November 23, 2013 at 5:24 pm #17802
I sent a copy of Bill’s essay on Bitcoin to my technically savvy sons for their opinion. To add to the Bitcoin discussion, here is Joey’s response:
I think bitcoin will do well until the world returns to non-fiat currency. It’s only doing well now because everything else is so terrible…. I won’t argue the draw for bitcoin that he devotes most of the email to, those are very real. But I don’t think bitcoin does a good job fulfilling those dreams.
Storage is actually a big issue and has all the same problems as gold. Except ownership can be transferred instantly from anywhere whereas gold requires physical access. There have been more than one case where online wallets were hacked and millions worth of bitcoin were stolen. And there is no possible recourse for recovering stolen bitcoin. Bitcoin has a system for marking coins as stolen (or dirty money in general,) but in practice it has ended up being useless.
You could store your bitcoins on paper with you personally, but that has all the same risks as other money. And governments can and do confiscate them (see the case about the silk road author.)
Companies like Paypal would be loathe to support bitcoin at this point, as managing liability would be difficult. Fees will always be a part of non-direct transactions. Fees aren’t just for convenience, they’re also for security. Bitcoin does nothing to prevent old-fashioned fraud.
All money has a maintenance cost, just in different forms. Bitcoin isn’t any different. Gold requires a vault with armed guards, but so does Verisign’s master private key. It could actually be easily argued that a completely digital money is more difficult and expensive to secure.
One thing bitcoin has going for it is that it levels the playing field for fraud. In the case of the silk road guy, he was only caught because he didn’t fully understand digital security (and he wasn’t counting on the government being able to silently gain access to his servers, where they waited for him to slip up.)
The scarcity of bitcoin is a bit deceptive as well. While new bitcoins are difficult create, new digital currencies are not. If a vulnerability in bitcoin was discovered it’s value would crash instantly. If a new currency was created that solved issues that bitcoin has, bitcoin would crash. Which is why I think when the world moves away from fiat currency, bitcoin will crash. Bitcoin isn’t better than gold, it’s just better than other paper monies (and bitcoin is paper money, just as much as the dollar is. The risks just look different.)
And that’s probably the biggest issue with bitcoin; people don’t understand the risks because they don’t understand cryptography, and they don’t understand money.
That sums up why I wouldn’t touch bitcoins with a ten-foot poll, except for maybe speculative purposes.
Yeah, $0.10 to $754 is nice, but that ship has sailed. Also keep in mind that the people in on it early are sitting on a large percentage of all bitcoins; there’s a reason the author wanted to disappear.December 29, 2013 at 5:31 pm #27114
Thank you for your candid appraisal. I think the libertarian world is licking their chops for a currency independent of government control. Joel Bowman, Jeffrey Tucker, and maybe even Bill himself seem to have a soft spot for it. But security and competing virtual currencies are its main disaadvantages, causing it to be potential very volatile.
It probably doesn’t help that the Treasury’s Exchange Stabilization Fund has the ability to manipulate currency exchange rates.
For now, fiat currencies controlled by governments are still in control. But one day, the confidence in central banks and fiat currencies will erode and national governments will become obsolete with globalization and technological progress. That will likely not happen in our lifetimes, and our children and grandchildren may have to live through a couple more empires’ currencies before a true currency independent of government control is widespread.December 29, 2013 at 5:36 pm #27115
Gold was historically the currency that was independent of government control, as it was widely accepted in any form and could be remelted and put in whatever form the holder wanted. Whether we eventually return to gold or a virtual currency is yet to be seen, but governments like control, and they will fight in the currency markets to maintain control of money for as long as they are viable themselves.January 26, 2014 at 11:06 pm #27322
This virtual currency, Klickex, claims to overcome the disadvantages of Bitcoin with an asset backed currencies that trades like SDRs. They are backed by some big players, including the IMF and UN. This already has had a successful trial in southeast asia.
and here is a link to their websiteJanuary 26, 2014 at 11:18 pm #27323January 27, 2014 at 7:32 pm #27325
I have an acquaintance who started a blog to track the possible global currency reset. He combs the internet for clues and articles about what may be coming.February 11, 2014 at 5:37 pm #18149
Food for thought:
A precondition for any form of currency is to be trusted, for a sustained period of time, by a large number of people. – So far, history teaches us that only gold as accomplished that condition relatively well. – Other forms of “real values” have (so far) done relatively well: Certain forms of Arts and collectables.
Government backed currencies (or backed by so-called strong financial enterprises) have eventually become fiat money. – To-day’s ‘official’ currencies will eventually become fiat money.
Your on your own! Good luck!
P.S. Steve Sjuggerud at Stanberry Associates, wrote an article entitle: The “Never Lose Money” Currency Investment. – I’m favorably impressed by Steve’s findings. – I wish some members would review Steve’s article and contact me with comments.
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