Writer David Gomez writes on TGDaily, and shares his views as to what Bitcoin means:
The government has fooled people into thinking that they need harsh drug laws and The Fed’s fiat currency for their own good. Bitcoin has given people a way to circumvent the system and now the politicos are coming out to put a stop to it.
This could be the beginning of a new system that will take hold in future decades. The idea of a digitally decentralized currency is one that is too good to go away.
The idea of a decentralized currency is out there, and they can’t kill ideas.
In terms of pure monetary economics it has considerable advantages over state fiat money, many characteristics of gold – and potentially even some unique advantages. The concepts and ideas behind Bitcoin cannot easily be dismissed.
[Fiat money]’s Achilles heel is the very elasticity of the money supply that today’s mainstream doesn’t tire of touting as its main advantage: ‘No dreadful deflation and we can always stimulate the economy!’
Just like gold, Bitcoin is international money. It can facilitate transactions between two parties in entirely different political jurisdictions.
Those in charge of the present paper money franchise are already boxed in a corner. They do not want to allow a painful cleansing of the accumulated dislocations, which means they have to keep creating ever more money. The endgame is fast approaching.
Bitcoin Was Inevitable
Jeff Clark of Casey Research put together a visual overview of currencies that have failed. The two big Ds — Debts and Deficits, is what Jeff claims is the common denominator they all shared.
History has a message for us: No fiat currency has lasted forever. Eventually, they all fail.
The seductive temptations allowed under a fiat monetary system eventually caught up with these governments, and their currencies went poof!
Bitcoins are issued at a predetermined rate that slows over time such that total issuance will eventually stop at just under 21 million bitcoins.
Each of the tens of thousands of nodes that hold bitcoin wallets and follow the Bitcoin protocol is programmed to strictly enforce the rule controlling when and how much currency is issued.
When a government issues additional currency, that government becomes the beneficiary of that action at the expense of those holding previously issued currency. It is for this reason that one word, decentralized, is used so often to describe what makes Bitcoin unique among currencies.
When Bitcoin currency is issued the recipients do not include any governments, banks, exchanges or corporations. Every bitcoin issued goes to those who are mining for them. Issuance is granted essentially directly in proportion to each miner’s hashing contribution. The rules for issuance though remain protected by those who would be harmed most should those rules be challenged — those who are holding bitcoins.
This unique combination has never before existed with currency.
Financially irresponsible actions that occurred back when the very first bitcoins were issued continue and those currencies participating do devalue further as the eventual result. What follows when those actions are repeated is not something that usually comes as a surprise.
Some explain away Bitcoin’s traction as it just being the recipient of some media hype and that Bitcoin has the advantage of being the first mover in its space. It is wrong to view Bitcoin as simply being lucky. Bitcoin’s design specifically addresses the shortcomings in other currencies. If Bitcoin was not already available today we would be in the process of creating it and its design and implementation would probably be not much different from what exists with Bitcoin today.
Monetary history long ago dictated that what we today know as Bitcoin was an eventual certainty. History just had to wait for the right technologies and a Satoshi Nakamoto to put them all together.
(hat tip Zero Hedge)
Nicolas Mendoza (@nicolasmendo) describes the essence of what bitcoin is and what it is not. Excerpts:
“Hacktivism allows dissent to overcome the limitations of protest, actually implementing alternatives and making them widely available without asking for permission from the status quo. It gives wings to the possibility for gradual peaceful revolution: alternatives no longer need to remain dreams, but can become real options for real people.”
“The flaws in the design of modern currency are at the roots of the social and ecological disasters we face today. Alternative currencies in general hold the promise of a way out.”
“The whole world’s ‘formal’ economy is backed by debt, and debt is backed by violence. This can be verified by defaulting, and subsequently resisting eviction: state force will be used sooner rather than later.”
Bitcoin entrepreneurs have already developed an impressive, if experimental and imperfect, ecology of operational support infrastructures. […] These services are autonomous initiatives, driven by no authority other than that which emanates from the needs of Bitcoin users and the nature of the Bitcoin protocol.”
“No part of the Bitcoin economy will last unless it is objectively a better deal for the end user than the flawed-but-known ways of today. In this sense Bitcoin is perhaps one of the hacktivist revolution’s greatest tests: can the network itself actually handle the globe’s finance?”
Fiat Money - Circa 2012
This map of currencies around the world, shared through a Reddit post, features the fiat currency used by each nation. In the title for this post is Circa 2012, as the map has a time component. The currency used by a nation can be changed even without a change to the nation’s borders — as the possibility of Greece exiting the Euro taught us.
Many nations do not have a political fiat currency of their own even. For example, the map’s rendering of Equador, on the west coast of South America, shows the face of George Washington from the U.S. dollar bill — Equador’s legal tender since their peso collapsed more than a decade ago.
What will the fiat map look like a few years from now? Will many countries in Europe revert to using their own currencies? Will all national borders still be the same? Will independent nations form following secessionist movements.
This map is already out of date — as the Republic of South Sudan, recently independent from Sudan, uses the South Sudanese pound currency.
Yet commodity money does not change.
A silver coin with an ounce of silver holds the value of an ounce of silver irrespective of which nationality has its stamp on it.
A bitcoin too is oblivious to the concept of national borders. Bitcoin’s value comes from whichever person is offering to accept it in exchange for something else of value.
Bitcoin issuance occurs at a known, fixed rate so it can be accepted without the uncertainty of unexpected expansion of the money supply which all political fiat currencies are subject to, and to which many succumb.
Bitcoin has an advantage in that it can be used in transactions to and from every spot on that map. A Bitcoin transaction is non-reversible, and nearly free of transaction costs. It can be sent, stored and received anywhere in the world using technology that is no more sophisticated than the nearly ubiquitous mobile phone with data service or other networked device.
Because Bitcoin is an open protocol supported with open software, there is a global mass of collaboration occurring that is bettering it, expanding it, and using it in new ways.
Bitcoin’s breadth can be widened by parties found in all reaches of the globe without the endorsement, backing, permission or even participation by governments or by the giants of today’s banking and finance centers.
Because fiat money is used less as a medium of exchange and more as a medium of control, Bitcoin exclusively becomes the only form of money that is transacted under the norms of commerce we have today (i.e., can be used electronically) yet is free of restriction.
When free of restriction, markets operate more efficiently.
Fiat currencies introduce friction when the producer’s currency preference differs from the customer’s.
Absent this friction direct trade blossoms, reducing the need for intermediaries.
Bitcoin simply transcends fiat currencies and that realization is starting to spread. The seeds planted in the Bitcoin economy are starting to germinate and relationships among participants are starting to form.
While Bitcoin is open and thus inclusive to all — meaning there’s no special incentives or other preferences granted to those who act first, those that do begin participating now will gain a foothold by being first in their space and will be the first to benefit as commerce using bitcoins continues to gain steam.
Consumers who prefer to make their purchases using bitcoins versus them having to cash out their coins into fiat money first do exist today and they are growing in number. Merchants and service providers who serve these consumers gain a competitive advantage as a result.
Bitcoin is changing the landscape and those who are present on the surveys marked Circa 2012 will likely become the leaders going forward.
There’s been quite a flurry of responses to last week’s policy brief on “Virtual Currency Schemes” published by the ECB. The list includes:
[Update: And it continues …
While the Mexican peso and the Polish zloty had a good year, there was one currency that outperformed them all — by an order of magnitude. That’s no secret to those reading this, but it will be to reader’s of Sober Look (@SoberLook), a financial blog with a global audience Excerpts:
“It’s not issued by a country, nor is it a precious metal or a rare-earth. Bitcoin is an electronic currency that can be exchanged for some goods and services, particularly online. The currency is not controlled by a central bank.”
“For more background on Bitcoins see this story from Wired Magazine (Wikipedia does a terrible job describing this process).”
“Therein lies the flaw of the Bitcoin concept: transaction anonymity attracts illicit activity.”
“So why has the currency tripled this year? A number of rumors have been circulating in the online forums trying to explain the rally.”
“Nevertheless Bitcoin is the 2012 winner for the best performing currency against the dollar.”