Tag Archives: Sound Money

CRYPTO & BITCOINS

I’m embarrassed by how little I remember from my “Intro to Crypto” class at Stanford. This video really helped: https://www.youtube.com/watch?v=wXB-V_Keiu8.

It talks a little about the history of encryption — until the 1970’s symmetric key encryption was used. Public key encryption was quite the breakthrough. And get this — when it was first discovered (invented?) the THE GOVERNMENT INSTANTLY CLASSIFIED THE RESEARCH!!! It was later re-discovered.

Anyway, for laypeople, I’d suggest watching this video to the point of understanding that it’s really, really hard to factor the product of two big prime numbers.

Trying to understand the Modular function which stands on top of this fact is difficult.

Final note: Though it isn’t in the video, my understanding is that Bitcoins don’t actually encrypt anything, but they use these crypto algorithms to verify that transactions match account numbers. Digital signatures, in other words.

So, if you post your bitcoin account number on a website to accept donations, everyone who uses bitcoins can see what transfers were made to that account. Of course, the beauty of bitcoins is that you can make as many accounts as you want and transfer bitcoins between them.

Bitcoins are a jailbreak!

My take on bitcoins:

open quoteNot only are the advantages of Bitcoin over gold accentuated by the restrictions which entrench the world’s fiat systems, it is likely that Bitcoin’s emergence is a reaction to those restrictions.

It is hard to imagine their development in a completely free market where successful banking is based on service and competition instead of the political privilege which licenses select institutions to counterfeit, where regulatory burdens would be very low and tending toward increased efficiency, where, rather than restricting the flow of commerce across borders, major institutions would be dedicated to enabling it, where we could instantly transfer fractions of a commodity money to anyone in the world.

In such a free market, there would simply be no need for a crypto-currency without a commodity backing.

So what is Bitcoin’s value? It is a means of escaping the enforcement of the world’s currency monopolies, a jailbreak. It is a service, like Western Union, only cheaper, easier and faster. Bitcoin is a vehicle. Bitcoin HAS an intrinsic value as a wealth delivery service with the peculiar feature that wealth needs to transform into Bitcoin before it can be exchanged.

In an environment of extreme Bitcoin skepticism, a transaction would look as follows: wealth transforms into Bitcoin, zips instantly to anyone in the world (or beyond, so long as they have internet access), and then transforms out of Bitcoin.

People would be willing to thus transform their wealth so long as they are saving money, time or convenience over rival money transfer systems like conventional bank-wires, credit card purchases, or Western Union.

In the skeptical environment, the amount of wealth people leave in the form of Bitcoin would reflect the fees associated with changing wealth into and out of Bitcoin (for example, the fees charged by btc-e.com or mtgox.com).close quote (Read more)

HA! Bid Media: “Why bitcoin’s rise is nothing to celebrate”

open quoteVolatility is a serious problem, if you’re trying to put together a currency, rather than a vehicle for financial speculation. If the currency of a country ever fluctuated as much as bitcoins did, it would never be taken seriously as a medium of exchange: how are you meant to do business in a place where an item costing one unit of currency is worth $10 one day and $20 the next? Currencies need a modicum of stability; indeed, one of the main selling points of bitcoin was that it couldn’t be destabilized by government institutions. But that comes as scant comfort to people watching the value of a bitcoin behave like some kind of demented internet stock during the dot-com bubble.

In reality, then, bitcoin doesn’t really behave like a currency at all. In terms of its market value, it looks much more like a highly-volatile commodity. That’s by design: bitcoins were created to be the most fungible commodity the world had ever seen – to the point at which they would effectively erase the distinction between a commodity and a currency.close quote (Read more)

And the dollar is stable???

Bitcoin fever!

Bitcoin fever!!! I was paid about 8.7 bitcoins a couple years ago for articles I wrote for dailyanarchist.com. Their total value was about $70. Today, the value of each bitcoin is $195. My 8.7 bitcoins are worth $1700.

We may be seeing the emergence of a new money. Think of the advantages — no transaction costs. Setting up an account takes a few seconds and no paperwork whatsoever. Mastercard and Visa take 3% from merchants. Imagine bitcoin merchants passing this savings onto consumers.

There were some libertarians who went into bitcoins very early and very big. If bitcoins emerge as money they will become Rothchild rich. We have yet to see major attacks from governments. Surely, they will come. But how can they possibly succeed? There’s nothing for them to effectively strike.

It is much easier for government to stop gold than to stop bitcoins. This may be why there is already a developed bitcoin market, while there’s no such dynamically growing market for gold.

Bitcoins will tear down the fiat system. Gold may replace bitcoins in the distant future after the fiat system is long dead and buried.

Bitcoin’s Busy Year

open quoteOn Wednesday, BitPay, the world’s leading Bitcoin payment processor, introduced a new WordPress tool integrating its services with Fulfillment by Amazon which stores, packs, ships and provides customer service to those using the Amazon marketplace, is available to merchants who do not sell their products through Amazon but who still want to provide the same quality services. Less than a week ago Mt. Gox — the world’s leading Bitcoin exchange—announced their exclusive partner in the US and Canada. Just a few days earlier the first Bitcoin ATM, was unveiled.

It’s been a busy two weeks for the cryptocurrency and its loyal followers, especially here in the United States. The first Bitcoin ATM graced the world on Feb. 23, thanks to Zach Harvey and Matt Whitlock of Lammasu Bitcoin Advisors in New Hampshire.

Mt. Gox, based in Japan, joined forces with Coinlab — the world’s first US-venture backed Bitcoin company — to cater to their customer base in the US and Canada.

The idea that WordPress users can accept Bitcoin might not sound new, and that’s because it isn’t. WooCommerce, the predecessor to BitPay WooCommerce, was released in November of last year. Now the partnership between BitPay, based in Atlanta Ga., and Amazon allows for merchants using WordPress to accept Bitcoin with ease while providing their customers with all of the benefits Fulfillment by Amazon has to offer.close quote (Read more)

Is Gold or the Dollar Overvalued?

Great analysis by my former economics professor Patrick Barron:

open quoteThe problem with comparing the price of gold in dollar terms today and its price in the past is that it ignores dollar inflation. The price of gold today is around $1,600 per ounce. It peaked in dollar terms roughly a year ago at just under $2,000 per ounce. Prior to the recent run up, the peak price of gold at year end occurred in 1980 at $612 per ounce. So, let’s look at the price of gold today, taking into account dollar inflation since 1980.
First let’s look at the government’s own Consumer Price Index. In December 1980 the CPI stood at 86.3. In January 2013 it was 230.3. (This is hardly believable; i.e., that prices have gone up only 2.7 times since 1980.) Nevertheless, adjusting for the CPI increase since 1980, the price of gold today should be $1,633…about where it is right now.

But now let’s look at inflation of the money supply. In 1980 M1 was $.420 trillion and M2 was $1.605 trillion. As of January 2013, M1 is $2.470 trillion and M2 is $10.445 trillion. So, taking into account the great inflation in M1 and M2, the price of gold should be either $3,600 per ounce (M1 equivalence) or $3,983 per ounce (M2 equivalence) for the price of gold, IN DOLLAR TERMS, to match its price at year end 1980.

Another way to look at the relationship between the dollar price of gold and dollar inflation is to calculate gold’s dollar coverage price; i.e., for the Fed, which owns 262 million ounces of gold, to back the dollar in gold and make it truly redeemable, it would be forced to set the price at either $9,427 per ounce (M1) or $39,866 per ounce (M2). In other words, at any lower price the Fed would not be able to redeem all of its dollars.close quote (Read more)

The ECB Worries About Competition From Bitcoins

This reminds me of how the Post Office sued the Cub Scouts because it feared competition.

open quote Here is another one from the “you couldn’t make this up” department (the ECB is a rich fount of those). The ECB is apparently worried that the digital currency bitcoins could ruin the reputation of central banks. Seriously. At least that is what they are saying.

According to Bloomberg:

An increase in the value of bitcoin, the world’s largest online currency, may fuel concerns that virtual money could undermine the role of central banks.

The CHART OF THE DAY shows that bitcoin has more than doubled in the past 12 months, strengthening to $16.37 from $5.88, according to data from Mt. Gox, the world’s largest bitcoin exchange. The money, issued by a decentralized network of computers, has recovered after falling to $2.14 in November 2011 from a high of $29.58 five months earlier.

close quote (Read more)