Bitcoin Versus Gold

Is Bitcoin money, in my opinion no it’s a medium of exchange but doesn’t mean that it won’t be worth anything. Courtesy of Euro Pacific Capital:

Ever since President Nixon broke the US dollar’s last link to gold, the world has been set adrift on a sea of fiat currencies that have been increasingly debased, serving the interests of governments and financial elites. For the last five years, central banks have imposed near-zero rates of interest that have helped push up stock, bond, and real estate prices, but have made it nearly impossible for savers to receive meaningful returns on bank deposits.

To make matters worse, the apparatus of national security has turned financial transactions into a massive exercise in government surveillance. Under the camouflage of ‘protective’ measures, such as the USA PATRIOT Act, governments have invaded the privacy of citizens and compromised banking secrecy in an unprecedented and often unconstitutional manner. Despite huge potential transaction-cost reductions achievable through advances in digital technology, banks continue to charge exorbitant transaction fees while maintaining transfer delays that reflect a pre-digital age. In addition, bank regulators, led by the IMF, have shown a willingness, in the case of Cyprus, to make depositors liable for poor banking decisions. Many private citizens may naturally see the status quo as a deliberate policy to crush middle-class savers and pave the way for centralized socialism. Some have sought a way out.

Continue reading

JPMorgan files patent for Bitcoin-style payment system

It was only a matter of time before the institutions cottoned onto crypto-currency, there’s currency to pervert and inflate. Courtesy of CNN:

JPMorgan Chase has patented a digital payment system that could rival Bitcoin.
The system includes digital wallets, the ability to transfer money to anyone and anonymity too, according to a patent application filed to the U.S. Patent and Trade Office on Aug. 5. The Financial Times first reported the story. Continue reading

Is Bitcoin Money?

I like Max Keiser, I think he’s a great personality and shines a light on corruption like no other journalist but after re-reading this article which I posted 6 months ago, I have to unequivocally state that he’s wrong. The Aristotelian characteristics of money have 3 additionals which Max omitted. That is, medium of exchange, store of value and a standard of account.

It has not been around long enough to be a store of value and it’s volatile. It is now accepted by over 4000 vendors worldwide but its not universally accepted so it’s not a medium of exchange in the truest sense. Finally, it’s not a standard unit of account so you cannot derive a meaningful interpretation of prices, costs or profits. Is Bitcoin money, no it is not, is it a currency like fiat but in its infancy, yes it is. 

I must make a point in regard to intrinsic value, value does not exist outside of the conscience. What do I mean by this? If the human race disappeared off the face of the earth, how much would your home be worth? A pint of beer or a latte? It wouldn’t have any value, it would be just an object as our conscience is not their to assign value. Intrinsic value needs to expanded using marginal utility theory and therefore ‘marketability’.

What is money? Gold, silver, their respective bills and to a lesser degree, copper. Max Keiser in The Huffington Post:


Since Bitcoin is now a $400 million market, with its price hitting new all-time highs, now might be good time to ask, is bitcoin money?

According to Aristotle, for something to be considered money, is has to fulfill four characteristics:

1) It must be durable. It can’t fade, corrode.

2) It must be portable. It has to be ‘dense’ so that you can take it with you when you travel to the market.

3) It must be divisible or, ‘fungible.’ This means that if you break it up into smaller pieces each smaller piece when you add them up will equal the value of the original piece.

4) It must have intrinsic value. One must consider that value does not exist outside of the conscious, if human beings disappeared off the face of the earth, how much would your home be worth? Or a pint of beer? It wouldn’t have any value. Therefore we must look to marginal utility theory and the theory of marketability. Those goods which are classed as money have no or a very limited declining marginal utility, by this I mean your satisfaction of receiving another unit of that good is not diminished. 

Let’s look at these four characteristics and see if they apply to Bitcoin. Continue reading

Germany recognizes Bitcoin as ‘private money’

Bitcoin is slowly gaining mainstream traction, courtesy of RT:

Bitcoin has been recognized for legal and tax purposes in Germany, making it the first country to take an official stance on the status of using the online currency as money.

Berlin has acknowledged the virtual tender as a “currency unit” and “private money,” according to German newspaper Die Welt.

The classification means that some commercial profits on Bitcoin related endeavors may be taxable, but personal use of the currency will remain tax-free, the paper reported.

The recognition was laid out in a Finance Ministry response to a query from Frank Schaeffler, a member of parliament’s Finance Committee.

“For the first time, the federal government recognizes Bitcoins as private money,” said Schaeffler.

In July, the first trading platform for Bitcoins in Europe with direct cooperation with a bank regulated by the Financial Supervisory Authority was set in Germany. Bitcoin Deutschland GmbH agreed to convey Bitcoins on its platform as an intermediary through the German web 2.0 bank Fidor.

Bitcoin has been a popular form of payment around the globe since it was first introduced in 2009, as people became dissatisfied with the conventional banking system. Meanwhile, the currency’s viability has been questioned because Bitcoins are backed by neither a government nor a central bank.

At the beginning of August, a US federal judge in Texas ruled that Bitcoin is a legitimate currency. The decision came after Trendon Shavers, a 30-year-old businessman, was charged with running a Ponzi scheme, scamming customers out of roughly US$4.5 million worth of the crypto-currency through his online hedge fund. He argued that Bitcoin is not real money and therefore is not subject to regulation by the US government. However, the court dismissed his claim.

The ruling brought Bitcoin one step closer to being recognized as a real currency. However, the decision opened up the possibility for the virtual money to be regulated by governments, which oppose the original concept of Bitcoin – a peer-to-peer, relatively anonymous payment.

Supporters of the virtual currency argue that it helps protect the identities of users from theft and credit card fraud. Critics argue that the lack of regulatory oversight and alleged greater privacy makes the currency more attractive to scammers. In addition, skeptics question the currency’s volatile exchange rate, inflexible supply, high risk of loss, and minimal use in trade.

An overseer group called the Bitcoin Foundation limits the total number of currency units to 21 million. Currently, the price of a unit is around $ 110 (82 euros), according to online currency conversion sites.

The Rise of the Crypto-currency, Bitcoin

Bitcoin, Namecoin, Litecoin and PPCoin are relatively new mathematical crypto-currencies, with Bitcoin being the largest and breaking into the mainstream. These crypto-currencies are open-source peer to peer digital currencies and the big banks don’t like them…Bitcoin uses peer-to-peer technology to operate with no central authority; managing transactions and the issuing of bitcoins is carried out collectively by the network.


What do you need to get involved? You need a computer, a bitcoin wallet and check this website or with Barclays pingit if you’re interested and from the UK.

I have been in two minds over bitcoin as a future investment as well as a currency. Like all fiat currencies, just like the UK pound, US Dollar or the Euro it isn’t backed by anything but it is mathematically sound, which is more than can be said about the pound et al.

I studied Keynesian economics at uni but I will look to the Austrian school of economics and regression theory to explain Bitcoin and its value. As Rothbard explains in Man, Economy, and State: A Treatise on Economic Principles (1962)

…a money price at the end of day X is determined by the marginal utilities of money and the good as they existed at the beginning of day X. But the marginal utility of money is based, as we have seen above, on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. Therefore, the price of a good on day X is determined by the marginal utility of the good on day X and the marginal utility of money on day X, which last in turn depends on the prices of goods on day X – 1. The economic analysis of money prices is therefore not circular. If prices today depend on the marginal utility of money today, the latter is dependent on money prices yesterday.”

TL;DR (Too lazy, didn’t read) Bitcoin derives its value from current fiat currencies, as long as those fiat currencies have a value, so will Bitcoin as knowledge of existing price ratios can be utilized. If bitcoin ever derives its value from gold or silver, the game is up for the central banks, but in its current form I don’t believe it would.

What has changed the game for me was this article sent by my mate Cass. Here’s a slice of what got me excited, essentially bitcoin will be incorporated into all HTML5 websites:

‘So this is where things get interesting: With a bitcoin-specific “scheme,” any link on a webpage becomes a one-click route to instantaneously transmitting money—or at least bitcoin. Imagine you’re buying socks or more likely, since this is bitcoin, assault rifles stuffed with heroin. On the checkout webpage, the “buy” button could use the “bitcoin:” link, which would automatically pop open your bitcoin wallet, which might reside in an external application, on another website, or even in your browser itself. In any event, it would make paying with bitcoin dead easy and absolutely universal.’

I need to state that I’m not giving financial advice just in case anyone tries it, it goes tits up and I’m sued. One thing to bare in mind is that all fiat currencies throughout our documented history collapse, normal life of fiat currencies is around 50 years. Below is an infographic on how bitcoin works and you can make up your own mind