Friday, April 4, 2014

The Bitcoin Revolution

One of the hot topics in recent news is the emergence of a new medium of exchange called Bitcoin. Bitcoin is not legal tender (like the U.S. Dollar) which can be used to exchange for goods and services, but many people are hoping that it steps into that role within the coming years. So imagine that within the next decade you would no longer use Dollars for any, or at least the majority, of your transactions. Seems far-fetched right? Maybe not if you consider many other current events.

But before I cover the strong evidence for the possible Bitcoin revolution, lets examine what money is.
First, money is a medium of exchange. This is the basic premise of what we have all come to believe makes something money. We use money to get something. We also get money for doing something such as providing a good or service. But money is much more than that. Money has certain attributes which allow it to actually function as money.

  1. Money is Portable
  2. Money is Durable
  3. Money is Divisible
  4. Money is Fungible (exchangeable)
  5. Money is A Store of Value
If we examined the U.S. dollar or any other currency in the world which is backed only by confidence (fiat currency) we would quickly realize that none of these currencies function as a store of value. Case in point, I read an article recently about a couple that found many buried gold coins on their property. The total worth of the gold coins was around $10 million. The youngest minted coin found was from 1894. So imagine you buried $10,000 worth of cash in the ground today. Do you believe in over 100 years that cash will be worth equal to today's cash in terms of purchasing power? I believe its safe to say most people know that would not be the case. Gold and precious metals on the other hand have always maintained their value because of a very simple principle. It requires time and energy to get it. Humans cannot create gold or silver and therefore it is a finite resource which requires considerable effort to capture it. Can we say the same about government currencies? All that is needed to make U.S dollars is a printing press or a computer program with some authority behind it. So why do we use this government sponsored currency? The complete answer to that question requires a historical explanation beyond the scope of this article. Instead, lets examine Gold and Silver and why despite its advantages as a store a value it may not be the solution to a sound monetary system.

Gold coins were first struck as money dating back to 550 B.C. in Lydia. Over the course of the centuries, Gold and Silver were used as money. Soon though, governments began to reduce the purity of gold and silver with other metals more readily available. Over time, this eventually lead to the collapse of economies as their money became worthless and people became less and less likely to take these diluted forms of money.

Fast forward to today. Within the past 100 years our economic system has collapsed three times with another collapse fast approaching, according to many financial experts. The difference between the previous three collapses and the upcoming one is that the U.S. was able to benefit from the restructuring that took place which placed the U.S. dollar as the world reserve currency. For a more in-depth explanation of what these collapses looked like and how the U.S. was able to benefit, I highly recommend watching Mike Maloney's hidden secrets of money videos which can be found at

Today, the economic conditions are very different from 20 years ago. The price of every day goods and services is rising constantly. Gas and other forms of energy will also continue to rise in price. Why? Because similar to the way ancient governments would dilute their gold and silver money with common metals the current global governments (especially the U.S.) are increasing the money supply of paper currency by printing massive amounts of money. The problem is even worse than that. The entire fiat currency system is predicated on the fact that U.S. dollars are borrowed into existence (more on that in Mike Maloney's videos) and therefore any debt accrued is mathematically impossible to pay off. The result can only be a systemic failure of the entire global economic system. However, as I mentioned before, this is not without precedent and is not meant to be taken as a dooms day scenario even though that is a possibility on the spectrum of possibilities. What will most likely happen is a new system will agreed upon by the world powers. This will not be without some calamity and destruction of U.S. dollar purchasing power.

This is where Bitcoin comes in. Without getting too technical on how Bitcoin works, bitcoin and other cryptocurrencies are special in that they are not controlled by anyone. There is no central bank or government that decides on how much to print/create. Just like gold and silver, energy and time must be allocated to mining cryptocurrencies through the use of computers. If the cryptocurrency (e.g. Bitcoin) you are using becomes accepted by enough businesses, users would not have to worry about:
  1. Money tracking by Government entities
  2. Taxes
  3. Inflation
The most important of these is arguably inflation. While inflation does not seem like a problem at the moment, we only have to think back to 2006-2008 when the gas prices nearly doubled to remember how disheartening it is on consumers. Whether you believe the U.S. is going to experience severe inflation or not, does not matter. If inflation does come to the U.S., many people will begin to scramble for a safe haven to store their wealth. While gold and silver function exceptionally well at this, they may not be as easily transferable as a digital currency. For this reason, Bitcoin may come to be widely accepted as an alternative to the U.S. dollar for transactions. As people look for stability and safety from a failing fiat currency system, Bitcoin might just be the solution. Because of Bitcoin's lack of government or central control, it might prove to be the invention that changes the very reality of people. It might very well be, the invention of true money.

The big question when it comes to Bitcoin is: will more businesses and producers of goods and services be willing to take bitcoin? I think the future economic environment will likely motivate more and more people to do so. Though, there is much the government can do to stop the ascent of Bitcoin. One possibility is to "back-up" the dollar with gold to restore confidence. This would basically set up the same situation where the governments could eventually print more than it actually has in gold to back it and start the fiat scam all over again. So the future of the United States and our economic freedom actually depends on whether cryptocurrencies come to be widely used. The only way that will happen is if people become educated on the topic of MONEY and what real money is. Whether this plays out for the benefit of mankind remains to be seen. One thing is certain, we live in exciting times.

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