Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.
- Nassim Taleb on Reddit yesterday
So Bitcoin has finally dipped its electronic toe into the fringes of mainstream consciousness. The results have been, to put it mildly, explosive, divisive and highly emotional. I can see why.
While I had been aware of it prior, I never truly became curious about Bitcoin until I read an excellent six page article about it in the New Yorker on October 10, 2011. I had no clue how the technology worked, but it intrigued me to such a degree that I sent it to my email list of close contacts. What really struck me was the rationale for creating Bitcoin by its creator, the anonymous “Satoshi Nakamoto.” This cryptographer was well aware of the cancerous nature of the world’s monetary system and the key role of Central Banking in that system. This wasn’t just some technology geek playing games with virtual currency, this was a well thought out monetary revolution.
He had thought this entire thing out like a chess grandmaster. He knew he had to be anonymous and that Bitcoin had to be decentralized, because he knew the Central Bank overlords would fight to the death to protect their money monopoly. He created a currency that central planners could not naked short to infinity and manipulate with derivatives as they do with the precious metals markets. It was this foresight that has led to its tremendous success today.
It wasn’t until I started accepting Bitcoin donations in September of last year (donate here) that I truly started gaining a small understanding of the technology and who the major players in the “Bitcoin Economy” are. It was at 10 back then, it is 73 as I write this today.
A chart like the one above is nothing short of parabolic, and parabolic charts beget parabolic emotions. From my end, I have received some complaints from “gold bugs” who seems annoyed that I am highlighting Bitcoin seemingly in preference to precious metals. To them I have a few things to say.
First, I spent four years writing about gold and silver non-stop. Sorry, it just gets repetitive and boring. Never once have I wavered in my conviction on the need to buy and hold these metals; however, the world is dynamic and when new things enter the picture I will formulate new thoughts. Some of the complaints against Bitcoin are valid, others are not. The one I hear the most, which is completely untrue, is that Bitcoin is another “fiat currency.” I’m often shocked that people make this error, as the definition of fiat is: 1. A formal authorization or proposition; a decree and 2. An arbitrary order. Synonyms include: decree, diktat, directive, edict, rescript, ruling. Bitcoin is 100% voluntary. No one is declaring it the “money of the land,” forcing you to pay taxes in it, or invading the Middle East to protect the pricing of oil in it. So let’s move on.
The one legitimate criticism of Bitcoin with which I sympathize is that it has no intrinsic value. It really doesn’t. Bitcoin can absolutely go to zero. All that would take is people losing confidence in it, or something better coming along. While I see absolutely no evidence of either of these things happening any time soon (in fact I see the opposite), in theory this could happen. Would I rather have a flash drive of Bitcoins in a safe and open it 500 years from now, or the equivalent in gold? I’d still take the gold ten times out of ten. That’s still not the point.
Proponents of precious metals need to be very careful not to tread into the realm of religious dogma when it comes to money. The point of gold and silver is not to sit around worshipping its beauty and the fact you have to mine it, but rather to appreciate it as a means to an end. As a way to vote against the corrupt monetary and financial system plaguing the world. As a potential means of exchange that is decentralized and not of or by the government. While I personally don’t plan on putting a huge amount of my net worth into Bitcoin, I support it wholeheartedly for what it represents and the ingenious philosophy and technology behind it. Do I think Bitcoin could become a huge deal in the world of currency over the next decade? Yes, I do. Do I also acknowledge the enormous risks inherent in it. Yes, I do. Once again, that’s not the point.
The point is no matter what ends up happening with Bitcoin, it is showing us all the way forward. It is showing humanity that we don’t need government for money. We certainly don’t need Central Banks. All we need is each other and a mutual means of exchange by which we agree to trade with each other, no matter what that may be. Bitcoin has led the cat out of the bag and there’s no putting it back in now.
As I write this, there are about 10.9 million Bitcoins in existence, putting the entire market at around $775 million. To put this into perspective, even after this parabolic move, Ben Bernanke still prints into existence an average of four new Bitcoin markets every single day.
So What’s Next
Based on intuition, psychology and nothing more I suspect the Bitcoin market will hit a total value of about $1 billion before experiencing a severe pullback. That would put the price at around 92. At that point, it is likely to be all over the financial press and I think “the state” may be tempted to threaten it. Supporters of Bitcoin should not only expect such an attack, we should embrace it. Just think about how ridiculous the government will look if they attack Bitcoin. I mean, these guys can’t put a single banker in jail, but when citizens decide to freely exchange goods using a currency of their choice that is where they draw the line! Bitcoin’s purpose is to both show us the way forward and to make the authorities look foolish as they spastically and irrationally respond to it. I suspect it will be highly successful in accomplishing both objectives.
As Woody Guthrie might say if he were alive today: This Digital Currency Kills Fascists.
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