I just posted this in the thread Do you think Bitcoin is a safe store of value? on the Corner of Berkshire and Fairfax (some of the smartest value investors you’ve never heard of frequent that board, it’s one of my favorite investing boards on the internet) and it occurred to me that it may have come across somewhat vitriolic and rant-ish for such a serious forum and it probably was more suited to a stand-alone post here:
It is not possible to fully grasp the ramifications of bitcoin until one reads The Onion’s
…realizes the truth behind what makes it so funny, and goes on to realize that the underlying insight behind it is more fully applicable to the US Dollar than it is to bitcoin.
At that point, you will realize that crypto currencies are a true game-changer and that the price action of bitcoin is but a mere side-show.
Money evolves over time, who can deny that? And it usually evolved along lines of expediency and in a counter-trend to government policy (which is always in one direction: inflate and debase). Today the official national currencies are again being systematically destroyed by their governments, and this is happening across all currencies simultaneously. Given the needs of a global, interconnected, highly abstract economy facing these circumstances, crypto-currencies were pretty well inevitable.
Yes, new crypto-currencies can emerge (there already are hundreds of them and most of them are dying on the vine – the most comical one I’ve come across is zimcoin, which actually claims to be pegged to the Zimbabwe dollar at the rate of $10 trillion $Z to one zimcoin)
The important thing about this is it puts currency itself back where it should be: subject to market forces. Thus, if one currency elects to destroy itself via mismanagement or dilution (a.k.a inflation), the market participants can and will move out of it. This is as it should be.
Fiat currencies like all national currencies are currently engaged in a worldwide game of dirty pool. We’re in a global currency war, there is open talk of ZIRP becoming NIRP, governments and central banks are basically screwing everyone in an effort to keep an unsustainable paradigm going.
Nearly every single criticism I’ve seen leveled against bitcoin is more accurately applied against the US dollar, or the Canadian dollar, or the Euro or the Yen. You want to talk about “meaningless numbers in a computer somewhere?” look no further than those currencies. You want to talk Ponzi? Look at QE, Abenomics and other “wealth effect” gimmicks that enrich those closest to the politically connected and screw everybody outside the beltway.
That “the government will eventually shut bitcoin down” is also easy to deflect: they can’t. Shutting down bitcoin would be about the same as banning prime numbers. Sure they may go after exchange providers, maybe they drive it completely underground, but then they just create it as a black and grey market. Further, to make a real go of “shutting down bitcoin” it will require a push into global totalitarianism that makes today’s situation (with it’s global surveillance and the suspension of most civil rights) look tame.
The reason for all this is because pretty well every global government, and their complicit central banks, especially in the US, especially in the UK, especially in Canada, especially in Europe, everywhere, with their desperate economic rigging and central planning, with their pervasive global surveillance on their own subjects, with one illegal war, police action, “peace keeping”, bail-in, bail-out and nationalization after another have lost all legitimacy to rule.
So the emergence of something like bitcoin, necessity being the mother of invention, was just one big F.U from the free market to the system that it’s been holding its head underwater for decades. It had to come out somewhere, here it is.
Crypto-currencies are inelastic forms of exchange, which put them in the same league as gold or silver, and no, they will never replace them, rather they have emerged as a perfect compliment to them. Totally portable, frictionless and largely immune to capital controls, crypto-currencies have become the official lubricant of the free market (I mean the real free market, the one where price discovery actually takes place between buyers and sellers, not dictated by central planners).
This isn’t a curiosity, this isn’t tulipmania, and no, I’m not recommending you run out and buy bitcoin (it’ll probably crash down to about $100 or $200 any time now, maybe lower) – but I would recommend setting up a bitcoin wallet somewhere, getting an exchange account and obtaining the ability to move funds in and out of it as needed so you are comfortable doing so.
If you own a business, start accepting bitcoin. I’ve been accepting it since spring of this year, so that’s how I’ve accumulated all of mine. Sure, it’s nice to be nominally “up” on the exchange rate, but that isn’t why I’m doing it. I’ve sold a bit of it just to familiarize myself with the ins-and-outs of converting to cash, and I have a debit card which I can load up with bitcoin and withdraw dollars from any standard ATM.