Bitcoin Stabilizes

[Aim64C]

Remember all the fuss over the failure of Mt. Gox, the bitcoin exchange?

Some of you probably don't. For those who have no idea what I'm talking about:

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It would be wise for you all to study how Bitcoin works versus how centralized bank notes work. Once you understand the difference, you will begin to understand how it is that bitcoin exchanges (effectively banks) can end up in serious trouble. Bitcoin is very unforgiving. No one can print more.

Despite all of the doom and gloom:

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Bitcoin is doing just fine. The collapse of Mt. Gox back in the middle of February did impact stock values - but things appear to have recovered to a degree and stabilized.

Given bitcoin's prior history:

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We are, perhaps, looking at a proper market value (currently) of around $600/bitcoin until another bull rally can set the bar higher. I expect stock trades will begin being negotiated in bitcoin values before too much longer - which will be indications of a direct shift away from U.S. Treasury bonds as the reserve currency. This will likely start to come around October of this year, as the U.S. will begin debating its next big budgetary issues and it will be more of the same with plans to continue issuing more bonds than it can expect to generate revenue to repay.

While some interest may shift over into Russian currency bonds given their acquisition of the oil and natural gas pipelines in Crimea - the portions of the market that do not have a pressing need to do business with Russia will likely avoid the currency amidst uncertainty regarding an expanding Russia (though our ... 'sanctions' ... don't get me started on Resident Obama....).

That leaves currencies like Gold, Silver, and Bitcoin. Gold and Silver are unrealistic on the international scale of stock exchanges. Secure shipment of gold to support large gold exchanges will be difficult to accomplish and is far easier for governments to tamper with. Gold and silver will eventually reclaim currency standards in the wake of centralized banks dissolving - but they will remain mostly regional.

Bitcoin, on the other hand, is well poised to become the next reserve currency. No one truly has control over bitcoin. Realistically speaking, no one truly can have control over bitcoin. Transactions cannot be stopped, and once confirmed by the network, are set in stone. This means government regulation and control over the system is every politician's fantasy that can never realistically be.

Bitcoin exchanges are not necessary for it to function as a reserve currency (as with Gold and Silver) - it can be banked and exchanged entirely by individual people or companies. Though I do expect bitcoin exchanges would come about to function as a form of credit union or pre-fed banking operation.

Bitcoin can be expected to become more prevalent, as can notions of gold and silver currencies.

This is the concept of banking (with a physical resource like gold) in a nutshell:

[video=youtube;3HdmA3vPbSU]http://www.youtube.com/watch?v=3HdmA3vPbSU[/video]

 

[WolfHaley]

Why do you have a plastic doll for an avatar

 

[Pumpkin Ninja]

I don't understand bitcoins at all T___T. Can anyone explain what they are to me (assume you're teaching a squirrel).

 

[Aim64C]

Why do you have a plastic doll for an avatar

LOL

At 130 degrees Fahrenheit, it does give one's skin a certain look akin to plastic. Drinking and sweating out over six liters of water per day will make your skin freakishly soft, too.

Unless that was intended as a jab... in which case, I honestly don't get it.

 

[Aim64C]

I don't understand bitcoins at all T___T. Can anyone explain what they are to me (assume you're teaching a squirrel).

[video=youtube;Lx9zgZCMqXE]http://www.youtube.com/watch?v=Lx9zgZCMqXE[/video]

That does a good job of explaining the bitcoin protocol.

It may not make full sense to you the first time around, and it is something of an alien concept to many people, who are accustomed to the concept of government currencies and digital currencies issued by corporations (such as facebook credits).

The best way to think of a bitcoin is that it represents a limited asset. A bitcoin can be thought of as a 'key' - or a portion of it. There are only a certain number of keys that work within the bitcoin system. The bitcoin network keeps track of how many keys (or portions of a key) a bitcoin address has (also known as a 'wallet'). 'Miners' support the secure operation of the network and are 'paid' through small transaction fees that are applied to each transaction.

There will only ever be a fixed number of bitcoins (21 million, if I remember correctly). No more will ever be created once those seed amounts have been 'mined.'

What is important about that video is how it evaluates not just how Bitcoin works - it also explores the limitations and potential problems bitcoin networks face (and how those problems are mitigated).

 

[EnDash]

from the graphs it's kinda looking like bitcoin is in decline, from 1200 in mid december to 600 in january to 900 in mid january to around 600 in march. it's possible that by may the bitcoin will go down to 400 and continue that way.

i'm not saying that bitcoin is going to crash but i don't think it's safe to call it stable just yet. if it goes say 3 - 4 months without a dramatic change then i will call it stable. but it was just too hectic to recently to say that.

i do agree that bitcoin is going to fare extremly well in case of russian or american economic crisis. it's a great system to run too if and when things get messy.

 

[YowYan]

I heard one of the developers of Bitcoin, a lady, got assassinated by some government funded instituion. I guess they're trying to put a hold on Butcoin's growth like they did with Gadhafi and his golden currency proposal for a united africa. But that's just a wild guess though.

 

[Aim64C]

from the graphs it's kinda looking like bitcoin is in decline, from 1200 in mid december to 600 in january to 900 in mid january to around 600 in march. it's possible that by may the bitcoin will go down to 400 and continue that way.

i'm not saying that bitcoin is going to crash but i don't think it's safe to call it stable just yet. if it goes say 3 - 4 months without a dramatic change then i will call it stable. but it was just too hectic to recently to say that.

The trend of Bitcoin is that a massive speculative bubble develops around it in the wake of government financial issues. The bubble swells until the profit-seekers start getting leery of the bubble bursting - and it bursts. Then it sells back until those who are treating it as a reserve currency are no longer willing to sell. At which point, it tends to remain relatively stable.

This is what is known as a 'correction' in markets. When a particular stock or holding begins to rise in value - a lot of investors start to 'ride the bull.' This leads to a huge speculative increase in value until it corrects back down to where those who are consistently in the market feel it should be valued.

The fact that bitcoin has been exceptionally stable in terms of value between its speculative peaks is a good indicator of it becoming a reserve currency system, as reserve currencies are used as intermediaries for stock and futures exchanges. If I want to buy oil - I don't actually sell my holdings, receive U.S. Dollars, then go buy oil. I exchange my holdings for treasury bonds (which are entities on the market rather than literal dollars and cents) - then I exchange those treasury bonds with an oil manufacturer for a contract to provide x units of oil by a certain date.

Bonds used to be considered secure investments. The government was obligated to pay back the bond when it matured with some interest. They were great tools to facilitate stock exchanges because they literally held their value.

Except many governments no longer run balanced budgets, and the inflation of those currencies almost always exceeds the interest payment on the bond. Further - those governments run on entirely debt based issuing of those bonds - there is no physical standard reinforcing the value of a dollar; only the number of dollars in circulation combined with who is willing to accept dollars in exchange for goods/services determines its value.

Because the currency has become insanely deflationary compared to the interest rates and value of the bonds - it is weakening the interest in purchasing of bonds. Further, it is becoming increasingly apparent to the informed investor that the interest payments on issued bonds will eventually exceed all government revenues - which means any mathematical hope of paying off the principle of bonds yet to mature flies out the window.

Exactly when that will be is difficult to calculate - but a bond set to mature twenty years from now would be purchasing something you hope someone else is stupid enough to buy off of you.

Which is precisely how the markets will work. They will play hot-potato with treasury bonds until arms and hands start getting blown off. Which is why everything will -appear- to be "just fine" and "all of those crazy conspiracy theorists were wrong" ... and the whole thing will explode almost literally overnight.

Treasury bonds will be bought from the government even in the first hours of the impending collapse. The investors and their computers will gamble on the bet that they can sell the bonds off for what they need before value drops appreciably. Others will continue trading existing bonds on that very same principle.

It will be quite a spectacular thing to watch, really.

I mean... it will usher in some very hard realities to the world economy, and it will be a painful lesson - but one we can learn and grow from.

When that happens - the purchasing power of bitcoin, silver, gold, etc will be incalculable (but obscenely high). In something that will initially blow a few people's minds - change will be more valuable than the same amount of dollars written as a check or debit card payment.

But it will usher in the greatest era of innovation the world has ever seen. It will make the industrial revolution look like the hammer compared to a wheel. 3d printing will spearhead individual and small-group productivity - a tradesman's capability will be amplified a hundred fold. Many large, established industries will collapse and the vacuum will result in smaller industries based around things that are research and pre-market prototypes will become the defacto standard (where the eras pre-1800s were known for their masonry, buildings post-1800s were known for their metallurgy - the next era will be the pico-scale ceramic-composite era of materials technology).

Occasionally the forest must burn to make way for the next generation.

i do agree that bitcoin is going to fare extremly well in case of russian or american economic crisis. it's a great system to run too if and when things get messy.

I think it (or a similar system) will eventually usurp centralized banks that issue fiat currency. While there will still be banks, and there will still be centralization of banks - it will be more akin to 'franchise' banks. Since they will not be taken seriously if they begin issuing check notes that do not reflect some recognized standard value (such as bitcoin, silver, gold, etc) - their power will be limited.

And that is partially where the implications of the open register of Bitcoin come into play. While banks could create thousands of different bitcoin accounts (and likely will to minimize the damage that can be done by a key being compromised) - it does not benefit them to operate 'in the dark' in regards to their account holdings. The open register means that every transaction (and thus, every bitcoin owned) can be known. This means that a bank or exchange using bitcoin can always have its 'vault' open to be looked at while remaining secure.

While it can't always be known how much a bank has issued in terms of notes (as it is likely banks will issue check notes for bitcoins at some point in time simply to facilitate more familiar checking systems with charge/service dispute mediation), it can always be known what its net holdings are. Unless it holds 'private' wallets that it does not publicly claim.

Which would make no sense for them to do in the long run, as third party organizations would begin reviewing bitcoin data and available banking data to rate the credit-worthiness of each bank or bank conglomerate. So the more a bank can prove it has in reserves - the better its credit standing.

I heard one of the developers of Bitcoin, a lady, got assassinated by some government funded instituion. I guess they're trying to put a hold on Butcoin's growth like they did with Gadhafi and his golden currency proposal for a united africa. But that's just a wild guess though.

I haven't heard about that.

If they did... they have absolutely no understanding of how Bitcoin works. For all intents and purposes - the network will survive so long as the internet survives. You could kill off every developer who worked on it - the network would keep on chugging, and it would only drive the up-and-coming developers who would fill the void deeper underground.

Though I can understand why governments would be leery of bitcoin. Most politicians don't understand what bitcoin is (those who support it do so for just as idiotic reasons as those who oppose it), and it seems the number of economists who understand it is not much better (but since it's a currency - their opinion is considered valid when it comes to 'how the developers could disappear with your money' - and other such silly claims).

Tech experts seem to have a much better understanding of what bitcoin is... but don't really have much of a clue as to how it will perform economically.

The people who seem to understand the most about it are, interestingly enough, investors in the tech industry.

There is the anarchist crowd of script-kiddies who kind of know about it... but many of them can't really hold down a discussion that includes pointed questions about bitcoin and its viability.

 

[LED ZEPPELIN]

countries could just start banning bitcoin. that's how the first "bitcoin crash" happened after china banned bitcoin.

 

[Aim64C]

countries could just start banning bitcoin. that's how the first "bitcoin crash" happened after china banned bitcoin.

That wasn't how the first bitcoin 'crash' happened. The first bitcoin 'crash' happened as a market correction back in March of 2013.

Governments cannot, effectively, ban bitcoin - as there is nothing to ban.

If I do business in bitcoin - sending out products and performing services for bitcoin, then report my business activity in quarterly USD equivalents (taken from weekly average bitcoin exchange rates) and then sell off a number of bitcoins necessary to pay taxes on that business activity - what -can- the government do?

The only tip-off they might get is if they try to perform an audit and find much less banking activity than expected from my revenue statements. But this is hardly any different from businesses that conduct large volumes of business in cash. If you hand me a $20 bill and I turn right around and use that $20 bill to buy more product to sell without sending it through my bank account - there's nothing but my own ledgers to record the transient funds.

You can -try- to ban bitcoin by prosecuting those you discover who are using it, but governments would be just as successful at banning homosexuality or premarital ***.

 

[LED ZEPPELIN]

my mistake. but anyway, i'm sure one of the bitcoin crashes was caused by chinese ban. check this out if you want.

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you can do a variety of things to simply ban bitcoin... for instance, implying fines on large corporations which use bitcoin or simply shut down entire super markets who still accept it. since everyone knows everything about bitcoin, it wouldn't be hard for the world governments to track the digital currency.

 

[Aim64C]

my mistake. but anyway, i'm sure one of the bitcoin crashes was caused by chinese ban. check this out if you want.

You must be registered for see links

you can do a variety of things to simply ban bitcoin... for instance, implying fines on large corporations which use bitcoin or simply shut down entire super markets who still accept it. since everyone knows everything about bitcoin, it wouldn't be hard for the world governments to track the digital currency.

They can try their damnedest to track it all they want to.

It won't do them much good in trying to stop it. Assuming a business is operating largely off of bitcoin, there is absolutely nothing the government can do to 'shut it down.' There are no bank accounts they can freeze. They have nothing.

Short of sending a Sheriff's deputy out to put a lock on the door.

And with most Sheriffs taking a rather negative view of Washington these days, that's just not likely to have much consistency in enforcement.

Let's be realistic. The government can't find a damned plane built to be tracked, nor can they properly track the weapons they issue to drug cartels in an attempt to map their logistical network.

They are going to successfully track down bitcoin and shut down the places that use it?

Agent Smith is the wet dream they aren't.

 

[LED ZEPPELIN]

"you can do a variety of things to simply ban bitcoin... for instance, implying fines on large corporations which use bitcoin or simply shut down entire super markets who still accept it."

 

[Aim64C]

"you can do a variety of things to simply ban bitcoin... for instance, implying fines on large corporations which use bitcoin or simply shut down entire super markets who still accept it."

If a corporation is doing business in bitcoin, how does one collect on a fine? The threat of economic penalty is removed. That leaves only the purest form of law.

How do you shut down supermarkets that accept it? Granted - if they are only partially accepting it, damages can be inflicted through the 'normal' means. But, let's entertain the idea that it's a sweeping phenomena and it's not just bitcoin, but gold and silver (and third party bank certificates backed by gold, silver, and bitcoin holdings)... how do you realistically shut down businesses that accept it?

You don't.

Monetary standards are realistically indestructible once established. You cannot prevent them from being exchanged at agreeable values any more than you can prevent people from breathing.

"Well, they can shoot you."

And that is precisely what the government would have to do. Dispatch armed forces. Which is, in the end, the sole purpose of government.

Which forces an honest discussion about the duties and role of government. The Federal Reserve has obscured the impact of national bond issuing. Most of us born even as far back as the 50s have lived in a world where the government may as well be considered a deity for all the power we believe it wields.

Governments, however, are not the source of the power. The power is the people who comprise the society that abides by the government's decisions. By obscuring the fact that -we- create every ounce of power the government wields and convincing us to become reliant upon politicians, employers, safety-nets, etc - the government creates the illusion that it is the source of power.

At such a point where bitcoin, gold, silver, or any other hard physical standard gains traction as an exchange currency; the government as you know it will be forced to come to a muffled or obscenely violent end.

The only way it will become violent is if there are enough people committed to the 'old' way of life. The number of people who will fight to keep the alphabet soup of agencies intact is ... relatively small. Military loyalty would not be easy to depend upon (since most in the military are a chaotic mix of borderline anarchists, libertarians, or 'Tea Party' conservatives). Simply printing enough money for your military (holding their families over their head) to be able to meet its bills (or desert and face uncertainty) only works when there are no other currencies competing for domestic exchange.

What it all boils down to is that no government with any lick of sense would try and stop what is coming - because it can't be stopped. Their central bank notes will collapse - the internet and 'digital banking' prolonged the life of central bank notes well beyond what would have been if it relied upon physical exchange (where its value would eventually compete directly with gold and silver). The convenience of sending dollars over wires was considered worth the cost of inflation - doing that with gold and silver was impossible - and gold/silver exchange notes couldn't compete with the fluidity of pure numbers.

But that is rapidly changing. Concepts like bitcoin (it isn't the only cryptocurrency out there, and there are other initiatives that aim to improve upon bitcoin's model) render the issue of digital fluidity moot while forcing honesty upon a purely numerical system (the amount of currency in existence cannot be expanded and contracted by any single entity, and even a group of entities would have a very difficult time managing to sway the will of the network). Pushes for balanced budget amendments and calls to end the federal reserve to bring back metal-backed standards are becoming increasingly prevalent.

It is only a matter of time until the centralized bank notes start to cave. Some governments will be able to effectively use force to stave off an incursion of other currencies... but in the end, it will be rather futile. The assets necessary to enact that kind of control introduce the tendrils of foreign exchange and the communication of knowledge.

Governments that embrace the change will survive. They will have to change -but they can survive. Governments that do not will crumble and/or explode in a variety of interesting ways.