Genuine Opportunity, or Passing Fad?
Nobody will argue that the price history of Bitcoin over the past few years has been nothing short of incredible, going from less than once cent each to over $1,000 each. Even the scoffers of Bitcoin agree that the increase in the value of Bitcoin during this time has been beyond breathtaking.
Where the argument arises is over whether or not Bitcoin is truly a world-changing paradigm shift in the nature and use of money, or is simply an irrational, greed-inspired craze like the tulip mania of the 1630′s. If one believes the former, then Bitcoin investments will prove very rewarding; if one believes the latter, then Bitcoin is doomed to failure and its price will crash to zero at some point in the future.
Will Bitcoin go the way of drive-in theaters, the Macarena, and mood rings? Or 30 years from now will seniors be telling their grandchildren about the time when they were able to buy one entire Bitcoin?
Bitcoin’s critics argue that Bitcoin is not a currency because it is neither backed by anything of value, nor issued by any government. They cling to the notion that Bitcoin provides nothing of any real worth and is merely a greed-driven mania that will come to its own demise when there are no more suckers left to sell to.
It’s true that Bitcoin is not backed by any tangible commodity with intrinsic value, such as gold or silver. However, the same can be said of the U.S. Dollar itself. Back in 1792, the Coinage Act – which was passed by the U.S. Congress – declared that a dollar was “three hundred and seventy-one grains and four sixteenth parts of a grain of pure” silver (roughly 0.85 ounces).
Initially, the U.S. Dollar was backed by precious metals. For years, paper money in the U.S. clearly stated the words, “This certifies that there have been deposited in the Treasury of The United States of America Ten Dollars in gold coin payable to the bearer on demand,” as can be seen in this image of a ten dollar bill from 1928 (top of bill and bottom of bill):
At one time, the currency of the U.S. was backed by something of intrinsic value – gold and silver – but those days came to an end decades ago.
The U.S. Dollar is no longer backed by anything of value. Nor is the Yen. Nor is the Euro. Nor is the Chinese Yuan. Nor is the British Pound.
If all of these major currencies “aren’t backed by anything,” why would it matter that Bitcoin isn’t backed by anything?
That’s not a valid argument against Bitcoin any more than it is a valid argument against the above mentioned currencies.
The next argument that the anti-Bitcoin crowd makes is that Bitcoin is not issued by any government, therefore it has no value. This viewpoint was issued by the New York Times a few days ago in which the opening sentences stated, “The developers of bitcoin are trying to show that money can be successfully privatized. They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state.”
Really? History is littered with examples to the contrary. History would suggest that money that is issued by governments is always doomed to failure. Where can a person spend a Roman Denarius today? Or a Chilean Escuado? Or a Hungarian Pengo? Or an Argentine Austral? Or a Peruvian Inti? Or an Angolan Reajustado? Or a Yugoslavian Dinar? All of these “government-issued” currencies (and many more) are examples from history that show the exact opposite of what was declared by the NYT writer.
A person with open eyes does not have to search for very long to see many examples of governments abusing their power to issue money. While there are people in this world who would trust the value of their money to the politicians of the planet, this author is not among them. Politicians don’t exactly have a trustworthy track record. Just saying.
Two of the primary arguments against Bitcoin – that it is not backed by anything and it is not government issued – are hollow. Those points are virtually meaningless. Currencies can function without any backing, and government-issued currencies are not immune to seeing their value plummet to zero (and not only are government currencies not immune, given enough time, the politicians in nearly any country will eventually destroy that country’s currency. This has happened time and time and time again throughout history.)
With those two points moot, the real issue becomes whether or not Bitcoin provides any real worth. When this aspect of Bitcoin is examined, the facts indicate that Bitcoin does indeed have the potential to evolve the world of money, payments, and finance in the same way that the telephone evolved communication, the airplane evolved travel, and the television evolved entertainment.
Bitcoin is to money, banking, and finance what the internet is to information.
Despite what the New York Times says, one of the primary problems of government issued money is that it is constantly being diluted in value with the creation of literally nearly unlimited amounts of it.
Bitcoin has a hard limit of 21 million Bitcoins that will ever be created. Ever.
Government created currencies are secretive. The Federal Reserve has never been fully audited. Nobody knows how many dollars have been created. Bitcoin, by contrast, is open-source and 100% transparent.
Government created currencies are subject to cronyism. Special monetary favors to special “well-connected” people. Bitcoin, by contrast, is decentralized. There are no special favors for anyone. All men and women are equal when it comes to Bitcoin.
Government created currencies grant monopolies over money to banks. These banks can then create arbitrary rules and regulations and exorbitant fees over how a person can use his or her own money. Banks can freeze, sieze, impede, and Cyprus the money that belongs to their depositors. Bitcoin, by contrast, is peer-to-peer and exists outside of the monopoly of the banks.
The world is evolving rapidly. Think of the ways that digital has improved the standard of living. Analog music – the simple record player – has been replaced by digital music. Think mp3′s, CD’s and ipods. The equivalent of analog mail – a letter sent by the postal service – has been replaced by email. Nearly instantaneous and nearly free compared to days or weeks and comparatively expensive postal delivery.
Hard-wired telephones have been replaced by cell phones and skype.
Technological advancement and improvements are everywhere, why should not the same be brought to the world of money?
Imagine a world in which your money continually goes up in value instead of down. Imagine a world in which you can send any amount of money to anyone in the world anywhere, anytime and do it nearly instantaneously. Imagine a world in which your money is yours, and not under the control of a questionable banker. Imagine a world in which your money cannot be diluted, frozen, seized, or impeded in any way. Imagine a world in which your financial matters are free from third party fees and interference, where transactions are peer-to-peer, are part of a triple accounting system that reduces costs to the realm of miniscule while increasing flexibility, security, and speed of processing. Imagine a world where politicians can make all the selfish, sold-out, inexcusable financial decisions they want without it harming the value of your money in the least. Imagine a world where your money is completely beyond the reach of the bankers.
That world is now. That world is Bitcoin.
There are many problems within the established financial system and many problems with the currencies of the world. Bitcoin offers solutions.
Anyone can choose to ignore and not use Bitcoin, just as they can choose to ignore and not use jet travel, automobiles, television, the internet, and a host of other technological innovations that improve the world’s standard of living.
There is no doubt that some people will never use Bitcoin. But it doesn’t change the fact that Bitcoin provides genuine worth to those that do.
In the words of one prominent financial economist, “It’s Not a Bubble, It’s a Substantial Paradigm Shift,” and it’s the “beginning of something spectacular.”
Early adopters of new technology can reap handsome financial rewards. This has been the case with Bitcoin, and will likely continue for the foreseeable future. Of course, you should do your own diligence and investigation of Bitcoin. For the majority of people, the more they examine it, the more they like it and are convinced of its utility.