Bitcoin: Bursting the Bubble
The arguments for and against Bitcoin or alternative forms of currency in general, are many.
It is suggested that the current health and prognosis of the system(s) in question rests upon its utility as a currency.
Bitcoin itself may in fact evolve into more of a substantive currency, unless it is quashed by governments. This "quashing" may occur if Bitcoin or any crypto-currency, challenges the "authority" of a significant national currency or the multinational banking industry.
(Hint: the challenge has already been made.)
On the other hand, Ethereum can do much more. Although, Ethereum is has yet to reach the popularity levels of Bitcoin, things are looking up. But is it a currency or something more? Can one attach contracts to it? Yes. Applications? Yep. Is it decentralized like Bitcoin? Yep. And the list goes on.
But even Gavin Andresen has concerns about Ethereum's potential.
...no gold bars...in the basement at the FED building...
One can argue in favor of a centralized fiat currency, such as the dollar or any number of other currencies, which are, when one investigates the source of their creation, merely ideas. They are just numbers on a spreadsheet.
There are no gold bars, silver ingots or barrels of oil, in the basement at the FED building. Fort Knox does not belong to every American.
The value of every fiat currency lay only in the "enforced" trust the users. Created by governments and exacerbated by the banking industry, fiats are official cash.
The dollar or the euro are mere vestiges of a gold backed currency. Window dressing. Not unlike Ancient Rome, when they also confiscated all of the gold and issued currency.
Private versus Government Currency
Would you rather use a private form of currency with a potential to evolve into a sound monetary system or continue using fiat currencies provided by your Government?
Unfortunately, these factors also play into the reality of Bitcoin and crypto-currencies in general. They have no "official" backing. No place, no seabed to anchor the currency.
But, we should remind ourselves that Bitcoin and her kin have something centrally controlled fiat currencies do not have. They have done something no other currency has done in recent memory.
Bitcoin and now Ethereum have cornered the market of imagination. In other words, there are no boundaries -- yet. And Bitcoin is "backed" by voluntary cooperation, worldwide. In this sense, it is "backed" by goods, gold and services -- already.
...leveraging the future.
So what is the difference?
As stated repeatedly, across the blogosphere and repeated internet-wide, Bitcoin, like Ethereum, is decentralized. That is their primary accomplishment. But it is only a starting point.
To posit that centralization is the soul of the system would not provide a complete picture. It is not simply decentralization, but something much better: it leaves the power of the currency within the hands of the users -- the individuals.
Power over one's currency. Power over one's tools of trade. No bankers or governments with complete access to one's grocery list.
Yes, transactions can be traced in the Bitcoin system -- on its Blockchain -- which does several things. It enables us to investigate bad actors, keeps everyone more honest, and secures the entire system.
Unfortunately, this is Bitcoin's fatal flaw and why Bytecoin and her progeny might just rule the roost. Unless Bitcoin is modified for privacy, it might fail.
As an individual one does have the right to be left alone. One does have the right to withhold information about private matters, especially when it comes to how one spends. Naturally, this does not apply to criminals, but being a private individual does not automatically make one a criminal.
One does have the right to use, save and trade something of value, a possession, with others, without a third party involved, unless one so chooses.
One's currency, at the Bitcoin level, is not digitally stored at some bank. It is digitally stored by the purchaser or miner, as the case may be.
In a sense, Bitcoin is its own banking system, backed up millions of times - across the internet. But remember, a bank is only as good as its currency.
The same can be said of Ethereum. Although this 'Bitcoin 2.0' offers a cornucopia of information based items, records, bills of sale, art, remote controlled vehicles and so on, it has no physical substance. It is a highly evolved, information transaction system, based on the blockchain (decentralized ledger) technology
We do, however, need a bit more. We need something real. Something tacit. This is where Bitcoin, Ethereum and virtual currencies can leverage the future.
Do not mistake Bitcoin or Ethereum for gold and silver coins or even paper notes, denominated and backed by precious commodities. This is an argument of futility.
But what exactly are they? Do they -- cryptocurrencies -- have all the properties of actual money, and not just currency?
Economist Peter Schiff has discussed the weakness of cryptocurrencies often. To compare them to gold or silver, would be futile. We know that Bitcoins, Bytecoin and Ethereum are not hard currencies. They are not money.
Cryptocurrencies, the blockchain technology, the system itself, can be a bridge, however. A bridge from centralized fiat currencies and bureaucratic control, to personal choice.
Where does this bridge lead in the future?
Stefan Molyneux, Canadian YouTuber, defends Bitcoin routinely. He provides many arguments against gold or commodity back currencies, but I suspect he is also a sound money (gold-silver etc.) supporter.
Is his defense of Bitcoin simply used to engage us? Maybe. Certainly his blogs and videos are very interesting, but rather long.
But we are humans and we like to feel things, know that they exist - we like to hold stuff. At least some of us do.
The argument here is that Bitcoins and the other cryptos, are virtual. They do not exist, physically. Does that matter in a "digital" world?
We know immediately, that Bitcoin and now Ethereum, are both risky. We know that our current fiat currencies are not as risky in the short term. So why do so many of us invest in an unproven and volatile technology?
...Bitcoin is virtual, but so is the U.S. Dollar...
We cannot hold Bitcoins or Ethers in our hand, as such, but we can and do slide our credit cards through those card readers at the local market.
Just a few short years ago, we often used cash for these simple purchases. As in paper money or plastic bills -- depends where you are.
Others preferred the old trusty checkbook. Some still do.
Now think ahead a few years. You are in line at the grocery store. You are paying for a loaf of bread, since that is all you can afford. It cost you one hundred and fifty government 'fiats.'
Behind you, in line, is a young couple. They have concerned looks are their faces.
You finish and the couple steps up. The man flashes a card at the scanner. It has some sort of boxy digital symbol on it. The man then keys in a code. You note the bill. One AEON. You seem to remember something about the new CryptoNight-Lite currency a few years bac
Today, however, the 'card' is king. A card with numbers on it or perhaps just a magnetic strip. It represents the cash we have stored electronically in our bank accounts. Virtual cash.
Cryptocurrency is also virtual.
There is no money in the FED, the birthplace of the fiat-dollar. You are using an idea -- that dollar or euro -- to make your car payment, pay your mortgage and go to the movies. Bitcoin is virtual and no different in this respect. AEON and Ethereum are virtual as well.
Even now, one can use debit cards, denominated in Bitcoins at many locations to purchase goods and withdrawal fiat currencies at a variety of ATM's.
The crypto-world is migrating into the modern banking system even now.
However, the companies in the U.S. offering this service and indeed even foreign ones doing business here, are required to conform to local currency laws. In other words, one's identity may become known if one chooses to use these debit cards for fiat conversion and/or payment purposes. In effect, the idea of private currency is thwarted at this juncture.
A Window of Opportunity
Instead and what is perhaps unique to this new monetary environment, due to the invention of cryptocurrency, is its capacity to bridge.
Bitcoin or perhaps even Bytecoin, has the ability to do a rather unique, but at the same time, fantastic thing. It has the potential to build a structure from the current centralized fiat currency systems, to a future without them.
From central planning to personal choice. From the old systems of money transfer, burdened by middlemen, who all take a percentage, driving up the total costs, to a new system of near direct and verifiable transactions, at the individual level.
If Bytecoin is much more private than Bitcoin, why can't Ethereum or the "colored coins" within it, be made just as secure? And yet, the security of a thing can also be measured by its visibility. Bitcoin and Ethereum are not opaque.
Bitcoin's blockchain, its ledger of transactions, is transparent. One can track each and every sent 'payment' and each and every 'deposit.' It is not unlike a home with a clear view of the street and the neighbors across that street.
Burglars often prey upon homes with large bushes or trees covering or blocking the view of the neighbors or passersby. Bitcoin is like this. A burglar may not know who lives there, but he can see that the mansion's owner is wealthy. Such mansions become targets.
Bytecoin, would be like an invisible home. Not only that, but it's location is unknown and even if a burglar found it, he couldn't tell if the owner was wealthy or an average Joe.
So might we look to Bitcoin and Ethereum as transition mechanisms?
A cryptocurrencies that can function as bridge from the centralized system of controls, government devaluation, over-taxation, corruption, currency manipulation, to something better.
Once individuals have absolute control over their own currency, the individuals can solidify their holdings by soundly backing the currency and reestablishing a sound monetary system.
In other words, once again, creating not a currency per se, but money. Sound money. Personal money.
This is the culmination. This is when the bridge is finally in use.
At present, many of us are standing in the middle of that 'bridge', waving to those behind to follow, but this is "change" and very slow to take hold when the thing being re-written can have such ground breaking consequences.
There are many legitimate and inexpensive ways to accomplish this, but the stumbling block has always been the tendency toward accumulation of the means of currency production in the hands of a few.
The transition capability offered by Bitcoin and now Ethereum, are capable of eliminating these unproductive channels and allow individuals the opportunity to decide for themselves how currency, how the tool of trade, how the storage of value, how information, how records, how music - can be best "communicated" from one or more parties to other parties or individuals. After all, the "use value" or "utility" of a thing naturally increases the real value of that thing.
The next step is the privatization of the cryptocurrency. That is Bytecoin, Monero and AEON. And there are others.
Left to unchecked, governments tend to centralize power. This can be exampled in history over thousands of years. The re-balancing of centralization with decentralization, but always retreating to centralization, once the powers that be control the monetary system.
The U.S., broke away from the old world centralizers. Won its independence. And yet, the end result?
In a sense, Bitcoin and Ethereum are, thus far, public currency-software systems. Bytecoin and its clan are, by comparison, privatization revolutions.
"The power to tax is the power to destroy" is no longer applicable. It should now be "the power to create currency from thin air, with no value whatsoever, is the power to demolish." This is how the FED works in the U.S. The so called 'hidden tax' or inflation by "QE's".
The ability to dictate currency levels, while removing the real money from individuals, is the purview of governments. It gives them the ultimate power of the purse. The near absolute control of all wealth. And such control means that they can buy anything. It means that they retain power for as long as they enforce the currency laws. As long a free men do nothing.
Absolute power of the primary purse strings used to control the currency is sufficient to lock everyone in a perpetual downward currency devaluation curve. As we have seen, historically, governments are good at currency devaluation. It is only when we see the prices rise too quickly, that we realize we are in for it.
Adapt and Overcome
Left to individuals, an anonymous currency, such as Bitcoin, Ethereum, and potentially, even AEON, have the opportunity to evolve or die.
Alas, the growth of these technologies is hampered only by the "Centralists". The Centralists who cannot see beyond the next five years or even the next month - or even tomorrow. After all, we humans cannot predict the future, much less what the price of oil or tomatoes will be tomorrow. This being an honest assessment, how can a bureaucrat predict our economic future with any measure of accuracy, absent a crystal ball?
Bitcoin, to survive, must adapt. Ethereum may be the way to accomplish this, but all eyes might better look in a "private" direction: Bytecoin, Monero or even AEON.
Unfortunately, the Centralists will not go quietly. They will struggle against the private crypto's.
"Valueless" they will say, as they preach the fiats.
"Criminal element" they will laugh, as the criminals roam the streets with loads of paper cash.
Secrecy, privacy, protection – all the things the "Centralists" enjoy themselves, but the things upon which citizens are not allowed to enjoy - until now.
The "Centralists" will remind us, in no uncertain terms, that they are in charge. But they know they are not. The people have always held the 'ropes' and these new monetary nooses frighten them.
Things like AEON bother the the "Centralists."
The advent of 'Fedcoin', if it should become more than a rumor, is not the answer.
Continued centralization is no different than what is used today, with the major contrast that the power to monitor the average citizen's fiscal transactions will be unrivaled with the new technology.
And what do you thinks banks are talking about when they say "Blockchain?" They tout the invention of Bitcoin, relegate its non-governmental foundation to the trash heap, but replicate the "blockchain" for use with their fiat based, devaluing centralized monetary disaster.
That is "Fedcoin."
Disallowing the decentralized experiment, the growth of new and more efficient currency systems, not attached to a central core, goes against the grain of the average American -- I would venture.
But a few Americans are not the only ones. Germans, French, Brazilians, Russians, Chinese, Japanese, English, Norwegians, the Finns, the Irish -- and many more -- are vested in the new tech.
The time has come for individuals to wrest the reigns of currency from the "Centralists." That is what cryptocurrency means. It is the first monetary and now "Internet of Things" step in the Information Age.
The question is: who or what will win? The "Centralists" or crypto?
How does one judge the health of a modernized information system?
Growth. If one thinks in biological terms, since we are all currently biological entities, a body or life form which is growing, in balance with its environment, is probably doing okay. Naturally, a cancerous growth or something that dies in the short term, would be the flip side of that coin.
So how is crypto doing?
Well, Bitcoin is growing. This fact is extremely critical in order to establish Bitcoin's credibility. Ethereum, as of August 2015, is making baby steps. Big ones.
The Bytecoin-Monero-AEON Triumvirate is still up in the air, but millions have been "invested" so far.
...four billion dollars into the promise of the Bitcoin.
Interest is Booming
According to Tomasz Tungus, Venture Capitalist at Redpoint, Bitcoin interest is growing.
Tungus researched the last four years of Bitcoin. Start up investments in Bitcoins can be compared to a barometer. If people judge that a Bitcoin might work and might be profitable, they will invest.
In 2013, investors poured less than 300 Million into Bitcoin. In the scheme of things, this is minimal interest, give the potential reach of the technology.
But by 2015, we saw an increase which sparked the curiosity of even the likes of Mike Tyson.
It might be a sad thing if even the boxer, who is more famous for biting his opponent's ear, created the foundation upon which many of us would then depend in the near term.
As it stands, Bitcoin investment firms have poured well over four billion dollars into the promise of the Bitcoin system. That is a lot of currency to gamble away.
But is it gambling?
To put the Bitcoin investment into perspective it is nice to have a comparison.
According to Standart News (Bulgarian News), Greek citizens have invested over 4.5 Billion Euros in Bulgaria since the beginning of the Greek Financial Crisis.
Aside from the many Greek businesses wanting to or currently relocating to Bulgaria, there is another interesting coincidence. But it comes in the form of a question. Does Bulgaria have one of the worlds largest Bitcoin Exchanges called "BTC-E?" Or is that in Auckland? You be the judge.
It would be like Warren Buffet cashing in about 16% of his wealth...
The point being?
If an entire country (Greece) is investing the equivalent of the then current Bitcoin Capitalization amount, something very big is brewing right under our noses.
It would be like Warren Buffet (American Billionaire) cashing in about 16% of his wealth or the equivalent the Medicare (in the United States) expenditure on new medicines in 2014. This number is remarkable.
Can one ignore it?
The Internet of Money
Aaron van Wirdum of Cointelegraph reported that Bitcoin is growing 25% faster than the Internet grew during its early years.
Wirdum's research predicts a doubling of investment into Bitcoin in 2015, over 2014. Where would that bring us?
To about 10 billion dollars invested in new companies? That would be more than enough to purchase one Nimitz Class Aircraft Carrier in the U.S. and we have not even touched our capital.
(We are not referring to the capitalization of Bitcoin, but the fiscal interest in it.)
The U.S. Federal Government is not too enthusiastic about Crypto-Currencies. See this article for more information.
Feeling Bitcoinie? Try this Bitcoin hub as a follow-up.
Sources / Photos
Tunguz, Tomasz, www.linkedin.com/pulse/whats-really-happening-world-bitcoin-investment-tomasz-tunguz, July 29, 2015
Standart News, www.standartnews.com/english/read/greeks_have_invested_eur_4_45_billion_in_bulgaria_since_the_crisis_first_began-9158.html, accessed July 31, 2015
Ornstein, Charles, www.propublica.org/article/cost-of-a-cure-medicare-spent-4.5-billion-on-hepatitis-c-drugs-last-year, May 29, 2015
van Wirdum, Aaron, cointelegraph.com/news/114992/bitcoin-growth-25-faster-than-the-internet-in-90s-estonian-angel-list-service-secures-marketplace-with-btc-blockchain, July 28, 2015 (no longer available)
- CoinDesk, www.coindesk.com/data/bitcoin-market-capitalization, accessed July 31, 2015
- Bitcoin Logo: By Web-dev-chris (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons