A major debate topic came up between Max Keiser and Peter Schiff at the Freedom Fest conference on July 19-22 in Las Vegas.: Bitcoin vs Gold.
Max Keiser is a huge proponent of Bitcoin. Peter Schiff says “These digital currencies might make fiat currencies look good. That’s how bad they are.”
The video was well produced, thanks to Stacy Hebert. It’s well worth a play in entirety.
Bitcoins the New Beaver Pelts
As noted in my clip, I think Schiff is on the right side of the debate. This is my take:
- Bitcoins are the new beaver pelts of monetary transactions. For thousands of years, when available by free choice, gold has always been the currency of demand. Things like salt, cigarettes, beaver pelts, and recently Bitcoin, come and go.
- The scarcity of gold is real. The scarcity of Bitcoin is artificial. It depends on trust that a human-based promise to mine more coins will be limited.
- In a currency crisis, liquidity crunch, or stock market collapse, where would you rather be? If you choose Bitcoin over gold, you are not thinking clearly. You are dreaming.
- Blockchain does not scale. Imagine the entire history of every transaction of any size, any place in the world, recorded on a distributed network.
- Despite the hype, no one would use Bitcoin to buy a candy bar. or even a meal at McDonald’s. One might easily do that with Bitgold. Transaction costs are the difference.
- Absurd proclamations and theories about the value of Bitcoin are now commonplace. This is typical of any bubble.
Transaction Fees
In regards to point number 5, Morgan Stanley says ‘Bitcoin acceptance is virtually zero and shrinking’
According to the bank, last year Bitcoin was accepted at five of the top 500 online merchants. Today, only three of the top 500 merchants accept bitcoin as a form of payment.
“The disparity between virtually no merchant acceptance and Bitcoin’s rapid appreciation is striking,” the analysts wrote.
In contrast, Bitgold is accepted at any place that accepts a debit card.
Average Bitcoin Transaction Fee
Bitcoin to $1,000,000!
On June 8, I commented Jim Cramer Goes Batty “Bitcoin May Hit $1,000,000”: Act Now Before It’s Too Late!
Cramer’s rationale was rather amusing.
“European banks are frantically trying to buy them so they can pay off ransomware. It’s a short-term way to be able to deal with cybersecurity. It is the way to pay off the bad guys,” Cramer said on “Squawk on the Street.”
“When you get hit and you’re not sure how to do bitcoin, these cyberattackers have customer service desks,” Cramer said.
I replied:
Frantically “Trying” to Buy Bitcoins?!
The idea that banks need to “try” to buy Bitcoins is absurd.
Do. Or do not. There is no try. [Yoda]
New Absurd Theories
Also in regard to point number 6, we are now told Bitcoin & Ethereum Can Never Be In A Bubble (No, really: digital bubbles are impossible)
The author’s rationale is based on his own observations of a theory proposed by George Soros.
This reminds me of the dot-com “Gorilla Game” theory that stated “gorillas” like Cisco (CSCO) could never be overpriced. No price was too high for a “gorilla”.
It also reminds me of absurd click rate measures used to justify stocks whose value eventually went to zero.
Rating the Debate
Schiff went a bit off track at times in the debate, primarily in regards to US dollar bashing.
The Eurozone banking system is insolvent. Both the Euro and the Yen are worse currencies than the dollar. Schiff has to know that, but he just cannot stop dollar bashing.
While it’s possible the dollar breaks the previous low, at least Schiff was not preaching hyperinflation.
That said, I believe Shiff has the dollar direction right for now. I don’t hold grudges or let past differences sway my current take.
This puts me in agreement or at least near agreement with the key points made by Schiff in his interview with Max Keiser.
Disclosure
Both Schiff and I have an economic interest in Bitgold. I expect his interest is many times the magnitude of my ongoing advertising relationship.
Mike “Mish” Shedlock
The “mining” mechanism in Bitcoin is such an obvious joke that it reflects a limited supply vs a means to convince people to provide liquidity especially after the creation of Bitcoin Cash which just magically appeared out of no where. It is fascinating how it suckers in people while they profess to be geniuses in their early support of block chain.The reality is that Bitcoin et al are more bubbles created by loose monetary policy pushing excess funds into every nook and crannie looking for return. It will evaporate when the debt bubble burst like all the bubbles when cash is king again.
LikeLike
So if the world goes to a true digital currency which many in power today want, you think a digital fiat currency which is created at the whim of the fed is superior to a bitcoin structure. I believe one day computer algorithms based on economic factors will decide how much money goes into circulation for true digital currencies. A blending of sorts between Bitcoin platforms and national currencies today.
LikeLiked by 1 person
Thanks for this, Mish. Also, the recent ‘split’/fork/etc. in bitcoin has me wondering, what’s to stop other “interested parties” or bad actors from further muddying the crypto waters by fomenting additional cryptocurrency splits within bitcoin (or any of the other innumerable CCs)?
It wouldn’t surprise me if by next year, there were 15 subtlety-distrinct versions of Bitcoin. It’s going to be a mess!
LikeLike
Bitcoin for me is like fantasy football. It’s not to be taken seriously, just a fun way to gamble small money. I bought the dip and made $80.00 here recently. Not bad. I pulled my winnings and took my wife out to her favorite restaurant last weekend.
LikeLike
“what’s to stop other “interested parties” or bad actors from further muddying the crypto waters by fomenting additional cryptocurrency splits within bitcoin (or any of the other innumerable CCs)?”
Well, if you want any such currency to be secure so it can be trusted, you need massive amounts of processing power. Otherwise, your currency is vulnerable to a “51% attack”:
https://www.coindesk.com/51-attacks-real-threat-bitcoin/
If you don’t have the processing power available to keep your network secure against 3d parties with big pockets, your currency can not be trusted and is essentially worthless.
LikeLike
Never bought any bitcoin, I hope it crashes bigly in Q3… I am looking for a new video card, and after a crash it’s going to be bargain time, especially for recent 2nd hand ones.
LikeLike
I mostly agree with the post, except for point 2. In the case of bitcoin at least (forgetting other cryptocurrencies). The rate at which bitcoin is mined is dependent on a mathematical equation, not a human based promise. The scarcity of bitcoin was carefully considered from the beginning.
Although the algorithm can be changed with updates to the program, as we recently saw with the drama around the hardfork, there are a lot of competing interests which inhibit changes.
I would say the concept of restricting the expansion of the bitcoin money supply in this way is sound, and it is a genuine advantage that cryptocurrencies can offer over fiat.
That’s not to say gold is no longer important. But cryptocurrencies do offer a way to take on central banking, fiat currency and fractional reserve lending.
LikeLike
The point at issue is: CAN the way the system works be changed.
BitCoin – YES (modify the code – change the behavior)
Gold – NO (physics)
I would also point out that all the gold in circulation actually expands, year over year, due to mining – just at a very low and fairly constant rate. Further, a static monetary system will be hugely deflationary over time. Gold actually did a decent (not perfect) job of matching actual real expansion in the economic systems (it was less unstable compared to the other options).
So, to that point, it isn’t that something expands, is static, or contracts – but the magnitude and circumstances under which that expansion/contraction occurs.
Regards,
Cooter
LikeLike
“I would say the concept of restricting the expansion of the bitcoin money supply in this way is sound, and it is a genuine advantage that cryptocurrencies can offer over fiat.”
It is FAKE – it is a creation of programming to create the perception of a restricted supply BUT as the hard fork shows you it is easily changed within the programming. Unless you learn how to create gold, Bitcoin isn’t even close to the same. Sound… Pth
LikeLike
What the hard fork shows, more than anything, is that all those who do not want to join the fork, any fork, including a possible future one to debase the currency, cannot be forced to go along. Such that all those who fancy staying with the existing structure, can continue to do so. Which resolves to: unless absolutely everyone wants to be debased, there will always be an undebased fork around.
I do agree Gold is even harder to debase, as even killing off every human on the planet who just may want to run an unforked bitcoin client, won’t do the job. tough to beat the laws of nature itself for predictability. But, assuming decent anonymity being available in a future BTC, which currency would you prefer to trade in cocaine with? Which would you prefer to keep your wealth in, when the ambulance chasers, backed up by the armed junta,decide to rob you for all that you’re worth?
Gold, for all it’s virtues, is still a bitch to hide transactions in, and movements and accumulations of, from thieves. While a properly anonymous crypto currency makes that a relative doddle. Hence why Silk Road merchants takes BTC, not gold. Ditto for purveyors of ransomware. And Chinese getting around bans on money movements.
Both Gold and BTC has its place. It would be prudent to have some of each. Gold, if for no other reason that there is always the possibility of some whiz “breaking” the math behind a crypto currency. BTC, in case some thug band breaks in and steals your gold stash.
LikeLike
There is more to this than just the programming. There is an important social aspect as well, which is tightly related to the security (== trust) of a crypto currency network.
The security, which implies trust, of a crypto currency network relates 1 to 1 to the number of processors involved in the “mining” effort. In order for a crypto currency to be secure and able to withstand potential attacks by governments, banks or other parties with big pockets, one essentially needs more processors running the network than any such party could afford setting up in order to mount a “51% attack”.
This means that any fork, or any other competing crypto for that matter, can only be secure if enough resources (processing power) are invested in “mining”, which is what keeps the network secure. And that can only happen when enough miners are putting their weight behind such a network, which brings in the social aspect.
It is human beings who decide which crypto they are investing in, be it in the form of converting fiat into digital tokens or in the form of investing processing power for “mining”.
What this comes down to is that only those crypto currencies people are willing to invest in can be secure and thus “sound”.
And this has a direct consequence for whether or not the restriction of supply can be considered “fake” or not. There is no restriction whatsoever for the creation of a myriad of insecure crypto currencies and/or forks, but only those which human beings are willing to invest (resources) in can be secure q.q. trusted.
In other words: the restriction of *secure* crypto supply is not fake but directly related to the (computing resource) investment decisions of human beings.
LikeLike
Wow! I actually agree with Peter Schiff on something!
LikeLike
There is much discussion on BTC vs gold or other media regarding monetary validity but too little on the mechanics.
If you want to buy bitcoin with fiat you have to go to one of the exchanges, which are not regulated and are run by people whose business interests are unknown and have been highly fraudulent in some cases. They are certainly not interested in helping you to make money, and charge hefty commisions as mentioned in Mish’s post. Even the originator(s) of BTC are unknown to this day. It is rumored that two people own 50% of bitcoins, and 1000 people 70%. To be able to buy BTC, most larger exchanges want a high-resolution scan of your photo ID, your bank account details and address. You are providing unknown persons with this information.
You have to believe the exchange rate of BTC/fiat, the bid/ask spread and liquidity information provided by the exchange, and you have to trust the exchange not to steal your BTC as long as they reside there, even that is only a few seconds. It is generally recommended that you transfer your BTC to an offline digital “wallet” on a thumb drive or similar. If you lose this, or anything goes wrong with the software or hardware, your BTC are irretrievably lost. If you want to cash in your “fortune>” from BTC to fiat, all the above concerning the exchanges applies in reverse. If you want to purchase anything using BTC without fiat conversion, you are relying on the integrity of the internet and those entities processing the blockchain transaction on order not to be cheated.
Below is a helpful discussion on some the above issues. Unfortunately the author’s English is pretty patchy, but his ideas are sound:
https://sostratusworks.wordpress.com/2017/06/01/tales-from-crypto-world-bitcoin-new-peoples-money-or-just-a-sham/
LikeLike
1 Gold was once a beaver pellet
2 The scarcity of Bitcoin depends on the scarcity of electricity
3 Bitcoin will outperform Gold like it has for the past 8 years during the next lot of financial chaos / currency crisis
4 Scaling solutions for Bitcoin are being introduced as we speak…
5 Bitgold is fractional reserve banking. Claims people wont use Bitcoin mean nothing. People already do
6 Plent of wild proclamations about the future Gold Price on the internet, too, so what?
Kudos to you if you approve this post Mish!
LikeLike
You have no idea what the price of either Bitcoin or Gold will be in the next five years.
You look foolish by making such claims.
LikeLike
O/T Santander sells est. 5bn ( half of its) realty portfolio obtained from Popular ( for 1 euro) to Blackstone.
LikeLike
https://economia.elpais.com/economia/2017/08/08/actualidad/1502207980_891427.html
LikeLike
If Cramer says I just have to buy it then that gives Bitcoin the kiss of death since we all know what happens to anything Cramer frantically recommends. If everyone can get rich quick buying Bitcoin then no one gets rich in the long run.
LikeLike
Agree.
LikeLike
“Absurd proclamations and theories about the value of Bitcoin are now commonplace. This is typical of any bubble.” This might be a salient point had gold not been often declared to have a fair value in excess of $10k, $20k, $50k per ounce.
LikeLike
Caution is necessary in any case re. Max Keiser, whose primary profession appears to be “actor”. He certainly was not a shrewd Wall Street financial player as he implies. See Miles Mathis’s piece here: http://mileswmathis.com/max.pdf
LikeLike
Digital ‘Currencies’ Are -ALL- A Scam
by Karl Denninger
https://www.theburningplatform.com/2017/06/17/digital-currencies-are-all-a-scam/
LikeLike
@Glazetron
Replying to @RealJamesWoods
Why is James Woods always trashing #Bitcoin What’s his incentive
@RealJamesWoods
I’m not against #bitcoin. For you! Just personally uncomfortable with the idea of losing one’s net worth to a mouse click from the Dark Web.
LikeLike
Bitcoin is back by the full faith and credit of what?
LikeLike
Bitcoin is backed by the full faith & credit of OTHER PEOPLE (other bitcoin users).
Bitcoin & gold are complimentary, not exclusive.
Most of the bugs here simply do not understand cryptocurrency, which is fine… I’m not evangelizing bitcoin… simply observing the comments here per bitcoin, and it’s clear that many here do not want to understand bitcoin/cryptocurr. – their mind is made up.
LikeLike
I love to see the heated debate amongst everyone. Diversification is good. I’m spread out over multiple asset classes. Either Bitcoin is the real thing or it will flop. If silver and gold’s manipulation will continue, or it will end. Either way, I’ll preserve something as long as the bitcoin isn’t a flop and the manipulation continues.
LikeLike
I want to buy a tractor. I cannot go to the local tractor dealer and pay him in Bitcoin. I must first convert my Bitcoin to the currency my tractor dealer prefers or I will not be able to buy the tractor. The same conditions apply to the local fresh produce stands, local car dealerships, local music stores, local grocery stores and local gas stations. Although none will accept gold coins or silver coins as currency for payment either. I must use USD for my local currency in order to obtain any kind of physical asset. I can argue all day about Bitcoin, cryptocurrency legitimacy or illegitimacy but my 2003 Honda Odyssey with 230,000 miles will still run out of gas while trying to find a local gas station that accepts Bitcoin and I will not be able to obtain the great fresh garden tomatoes from the local farmer’s market if I try to pay with Bitcoin.
I also checked the ZeroHedge list of businesses that use Bitcoin or any other crypto-currencies as a means of payment for goods or services. Several on the list no longer accept Bitcoin as currency.
The BI article regarding numbers of top 500 businesses that accept Bitcoin claimed that 5 of the top 500 accepted Bitcoin last year and only 3 accept Bitcoin now. There was no link to verify that information.
If Max Keiser can do all of his transactions or most or many of his transactions in Bitcoin, I wish him well. For me now, Bitcoin is not a practical nor useful currency. Its only practical use is speculative investing in that someday it might become more widely accepted and therefore practical for me.
For now, I have to go to the local paint store and use USD to buy another gallon of exterior paint. They’ve never heard of Bitcoin. Maybe someday they will but I need the paint right now.
LikeLiked by 1 person
“….none will accept gold coins or silver coins as currency for payment either.”
False. If you’re referring to urban, illiterate, minimum wage goons, then “yes”, but there are lots of folks in rural areas who are very comfortable transacting in silver (and gold). They just don’t advertise themselves as such due to the premium they (and all wise people) place on anonymity.
LikeLike
The tractor dealer won’t but the person selling a tractor at a garage sale or local craisgslist will accept gold so you’re right. A few of the farmer’s market sellers will also. Practically speaking though, the local Stihl chainsaw dealer won’t take gold nor silver as payment, nor will most of the other retailers like the local groceries, gas stations, etc. I am VERY rural and “local” is a LONG drive away. I have PM as insurance only because I don’t think debt based fiat is sustainable although the length of time the “PPT’s” have held fiat from crashing really is jaw dropping. If the inevitable ever happens, I’m betting everyone will take PM as currency and that’s why I hold a little. Right now though, it’s still not practical for me.
LikeLike
Of course you can buy a tractor with fiat. Noone wants to ban you from doing so. But if you wanted to buy something the junta didn’t approve of you buying, BTC starts looking a whole lot more attractive.
LikeLike
Oh boy, sounds like all the people who missed the last pullback for a buy to new highs. Awful warm in my beaver pelts.
LikeLike
Nobody ever said it wasn’t an excellent speculation. Only that its claims of being money are false.
LikeLike
Bitcoin is money because it acts that way…it has value and therefore is just as much money as gold. Gold has no magical properties either. It sits in a vault and is shiny.
What Mish and people are talking about is fungibility…but that doesn’t mean it’s not money. Your home has a line of equity and you can draw off of it …then your house is also a storage of value and is money. It is transactional though slow and arduous process.
Schiff is a gold bug and loves gold. Bitcoin has bitbugs too. But gold and Bitcoin and dollars only have value as money because some ass said it did. It’s all a big accounting scam. Gold bugs hoard gold and then claim the economy can function off of it…gimme a break
LikeLike
Gold via Bitgold has more money-like properties than bitcoin. Literally, you can spend it anywhere.
LikeLike
i can spent bitcoin via amazon, paypal, ebay… it’s money.
relative comparisons (this is more money-like than that) miss the point entirely.
LikeLike
Amazon, paypal and ebay have no payment link to pay with bitcoin. Can you provide a link to any of those where you can pay for a product with Bitcoin? Not to be contentious but I couldn’t find one today on those sites. In fact, Rakuten (a japanese retail site similar to Amazon), that once had a click for Bitcoin as payment, no longer has that option. Also, Paypal now says one must go to Braintree for Bitcoin support but today Braintree does not list Bitcoin (nor any other crypto) as one of its 144 available currencies.
LikeLike
Not on Silk road. At least not with the more interesting merchants there, whom I doubt have merchant accounts enabling them to take debit cards. Ditto for ransomware. Contributions to WikiLeaks, at least at some point. Etc., Etc. Nor do you have any protections against confiscations by ambulance chasers and other well connecteds who may want your stash.
IOW, you can’t spend Bitgold anywhere you can’t spend fiat. Hence have no anonymity, nor other, protections beyond those available to those spending fiat. Heck, as FDR showed, you don’t even have all that much in the way of protections against confiscation, should the junta feel they want some of yours.
Crypto currencies are fundamentally better suited for a whole host of applications, than anything physical, simply because the only thing an asymmetrically powerful, totalitarian junta can’t steal from you, are those things he is not even aware that you have.
LikeLike
There are multiple bitcoin cards available, which offer more or less the same functionality as bitgold (card):
http://www.bestbitcoincard.com/
I have no idea how good any of these are, but the “I can spend it anywhere” argument applies equally to both bitgold and bitcoin.
Note that many of the cards are anonymous, which is clearly not the case with bitgold.
LikeLike
“Gold has no magical properties either. It sits in a vault and is shiny.”
That is an interesting point, especially with regards to the so-called “intrinsic value” of gold. I mean, with silver, there is no question it has intrinsic value. It is required in many, many technical applications and we simply can’t do without it.
But what intrinsic value does gold actually have if it’s indeed just sitting in a vault collecting dust? Nobody needs it, since if they did, it would not be sitting in a vault.
In that sense, the comparison between bitcoin and gold is quite interesting. Nobody needs it and therefore there is no *intrinsic* value, but lots of folks want it and are willing to pay quite a lot of fiat for it in order to obtain it.
In the end, I think the price of gold and/or bitcoin has more to do with *scarcity* and monetary properties than with any real utility value.
LikeLike
It doesn’t matter if the number of Bitcoins is mathematically limited or not, the number of digital currencies that can be created, each of which has the selling point of being mathematically limited, is NOT. IOW, the aggregate supply of all digital currencies is unlimited, the same as fiat. IOW, the “limited supply” feature is a gimmick for suckers. I can’t even begin to imagine the headaches involved of trying to create the equivalent of FX which would be absolutely necessary to deal with the hundreds if not thousands of digital currencies, each of which is limited in number. These things look like Ponzi schemes pure and simple.
LikeLike
It “doesn’t matter” the number of crypto, the question is of value stability during period of transaction. A transfer out of fiat then back to fiat is momentary, but business planning has a much longer timeline. Trust in eventual worth is a major component in the latter, so complex business accounting will not take place in crypto without a wide convention, that means settling on one form of crypto throughout that business and surrounding economy. For now fiat is the common reference, that may change, whether crypto becomes encouraged, self established, or a better or necessary choice if fiat fails. There is nothing obvious one way or the other how this plays out, just what seems more obvious at present.
LikeLike
I think there’s a little more to it than that. In principle, you are correct and at this point in time, lots of crypto currencies are being created, most of whom will probably become worthless over time. In that sense, there are interesting similarities with the dotcom bubble. Only a handful of companies became really successful and survived.
However, besides the mathematical algorithms involved, one also needs massive computing power in order to keep the system secure. For instance, if a new crypto currency is “mined” by, say, 100.000 individuals on their PC’s, all one needs is 100.001 computers to perform a “51% attack” and f** up the whole system. This is why (at the moment) Bitcoin is vastly superior to all other crypto currencies in the sense that it can be trusted to be secure.
LikeLike
The limiting factor for mining is also the number of hashes that can be computed per second. If we ever manager to build a quantum computer that is able to perform as well as theoretically predicted, it would not only render our current encryption standards but also crypto currencies worthless
LikeLike
The real questions are :
Might crypto be scaled to global use by new technology or method?
I think yes, if that was ‘authorised’, but with difficulty by private initiative under current circumstance. My view is that it will occupy a field that grants it success due to the arbitrage it offers over official currency transaction. If official currency framework fails greatly then it will leave more space for crypto.
Might crypto be accepted everwhere as immediate form of payment?
Same answer as above.
Might crypto be chosen as a widely used currency by the private sector?
Depending how the above were answered, quite possibly.
How would official supervision of a crypto effect its use?
That depends on the algo, legislation, public trust and public “need” of official supervision vs. drawbacks of those.
So the answer as to what part crypto will play are wide open, there are obvious bridges that need to be crossed, there are obvious real world pitfalls.
Always remember, whether you think it is in a bubble or not, that its use is driven by real world practicalities that are beyond speculative profit. Those looking at profit on crypto fiat value only will not have a clear idea of what is underway.
LikeLike
One of the most important points regarding blockchain technology is that you do *not* need any kind of authority in order to trust the network. Trust in a crypto currency network has a 1 to 1 relation to the amount of processing power invested in “mining”, since that is what keeps the network secure. And security is the single item which provides the trust (or backing) of a crypto currency.
What we see now is that bitcoin is considered to be trustworthy by a growing community of innovative companies and individuals which is exactly that “private initiative” you refer to. People who have been investing time and resources in bitcoin have been well rewarded, so IMHO it is exactly “private initiatives” which spur the innovation in crypto currency space.
IMHO, the *idea* of the blockchain is so powerful exactly because it makes authority obsolete, which pretty much makes it incompatible with “supervision”. In a way, the supervision is performed by “voting with your wallet”. As can be seen, lots of blockchain applications are being developed, most notable crypto currencies. However, since trust in the blockchain (network) goes hand in hand with security, only those networks which human beings are willing to invest in can be trusted, because without investment in processing power there is no security.
“its use is driven by real world practicalities that are beyond speculative profit”.
This is an important point, indeed. I think one of those practicalities with respect to crypto currencies is that they are *not* issued as debt, which fundamentally distinguishes the monetary aspect of crypto currencies from government fiat.
Government fiat currencies are all issued by central banks in the form of debt, which has to be repaid with *interest*, which by definition makes government fiat a Ponzi scheme. You see, if a central bank brings 100 currency units into circulation, at the end of the day, *more* than 100 units need to be repaid. This means that by design it is *impossible* for all outstanding debt + interest to be repaid, simply because the units the (central) bank wishes to be paid in interest do not exist! And this is what creates a system wherein the money supply *must* exponentially grow in order to keep it afloat, which is also known as a Ponzi scheme.
With crypto currencies, units are brought into circulation using a process similar to a lottery. However, the most important aspect here is that the units do *not* have to be repaid to anyone, let alone that interest must be paid (for which no units exist).
So, from a monetary aspect, we are looking at two distinct virtual currency systems:
1) Government fiat – a Ponzi scheme requiring exponential growth of the money supply, because money is issued as interest baring debt;
2) Crypto currencies – currencies issued in the form of *credit* (instead of *debt*) requiring no interest payments nor pay back, hence allowing the money supply to be limited.
Now obviously, system 1 deprives the holder of the currency of purchasing power by design in an inflationary spiral, while system 2 rewards the holder of the currency with a *gain* in purchasing power for as long as the adoption of the currency increases.
In other words: from a monetary aspect, assuming the supply of crypto currencies is indeed *effectively* limited because of security reasons, etc. etc., one can argue that crypto currencies should have no problem over-running government Ponzi fiat schemes over time.
LikeLike
Both Keiser and Schiff have absurd views on bitcoin. This is probably because neither of them have actually ever used bitcoin for its intended purpose.
Bitcoin is the world’s first global decentralized payment system. Nothing more. With bitcoin you can send or receive payments anywhere in the world via the internet without the aid of a third party processor, like a bank or paypal.
Bitcoin is designed to be “spent” on the bitcoin network. Hoarding bitcoin like gold makes no sense. Would anyone hoard paypal dollars?
The bitcoin network serves a niche group of people that have need of such a system. Personally, I use bitcoin to fund overseas brokers that offer CFD trading. It’s just easier to use than bankwire. Most people don’t need bitcoin.
Sad that bitcoin was hijacked by the Wall St investment community. They are ones marketing bitcoin as some kind of long term investment. Bad idea!
LikeLike
I’m expecting the whole bit thing to crash and burn – like Internet stocks did – then come back useful and acceptable.
There has to be a blowout first if it’s a true game changer. Until after the blowout it’s pure speculation.
LikeLike
Good observation on Peter’s views on the dollar. The recent drop in the dollar seems counter intuitive in light of the feds proposed tightening schedule. Peter reflects upon the gold rally that ended in 2013. This rally was based on QE caused pending inflation that never occurred.
I believe the dollar will strengthen . Below is an 2013 article that illustrates .
https://www.cnbc.com/id/100756275
LikeLike
Just as with any bubble, there are those who got in at the beginning and they are way up and they are saying, “go! Go! GO!” Others are saying “Get in now! Look what it’s doing!” And then there are still others who say “I don’t know, it looks a little too bubbly to be getting in now.” Each of them are correct, just at different times during the bubble process. You could drop a bundle on Bitcoin, or you might make some money., investing now But are you going to know when the correct time to pull out is? Without that information, one is sure to lose money if joining the Bitcoin bulls at this point.
_aleph_
LikeLike
How do you know it is in a bubble?
Exponential growth is a good indicator for whether or not some asset is in a bubble, but exponential growth is not limited to bubbles. In fact, it is very hard to judge whether or not the hype around the introduction of a new technology is excessive (i.e. in bubble territory) or not:
https://en.wikipedia.org/wiki/Technology_life_cycle
“There is usually technology hype at the introduction of any new technology, but only after some time has passed can it be judged as mere hype or justified true acclaim. Because of the logistic curve nature of technology adoption, it is difficult to see in the early stages whether the hype is excessive.
The two errors commonly committed in the early stages of a technology’s development are:
fitting an exponential curve to the first part of the growth curve, and assuming eternal exponential growth
fitting a linear curve to the first part of the growth curve, and assuming that take-up of the new technology is disappointing”
Given the benefits of creating a credit based currency system in competition to government debt based Ponzi schemes, I don’t think the current hype is really excessive, assuming the supply of crypto currencies is indeed *effectively* limited because of security reasons, etc. and other practical problems are resolved over time.
However, there are quite a lot of risks things might go wrong, so this is in no way a done deal. Personally, I still consider bitcoin to be a highly speculative investment and therefore I only have a small speculative position like 1% or so in BTC.
LikeLike
It’s always a good idea to check out what the serious players are doing.
http://www.reuters.com/article/russia-gold-reserves-idUSL8N1JH3WX
Clearly Vlad and the Chinese are buying physical for a reason. Perhaps both Schiff and Keiser are right. If China and Russia where to go down the route of having a national cryptocurrency backed by gold then they’d have a good alternative to the US dollar/Euro post-crash. Vlad has been talking to the founder of Ethereum (who is of Russian decent).
Note this debate was on RT! The muppets at the BBC are to busy pushing a PC agenda to understand.
LikeLike
…both Schiff and Keiser ARE right.
bitcoin & gold are not mutually exclusive, rather they are wonderfully complimentary.
LikeLike
Gold is an asset because of its history, durability, utility, and physical scarcity. Bitcoin has little history, no durability (in the case of a power outage, for instance), no utility beyond being a medium of exchange, and only virtual existence and therefore virtual (and artificial) scarcity. Since gold is part of the physical world, governments cannot outlaw its existence. Since cryptocurrencies are part of the virtual world only, governments can outlaw their existence. I think gold wins the comparison.
The thing that caught my interest was Schiff proclaiming at mark 4:30, “Our monetary system now is based on faith…There’s nothing real behind dollars or euros or yen; it’s just based on the fact that you believe people are gonna want it.” That might be true for cryptocurrency, but it is not correct for government currency. A government’s currency is backed by its very real ability to extract wealth from its citizens. Taxes are evidence of a government collecting on promises to pay that were previously issued in scrip. Of course a government cannot effectively collect taxes from an underlying economy that is collapsing, so currencies like the US dollar are extremely dependent on future US economic prospects.
It does not take much faith to believe a government can collect taxes. The “faith” part has to do with the abuse of credit. When a government spends much more than it can ever reasonably collect in the future, then holders of the scrip being to realize their claim on future production isn’t worth much. Then it’s a race for the exits.
The way to avert disaster is for government and financial institutions to quit obviously spending promises to pay faster than future economic activity can support it. Unfortunately, it seems we are presently ruled by the Ponzi School of Economics.
LikeLike
“begin to realize”
LikeLike
Just yesterday Greg Hunter released a video with Cliff High who has exactly the opposite view of Peter Shiff’s, and mentions bitgold.
High’s take on precious metals and crypto currencies – https://www.youtube.com/watch?v=xmWg7NRx-Ow
LikeLike
I will be on Hunter tonight!
LikeLike
Unfortunately Hunter’s site USA Watchdog has gone to the dogs. Harvey Organ, Cliff High (who must be high), Karen Hudes. At this point it’s a cartoon show.
LikeLike
so very narrow-mided of you…
CH’s work in predictive linguistics is wildly interesting even if you disagree with his fuzzy conclusions.
LikeLike
Reblogged this on World4Justice : NOW! Lobby Forum..
LikeLike
Two years ago I attended a presentation about bitcoin. Intrigued, I bought $500 worth, about 3 BTC at the time. It dropped like a rock, but I didn’t care, I was more interested in actually using the currency and figuring out how transactions worked on a practical level. The problem was I couldn’t find anyone willing to accept my BTC in exchange for goods or services. There were web sites that showed restaurants for example, but the two I tried either never heard of bitcoin or weren’t sure how to actually process the transaction. So I just held it, no need for the money and no so no need to take a loss.
Meanwhile I also started looking at bitcoin kiosks, thinking they might be a good side business to get into, especially if they were located in areas frequented by immigrants who might want to send money back home at a better rate than what they might see at Western Union. Turns out the federal government treats BTC like gold or silver, so “know your customer (KYC)” rules apply. So much for anonymity! And no way to really verify who is buying or selling when dealing with a kiosk either. And the transaction fees that go back to the block chain miners aren’t all that better than Western Union anyway, at least for small amounts.
The more I looked at it, the more I liked the idea, but it’s like the old operating system airline joke, where Linux Air was a great flight, worked well and no problems at all, but you had to build the seat yourself (with a lot of help from seasoned travelers), so the planes were empty all the time. Crypto currencies are a great idea, but until people are willing to give them a try they are nothing more than Beanie Babies.
The postscript is that I held them for over a year, and when they doubled I sold them. Not a bad profit. If I would have held I’d be sitting on a pretty nice gain, but 2X is fine by me for such a risky “investment.”
LikeLike
“cryptocurrencies”; the latest rendition of “The Emperor’s New Clothes”. And somewhere, Hans Christian Andersen is laughing hysterically, ably assisted by Franz Kafka and George Santayana.
LikeLike
Saying that Bitcoin doesn’t scale is ridiculous – Bitcoin will scale to the single Satoshi. Gold is not portable or transferable nearly as easy as Bitcoin. If this were just a farce we wouldn’t be seeing hedge funds by the hundreds piling in the Bitcoin. The market cap right now is 120 billion dollars & this is going to go well into the trillions soon.
Blockchain technology is going to absolutely revolutionize the way we transact business from title and escrow, background checks, security, legal aspects, day-to-day transactions, for a single cup of coffee ( or a candy bar as he put it) all the way up to buying a house, airplane or a small island. There are no limits.
I think the author’s imagination is limited however because there is just not any due diligence done here sorry Mish this isn’t your tea.
LikeLike
Bitcoin does not scale. Imagine every transaction recorded on a log forever. That cannot possibly scale. The technology is great, I have said so many times. Perfect for mortgages, titles and deeds, all kinds of things where volume is low and value high.
Even if Bitcoin did scale, it will never receive mass adoption. Bitgold as I have stated is portable and usable wherever debit cards are taken.
LikeLike
Not every transaction has to be instantly recorded. Off-chain and side-chain transactions are possible solutions to deal with this.
LikeLike
“Bitcoin does not scale. Imagine every transaction recorded on a log forever. That cannot possibly scale.”
That is a good point and certainly correct with the current bitcoin implementation.
However, that does not necessarily mean it is impossible to solve the scaling problem, even though the current debate does not actually address this pretty fundamental problem:
https://en.wikipedia.org/wiki/Bitcoin_scalability_problem
“The bitcoin scalability problem is a consequence of the fact that blocks in the blockchain are limited to one megabyte in size.”
Increasing the block size does not solve this problem, it merely kicks the can down the road. It is quite disappointing to see that none of the proposals so far offer anything even remotely in the direction of an actual solution.
I don’t agree that “recording of every transaction on a log forever” cannot possibly scale, but recording every transaction on a log on *every* single mining rig forever is definitely a bridge too far.
If the blockchain were to be stored in a real distributed database, I would say it _could_ scale.
After all, all bank transfer transactions are also stored for some time in some database at some bank(s) and therefore it is technically possible to store every transaction on a log for some time. I guess currently all bank transactions are stored for at least one year and if that is technically possible, it is also technically possible to maintain an archive for transactions older than a year and thus in principle it is possible to develop an actually scalabe solution to te problem.
However, given the amount of trouble and debate so far in order to reach consensus about something as simple as increasing the block size, one can seriously doubt if the scalability problem is going to be resolved any time soon. Chances are the solution will require a whole new coin and blockchain to be developed.
“Even if Bitcoin did scale, it will never receive mass adoption.”
How can you possible know?
“People pretend to think they know what will happen.”
Looks like you’re one of them…
I agree that without a proper solution to the scalability problem, bitcoin will not receive mass adoption, but I don’t see why a scalable crypto currency could never receive mass adoption.
After all, crypto currencies are not issued as interest baring debt, as are government fiat Ponzi schemes which as a result require an exponential expansion of the money supply in order to stay afloat and thus deprive the holder of said fiat from purchasing power in an inflationary spiral…
“Bitgold as I have stated is portable and usable wherever debit cards are taken.”
The same thing goes for bitcoin. Multiple crypto debit cards are available.
A problem with bitgold, or a gold backed crypto currency for that matter, is that there is 3d party risk. Gold stored in a vault can be confiscated, for example.
LikeLike
Thanks
Mish
LikeLike
I still haven’t figured out how one would cash in their bitcoins for dollars. That’s the biggest reason I never invested in some. That plus the fact that anything you store on your computer can either crash or be hacked. Too risky.
LikeLike
Here in The Netherlands, there is a company (bitonic.nl) where you can buy/sell bitcoins using direct bank transfers. That’s in euro’s though and not dollars….
You can make multiple copies of your wallet in order to avoid the risk of your computer crashing. And if you can avoid the risk of hacking by make multiple copies on a few usb sticks and subsequently delete your wallet from your computer.
Beside making digital copies, you can also make “paper wallet”.
So, there are ways to avoid these risks, but no solution is 100% guaranteed, just like there is no safe nor vault which is 100% safe under all circumstances.
LikeLike
Except that something is not valuable because it is scarce or vice versa. Take the US dollar for example, compared to other currencies, say AUD.
And gold is certainly not scarce. It has been mined for thousands of years & the vast majority of that still exists somewhere in 9999 form. In fact, if you take the amount of gold at some point in time, & compare it to some other commodities (at that point in time) which are consumed or don’t last in perpetuity, say wheat, there can be more gold.
That said, Bitcoin is just the memory state of a computer. It has no value in & of itself. Nor is it scarce. The blockchain may be of some value as a process though.
LikeLike
I will grant you that scarcity alone does not make something valuable. Scarcity + demand makes something valuable. There are many things that have little utility much of the time but when they are needed there is no good substitute. Take an emergency first aid kit, for example. It has little value until it is needed, and at the moment it is needed it can be pretty darn valuable.
I believe the comparison here was between bitcoin and gold. I think gold is the relatively better option between those two. That does not mean I am recommending gold as a great investment. At the moment Bitcoin does seem attractive as a method of doing international financial transactions outside the jurisdiction of governments in general, but If the central banks and governments of the world were halfway responsible with their scrip and credit creation, neither gold nor bitcoin should be very valuable or useful in daily life.
LikeLike
“These digital currencies might make fiat currencies look good. That’s how bad they are.” Peter Schiff
Here are some problems with our current fiat system:
On the demand side:
1) The demand for fiat is unethically suppressed in that, except for grubby, unsafe, inconvenient physical fiat. aka “cash”, the citizens MAY NOT EVEN USE THEIR NATION’S FIAT but instead must work through a government privileged usury cartel, who alone in the private sector may have checking accounts at the central bank. This is an egregious violation of the principle of equal protection under the law in favor of the banks themselves and in favor of the rich, the most so-called worthy of what is currently. in essence, the PUBLIC’S CREDIT but for private gain.
On the supply side:
2) The central bank, in addition to its legitimate role as creator of fiat for the Federal Government, is also allowed to create it for the private sector: e.g. Open Market Purchases (OMP), e.g. Interest on Reserves (IOR), e.g. loans from the Discount Window, e.g. Qualitiative Easing (QE). This should not be. Instead, the central bank should simply be an accounting service for all users of a Nation’s fiat, especially the citizens of that Nation.
On the supply side:
3) The creation of fiat for the Federal Government is by an indirect process involving the purchase of its positive yielding sovereign debt from the private sector. But:
a) The debt of a monetary sovereign, being risk-free. should yield no more than 0% to avoid welfare proportional to wealth. (Experience bears this out since we have already seen negative yielding sovereign debt in the case of, iirc, Switzerland).
b) The central bank should not be allowed to buy ANYTHING from the private sector (or foreigners), including sovereign debt, since this is. in essence, fiat creation for the private sector. Instead. all fiat creation should be BY or if the central bank retains that function. FOR its monetary sovereign (e.g. US Treasury).
Inexpensive fiat is the ONLY ethical money form for government use anyway so I strongly suggest we make sure that:
a) the SUPPLY of fiat is increased ethically.
b) the DEMAND for fiat is not unethically decreased. e.g. via privileges for the banks.
Arbitrary restrictions (e.g. a Balanced Budget Amendment, e.g. a Gold Standard) on increases in the supply of fiat, including ethical increases in the supply of fiat, do nothing to address b) and would hamper or preclude serious reform efforts such as the PROPER abolition of government provided deposit insurance (since this should require a distribution of new fiat to all citizens equally).
Moreover, the citizens were driven into debt and/or cheated of just interest with the improper ability of the banks (via government privilege) to create private credit/debt so it is perfectly legitimate that they receive restitution via the government’s PROPER ability to create government credit/debt (e.g. Steve Keen’s “A Modern Jubilee”).
LikeLike
what if bitcoin is really the bankers one world currency ? one thing for sure the bankers have lent out way too much debt, again. 200 Trillion vs 7 Trillion global cash. Logically this is Way out of balance. There has to Equilibrium. Gold should have been rising to balance this evil debt bubble but it hasn’t. So far its been Bitcoin. I bought Silver 10 years ago and its worth less now than then ! So i bought a bitcoin now just in case.
LikeLike
If you bought gold 10 years ago, you would have bought in the $600 range or so. It is certainly possible Bitcoin surges from here. People pretend to think they know what will happen. Speaking of which, whatever happened to all of those $10,000 predictions on gold? I always felt those claims were counterproductive. Now people are talking about $1,000,000 bitcoin. Sheeesh
LikeLike
Just wondering – what is the standard of proof you would accept to prove bitcoin is not a ‘beaver-pelt’?
LikeLike
More gold can always be mined and like diamonds the supply can be manipulated. We have no idea how much gold could be in the ground so what happens to the price of gold if a large vein is found?
LikeLike
Nearly every bit of gold ever mined is still in existence today. Gold is not consumed in any meaningful way. Current mining is trivial compared to the amount of gold in existence.
Supply is every bit of gold ever mined. That is the “supply”
LikeLike
Gold mining has been over 3,000 ton annual the past few years and has increased from 5 years ago. I would not saw that is trivial when compared to all mined gold. Believe that would be about a 2% increase?
LikeLike
There’s a finite amount of gold on earth, like every other element. Can you imagine what the price will be when they can’t find any more? It’s simply beautiful and cannot corrode. Thus, given that people are only getting more vain and materialistic with each generation, I have no doubt the demand and price will always be strong.
LikeLike