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What the Bitcoin market is telling us.

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  • Fri, Jan 04, 2013 - 12:52am

    #1

    Jim H

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    What the Bitcoin market is telling us.

Being a believer in the wealth-protecting powers of Gold, I was intrigued by an article which showed the dramatic outperformance of Bitcoin vs. Gold  (in terms of gains in dollar value) over the last few years.  In case you have been living in a (monetary) cave, Bitcoin is digital money based on cryptology – it is free of any government, has algorithmically-enforced scarcity, and is apparently catching on among the more digitally oriented (read younger) crowd.  Here is the chart that says it all;

    

  

source:  http://www.runtogold.com/2012/12/during-2012-fiat-currencies-and-gold-collapse-against-bitcoin/

Not only is Bitcoin continuing to catch on, but a recent CNN Money piece on the digital currency, which I immediately identified as a captured Corporate mass media hit piece, was uniformly ridiculed as such in the comments section.. a sign of intelligent life out there! 

source: http://finance.fortune.cnn.com/2012/12/18/bitcoin-money-laundering/

While I am not computer-whiz enough to comment on any vulnerabilities of Bitcoin, I find that it has many of the same properties of Gold;  It is infinitely divisible – purposefully so, even more portable and concealable, has decreasing ore grades (via algorithmically enforced, increasingly CPU-intensive creation via "computer mining"), and it is democratic… maybe more so that Gold for now, since Gold is heavily manipulated via Central Bank leasing.  The free market is speaking here, and it likes Bitcoin.  

Because Gold is manipulated, and (for now at least) Bitcoin is not, I take the above performance vs. Gold with a grain of salt….  That being said, I am starting to think I want to take a small position in Bitcoin.  I think the idea has merit, and I believe what I am seeing here with Bitcoin is actually Gold positive.. it's just that when a 20-something web geek takes the red pill.. I am not surprised to see that they may first gravitate to Bitcoin before they learn about Gold.  It's all good… it's about waking up and smelling the fiat.

In a future world of dying fiat currencies, rapid acceptance of Bitcoin as an alternative could cause the value of an investment today to skyrocket in buying power.  I am not saying that I would sell any Gold or Silver to get some Bitcoin.. but I sure as heck might trade some green paper for it   : )        

 

  • Fri, Jan 04, 2013 - 04:23am

    #2
    mrvision

    mrvision

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    bitcoin

First of all, i would like to say that bitcoin is NOT democratic. First, nobody is forced to use bitcoin, even if the majority says so. Second, there are no votations. Third, even if there were any, no votation will change the protocol.

Bitcoin is 100% private, as we all have spended resources in order to get our bitcoins, and now they are ours. When i buy 1 bitcoin for €10, i am putting €10 into the bitcoin economy. This value is transfered to everybody who has a bitcoin, so if the people like what the core programers are doing, the value will increase, if not the value will decrease. This incentives the programers to do things we believe in. So it's like a company and the shareholders.

Bitcoin is secure. but i believe is not enterprise enabled yet. By the way, lot's of improvements are being done and we will probably reach the critic mass this year. 

So… yes, bitcoin is a great thing… and… this is my bitcoin address XD

1JuZoErGwTucetm7Ac33aA9wfjkn2eASza

 

  • Fri, Jan 04, 2013 - 09:23am

    #3

    Poet

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    The Rise And Fall Of Bitcoin

My concern is that this is a digital fiat currency that has no physical, tangible value.

At peak in mid-2011, a bitcoin could be traded for over $30. What is the value of a bitcoin today, as of January 4, 2013? Around $13 and change. I'm sure it can be worthwhile if people are willing to trade things for it, but at this time, it isn't something I'd be willing to invest in.

Poet

  • Fri, Jan 04, 2013 - 02:44pm

    #4

    Jim H

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    Poet and MrVision

First off… the Mr.Vision response is kind of non-sensical..but I will address at least a few of the points;

1)  When I say that Bitcoin is democratic.. I am saying that, unlike dollars in the US, or Euro's in most European countries, I can choose whether I use Bitcoin, or not, for certain transactions where Bitcoin is accepted.  It is free market.. not at all like a fiat currency, which must be used by law, backed by Gov't violence if necessary.        

2)  As well, buying a Bitcoin does not mean I am adding my dollars to the Bitcoin economy…this gives a false impression of the Bitcoin creation creation mechanism.  Since I am not doing Bitcoin mining myself, which can be done by tying up the computing power of a very powerful personal computer, buying an already-mined Bitcoin on an exchange is net neutral, i.e. somebody is selling a Bitcoin, and I am buying it.    

Poet,

As per 1) above, I will point out that Bitcoin is not in fact a fiat currency.  It is an alternate, non-Fiat unit of money….this is an important detail.  You are absolutely correct though in saying that it is non-tangible, non-physical.. although these qualities actually are what make it so portable and easily transferible.  Although dollars can be and are often digitized and sent around the world.. realize that there is often a currency conversion going on somewhere along the line in cross country transactions… since Bitcoin is borderless and universal, it does not suffer this parasitic loss.   

The other fundamental difference between today's Gov't fiat currencies and Bitcoin is that Bitcoin has scarcity integrity built in to its digital DNA… the underlying algorithm clamps down on the rate of Bitcoin generation over time as more are generated, in a way that mimics the mining out of a real natural resource.  Here is one model of how Bitcoin generation may evolve based on current mining rates;

       https://en.bitcoin.it/wiki/File:Total_bitcoins_over_time_graph.png

So, in this sense, Bitcoin is also very different than the non-tangible fiat currencies that governments print or enter as keystrokes with Central Bank backing… these currencies can and are printed with no limits, while Bitcoin has scarcity built-in.  Some people view this as somehow being Ponzi-like, meaning that early Bitcoin adopters benefit from this scarcity as the units are divided and a single unit buys more.. and this will happen if Bitcoin continues to grow in adoption… deflation if you will..    I view it differently though; being a critic of money printing, I find the built-in scarcity integrity of Bitcoin to be very attractive.  Discussion of these points is important so that we can all learn by comparing and contrasting the qualities of different forms of money.  

Finally, Poet points out that Bitcoin has fluctuated in value against the dollar… but what is really amazing is that this chart does not speak to the fact that more and more Bitcoins have been coming into existence over the period of time this chart tracks, hence the more relevant chart, from the standpoint of understanding the recent evolution of the Bitcoin ecosystem, may be the Bitcoin market capitalization chart that is contained in the first reference in my original post.   

I am not trying to sell anyone on Bitcoin.. .only trying to point out that a lot of people like it and are adopting it.. and that says something.  I see my own reasons why this might be so, and I hope I have made them clear.  I think there is a reasonable chance that Bitcoins bought today will have more buying power, not less, in coming years.           

  • Fri, Jan 04, 2013 - 04:25pm

    #5
    mrvision

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    Answering Poet

Everything has always been about a database to store value. In ancent times, when computers didn't exist, to save a record of how much value person A was transfering person B, they used a stone, one made of gold (because of its properties). But now you can actually save the record in a real database, the blockchain. That's why we (the bitconers) don't need the stone, because we have computers.

Think about it.

Gold has some good points, for expampe it is faster to transfer when you are beside the other person, just putting it on his hand. But has other bad points. Such as, not so well transferible through long distances.  So what you do is transfer the property. That means that you are going to store the gold in a bank, and then transfer the property of that gold to other person, so that person can now withdraw the gold. Welcome again to the database. What you are storing is numbers in a database, and what you're changing is the ownership of that numbers. 

But there's a problem with this scheme. You cannot transfer yet from person A to person B if they are customers of different banks… because they have records in two different db, so to do this bank A would have to send the gold to bank B to do that operation. Except if they create a bank to store the gold of bank A AND the gold of bank B and save a record of how much gold is holding bank A, and how much is holding bank B… you are starting to see the problem.

Once the gold is in just one place, it can be stolen. You don't have actually to take it, you just have to be the gov. and introduce fear into the heads of the population. Now you have to deal with this new central bank and make them to sign a deal: i give you the monopoly on issuing currency in exchange for infinite financing.

And this is what bitcoin is trying to prevent. What all those developers and merchants are working to avoid. To stop the vicious circle.

1JuZoErGwTucetm7Ac33aA9wfjkn2eASza

  • Fri, Jan 04, 2013 - 04:33pm

    #6
    mrvision

    mrvision

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    And that’s where you’re

And that's where you're wrong. In a democracy (and i live in one) you are not allowed to chose another thing different from the will of the majority. Free market is about freedom, but democracy is about sacrifice. Sacrifice for the greater good, the common interest or whatever you want to call it. But it's the majority forcing the minority to do what they don't want. Is the annihilation of minority ideas.

Does this have anything to do with bitcoin? certainly not. Because it's not democratic, but free.

How would a democratic cryptocurrency look like? Everybody voting, for instance, how the supply might increase or decrease, everybody voting if there is or not a tobin tax… everybody voting. And everybody forced, by the gov, to use it.

Democracy is a terrible word with a very good marketing. But it is synonym of tyranny.

  • Fri, Jan 04, 2013 - 06:59pm

    #7

    Jim H

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    Democratization and semantics

I was not using this term in the sense of politics, nor making any statement relative to the good or bad points of democracies in general – I am sorry that you could not discern this based on context.  I was using the term in the more generic sense, such as number 3. below.  I may not always be correct in my conclusions… but I am very precise in my language. 

Examples of DEMOCRATIZE

  1. Community leaders have had some success in democratizing the organization.
  2. There is internal pressure on the government to democratize.
  3. The magazine's goal is to democratize art.
  4. an effort to democratize politics

source:  http://www.merriam-webster.com/dictionary/democratize

 

  • Fri, Jan 04, 2013 - 07:29pm

    #8

    Jim H

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    Timely article by Krieger…

And really, this was my point all along (highlight below is mine) – identify the trend.. maybe Bitcoin will be a winner among alternate currencies;

The Greeks Have Already Dumped the Euro

 

Really fascinating article about how many cities and communities in Greece have already moved on from the euro to bartering as well as alternative currencies.  The city of Volos, 200 miles north of Athens with a population of 170,000 is highlighted in the article due to the size of its alternative money market centered around a local currency call the Tem.  This sort of behavior will be the wave of the future in all countries, as Central Bank currencies are debased into extinction.  It’s interesting because while I was in Crested Butte over New Year’s I noticed they have a local currency going there called Crested Butte Bucks and I was really surprised to see that you can spend them pretty much anywhere in town.  I also highlighted this trend in my post earlier this year English City of Bristol Launches its Own Local Currency.

source:  http://libertyblitzkrieg.com/2013/01/04/the-greeks-have-already-dumped-the-euro/

  • Tue, Jan 08, 2013 - 04:45pm

    #9
    Dwig

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    Bitcoin as alternative/complementary currency

Good thread; thanks, all — especially Jim for starting it.  I'd looked briefly at bitcoin a year or so ago, then forgot about it.

Jim's last comment, about alternate currencies, tickled an itch of mine: would there be any interest in starting a forum topic, or maybe a group, about local/alternative/complementary currencies?  It looks like there's a small wave of these starting in the US, and I'm starting to think how such a thing might work in a larger city.

  • Sat, Jan 12, 2013 - 06:54pm

    #10

    Jim H

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    Local Currencies…

That is an interesting question Dwig… I did a little bit of research regarding those local currencies that have existed the North Eastern US where I reside..namely Itaca, NY's Hours currency, and the more recent Burllngton, VT Bread.. and found that both have all but died.  Ithaca Hours was one of the most long-lived alt. currencies, having come into existence in the early 1990's.  It sounds like the Ithaca currency was kept alive in part by the energy of one particular individual, and it began to die when he moved away;

http://www.ithaca.com/news/article_175100c4-65d6-11e0-bd73-001cc4c002e0.html

In researching these I tried to get a sense of the creation mechanism… and I was unable to do so.  It sounded like you bought in to the system by signing up and paying some dollars, and you got some (newly minted?) Hours or Bread in exchange.  The admittedly small amount of research I have done on local currencies does nothing to dissuade me from my conclusion that Bitcoin is different, and that it deserves our attention.

Bitcoin is different because it is the only currency of human origin that I can point to that has built-in scarcity integrity…  it will become increasingly difficult to "mine" over time in a way that is exactly analogous to precious metals (and hence the term mining).  If I was to promote a non-governmental currency for a local economy… I don't see any reason to create a new one when Bitcoin is out there.  The true beauty of Bitcoin lies in the fact that, as long as the underlying algorithm and crypto-keys remain uncorruptible, the value of a Bitcoin is almost guaranteed to increase over time as long as the currency does not fall out of favor or become the subject of Gov't interventions.  If you think that US dollars are poised to increase in their buying power over time… I have some swampland in Florida that is two feet above sea level that you might like to purchase from me….                           

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