Posted on 03/01/2014 7:33:41 AM PST by Kaslin
Just before the bankruptcy of the Mt. Gox bitcoin digital-money (or virtual-currency) exchange, Japanese finance minister Taro Aso predicted the inevitable failure. “No one recognizes them as a real currency,” he told reporters. “I expected such a thing to collapse.”
I totally agree with Mr. Aso. For weeks and weeks I have been tweeting and broadcasting that bitcoin is not real money. It is not a reliable medium of exchange, nor is it a reliable store of value. It has no central-bank regulation, network operations, or even centralized issuance. And because of its wild price fluctuations, bitcoin can never be a reliable payment system.
The virtual currency originally offered a way to make transactions across borders without third parties like banks. But the collapse of Mt. Gox -- with 850,000 bitcoins unaccounted for, summing to $425 million of losses, according to many reports -- illustrates the grand failure of this digital experiment.
Venture capitalist Ezra Galston writes in the Wall Street Journal, “without a regulatory framework, credible payment processors -- such as PayPal, Dwolla or Square -- cannot service bitcoin exchanges. And because payment processors are vital for converting fiat currencies into virtual deposits, bitcoin operators will be forced to move downstream into the black market.” Mr. Gaslton concludes by asserting that “the bitcoin community must embrace external regulation to ensure that credible vendors may participate in payment processing.”
Hundreds of bitcoin supporters have tweeted attacks at me for arguing that bitcoin is not real money. But historically, money must be a reliable medium of exchange, and a reliable store of value. Bitcoin meets neither of these definitions.
How can you transact using so-called digital money when prices fluctuate by hundreds of dollars in the space of an hour, or less? You might think you bought something for $500. But by the time the retailer processes payment, the so-called digital-currency price drops to $100.
Both buyers and sellers lose big because bitcoin is not a reliable medium of exchange with a dependable store of value. It is backed by nothing but pure speculation. You can’t even hedge it, because there’s no interest rate. You can barely even get a price quote -- not for the value of the product being bought or sold, but for the value of the monetary medium of exchange.
Years ago, Arthur Laffer warned that many currencies around the world lacked “the moneyness of money.” He was referring to third-world-type currencies. But bitcoin would qualify as well.
Now, I’m not going to defend the value of the dollar, which has depreciated substantially over time. But this unfortunate depreciation has happened over long periods of time -- not ten-minute intervals.
Of course, I’d love to see a gold- and commodity-backed dollar. And maybe future bitcoin reformers can restructure in such a way. But the dollar is accepted around the world by governments, banks, businesses, and consumers because it is a reliable medium of exchange, even if its store of value has deteriorated.
The dollar serves as a payment mechanism, has a central issuer, and is regulated. When the bitcoin people created their digital money as a way of avoiding banks and regulators, they forgot, or maybe never learned, the classic day-to-day requirements of a currency.
So fellas, please go back to the drawing board. I’m all for the digital revolution and trading assets online. But money is different. It must conform to certain long-held principles. That’s why bitcoin is not real money now, and why without huge reforms it will never qualify as real money in the future.
A large percentage of the people who support bitcoins support large government safety nets.
The rest don't care what governments do so long as they can bribe the right governmental official to look the other way while they continue to flaunt the law.
That's why people are so desperate to find something else.
Someone should point this out with the trading schemes Al Gore has lined up for his “carbon tax credit$”.
There is not such thing as a bitcoin. Anyone with any brains has already converted the ephemeral currency into dollars or commodities.
Bitcoin is going down fast. If you have any now, you'd better spend them today. Buy anything from anyone who will accept it. By this time next week bitcoin will not be accepted anywhere by anyone.
By his own words, neither does the dollar.
My Filipino bud says aso’ means dog.
I’ve been a spectator rather than a participant.
But I’ve found the saga quite interesting.
Mediums of exchange can be used to represent real money as a convenience. Who wants to carry around bales of cotton all the time? One of the most innovative and secure methods of exchange was the Tally Stick. It was used for 700 years in England.
Bitcoins, which are limited and requires work to make, are more real than the Federal Reserve Notes that are conjured up out of thin air by the private, foreign owned, for profit corporation known as the Federal Reserve, which is neither Federal, nor has reserves. FRNs aren't even real mediums of exchange because they don't represent real money. FRNs represent debt. FRNs are anti-money and destroy wealth.
Until you can't. For whatever reason.
Granted, I am referring to extraordinary, unlikely circumstances here but not out of the realm of possibility these days.
He forgot "unit of account," which is also a requirement for money. Still, his citation of "central bank regulation" was a red flag for me as to where Mr. Kudlow stands.
Liberals are of course too economically illiterate (OK - I'll accept stupid, too) to ever comprehend even the above basic fact.
One last thought - the points in the first paragraph above are not mine - I think they came from my favorite economist, Dr. Walter Williams. Even if they didn't, I want him to have credit.
>>For anyone who really thinks Bitcoins are a legitimate currency, I’d ask a simple question: Would you ever take a job with an employer who paid you in Bitcoins?
If I wanted to do the job, sure. If I didn’t, no amount of currency would get me to do it. Job satisfaction isn’t only about the money.
“More than a thousand retail locations would disagree...
It is an exchange of value that is outside government control (largely).”
Except not a single one of these retailers holds their bitcoins more than a few milliseconds before they convert them to an actual currency CONTROLLED BY A GOVERNMENT. Not to mention pricing is 100% in terms of the putative “value” of a bitcoin in terms of an actual currency CONTROLLED BY A GOVERNMENT.
Therefore, bitcoins in the retail world would be 100% useless unless immediately convertible to an actual currency CONTROLLED BY A GOVERNMENT and no retailer would accept them. In other words, bitcoin is NOT a currency, does not function as a currency, and has value as a medium of exchange solely because of its convertibility into an actual currency CONTROLLED BY A GOVERNMENT.
Things have never been better for Bitcoin. It’s about to get very, very real.
I agree that it wouldn't be totally out of that realm for banks to restrict how much cash you can withdraw. Doesn't hurt to stay a few weeks ahead on expense money.
There are a few things that make sense. One is to pay a few months ahead on utility bills....better on account with them since it's paying 0% in the checking account anyway. That maneuver eliminates all possibility of late fees.
Another one is to stay ahead on purchases of things that last and you know you'll need in a few years. It's like insurance against price increases, quality decreases, and shortages.
“Still, his citation of “central bank regulation” was a red flag for me as to where Mr. Kudlow stands. “
Kudlow is confused about what constitutes a “currency”. While a number of attributes are required for a medium of exchange to be considered a currency, “central bank regulation” is not one of them. e.g., see “wampum” (before it was devalued by counterfeiting).
In general, currency is a money that is freely circulated. In general, useful money must be durable, divisible, convenient (or portable), stable in value, limited in quantity, and universally accepted. Nowhere in those definitions is a “central bank” required.
To "divisible" I would add "into an understood unit of quantity." Currency without a dollar, guilder, krone, or franc; i.e., without a single defined "unit of account" would be a pain in the ass. Even gold dust had "ounces" with which to account.
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