Considering the enormous interest developing in Bitcoin, I have decided to write this piece to hopefully fill a few holes as far as people’s confusion on what role it has to play. Now do get me wrong, I am no expert on the finer points of Bitcoin (by any stretch of the imagination). I even examined Bitcoin nearly 2 years ago, trying to ascertain if it was worth investing – I did not !!!
Now I completely get it, no I really do ! Transacting on the internet should be anonymous and easy with no unexpected costs incurred, imagine going into your local shop to purchase a book, groceries, clothing, whatever it is and having to subject yourself to a full detailed breakdown of who you are, full financial breakdown etc.. I just want to give you cash and get out of here !!
So what exactly is it, what is the future of Bitcoin, is it worth investing some of your wealth into Bitcoin, should businesses start to accept Bitcoin ?
I will break it down and at the end (as per usual) I will give my conclusions, as far I see it……
What exactly is Bitcoin ?
Bitcoin is a purely digital signature (product of an algorithm), a peer to peer payment system which effectively works as a new digital currency. It was created in 2009 by person unknown, using the alias Satoshi Nakamoto. Transactions are made directly between 2 parties – no banks, credit cards, brokers, FX outfits etc.. acting as intermediaries !!! There are no transaction fees and no need to give your real name. Merchants are slowly beginning to accept them.
Why are Bitcoin’s used as a Transactional International Payment method ?
Bitcoins can be used to buy merchandise anonymously, emulating cash if you like. International payments are easy and cheap as bitcoins are not tied to any country or subject to any regulations, it has even been known to carry large amounts of value in Bitcoin’s held on a small pen-drive traveling across continents. Businesses are attracted to the acceptance of Bitcoin as there are no credit card fees. Bitcoin’s have a maximum lifetime issue of 21,000,000, however each Bitcoin can be broken down to 8 decimal places and exchanged in fractions rather than integers. So effectively as the value of Bitcoin rises you could quite easily have 21 million to the power of 8, Bitcoins floating around out there.
Now obviously some individuals just buy bitcoins as an investment, hoping that they’ll go up in value, which I will cover below.
How to acquire and store Bitcoin’s
First off you need to download a “Bitcoin Wallet” to store your Bitcoin internet based currency. Go to bitcoin.org
Mining Bitcoins - Early adopters People compete to “mine” bitcoins using computers to solve complex mathematical algorithms. Individuals normally pool together as a group that combines their computing power to make Bitcoin’s. Bitcoin’s are issued / awarded in blocks of 50 at a time.
Buying or Selling Bitcoins - You can purchase Bitcoin’s on an exchange. Several marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using many different currencies (US$, Stg, Euro, HK$, Sing$, etc. – 18 currencies at last count) . Mt. Gox is one the largest bitcoin exchanges. The exchanges seem to charge roughly 0.55% of 1% on transactions (conversion from BTC to cash or vice versa), also nominal set fees on accepting currency cash into your account and withdrawing cash from your account, held at the exchange. Obviously the demand for your BTC at the price you wish to sell at has to be there (or vice versa) and as an open market you wait for an interested party to trade on your price, which could effectively be instantaneous or take quite a while ?
Transferring Bitcoins - Holders of Bitcoin credit can transfer to another interested party via mobile apps (smart phones) or their computers. It’s similar to sending cash digitally but anonymously. Bitcoin.org states “ Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.”
Anonymity, emulating cash.
Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities – You really think the Governments of the World and their wars on the drug trade will continue to allow this to occur ?
A quick 2 minute video explaining Bitcoin …..
Conclusion. Should I invest in Bitcoin ?
Now here comes the fun part.
Now as one writer (Brandon Smith) stated so eloquently in his latest piece(good read)……Bitcoin is consistently touted as a superior option to precious metals as a way to decouple from central bank fiat. Under examination, though, it appears to me that bitcoin is instead a deliberate distraction away from gold and silver, and other tangible solutions; in other words, I believe it to be a form of controlled opposition.
and… When first confronted with bitcoin activism, I recognized almost immediately that this was NOT a method that operated outside the system, even though it tried very hard to appear that way. It was high-tech, it was sexy (admittedly far sexier in its presentation than gold and silver), and it catered to the egos of the digital generation, the loudest voices in media today. This thing was certainly marketable. However, just because something is highly marketable does not make it a good idea, or a meaningful alternative.
Now as I see it, there are enormous holes in the logic of the energetic fan-base of Bitcoin’s (sorry Max Keiser). Do not get me wrong a free market based solution to escape the Fiat banking monopoly, that can reduce costs effectively and make purchases basically anonymous is great. But the system you are attempting to escape has a complete stranglehold on any currency alternatives and can seize Bitcoins or close down operations at will. Get real Bitcoin fans, but let me continue….
Examples; “China’s central bank warned in early December that bitcoin was not legally protected and had no “real meaning”, and barred financial institutions from using the currency,” the Guardian reported. The Chinese central bank said that individuals are free to trade in bitcoin “at their own risk”….. or …….US FBI officials at the bureau has located and seized a collection of 144,000 bitcoins, the largest seizure of that cryptocurrency ever, worth close to $28.5 million at current exchange rates.
Do you really think these nations and powerful banking groups are going to roll over with their legs in the air ? Now how did some of the famous quotes go ? Oh yeah ….
“The bank hath benefit of interest on all moneys which it creates out of nothing.” William Paterson, founder of the Bank of England in 1694, then a privately owned bank.
“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.
A Sovereign country would allow a free market crypto-currency slowly displace it’s own currency in circulation, making tax collection, illegal activities and trading incredibly difficult to track down - really ? You have to be kidding me !
So as far as an investor is concerned, I am not interested in investing any money into Bitcoin - we seem to be on a full scale tulip mania in Bitcoin prices with massive volatility, in the last 6 months alone it has traded up over 1,200%, crashed 50%, up 100%, down 60%, up 125%, down 20% ( approximately). Now if I was an investor in Bitcoin, I would only invest what I am comfortable in losing 100% off.
Merchants ? Well that is your decision obviously, but with the extreme volatility even with very efficient exchanges to convert your received BTC credits into sovereign currency your taking enormous risks (in my humble opinion). Now obviously the advocates of Bitcoin simply state the crypto-currency is simply attempting to find its real market value and this volatility will dampen down dramatically - that may well be the case. But if I was a merchant I would want to see that price action dampen down considerably before I made a business decision on accepting it, vis-à-vis regular basis.
Now finally Martin Armstrong makes some very valid points here…..
We are headed into an electronic currency regardless of what people say. Bitcoin will not survive, but it is useful to get people accustomed to a cashless society. The difference will be that the government version will be no ”anonymity” and what it being touted as a benefit is the elimination of crime – drug dealers will be eradicated (plus the government will get 100% of all its taxes).
This is why they have been waging war on gold. The only real role for gold will be as an alternative. currency not to the paper dollar – but to the electronic dollar. What maybe more practical is silver coins. But this is why Europe is also moved to a 19% tax on silver starting January 1st, 2014 (see former post). It is not that there is some dark sinister conspiracy against keeping gold prices down, the only concern about government with respect to gold is the untaxable underground economy. France has made it illegal to buy or sell gold for cash or to mail cash. The US has made it illegal to store cash in a safe deposit box. Even India banned gold sales without a license.
This is all about the Sovereign Debt Crisis, the collapse in socialism, and the driving deflationary trend as government clamps down on everything that moves. The precious metals are NOT going to be a hedge against the dollar, hyperinflation, or any of the other nonsense the gold promoters have spun to sell whatever they can like snake oil salesmen. The role of the metals will be as an alternative currency to ELECTRONIC when they terminate “printing” paper money. Wake up and stop listening to propaganda. Open your eyes and look at the real world. It is closing in a hell of a lot faster than people suspect.
SRSrocco makes a valid argument here in his article……..
Best of Luck
Mitch - Silver Sufferer