Posted on 12/28/2013 10:41:57 AM PST by SeekAndFind
Bitcoin is the name of a group of peer-to-peer payment networks that serve as an open-source form of digital currency that was originally introduced in 2009 by a software developer with the alias of 'Satoshi Nakamoto." Bitcoin currency is created as rewards to "miners" for providing the computing power to solve difficult math problems to maintain the "blockchain" of internet transactions in the currency. Unlike online credit cards and PayPal systems that allow buyers to claim their money back, bitcoin permanently transfers value. The bitcoin cyber-economy compassed of merchants, users, service providers, and startup enterprises has flourished for the past three years. The value of bitcoins has appreciated by 6,000% and the capitalization of the bitcoins in circulation has ballooned to over $8 billion. The emergence of bitcoin virtual currency has created a powerful competitor to the dollar that will limit Congress and the Federal Reserve's effectiveness in fostering inflation as a way to tax away American's wealth. This is why the tech-savvy refer to the bitcoin as Gold 2.0.
Since the beginning of human history, only about 5.6 billion troy ounces of gold has ever been mined. The value of gold is rooted in its medium rarity, easily handling and other qualities most other metals lack. These properties are the basis of gold serving as money. Bitcoin has a stark resemblance to gold: "Both are backed by no one. Both are, relative to fiat currency, inconvenient for day to day use." Since there is a limit of 21 million that may ever be "mined" by the year 2140, Bitcoins are rare units of exchange. Bitcoins will remain rare like gold; by 2040 when the world population reaches 10 billion there will only be 1 bitcoin for every 500 people on the earth.
(Excerpt) Read more at americanthinker.com ...
Jump out there and buy you some, Einstein.
Within a year they’ll be worth doodly and the promoters will all be in hiding, killed or in jail.
Can't be manipulated? I'd think the volatility of the price of bitcoin is the best example of the ability to manipulate the price/value of the said commodity... er, sorry, currency. And the number of bitcoins in "circulation" is tiny, which makes it all the easier to manipulate - The Law of Small Numbers.
It's interesting that people who are ardent proponents of the ultimate fiat currency (b1tc01n?) justify it simply by denigrating several legitimate convertible currencies (USDollar, EUro, GBPound, Yen, etc.) and yet officially non-convertible but very tradable/exchangeable yuan/renmimbi and derisively calling them fiat.
The absurdity now extends even to the gold bugs, who — in real world — would be aghast at the possibility of any viable "fiat" currency "backed by nothing" (i.e., the "Seinfeld currency" ™) are on board, simply because they hate that other fiat currency - FRNs and the Federal Reserve that "prints" them out of "thin air" and that FRNs are not "backed by" physical gold.
Never mind that gold itself is "backed by" nothing, except maybe "turtles all the way down" and the tradition of accepting gold as method of payment, even long after banking systems have developed paper money and Letters of Credit and IOU notes during Renaissance, but that's another story.***
Well, bitcoin is not really in any competition with established government controlled fiat currencies.
For one, there is a "guaranteed" limited amount of BTCs - about 22 millions in "circulation" including "lost and not found" tokens, so at the fixed price of, let's say, USD$1000.00 per BTC the total value of "bitcoin economy" will not exceed USD$22Billion. This will make it similar in size to current "eBay economy" but much smaller than current "Amazon economy."
Of course, the BTC will have no choice but itself appreciate in value, sending a permanent deflationary wave throughout its economy as people hoard bitcoins. The people really benefiting the most from Bitcoin economy will be the "founders" and/or the ones who mined / were allocated early (i.e., the bitcoin "robber barons") - all of which makes the cryptocurrency the ultimate technogeeks pyramid scheme, in other words, there will be winners and the losers. The real question is, will "Satoshi Nakamoto" outdo Bernie Madoff on a USD basis?
But wait, there is more!
Why mine the bitcoins when the degree of mining difficulty goes up and the cost of economic input is higher than economic output? Why not switch your FPGAs and (later) ASICs farms to mine other, "easier" digital cryptocurrencies, e.g., litecoin ("like a silver to bitcoin gold"?), anoncoin, datacoin, devcoin, digitalcoin, dogecoin, earthcoin, ezcoin, fastcoin, feathercoin, florincoin, francos, globalcoin, goldcoin, infinitecoin, mastercoin, megacoin, namecoin, netcoin, novacoin, peercoin, quarkcoin, ripple, stablecoin, terracoin, unobtainium, worldcoin, zerocoin, zetacoin (yes, these are all real "cryptocurrencies" on the market now) etc. etc.
And if that's not enough, why not try to "roll your own" coin? I get the first dibs on the SeinfeldCoin™, unless Jerry will fight me on this before I unlock the huge potential value. Yes, acceptance maybe iffy, but it's all marketing anyway - a coin is a coin, shouldn't cost much more material to mint a quarter than a nickel or print a "Washington" than a "Benjamin".
If that doesn't work, maybe go back to good old Second Life's Linden Dollars. Or wait for the gold-backed "coin" to come on the market?**
Of course it could be a good or bad investment or speculation — just like gold — in which case "ya pays your money, ya takes your chances" applies, but that doesn't make it money ****
On this test, Bitcoin increasingly serves as a medium of exchange because more companies accept it, Yermack said. Where it fails is as a unit of account and store of value, he said. That's because its value is volatile and its exchange rate with the dollar "has virtually zero correlation" with how the dollar trades against other currencies. That makes "its risk nearly impossible to hedge for businesses and customers and renders it more or less useless as a tool for risk management," Yermack said. Bitcoin also lacks other characteristics associated with modern currencies, in that it cannot be deposited in a bank, there is no equivalent to deposit insurance for holdings of it, and no lenders use it as a unit account for standard transactions such as auto loans and mortgages, Yermack said. "Bitcoin appears to suffer by being disconnected from the banking and payment systems of the U.S. and other countries," he said. < snip > ..... To test the case for Bitcoin as a currency, Yermack compared it against the three major characteristics of money: that it serves as a medium of exchange, a unit of account and store of value.
As a medium of exchange, bitcoin also fails, because the seller of the product or service cannot be certain of what the amount will be worth in the real currency of exchange when the bitcoins arrive to his account. There are now (and will be more in the future - see JPMorgan's patent on digital payments / transfers ***** / ******) low-cost e-payment services that don't have any of the problems of cryptocoins. Bitcoins "anonymity" is ephemeral, at best, and can be detrimental, as well as - for some - advantageous. Starbucks gift cards are also anonymous but are only "money" at Starbucks.
Bitcoin was designed as a method for digital micropayments over Internet. Just because some used it as an opportunity (e.g., illegal merch/services payments and Cryptolocker, to name a couple) to push its "value" as an "alternative currency" is beyond what the original intention was, can possibly make it an alternative investment but doesn't make it a reliable alternative currency.
"A big man knows the value of a small coin" - Things Change (1988) by David Mamet
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** E-gold founder backs new Bitcoin rival - CNBC, by Stephen Frey, 2013 November 29
*** Why do we value gold? - BBC, by Justin Rowlatt, 2013 December 07
**** Bitcoin More Speculative Than Real Currency, Study Finds - BL, by Simon Kennedy, 2013 December 23
***** What you need to know about digital currencies - CNBC, by Dhara Ranasinghe, 2013 December 24
***** J.P. Morgan Files For Digital-payment Patent - FBN, 2013 December 10
Since money is used for exchange as a replacement for barter, I would think that barter would result from traditional money being unreliable. One way to prepare for the future would then be to purchase those things that last so they won't have to be purchased in the future and to purchase things that could be used in barter. Old silver dollars with high content silver and a form that can't be manipulatated might make sense.
Technology can do a lot of things. It can't feed you, clothe you or house you, however. I guess that makes me a dinosaur...and proud of it.
Happy New Year!
Almost as worthless as the dollar in the near future. Money is a means of storing value for work and services performed, and most of the speculative dollars on the market today come out of thin air, and have absolutely no real world value. The day will come soon when those paper and electronic dollars will be worth absolutely nothing, ala: Zimbabwe. Real wealth is what you live, eat, and provide for family. Think the grapes of wrath, Roosevelt and his gold confiscation, and the rise of fascism in America.
Exactly!
The only thing I would add to “Money is a means of storing value for work and services performed” is hard assets, which in consideration of honestly acquired are usually the result of work and services performed.
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