Bitcoins: Digital Gold for the Digital Age
It's happening all around you, at this very second, and you probably haven't even noticed.
Right now, on the same networks that carry your internet data, people are exchanging goods and services – completely off the grid. Out of the reach of the tax man, the Fed, or any other government regulation.
You see, there are two types of web…
The Surface Web is what you and I are used to. It's the part of the World Wide Web that's indexed by search engines like Google.
The second goes by many names, but we'll just call it the Dark Web.
And just like eBay (Nasdaq: EBAY) and Amazon (Nasdaq: AMZN) have created thriving online marketplaces on the Surface Web, there also exists thriving black markets on the Dark Web.
So what makes these underground markets possible?
Because credit cards leave a paper trail, and sending cash through the mail is too risky, bitcoin evolved as the solution to this problem. It's risen as a completely anonymous, decentralized currency to facilitate the online version of the black market. But now, it's becoming something much greater than a black-market currency…
As Jeffrey Tucker explains below, it's an ingenious solution to a free-market problem.
So in other words, the government hates it.
And unlike fiat currency, there's no chance of inflation ever becoming a problem, as there will never be more than 21 million bitcoins . (Because each "coin" can be broken into millions of smaller pieces, scalability shouldn't be a concern either.)
In other words, The Fed hates it, too.
Which is precisely why we love it…
A Currency Based on Libertarian Values
Sure, there will be wild swings of volatility for such a brand new concept...
But we're confident that Bitcoin is here to stay – it just may take some time to gain stability. Ultimately, it's just another example of the free market at work.
Back in March, our friend Jeffrey Tucker from Laissez-Faire Books gave a presentation about bitcoins at our 15th Annual Investment U Conference. So I decided to reach out to him to shed some light for our readers on what's going on with all the new developments in this trendy new digital currency:
Q. You've called Bitcoin a "free-market currency." What do you mean by that exactly?
A. No politician invented it. No central bank controls it. It has absolutely no political or bureaucratic vacuum. No social consensus came up with the idea. Its success or failure depends entirely on the market. It's not even owned or controlled by a single corporation. Its value is not tied to any existing currency, but rather it seeks to be its own unit of account .
The bitcoin is an entrepreneurial invention, somewhat like the stream engine, the railroad, steel, or email. It's a pure software, based on what is called cryptography, and absolutely brilliant it in its design.
It was invented in 2008 by Satoshi Nakamoto. (That's not his real name, his identity is entirely private.) The inventor was around in internet forums to discuss his idea. The program is entirely open source, meaning it's owned by no one in particular. The code is available to everyone. At the same time, the transactions take place using uncrackable code so the private identities of the owners are not known.
What makes Satoshi's invention different from previous attempts is that he built into the program a strict limit on the total supply. The mining of bitcoins works very much like gold. It was easier at first and has grown harder over time. There's a strict relationship between units of the coin and the titles, so there is no chance of inflation. That's why Bitcoin succeeded, and previous attempts failed.
Q. At our 15th Annual Investment U Conference, you said you don't see Bitcoin crashing any time soon. Do you still feel that way and why are you confident?
A. The exchange ratio then was about $30 to the BTC, so my thought was that a crash would take it back to what it was for two years, which was $0.14. I don't see that happening, no. But there will continue to be wild swings in the price. There is no futures market for bitcoins to smooth out price upheavals. No one knows the correct U.S. dollar-to-bitcoin exchange ratio. The infrastructure currently in place is nowhere near capable of handling the volume.
We need to remember that Bitcoin is not a stock, a company, or even a regular commodity. It is a technology. That technology is a payment system that is evolving into a real money. Right now, its most spectacular use is in transferring funds from one person to another. It's as easy as sending a text message on a phone.
All technologies are introduced into society through the commercial marketplace. That means speculation will always be part of its development - just as it was with railroads. Over time, I see Bitcoin as growing in value. We live in a digital age. We need a digital currency.
Q. Do you see Bitcoin as a significant threat to fiat currencies?
A. Fiat paper currencies are a relic of a past age. Someday, we will look back and see them as short-lived experiments. Government only fully took over currency of the world in the twentieth century, and paper money as we know it has had a very short history. It has proven to be a spectacular failure, giving rise to inflations and unending booms and busts. As technology progresses, markets will demand that money progress too. That means a digital currency is certainly in our future. Bitcoin is just the most successful example of that so far.
Q. How Likely is a gov't ban on merchants accepting Bitcoin ?
A. There is nothing illegal about Bitcoin . But could government grow increasingly interested in defending its paper-money monopoly? Absolutely. We've already seen hints of this. But because the market is already huge and global, I don't foresee an attempt to abolish it from the face of the earth. Instead, there will be growing attempts to control it, tax it and regulate it. This is going to prove to be exceedingly difficult however, since the code is structured to live in cyberspace, where government is certainly not the master of the realm.
Q. Are there any resources you'd recommend readers use to educate themselves about Bitcoin ?
A. The evolution of Bitcoin has happened so quickly that the in-print resources are sparse. Those that do exist are written for what's called the "geek community." Trying to follow the ongoing developments is almost a full-time job. Right now, however, the Laissez Faire Club is preparing a comprehensive and non-technical report to help people understand what's going on, what to expect and how to respond. We go back to the beginning to show where this came from and deal with some of the widespread myths about the currency. [Note: To learn more about Jeffrey's comprehensive report on bitcoin, click here.]
Q. What about resources for readers to obtain, collect, or spend bitcoins ?
A. These are coming online almost by the day. There are new merchants accepting them, new exchanges buying and selling them, new means of holding them and much more. It is an evolving market, one still very much in its infancy. The infrastructure is nowhere near capable of handling the latest public interest in the currency. We go into this more in the report. Again, this is not a market for speculators unless you absolutely love high-flying danger. However, it is something to watch, understand, and perhaps hold. The future of money is going away from government paper, and into a sound money system that is not controlled by governments. Bitcoin is the most promising, sound currency to emerge in the digital age.
P.S. We agree with Jeffrey that bitcoins represent an exciting new opportunity in our digital age. And it's all part of a much larger trend we see – the complete disappearance of physical currency. In fact, 93% of all U.S. Dollars already exist exclusively in cyberspace.
Believe it or not, the Fed may even ban physical cash altogether – as soon as this year.
Oxford Club Editor, and former Emmy-nominated news reporter, Jeff Yastine has spent almost two years researching this mind-blowing story. And he now has reason to believe it's leading up to a massive exchange of wealth. One you won't want to be on the losing side of.
To see his all of his work, click here.