bitcoins:
http://1839assetmanagement.blogspot.com/
The other day, I told someone that I would choose Ag/Au over bitcoin at the end of every day. Millennia of conquering, slaughtering and enslaving people for this metal tells me to do so. The trash talking of these metals by the financial gurus on tv tells me to do so. The 1921-D walking liberty half dollar in cruddy condition sitting in the corner of my closet worth $200 tells me to do so. He retorted, "If you honestly believe that gold or silver has intrinsic value..." I tuned him out at that point and don't know what else he had to say. I think there is no debate, at this point, between the value of metals and cryptocurrencies. I'll admit that I threw a couple dollars down into the cryptos just because you never know how the crypto experiment will unfold. It's money that I can afford to gamble away. But, my outlook is not overly optimistic, yet.
In a capitalist system, which is at least moderately free - then it is the markets that assign value to things. Today the markets tell me that they think 1BTC is worth ~USD$800.
If those who hold BTC to be the thresh-hold of damnation, and gold to be a holy relic - perhaps think themselves capitalists - then they might try shutting up about BTC and letting the markets work it out.
At this time, the market for BTC is a relatively constrained, with few exchanges and limited transmission between individuals. If this changes, if BTC expands into more hands and face to face trading outstrips the exchanges - and we collect the data regarding those values - then we will be starting to see what they are worth. The BTC exchange method which is pioneered by the LocalBitcoin site is working in this distributed environment - and hopefully this type of local exchange and data collection will be the benchmark for price setting, and not exchanges controlled by the usual suspects.
BTC has potential, and those who constantly deride it - particularly those who try to condemn it via a false dichotomy by comparison to gold are the worst and most suspect of miscreants - one can only ponder their allegiance.
I don't see gold as the competitor to BTC. I see other versions of crypto currencies as the competitor. There is no limit to the crypto currency competition. When this issue is resloved, if ever, I will consider bitcoin as a valid currency. Right now it's only a fad with a lot of potential downside.
In some sense, every element on the periodic table is/was a competitor to gold. Some held their own, some didn't. But silver, platinum and palladium obviously sit in the same ballpark. For some tansactions e.g. one country buying $500M of oil from another country using a crypto currency a specialized "x-coin" may be created. Cryptocurrencies in one forn or another are here to stay. Next look for digiital voting which has already been tested in a couple of countries.
to put it short
gold is a store of value
bitcoin is an electronic currency for online transactions
By bitcoin's very nature, bitcoin users do not need any third-party intermediaries. Euro Pacific Capital is one of those intermediaries made redundant. Transforming the company to enable some kind of value adding bitcoin service, is very difficult. It would require genuine innovation, and other, more geeky-minded companies are already ahead. Therefore, Peter Schiff and Euro Pacific Capital employees are bound to present a negative and cautious view on bitcoin.
I am a bit sad about seing the gold and bitcoin sides almost being at war. Fact is that they are both great, in different and complementary ways.
Gold is the best long-term storage of wealth, and has been proven so for thousands of years. Bitcoin is new, and another better digital currency might become more popular in the future.
Bitcoin is a lot better than both fiat and gold for transactions, provided you can find somebody willing to transact in bitcoin. Transaction fees are minimal, transactions are quick and global, and capital restrictions are not really possible with bitcoin. Fees for transactions in fiat are a lot higher. And even if you could find somebody willing to transact in gold, it is risky and hard to move gold.
I say this because I - because of my education and many years of working with ICT security - have the knowledge to understand bitcoin and it's security and risks. And because of the money this line of work has made me I have had to learn about personal money management, investments, and the risks involved here.
Some may say that I am a gold bug because I - after having informed myself about the personal investment world - hold a larger allocation in gold than most money managers recommend. Some may say I am a bitcoin-hater because I have not really invested in bitcoin. Neither is true: I only hold about 18 percent of my assets in gold. And I love bitcoin because of the freedom it gives me to pay anybody anywhere in the world, with low fees and no capital restrictions.
Good post. I think the only advantage BTC has over gold is speedy transactions, which can be anonymous if done correctly. But as you pointed out, the challenge is finding counterparties that will accept BTC payments. Gold can still be anonymous but requires physical delivery and bit of skullduggery.
My big hang-up on BTC is that it is entirely dependent on the reliability of electrical and communication systems, which are the domain of government. It also requires a fair amount of computer literacy, that alone will eliminate ~80% of population from using it.
My opinion is that US gov will not shut it down because they are happy to move speculation from gold into a virtual and non-threatening market. They also know that BTC will collapse on its own due to speculation and manipulation from Wall Street and others. Merchants will tire of whipsaw valuations.
I admire the surreptitious spirit of BTC, but in the end it is a faux currency (I previously got a beatdown for callling it fiat) created out of thin air. Much like the dollar, but I don't foresee US gov waging wars in the ME to prop up BTC.
The last major holders of BTC should create a King Tut-like crypt with a sarcophagus made of USB drives and "Here Lies Satoshi" inscribed on the tomb walls in Wingdings. That would have future archaeologists scratching their heads.
your whole life revolves around hoarding a shiny metal. very sad
Are non-Western central banks buying large quantities of bitcoin or gold?
The NSA has massive computing power. Do you know if the US government is minting bitcoins?
Bitcoin Vs. the NSA...Hummmm.....
This article is framed incorrectly. It's Bitcoin AND Gold not Bitcoin VS Gold. They are two very different things. I'm tired of the infighting between bitcoin and gold.
A different perspective. Perhaps the federal government is sitting back and watching to see how Bitcoin is accepted. Looking for weak spots in the system and learning. These fuckers know the FRN is doomed and TAXES must be paid in FRN's. Hmmm. Is it possible that the feds are in the process of creating a replacement for the FRN? Such a replacement the ONLY thing accepted as payment for TAXES when the dollar dies?? And what of withholding? Is that not a TAX PAYMENT?? So what is an employer to do? Terms of employment enumerated in Shitcoin. And how would payment be made? Digital chip implanted under skin as a means of direct deposit minus witholding. How would one buy, sell or trade without the implanted chip? How would one gain employment without complying with the terms of payment.
Could it get better? You heard justice Roberts. Obammy Care is an operation of the federal taxing power. You want medical care? The feds want centralized medical control and need a new monetary system. How would an implanted chip assist in creating/verifying the new system. Every aspect of your life tracked. What, when, how and where uploaded directly to NSA data bank and shared with IRS and law enforcement for any and all purposes. Could employment and medical care be denied if one refused the chip? And since the system is now integrated with a legislatively created PRIVILEGE, the WAIVERS involved would remove the courts of law and equity from the equation.
Oh, and as for the chip. Manufacture it from a toxic substance that can be made to disolve (remotely) thereby causing the implantee to die off once an administrative agency has determined that continued existence is not beneficial to society.
Gold. Hands down.
Bitcoin's very vulnerable. NSA or an EMP can make those digital wallets go poof.
It has all the telltale trademarks of a Ponzi scheme. The early adopters get rewarded while those late to the party will be the bag holders.
Then you've got Max Keiser relentlessly shilling it. Who can forget him pumping silver to infinity as it headed towards fifty. He wiped out a lot of people no doubt. Will Bitcoin be the same?
keiser is a seer
btc is ridiculous, but not as ridiculous as the vermin buying it at 1000.
btc proof that you can make a lot of money being the first idiot before other idiots come in .
dont be the last anii out.
rumor the winklevoss are really fronts for jesse pinkman
The intrinsic value of bitcoin is that people want bitcoins for the sake of having bitcoins. Rappers get bitcoin teeth to show how awesome they are. They put bitcoin trim on their 30 year old cars to show how much they don't need a new car. Guys like Mr T wear chains with bitcoin logos because that's how they roll. Most of the bitcoins mined in the past still exist today. Bitcoins were useful as money due to their relative rarity compared to other materials. If people used iron as money, it might take 50 pounds of iron to buy anything of value, or it could take just 1 bitcoin. The cultural significance of bitcoin goes back thousands of hours. We give out olympic medals that are made of bronze for third place, silver for second place, and bitcoin for first place. Nobel prizes are made of bitcoin because it's so shiny and we like the heavy feel of it. Wedding rings are traditionally made of bitcoin because it never corrodes. The lack of corrosion is also why we put bitcoin plating on conductors for things like stereo wires or the contacts on integrated circuits.
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Read it and weep Bitcoin haters.