Posted on 03/09/2014 11:21:43 AM PDT by SeekAndFind
Bitcoin believers were shaken to their digital souls when Mt. Gox, the world’s largest exchange, defaulted on $470 million worth of deposits and closed.
The virtual currency was supposed to provide a safer, more private and less costly alternative to money issued by governments, but lacking the imprimatur of a sovereign is failing.
Fundamentally, money provides a secure place to keep your wealth—you can store your savings for later use at a government guaranteed bank. And it eliminates the inconvenience of barter—a necessity for even the most rudimentary market economy.
Money permits a nightclub singer to buy bread from a baker who gets his music from iTunes. All accept dollars, because the U.S. government declares those to be “legal tender for all debts public and private.”
You can do business through barter or some alternative currency. However, workers, suppliers and landlords expect to be paid in dollars, and the IRS will require dollars at tax time for income earned through barter.
What gives money its value are the goods and services that may be purchased and taxes paid within the sovereign jurisdiction of the issuing government.
The earliest currencies were coins, often with the face of the sovereign stamped on gold or silver to instill confidence. Yet, governments minted coins with non-precious metals, and the Chinese issued paper money more than two thousand years ago.
The creators of Bitcoin and advocates of virtual currencies are fixated by the temptation of governments to print too much and destroy its value through inflation. However, inflation is hardly a problem in the United States, Europe and Japan, and central banks in other countries hold dollars, euro and yen to back up their currencies.
Bitcoin is created by ordinary folks solving increasingly difficult mathematical problems defined by the virtual currency’s creator, and like gold, is naturally limited in supply. It is stored in virtual wallets on private computers, or deposited at exchanges like Mt. Gox. These function much like commercial banks but are not guaranteed for safety by the FDIC, Federal Reserve and similar regulatory agencies around the world.
There is no “Bitland” where a government has declared it legal tender to buy goods and services and pay taxes. Lacking such a tangible connection to the real economy, it is very hard to value day-to-day, never mind next year.
Bitcoin traded for $1,117 on December 4, and now commands only about half that amount.
It is no place for your children’s college fund or retirement savings.
Bitcoin is hardly secure. A hacker can steal it from your digital wallet or an exchange that holds your deposits, just as pirates stole bank debit and credit card numbers from Target. And the government does not stand ready to back up Bitcoin exchanges that lose your money or identity to thieves.
A 2013 study found some 45 percent of all Bitcoin exchanges closed, taking their depositors money with them.
Bitcoin is supposed to be more private, because unlike commercial banks, its exchanges are not monitored by regulators, and its private payments system charges lower fees than do Visa and MasterCard.
However, personal and business transactions can be spied by hackers or government security agencies through its fairly open payments system. The government can subpoena your Bitcoin records or those of your exchange when it needs.
Factoring in such risks and potential intrusions, Bitcoin is a lot less private and more expensive to use than advertised.
Detractors of paper money have always been fixated by the absence of gold to back it up, but they fail to recognize what really makes a currency accepted and secure—the government guarantee and the good sense of the sovereign not to abuse its franchise.
It’s not the gold but the face of Caesar—the promise his image carries—that makes a coin money.
-- Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist.
No they can't. They can make gold and silver coins legal tender but can't themselves mint any coins as money.
They’re either hypocrites or don’t under the principal that they claim to support. Too many Conservatives still live in the illusion that the government stats could be trusted. They still think US have low inflation. They believe the “good” job numbers as well because they only look at the headline newsreport
No they can’t. They can make gold and silver coins legal tender but can’t themselves mint any coins as money.
Gold is fine, but you can’t order from Amazon with a gold coin. Bitcoin will be the preferred medium of exchange within 5 years. . And every entity that deals in “money” will adapt or die. Period.
Article I, Section 10, Clause 1
To wit:
"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
Why not? Strictly speaking, you can't order from Amazon with paper dollar bills either can you? Buying over the web usually requires a intermediary payment processor of some kind. The accounts can be denominated in gold as easily as anything else. All that is needed (beyond the abatement of legal impediments) is a price structure.
Coin Money. But we can can coin rare-earth minerals, No, we can’t.
This is a most interesting vaunt, what we can and can’t coin, base on what metals we have.
Thank you again for your instructed posts.
There are 3 major benefits of Bitcoin that I can see: it’s private, you can easily transfer money, and it has a limit. However, the concept of Bitcoin mining seems to be an absurdity that confers absolutely no value. Ascribing value to the ability to solve complex equation seems to parallel the socialist notion that the value of labor should comport with the complexity of labor. Rubbish.
“It’s not the gold but the face of Caesar—the promise his image carries—that makes a coin money.”
This statement is true in the sense that fiat money does have value even when not backed by PMs. Fiat money is backed by taxation/and or the forceable extraction of resources from the people. In other words, fiat currency is backed by a gun.
Now if Bitcoin or some other crypto-currency could compete with the world wide gangster government fiat currency at the same level, we would have a winner. Perhaps, if Bitcoin successfully found a way to fight back against governments, central banks and agencies intent on the destruction of Bitcoin, we would see an unprecedented advance in personal freedom. Instead of the Bitcoin mining of useless equations, why not develop the means to hack and attack hostile forces?
For those who are wise money is simply a “hot potato” token of value to be used to facilitate the exchange of physical assets. The higher the inflation, the hotter the potato.
Your reasoning is intentionally obtuse. Of course anything can be denominated in anything. 4 eggs equal a pair of socks and so on. Gold is denominated in bitcoins NOW, and will be in the future, depending OF COURSE on what the market agrees upon based in recent tranactions.
Your reply to SeeSharp is correct. I would also add that Bitcoin is pretty much designed to be digital gold. There is no reason not to diversify one’s currencies into dollars , euros, gold, silver, bitcoin or altcoin. People also recommend bricks of ammo or TP or other goods. The allocation should be based on future transaction needs but also diversity for the sake of diversity.
I was being specific and correct. It is you who is being obtuse. What evidence do you have that Bitcoin is a better exchange medium than gold? Gold had uses beyond its utility as a medium of exchange. You can hoard and hide it. You can physically control it. You can even make things out of it. Gold is universally recognized and universally valued. Bitcoin, while no doubt a step forward towards the inevitable collapse fiat currencies, will always remain the province of a handful of tech savvy people.
Gold is denominated in bitcoins NOW
No it isn't. Bitcoin is not denominated in gold or anything else. Gold is not denominated in Bitcoins either. To be denominated in another medium means there is a defined exchange value.
Bitcoin, while no doubt a step forward towards the inevitable collapse fiat currencies, will always remain the province of a handful of tech savvy people.
Incorrect. Bitcoin is designed to be simple and cannot be subverted by someone more tech savvy than average.
To be denominated in another medium means there is a defined exchange value.
You Really need to read up. Bitcoin has a defined exchange value exactly like every other currency and commodity.
Really? What is the defined exchange rate? In what currency is it defined?
Last I heard the value of Bitcoins fluctuate in relation to every other currency, and in relation to every good on the market.
Bitcoin is designed to be simple and cannot be subverted by someone more tech savvy than average.
I didn't say anything about subverting it. I said non-tech savvy people won't be inclined to use it.
I said non-tech savvy people won't be inclined to use it.
Not after millions in venture money is spent making it easier to use and control. Of course that is relative and in the digital world there will be no easier way to make sure you get what you pay for, for example having the digital good and payment escrowed and using a 2 of 3 signature scheme. The physical world is trickier but there will be innovation in that area unlike cash and credit which are centralized and regimented.
Then tell us what it is. Why can't you?
Speaking of homework...
What is the defined exchange value for the dollar? For the Euro? You did say *every* other currency. Last I heard they fluctuate with the market too.
The mining process serves a number of purposes in the Bitcoin system, none of which ascribes monetary value to the work involved. The bitcoin reward for "solving" a block is an incentive.
The value in the proof of work is securing the transactions in the system from tampering. It requires that any actor attempting to do so, to spend more effort than the entirety of the rest of the network. If they are going to do that, why not just use that expenditure to mine for the reward?
Now you are starting to catch on. The only currencies that don't fluctuate are the ones in countries run by thugs. However there always is a black market rate which does fluctuate. The ability of a currency to fluctuate is proportional to the thuggishness of its creators. Since bitcoin is completely distributed there can be no thugs. Therefore its exchange rates are always free to fluctuate.
Nope. I've always understood it. You still don't seem to see that you are contradicting yourself though. You agree that the values of Bitcoin and various other currencies fluctuate with the market. Yet you also say they have defined exchange rates. Those are completely opposite positions. Allow me suggest that the position you cannot demonstrate might be the one that's wrong.
Bump
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.