An interesting article on HowMuch puts the Bitcoin phenomenon into proper perspective.
Google founder Larry Page’s net worth beats bitcoin’s entire market cap. Microsoft founder Bill Gates’s net worth is double Bitcoin.
Please consider The Bitcoin Economy, in Perspective.
Last year, Bitcoin became more stable than gold, and earlier this year, the price of a Bitcoin surpassed that of an ounce of gold for the first time. Currently, all the bitcoin in the world is worth $41 billion. If that amount is hard to grasp, just think of it as one Larry Page – because $41 billion also happens to be the net worth of the guy who co-founded Google with Sergey Brin.
Bill Gates, the richest man in the world is worth $86 billion, or the net worth of Larry Page and Bitcoin combined – with enough change to buy the L.A. Lakers, the Toronto Maple Leafs, the Chicago Cubs and the Solomon Islands (not a sports team, but an entire country).
Money, of course, is fiduciary, which means it only has as much value as the trust we place in it. The same goes for gold: it derives its value solely from its rarity, combined with its desirability. The current world supply of mined gold is around 171,300 metric tonnes, which could be molded into a cube with sides of about 68 feet (20.7m). Its total value? Currently around $8.2 trillion. Or about 200 times the total value of Bitcoin.
Does that sound overly dramatic? If the see-sawing rise of Bitcoin tells us anything, it is that people are losing their trust in money, and other traditional measures of wealth. Let’s talk again when the total value of all cryptocurrencies surpasses that of the world’s supply of gold.
Cramer Yet Again
Jim Cramer said the value of a Bitcoin could hit $1 million. The price is currently at $2629.
If it the price of a bitcoin did hit $1 million, its total market cap value would go up to about $15 trillion.
I spoofed Cramer’s analysis in Jim Cramer Goes Batty “Bitcoin May Hit $1,000,000”: Act Now Before It’s Too Late!
It’s far more likely that bitcoin crashes to $100 than rises to $1 million.
Mike “Mish” Shedlock
Zion National Park – The Watchman – Autumn
https://mishmoments.com/2017/06/22/zion-national-park-the-watchman-autumn/
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Bitcoin at $ 1 million is just another way of saying $ is close to zero. Takes two to tango. Look at gold as a constant and $ (fiat) as a variable. Best scenario for gold is a high price denominated in $ but not too high because that means the $ is worthless.
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Yes this is the issue. The dollar (and other currencies) have become almost worthless under globally coordinated central bank policies during the last 10 years.
But what Mish highlights in this article is that there is still plenty of room for CCs to grow within the money supply available. For example All Money being $86.3 trillion (assuming this does not include CNY, JPY, EUR, GBP, BRL, RUB, INR, etc), then just in dollars the market cap today is 0.1%. It appears from recent reports, however, that much of the recent demand is coming from Asia, particularly China and South Korea.
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Bitcoin in finite. Ethereum is finite. Gold is finite.
However, there will be an INFINITE varieties of crypto-currencies. There are literally hundreds under development now.
Who know what will be the favorite flavor a year from now…five years from now…ten years from now.
My guess is it will not be Bitcoin.
Gold will just be. Like it has for the last 3,000 years.
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Q: What happens to the value of CCs when the blockchain gets hacked?
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If a blockchain gets hacked then the value of ALL encryption is worthless and every government and bank secret will be out in the open. A hacked blockchain will be the least of our worries.
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The blockchain can’t be hacked because it’s already publicly visible any second of any day.
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Is there any security vulnerability of the technology itself then? It seems that the only hacking that is reported is just wallets/coins stored on public servers.
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Yes. There is a flaw in the “proof of work” algorithm involved in bitcoin mining. A Chinese mining company patented a technology (likely in violation of an American patent) which enables them to exploit this flaw in order to be able to mine bitcoins far more profitably than other miners (the company is Bitmain and the technology is “AsicBoost”). This could enable Bitmain to achieve a near monopoly on bitcoin mining, which would give the Chinese government the power to shut it down.
The bitcoin protocol also has another bug known as “transaction malleability,” which may enable scammers to alter the identifying number of a transaction in order to try to convince a company that the transaction did not occur (so the company will re-send the funds); this bug may have contributed to the downfall of Mount Gox. However, the greatest damage caused by this bug is that it interferes with the development of bitcoin scaling solutions and other innovations, causing some cutting edge crypto-companies to turn to other cryptocurrencies.
Bitmain has obstructed efforts fix the transaction malleability bug and improve bitcoin’s transaction capacity (and other improvements) because the improvements would interfere with their ability to use their AsicBoost in an undetectable manner and gain control of the network. This has created a great power struggle in the bitcoin ecosystem which could result in the network splitting into two versions of bitcoin within a couple of months.
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There are a close to infinite number of paper currencies as well (Ever monopoly set comes with one..). Ditto for metals and metal combinations to mint coins from. Even more if you throw in non metals, like seashells.
It’s very impractical to for people not to use the same one, so they tend to settle on one.
I have serious reservations against Bitcoin on account of it turning out to lack the anonymity that originally propelled it to fame. Absent that, widespread use is unlikely, as noone wants their entire transaction history and all their account statements to just lay open for all to see. And blinding and anonymizing is just to haphazard, expensive and insecure to bet ones entire financial life on.
But, for a national currency to be taxed in, that is exactly what the citizenry would want. Anyone who cares to, can see where the government’s money goes. No room for leaks through backroom deals. So as a replacement for national fiats, Bitcoin as currently constituted, just developed with an eye towards supporting higher transaction rates, sounds like quite the deal.
Then private citizens can trade in one, or some, of the zero knowledge extensions involving claims to Bitcoins. So you get anonymity for personal use, pubic visibility for government use. In both cases, a predictable inflation rate not open to debasement by any party, hence vastly increased economic predictability, visibility, equity and efficiency.
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There are also infinite varieties of precious metals and physical assets where people park their money: gold, silver, platinum, diamonds, real estate, even stock market (not physical but also used to park wealth). Yet how does that matter?
Infinite cryptocurrencies can be created (like infinite types of fiat money can be created), but one of them will be the leader and concentrate the most value.
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Primarily, I chose to invest in Cryptocurrencies because of their portability. Try lugging $12K of silver in your bug-out bag, or watch a clerk’s face when you try to buy groceries with an ounce of gold. Good luck leaving the U.S. with >$10K in precious metals. The idea of “miners” being compensated for solving complex computer problems makes very little sense to me, but Cryptcurrency’s growing acceptance among retailers assuages my fears, somewhat.
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1. Just how much use is a bitcoin going to be if you really have to grad a “bug-out” bag and flee for you life? A silver or gold coin may actually be pretty useful in that situation. A bitcoin will be worthless until you can get back to “civilization” – in which case your credit card will work.
2. You are a world class idiot if you think you are going to by some Doritos and a can of coke with a 1 oz gold coin in a grocery store in times of trouble. There is a reason to have junk silver coins around.
3. Leaving the US with more than $10K of precious metals? Pretty easy – 7 gold 1 oz coins. Even easier if they have numismatic value above bullion value. The real question is why? Bank transfers work really well. Checks work really well. You can buy precious metals anywhere in the world with a credit card. So why would you want to do this anyways?
“The idea of “miners” being compensated for solving complex computer problems makes very little sense to me” but I am going to invest it anyways….
Please google the “The Greater Fool Theory”
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CCs are not of value in extremis, as Gold (and/or coins) would be. For a reality check on money in extremis try shopping during an electricity outage. I have, and will not forget the experience. Forget the plastic and forget CCs. Coins and cash only.
CCs are the result of a digital economy and money printing (zirp + qe). This has become an economic trap for the central banks and the next crisis will be triggered by a run to CCs, in my view.
I cannot see how interest rates will rise significantly without a collapse in debt and money. Thus the move to CCs will continue; and when it becomes a flood, well, that will be the time move to physical Gold – as the banks will be collapsing and extremis will not be far away.
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Bank transfers “work well” until you need them to. Look at Cypress, Argentina…. And for that matter, China.
Any supposed “collectible value” of a coin, over and above it’s melt value, will certainly disappear in a crisis. Otherwise, you may as well keep a stamp collection in your bug-out-bag. It’s lighter than collectible coins, after all.
Bitcoin, as originally envisioned, is truly supranational, in that there is no way for anyone to shut it down, meddle with it, debase it, or suddenly decide they can “confiscate your account” because they call you some non-PC name like “terrorist.” Gold buried somewhere truly secret, or well defended, has the same property, but renders you less geographically mobile.
As of current, Gold has a proven history of working well for millennia, Bitcoin for a few years. Alchemists have been trying to “hack” gold since who knows when, and have all failed. At least at anything even remotely close to today’s prices: Supposedly there are ways to create gold in nuclear labs.
So, as for confidence, Gold has a lot more history behind it than Bitcoin. But Bitcoin is starting to build up a history as well. So far, it has not been broken. despite lots and lots, and an increasing number, of attempts. Which, as a rational hedge against fiat implosion/confiscation, does argue for it having a greater share of the total, alongside Gold than it did back when it was less proven. Say, 10%?
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I carry more than 10k in monetary instruments on planes all the time. Just need to declare it. Nothing illegal. They do tend to pull you to the side and FBI background record check you though when you enter declaring large amounts of cash.
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Ya, dey tink Vincent got funny ideas too.
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The fact that you need to declare it, means they can easily block it, should they feel like it. Which they will, exactly at those times that you need to to carry them the most.
The usage of Bitcoin for moving money out of China, has really demonstrated this is a killer app for crypto currencies. Even if governments ban exchanges, hanging you for being caught trying to buy a Bitcoin on the street; as long as you have a networked computer, you can mine it.
In China, even if the mining have to be done at a nominal loss, due to the relative inefficiency of your hardware. As you may well value one dollar available beyond the reach of Beijing, higher than two dollars inside China. And once you have a coin, there is no more “moving” it across borders required, as the coins all exists independent of location.
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” as long as you have a networked computer, you can mine it.”
Those days are loooong gone. Mining is done by specialized hardware now. Regular PC’s don’t stand a chance.
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If you aren’t too concerned about nominally “making money” doing it, you still can. You may only get $1 worth of BTC for every $3 you put in in power, but that $1 is outside of China. Kind of like paying a whole chain of people to translate your $1mill in drug earned 20s, into $500,000 in a legitimate account somewhere. You just have to be willing to take a bit of a loss.
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A practical example of golds usefulness from January 2011:
The wife of Tunisia’s ousted president picked up some choice items before fleeing the country last week: 1.5 tons of gold bars worth $56 million.
Leila Trabelsi raided the country’s gold reserves with the help of private militia and a phone call from her husband, diplomatic sources tell Le Monde (via Daily Mail). The chief of Tunisia’s bank refused to hand over the money until former president Ben Ali intervened.
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Works great! If you’re the wife of an ousted president!
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I think I got a strange looking e-mail from her around the date in question. For some odd reason she would gain access to the gold bars, BUT not until I wired her 300 bucks $USD.
LMAO.
😳
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The “complex mathematical problems” being solved, are what is verifying that people only spend coins they have, and only once, and records in publicly visible, distributed and systemically agreed upon ledger, who paid what to whom.
The exact sort of problems to verify, have implications on how the composition of those doing the verification will look. Bitcoin has an issue whereby it’s verification can be done most efficiently by purpose built machines, rather than the general purpose ones most people have on their desks. That was not the original intent, as this means mining/verification trends towards becoming centralized in big mining farms, hence easier to take over/”regulate”/shut down/more open to collusion between the big miners.
Originally, the mining/verification were performed by CPUs in regular PCs, hence widely distributed. On the theory that no single actor, even the NSA, can afford to buy as much computer power as the whole of the world’s PCs combined. But the verification “problem” that needs to be solved in Bitcoin, can be done so much more efficiently by special purpose hardware, that those doing CPU mining make less than the incremental power bill to run the computer. Hence, centralization.
Some other crypto currencies are trying to avoid this, by using verification “problems” that requires a larger set of the resources typically built into a full, general purpose CPU, as this would dramatically lessen the benefits derived from the purpose built machines. Bitcoin itself may well have to move to a less centralizable verification function to stay relevant, although doing so will require an OK from those making piles from their specialized hardware farms, which could be tough, and would almost certainly result in a rough ride for awhile.
Anyway, the requirement to solve a problem, exists both because there is a certain base level complexity involved in verifying transactions in any distributed ledger; and because the way the required problem is formulated, determines whether the ecosystem is resilient to a takeover or not. It’s not just some random curiosity, that can be disregarded while keeping the rest of the functionality intact.
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Bitcoin will reach 10k this year. I invested all my money into WORLDCOIN because this coin will have a nice future. Already the price increase from 0.0020$ to 0.20$, that’s around 100X, in around 4 months.Cryptocurrencies have not even reached mainstream and we have years of gains ahead.
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If one were to view those pink circles as spheres then one can see that those stores of value are bubbles where the promise of their values depend upon the faith of those who believe the values are real. Of course once the belief in the value of one of those balloons decreases then the balloon begins to shrivel appropriated to the strength of the belief. Fiat currencies, cryptocurencies, all the same, they each depend on belief to keep them stable. Precious metals may, over time, be far more stable as a store of value but their utility comes into question. As a metal they have use in fabrication. As a currency less so. the problem with money is that most of the individuals in an economic system must recognize and accept the particular store of value as just that. Money is the only game in town when individuals and groups must carry on economic activity above the level of individual barter. Money is that third partner in the barter exchange that make barter easier. so money, store of value, is a game and it is the only game in town when it comes to trading goods and services indirectly. But fiat and cryptocurrencies introduce greater uncertainty in the game. As shown by so many of our central banks, our stores of value tend to become less certain as to their real values. If Bitcoin is constantly rising in unit value then the question is why? Why should one unit of Bitcoin be “worth” of have more “value” now than when originally offered? Does demand outstrip supply? If so, then one would believe that supply should be increased to satisfy demand. If that were to happen then the value of each individual unit of Bitcoin would revert towards its original price. A currency needs to have stability to be of any long term use in an economy. But from what I can see, Bitcoin is not really for use as a medium of exchange as it is as a medium of speculation. Its value has become a store of speculation rather than a store of value. It will be the ruin of “Greater Fools” for deception is difficult to maintain over the long run.
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All of those bubbles are valued in United States Federal Reserve Notes (FRNs). Bitcoin, like anything else (gold), is measured on the margin in FRNs. Because its measure is on the margin, the only belief system you really need is that if you can fraudulently increase the price of the last bid, you can dupe people into believing it has more value than it does. And if you have enough FRNs and co-conspirators, increasing that last bid price is not a difficult thing to do.
Gold was a popular currency in ancient times for 3 reasons:
1. It is rare.
2. It is malleable and therefore easily stamped with the government’s emblems.
3. It is easily portable in small quantities.
Unfortunately, the rarity is its downfall. In a high-growth industrial economy, you need more money to oil the machine. Otherwise credit cannot expand. Which is why it has been abandoned by all industrial economies.
However, that age may be coming to an end. The service/knowledge/information age doesn’t show the same growth characteristics as the industrial revolution. That might give gold, or at least some bank note proxy, the opportunity to make a return.
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You can build infinite credit on gold, but it has to be in subordinate layers so that there is never more than one ownership under a scenario of credit failure/dispute/reclamation.
Also with digital micro fractionalisation of a stored reserve, the question of quantity is solved – the ‘more money you need’ is provided for from the existing base as it becomes attracted by promises of real world return. It would likely create a more prudent approach to venture.
Not for no reason do central banks hold such a large portion of exiting gold. It is a language they speak to each other.
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“You can build infinite credit on gold, but it has to be in subordinate layers so that there is never more than one ownership under a scenario of credit failure/dispute/reclamation.”
In theory I agree. But I don’t believe it works in practice. Each level of subordination increases risk. And each level of risk requires a higher interest rate. And each increase in interest rate reduces return. When the return stops, the growth stops. And all of this assumes that there won’t be fraudulent behavior along the way.
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With technology you can write in a full tail, so for example the derivative unit used might have a discount value attached, be labelled in derivative units. The increasing risk would act as self limiting in expansion, the low end media would be avoided…. I am speaking / theorizing out loud… the effect would be managed by higher grade owners putting a level limit their capital could be lent out at.
Really I am just saying there is room for a fiduciary derivative expansion on gold to be used in finance and trade…the further away you get from the original unit the higher the liability. Obviously someone might expand credit to buy up government and have that existing standard then overruled in law… seems to have happened before.
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When the return stops, that particular project was not viable. Creative destruction at work, instead of bubblylandia.
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Respectfully, I believe you missed the point. Bitcoin being valued in a fiat currency means that it’s store of value id dependent on another currency which has no “backing”, only a promise of future value. Money has an immediate value. i can put twenty bucks in my pocket along with a gold coin and go down to the corner pub and order a pint of beer. When offering payment for that pint, which will the owner accept? He knows what a twenty dollar bill is and what it will buy. But what of the gold coin or say a sack of gold dust. If this were the 1950’s or 1860s, he would know the price of gold down to the ounce. and have a scale to weigh the pouch. Thus gold and silver had utility as a money, a store of value. But gold and silver have little utility and hence value for such transactions. And of course, one can’t put a bitcoin of any denomination in one’s pocket and order up a pint. What I demonstrate are the barriers to utility in some kinds of monies.
But to make the point a little stronger, let us assume you want to get married and your prospective bride’s father has placed a value on her as ten cows. He may further stipulate that they be Herefords and no older that three years and no younger than one year. They should be free from disease as well. So you go to your local cow bank and borrow the ten cows of the quality in question., It is the value of the cow that determines the value of the price of your bride. You aren’t bargaining for her fifty year old sister nor for her eight year old sister. Her father does not want any cows that are ready to drop dead this year or at a moment’s notice. Value and utility are the determining factors.
But let us say that the central cow bank has decided to flood the market with billions of cows and they are all diseased. If we are paid for our labor in cows and if those caw are defective and likely to drop dead at any moment then we will buy all and anything that could be used as an asset or commodity in barter. We can’t wait to get rid of these sick cows soon enough and secure some asset that can be bartered for what we need. This is called cow hyper inflation, same as real life currencies where hyperinflation has occurred before. The store of value in each of those diseased cows has constantly dropped in face value.
The whole idea of money is that it serves as the third party to a barter system where a believe in the existence of a store of value (also known as worth) of said money is universal. and as long as there is confidence in that store of value, as long as there is a universal belief that a particular store of value exists, then all is well, federal reserve note of not. Fiat currency has been able to skate float along (I love the pun) without question because there are only a few individuals who do not believe in its current store of value. But if that value is questions by enough individuals, then we have a crisis on our hands and Federal Reserve notes won’t be worth the paper they are printed upon. Will this ever happen? Yes. When? don’t know. That is the crap shoot of fiat money. You never know when you are going to roll snake eyes or boxcars.
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The store of worth has two components at least.
Firstly commodities have to be directly priced in the relevant unit. A person has to be able to look around and see the world priced in his unit for that unit to appear ‘real’. People don’t want third party calculation in their day to day.
The value of the unit should be believed to be sound, as in not erratic. That carries a deep acquaintance beyond simply ‘ it seems to hold its value’. So someone using BTC as a transfer mechanism will not worry over the price, only its variability over the time of use of transfer, which may be one hour. The average person is not going to put all their money into BTC, even if they can electronically pay for a pint somewhere ( which I am sure they can do somewhere), because it is not stable enough to balance their existence on over the coming week.
So it is really a new medium of exchange that is finding the use it does , that may expand in one form or another to achieve a universal acceptance, or fail/be made to fail in that pursuit.
In certain ways it is no match for gold at all, will never be until people should ever learn to fabricate gold. On the other hand many using BTC , and beyond speculative profit, will tell you it has uses that gold cannot at present match, due to its segregation from legislated currency and other mediums of worth that have legislation applied to them, due to its anonymity and distance transaction ability. Bank settlement used to be / is trust protocol, BTC brings that to the individual.
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Read my reply to Mr Sellers. what we are talking about is human behavior and how money actually works. Yes, it is nice to be able to talk about money/ currency in all the ways mentioned, but when it come to buying and selling good and services, being paid for one’s labor, no one gives a shit about all the other details. They only care if one, their currency will be accepted as payment and two, how much will it buy. we can talk about commodities and electronic pay points and what not, but economic activity is about first and foremost about the normal trade between individuals and groups of individuals. Yes, you raise some wonderful points but those points are secondary to the general economic activity.
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I think the reality is simpler. There’s a reason the FRN hasn’t gone hyper-inflationary like the Weimar Mark or the Zimbabwe Dollar. The US government cannot create net money. Every dollar it spends is reabsorbed by taxes or treasuries. The day the government refuses to issue treasuries to cover the deficit is the day the dollar can go hyper-inflationary, but not before.
And because the US can borrow in its own currency, in the money it prints, there is no reason for it to fear issuing treasuries. As long as the system is maintained, the FRN will be an adequate store of value. Those who are concerned about it store of value, likely don’t fully understand the system.
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You are defending a specific system. True, what you say may well be right. But no one in Wiemar Germany gave a single thought to the currency system or the role of the central bank or any technical aspect of banking and monetary policy. When I am up to my ass in alligators I really don’t care if my clothes are getting dirty. so the general citizenry care little about whether their government can borrow in its own currency, they worry whether the currency they hold is worth anything. Back to store of value. It’s a belief system that reline on belief and not technical details most individuals have little knowledge of. That was the point. If belief in the system fails, then it matters little what technical information you may have to offer. It’s not about understanding the “system”, it is about whether one has confidence in the system and whether it works or not. I don’t need to know how an engine and transmissions works to drive a car, I simply wish to get from point A to point B, To that end, all other knowledge is useless. If the currency keeps buying less and less on a rapid scale I do not need to understand value and the system, I need to understand where I can buy assets for barter so as to get rid of my worthless money. In hyper inflation, that is the point, store of value be damned.
Now I can listen to many individuals tell me that the dollar doesn’t buy today what it did ten or twenty or a hundred years ago. Go back to Network 1976 and listen to Howard Beale talk about getting mad. He covers this point very well. Fact is, I heard that same talk as a kind in the fifties. So what else is new? Hyperinflation is the loss of faith in the nation’s currency to buy what it is suppose to buy. I may be able to pay my taxes with such “worthless” currency, but can i buy the necessities of life, of living with it? Ah, there’s the rub. If I percieve that my currency is worthless, hence no store of value or at least a store of value that is rapidly losing value, then I must get rid of it as soon as I can for goods than have a store of value or worth that can be bartered.
Money is only a store of value as proclaimed by those who find it useful and valuable. It i a circular argument at best. One can cite all the technical requirements of money and monetary policy, but as GoodYear said, performance is where the rubber meets the road.
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Try Googling “bars that take Bitcoin.” Then you could order a pint using Bitcoin. Not very hard.
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But not very many, either. the whole point of money is that it should provide convenience to users. Bitcoin is a very good distance from that point.
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Do you ever attempt to take even just a tiny glimpse into the future? Did you complain 20+ years ago like Krugman that email is cumbersome and Fax is easier and better?? This lame attitude totally baffles me. Wow, just WOW! O___O
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Ah, the young always have such ready answers. Bitcoin is not a replacement for fiat, it is strictly for speculation as most of the other crypto currencies are. Limit the number of bitcoins that can be in circulation and by the laws of supply and demand the price of said currency must rise as demand rises.
But in our everyday dealings, the marketing, the buying of fuel for the car and lawnmower, even the buying of a house, we want some stability in our currency. Now given that fiat currencies are not always the most stable of monies, they beat crypto currencies for their utility which most individuals want from a currency. In twenty years this condition will not change even though you believe it will. Human nature embraces regularity, it embraces security, it embraces convenience.
So tell me oh wise one, in twenty years where do you see fiat and crypto currencies? will the one dethrone the others? How many crypto currencies will evolve and how will use them? After all, isn’t convertibility a major component to money? If the store of value is always increasing in a crypto currency then why would anyone bother to waste that value, knowing that it will continue to increase of buying a pint of beer with it? That would seem to be a terrible investment. Why shouldn’t I hold on to my bitcoins since they will ultimately make me a very rich man should I ever cash them in? Of course there is the worry that the bitcoin may or may not be accepted as fiat is for the settlement of taxes and debts. How do we know that the various governments will decide what is an acceptable crypto currency and what will that do to the rest of them? You see, it is a problem much like foreign exchange.
Now you may believe in the future of Bitcoin and the many other crypto currencies that are coming into being. But it takes more than a belief in the future. One may believe in the future of world peace with the greatest of hope and charity. But belief never rules reality. I believe you might be a little premature as are your insults. If you disagree with a man don’t insult him for he will always believe that your beliefs aren’t worth his time. If you want to win me over to your argument, then make them instead of bullshitting your way through life. who knows, if your arguments are good enough i may believe like you.
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I’m not saying bitcoin will replace other fiat currencies. It rather operates like a separate fiat currency if you will. I’ve explained this here: https://beinglibertarian.com/fiat-money-system-can-explain-bitcoins-value/
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Thank you for the information, I shall read it tonight and study your arguments. I appreciate the offer.
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I read your articles, being trained in scientific research i went back to your article on MMT. If I accept your primary assumptions then you arguments holds up. But that is the problem, your assumptions are at best, I don’t want to be dismissive, well, let me use wrong.
I think you need a historic perspective on money. I use the term money because it also includes official currencies and since black markets often use money of sorts (bartered assets if you like), one must include all forms of value being traded in the market place.
So let us imagine a hypothetical hunter gather group, perhaps they have gone beyond the normal 160 individuals in the unit limit and they decide as a group to become agrarian and set up farming, division of labor, and trade with other groups. According to MMT the first thing they must do is set up a government and tax its members so that an official currency can be set up and there for used as the government spends this tax money. ah, but that begs the point of where this original currency came from to pay the taxes? Oh, government must spend the currency and then collect all or some part of it in taxes. Would you care to name the first country to ever do this?
Do you see the problem? As people start the barter process they find that not everyone wants whet they have to sell on any particular day and yet they have their needs for goods others are trading in barter. Money is that third trader in a barter system. It decides what the value system is. It needs no government to determine its value among those who now trade for food, clothing, shelter, and whatever.
As one who has studied history through from ancient civilizations to the modern, mankind has gone through periods where money included payment in kind. It was the backbone of the medieval world. As a serft maybe the only “money” you had to give the tax man was a bushel of apples or walnuts. It was accepted by the local government. Is this currency? Well, not quite. We talk about mediums of exchange for a reason. currency is a formal declaration of a particular medium of exchange. Gold or silver coins, silver certificate dollars, Federal reserve bearer bonds. All of these are official currency.
No, I would urge you to rethink your position on MMT. Sincerely WMB
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“Would you care to name the first country to ever do this?”
Ultimately we don’t know but as far as recorded available historical evidence goes this was the Sumerian civilization ~3500 BC. It’s outlined in more detail in this excellent book by David Graeber: https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290
I’m well familiar with the barter theory of money you’re trying to lecture me about here, given that I myself used to believe in it. I wrote about what evidence (or lack thereof) ended up convincing me otherwise here: http://www.economicsjunkie.com/empiricism-shatters-barter-theory-money/
Yes there were different physical goods (gold, silver, brass rods, copper wire, rare wood, etc.) that were traded back and forth back in those days, but not as currency for day to day market transactions (there was in fact no market in the earliest recorded tribal societies, rather top down communism), rather to honor positions of authority, or to settle slave debts, or as recompensation for unjustified tribal killings, as marriage dowry, or to settle all other kinds of debt & marriage contracts.
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“All available ethnography suggests that there never has been such a thing.” The one statement should have flagged your attention immediately. I love academic speak. Yes, never assert, never determine, never exist conclusively, when you have no definite proof you always suggest. it’s a weasel word and academic types use it extensively in their research papers to twist and turn the “truth to what they wish it to mean.
Back to barter, which is not an exact process subject to technical jargon. It is, like the laws of supply and demand, a generalization, a concept. Barter is a general principle or concept. There is little barter among members of a tribe (about 160 individuals), but as the number of tribes grow, trade grows between them. Old fashion horse trading is a form of barter and it still exists in this country as well as many others. The psychology behind it is rather simple, you make the best deal you can or you don’t trade. Usually both sides are happy with the trade when agreement is reached. Well, what was used as money? the things, animals, etc that were exchanged. Well, why didn’t the anthropologists see it, they are professionally trained? Trained in what? They are all city kids who have usually never had a real job in their lives and have limited world experience. I have read more than enough anthropology texts, papers, and the lot to know better than to take their word as gospel.
Well, what about those Eastern Woodland Indian types and their long houses? The Five Nations of the Eastern Woodlands, this covers from Hudson’s Bay down through Maryland and into Ohio as well as parts of Michigan (god, I am amazed at how ignorant some of these so called anthropologists are, were very advanced societies. Hell, where do you think Jefferson stole some of his ideas for the Declaration of Independence? Some of their ideas are written into the constitution. They even had invented a form of “money”, wampum. This was bead work made from clam and oyster shells in the form of belts or sashes or other decorative work. The making of this bead work was very time and skill intensive and the “value” of the wampum was the perceived quality of the work. One bought brides with it. One also used freshly killed deer and other game. Oh, wait a minute, no, that couldn’t be right if they had wampum. Look it up, it is known as the Bride price and is still practiced in many parts of the world today. In a few African communities it is paid in cows. Well, that’s not barter, you say. Oh really. It sure fits the general principle.
So you offer me two sources for your argument, one original by an anthropologist who uses weasel words and a second source by a journalist who tries to paraphrase the words of others and does it rather badly.
I’m not going to offer you a whole list of sources for the simple reason that the list would be too extensive. My go, here I am at 70, having read about so much of this since the age of 14. Reading history, anthropology, archaeology, and a whole host of disciplines. I’ve studied ancient civilizations, I’ve studies most of the indigenous native groups of North America, the Mayans, the Aztecs, the Incas, the Toltecs, the south sea societies. I have tons of books that I can recommend to you. I have studied the progress of man from tribe (the smallest of units, to large groups to societies, to nations, the civilizations. It’s at the society level where the principle of barter reaches its peak and turns toward a “money’ economy as you understand it. and the “money” is mutually agreed upon by simple acceptance, not by “government fiat”.
But go ahead and cling to the idea that people exist so a government can declare a fiat money. Go ahead and believe that government spending using this new fiat money promotes a productive economy and that is how the fiat currency is transferred into the hands of the citizens. and thus through taxes this fiat money is made official. Where did the goods and services come from before the new government fiat currency appeared? what was being used to transfer goods and services, good looks? MMT puts the cart before the horse. No society ever needed a government to stimulate the production of goods and services. The focus is far too narrow, hence it is illogical.
Understand I am not preaching anything. I am not trying to make you a convert to any idea. All these economic ideas are not carved in store anywhere in the universe, they are ideas and subject to analysis by those who give pause for thought. Economics is not about supposed laws that are inviolate. It is not a science. It is observations about human behavior that is both individual and group oriented. Human behavior is never precise, it is not subject to iron laws of determination. We can try to predict behavior based on habituation but understand that habituation does not mean always with out exception. Economic analysis is always done after the fact. Laws of physics are exact, precise, and always true in the past, the present, and the future. Economic laws have no such standing. Well, supply and demand always work. As a general concept, as a general principle. supply does not create its own demand and demand does not create its own supply.
Well, thank you for your time. Only one word of advice I would impart: always question what you think you know.
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A likely future scenario is that we develop technology to get off the planet and start mining asteroids. What’s the value of gold or any precious metal then? There’s literally thousands of them that could easily increase the gold supply 10x. What about mining mars? That’s a plausible scenario in the future as our technology gets better.
The next argument is “solar flare/TEOTWAWKI” which is s a stupid argument because if the world gets destroyed then even gold is useless-so is a bunker if you think about it hard enough. If you are planning on that then there’s no hope for anyone.
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What is the convertibility of cryptos? None. Doesn’t exists. USD in digital form bank accounts is convertible into USD greenbacks or other sovereign currency. Then you can even use it to buy gold and silver. There is even FDIC insurance on it. Cryptos will never be accepted as money because of this. It doesn’t matter how much everyone says the paper money isn’t backed by anything and is worthless. Wrong. It is backed by full faith and credit. Yeah yeah I know. It is always said that is worthless. But for some strange reason the failings of USD gets translated into some people’s mind that crypto currency is an answer to that. Cryptos is backed by what and by whom? Nothing. Full faith and credit to some unknown computer algorithms of unknown origin and location? It is one thing for electricity to go out and suspend your ability to use digital form bank account USD and another thing for all the reasons that computer programs are vulnerable.
The only way vendors will accept cryptos for payment is if they can instantly convert it to USD. Vendors are not going to sit on it while the USD value can drop massively overnight. That fact invalidates CC as money.
Cryptos is not money. That is a scam. It is a pyramid scheme where early miners get richer than later miners. Promoters of it as an asset are just selling their book.
I never thought I would see such hysteria. And over a complicated computer algorithms. Look at absolutely insane one of the processes is:
http://tmsnrt.rs/2rGqs4i
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I converted crypto to gold a while back. It seems pretty easy to me(JMbullion.com).My buddy took cash out of a Bitcoin ATM. Dollar and Euros. Vendors in Japan take Bitcoin as payment all over the country. BTW- there are programs that immediately convert to fiat for vendors. Lots of them. Coinbase has one. You’re a little behind on this. Are there bugs to work out. Absolutely. But as the system grows and matures things, more often than not, get better. I bought a very nice cooler off Amazon with Bitcoin as well. Just sayin.
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My point is that bitcoin is not money. The vendors who accept bitcoin for payment hedge the second they make a sale by selling an equivalent amount of bitcoin even before the exchange settles the original transaction. Eventually, there will not be enough bitcoin and vendors will stop accepting it. When that happens bitcoin will have no value. Again, it is not money. It is a temporary substitute for USD.
To be money it has to be a unit of measure. It has no unit of measure. USD is the unit of measure.
To be money it has to store value. That people are speculating on weird computer algorithms that have no basis for value, no backing, and shoot the price up is not storing value. Vendors dump bitcoin the second they get it because it isn’t a store of value because the price drops day to day just as it increases day to day. When a vendor with a normal profit margin takes bitcoin he is at risk of losing his entire profit by holding bitcoin for anytime at all.
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Vendors currently dump bitcoin due to it’s volatility, and the vast majority of their costs being denominated in fiats. If all of a vendor’s vendors also quoted prices in Bitcoin, there would be no need to dump them.
In overtaxed, over regulated hellholes like the USA, the need to pay taxes in USD, does make it pertinent for any vendor to convert at least the tax liability of a transaction to fiat. But if Bitcoin is ever to become pervasive enough that that is all the fiat that is needed, it will need to become much, much less volatile. Which probably won’t happen until the idiotic money printing that is redistributing as much wealth as possible to exactly the dumbest and most prone to silly speculative manias, is reversed. Either that, or those activities who have most too gain from bitcoins’ possible increase in anonymity, crime and terrorism, become a much larger share of the economy than it is today.
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Sorry bad commas up there- can’t edit my grammar.
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Digital ‘Currencies’ Are -ALL- A Scam
17 Jun 2017
https://market-ticker.org/akcs-www?post=232141
“A quick primer for those who don’t understand how these work.”
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They are what they are taken for, subject to what others take them for.
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No, as I’ve pointed out here before and as is very clearly detailed at that link, they are all PYRAMID SCHEMES making the very early players phenomenally wealthy as long as they convert their cryptocurrencies to some other things of real value before the cryptocurrecny crashes.
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Two articles for the Crypto supporters to peruse:
Ethereum crashes from $319 to $0.10 in seconds
http://www.msn.com/en-us/money/markets/ethereum-crashed-from-dollar319-to-10-cents-in-seconds-on-one-exchange-after-%E2%80%98multimillion-dollar%E2%80%99-trade/ar-BBD1Csf?li=BBmkt5R&ocid=spartanntp
$55 million stolen from Ethereum exchange via hack of contract bug
https://www.bloomberg.com/features/2017-the-ether-thief/
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Okay, but what about currencies that have failed? Zimbabwe anyone? India rupee issues? The list goes on. Are there bad cryptos, yes. Will some have issues and fail, yes. But some are being treated as a currency when that wasn’t their intent. Research cryptos that were designed as currencies and the list shrinks substantially.
Why is it we have a huge amount of paper currencies and everyone just accepts their devaluation and scams and don’t look for new opportunities because it is change which people hate.
Eventually I think there will be a thinning and a few Crypto currencies will remain and be used based on their actual merits. Right now here are a few but this list is obviously subject to change since we’re in the early stages.
Anonymity – Monero
Liquidity – Bitcoin/LiteCoin
Ethereum isn’t supposed to be a currency but that is the flavor of the day. I traded out most of my position when it initially hit $350 because that was my sell point. There are a few up and comers I invest in that aren’t currencies and my profits go to G/S and to be reinvested in the next “flavor of the day”
Just bought some nice stuff off of Overstock with the Bitcoin I swapped out from Ethereum, wasn’t hard at all.
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All money 83 trillion. Stock market 66 trillion.
So what would a another 90% crash in the stock market result in?
After another 90% crash in the stock market, how much would Bill Gates be worth?
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Algorithms will not allow a 3% crash before buying up the gaps with $12 trillion in cash laying idle in accounts around the globe. There will be a housing crash before equities ever tank that badly.
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Many are missing the point regarding the technology. Blockchain is a technology revolution that is changing how business takes place. This is like the next .com boom. If you simply forget about the value of bitcoin and learn about the technology then your opinions will earn higher merit.
Most cryptocurrencies will become worthless but there will be a handful that will thrive and evolve. There are around 1000 now, not just bitcoin, ethereum and litecoin.
The technology is not a scam but many cryptocurrencies are a scam.
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They don’t want to take the time to learn about blockchain. When they do and you hear them start to buy it will be time to sell.
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Buying a cryptocurrency is not an investment in blockchain technology. The inventor of blockchain tech has already given it away for free, there is no way to invest in it.
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Yes, the concept blockchain is a great invention. The bitcoin blockchain is the first and most secure and powerful blockchain by leaps and bounds. A bitcoin is an access token that gives you access to that blockchain. Its value ultimately rests on the demand for access to that particular blockchain. Compare it to buying Amazon stock upon the invention of ecommerce.
https://beinglibertarian.com/fiat-money-system-can-explain-bitcoins-value/
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Bitcoin is the new gold. As the financial status of the world deteriorates the price of bitcoins will rise. It is not controlled like the price of gold and will rise with demand. I see bitcoins rising quite high. Having a few bitcoins in your portfolio may be a wise investment. Digital currencies are the future trend considering even banks want to do away with cash.
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Those who want to do away with cash are interested in blockchain so called money. What they want is to control you. Controlling you will be so much easier with a blockchain which records and keeps your transaction forever and for the world to know about it. The Financial Protection Bureau is aghast at the task of trying to come up with a system that will record every single transaction that bank customers have. They thought it would be more easy that it is and found out it will cost an exorbitant amount of money. Blockchain may be their answer.
If cryto currency actually takes hold it will be in the form of sovereign digital currency. At that point they own you. Which is the exact opposite of what many think the benefit of cryptocurrency is.
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Then it is no longer crypto currency. The encryption is that only you have current access. So what they would do is to create own parallel transaction logs one behind the actual current code. That would mean people would be accepting the implementation of transfer logging, as with today’s electronic transfer system, which would be attempted by offering a guaranteed official coin for people to use while outlawing private cryptocurrency.?..
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Here’s my double take on bitcoin. First, I think it has a long way to go, which allows for exponential growth. So if I invested in Bitcoin or Ether coin, I’d expect to make a lot of money.
But there’s a downside. Money is the lifeblood of governments. The main value of bitcoin is subversion of governance: in the case of Venezuelan people, maybe that’s a good thing. But in the case of drug dealers and gangs like MS13 or the Crips or Bloods here in America, I might be a little down on that.
So an investment in bitcoin is an investment in subversion. Do I think that will improve my life, even if I do get filthy rich? Let me try it a different way: An investment in Bitcoin is an investment in bringing Jihad to America. Because Jihad wants to come, and will piggyback anything it can. Especially if it is subversive, because from what I have seen, there is nothing but wickedness, self-fulfillment of every evil desire, and the breaking of God’s laws from that crowd. I’ve seen no good fruit from that.
So no, I’m not investing in that.
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So far, MS13 has, in any given year, stolen exactly zero percent of my income. Those other gangs, from Washington to Sacramento to who knows where, have stolen lots more than that. And ISIS has so far not banned me from buying a single type of cool gun I could use to defend myself against them, should they try to start banning me. While those other gangs have, once again, a much worse track record.
If I don’t like drugs, I’ll just don’t do them. Easy. Cheap. Requires noone. Nor any payment to goongangs anywhere. And if some Jihadi comes strolling up my driveway with ill intent; well, that’s part of what the once-were-second was all about…
In general, it is most efficient to focus on the closest, and most serious problem first. Not a whole gaggle of imaginary hobgoblins halfway around the world. Unless you live in a genuinely high crime neighborhood, like Caracas, chances are it ain’t street gangs that take most of your money every year. Nor drug dealers. Nor Jihadis. Those guys you can always deal with once they do become the biggest threat. As of current, they aren’t even close for most people.
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I am invested in bitcoin largely due to the good I think it can bring to the world. You mention that bitcoin may be “good” in Venezuela (where people are using it to buy food from Amazon), presumably because their government is “bad.” And you imply that it would be bad for people to control their own money if they live in a nation with a “good” government I disagree.
I think your views on bitcoin and the nature of people are fearful, cynical, and misinformed. Please consider the following:
https://www.youtube.com/watch?v=38U0BQQLzK0&list=PLDto3IHr_v57h3FFYlLN3-3_J9H8lMFaH&t=551s&index=6 [skip to 11:52 for the most relevant part]
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SORRY, my video links did not display as I intended! I posted links to videos #4, #13, and #8 in a playlist but the links appear to have defaulted to the first video of the playlist. Let me try again:
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there are many other means of digital payments way more efficient and portable than cryptocurrency. For example, in China WeChat Pay. We will have Apple Pay, Google Pay etc… coming…
so the only real use of Crypto-currency is in “crypto” as to HIDE money from the government, ( = illegal use). its very tempting for example, to use Bitcoin or whatever, to escape inheritance tax. Just transfer your cash into BTC, give the password to your son(s)/daughter(s)/wife/husband.
The tax office cannot pursue a dead man. How will they get to the money ? nearly IMPOSSIBLE.
that in itself should provide a HUGE value to true anonymous cryptocurrency. *BUT*
But i expect soon governments to try to ban it. Difficult for them to trace its usage, but by imprisoning a few random guys for 2, 5 , 10 years or longer, it will scare away a lot of people…
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I don’t expect government to ban it. I expect government to subvert it. At some point the government will crack whatever hashing algorithm BTC uses. Then it will watch all of those transactions. Then I expect government to hack folk’s BTC wallets and move that money into their own accounts. Or when you decide to run for Congress, let you know that they have lot’s of records of the midget porn you’ve been watching, and you might just want to see things their way.
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You can already watch all transactions every second of every day without hacking anything https://blockchain.info/
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Looks like that site stopped displaying a live stream of bitcoin transactions. Here is a site that shows live transactions and graphically displays their locations of origin: http://bitcointicker.co/transactions/ For each transaction, they provide a link where you can see more detailed information.
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All this talk about cash, gold and bitcoin made me think about the recent bill submitted for law. “They” don’t like us keeping private stashes of value.
http://www.thedailyeconomist.com/2017/06/congress-submits-bill-making-it-illegal.html
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With digital currencies you can lose it all overnight as countries band together to criminalize its use. And yes they can do the same with gold and silver. But with precious metals it would be hard to do as black markets would take over sorta like in India when they tried to tax gold to death. If we reach the point where things get so bad like a depression or worldwide upheaval due to terrorism or war, the globalist will take over to create a new world order with a new form of currency they can control, you can b sure of that.
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No matter how crappy government money is right now CCs do not and will not be an answer to it. That government money is trash has provoked a desperate desire for something that is not what it seems.
You will not be able to evade taxes with CCs for that much longer. There is no control over the money supply with CCs. There isn’t even the lightest effect of market influence on the supply of money in CCs. And there will not be. Unless you create some CC central bank the orders the unknow mysterious programmers to make “mining” more easy or harder in their bizarrely complex computer programs. Who elects these experts to control the supply of CC money?
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“There is no control over the money supply with CCs.” << Yes there is. The bitcoin money supply grows at a completely predictable rate from now through 2140 when the last coin will be mined.
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Reblogged this on World Peace Forum.
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I’ve been enjoying people be wrong about Bitcoin since 2011 while watching mine grow. ^__^
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The good news of Bitcoin being so small now is that it still has a lot of room to grow.
If gold is so great, why doesn’t people abandon fiat and trade in gold instead? Also, in the digital age, how does one transact with gold without relying on a counterparty that is subject to government control?
This is what Bitcoin was design to solve.
I agree that *in the short term* one bitcoin may be more likely to be worth $100 rather than $1M. What matters to me, however, is the long term. When the angry mob asks politicians to control central banks directly and fiat money starts losing value faster and faster, the purpose of Bitcoin will be clear for many people. Gold has no place as a store of value in a world where it can be seized at any airport and it cannot be used for electronic transactions without a counterparty subject to government control.
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The dollar has been a pseudo digital cryptocurrency (without the ‘crypto’) in theory. Major financial institutions move currency back and forth with simple digital ledger transactions. There does not have to be any physical transfer of dollars. What is backing the dollar? Faith?
People have automatic deposit payroll. Pay bills automatically online. Use credit cards for most purchases. How much physical currency do you see? Zero?
People need to grasp their head around the direction technology is moving. Digital currency will spread as the technology evolves.
I cancelled my Directv account and was owed a refund for the balance on my account. They sent the refund as a Visa card.
In ten years it will be rare to use any physical cash.
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Mish,
Did you know that the content of your post is a major reason so many people are so bullish about Bitcoin? They compare the current state of Bitcoin to the internet of the early 1990’s, when the value of all e-commerce was similarly insignificant.
You can learn more about Bitcoin here: https://www.youtube.com/playlist?list=PLDto3IHr_v57h3FFYlLN3-3_J9H8lMFaH
-MJS
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These articles are always amusing because MIsh chooses to conveniently forget one EXTREMELY important parameter that needs to be factored in. TIME. Since bitcoin was first released in 2009, let’s ask a more cogent question. Was any of the individuals or things at the same time of its lifetime at that same value as bitcoin? Why is time important? Because just as the companies and investments that allowed Bill Gates or Larry Page to have the stated networks didn’t happen in a day, neither is all the systems and networks which give bitcoin its value happening instantaneously. All these things take time to develop and grow. If Mish doesn’t want to invest when all indications are that cryptocurrencies like bitcoin and ethereum are here to stay. That is his choice.
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I should add that Mish should look at an analysis done by Charles Hugh Smith which is far more coherent than anything that he has done here.
http://www.oftwominds.com/blogjune17/projecting-BTC6-17.html
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Thanks. This is a very good article about the potential value of Bitcoin and why it is not a bubble. However, I am warning people that it may still be a very risky investment despite not being a bubble. Bitcoin can crash and burn due to serious fundamental problems with the technology. I am hoping Bitcoin can overcome its current problems without splitting into two or more networks.
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