BITCOIN?

Bitcoin is the biggest and best-known "cryptocurrency," the label of which is enough to scare most people off, but a few are investing in these new, unregulated forms of money, reporting huge profits and they appear to be gaining in popularity.  Currently 40% of all Bitcoins are held by 1,000 people.  This could prove a dangerous fact. How does it work?

It is widely reported cryptocurrency investors are making thousands of percentage points on their investments and are encouraged to leave their money in deposits to enjoy more growth and add as much as they can!  Is this good a good idea or even sane?  How does it work?

Paper currency came from notes defining title to things of value like quantities of grain.  The note, or "chit," value would be for a certain number of bushels or pounds of the substance.  These "notes" could change hands many times before a holder took delivery on the goods.  Eventually, this was formalized by the creation of banks, but they could not store tons of grain so they created notes defined in units like "Dollars" which became the currency of the day. 
Then gold and silver were evaluated in terms of mining costs and trade in them as commodities so "precious" metals, gold and silver, were "storehouses of value," but are they?

Gold and silver are both rare and permanent, but have very limited use value.  We cannot eat them.  We cannot use to make anything, but decorations and electrical conductors.  Neither has the physical strength of more common and cheaper metals.  Iron has much more strength and practical value, but it is common thus low in value compared to gold and silver.

Gold has been used as a currency standard because the limited supply was thought to be stabilizing where it prevented debasing currency by overprinting.  

The best known such currency collapse happened in 1923 when the German Mark became worthless and a basketful was needed to buy a loaf of bread!  Gold appeared to solve the problem with its’ limited supply.

However the limit of gold became a problem as economies expanded with new inventions and improvements to the point that the fixed gold supply became a constricting factor in economic growth.  Only one of every 1,300 US Patents granted makes more than its' filing fees not because 1,299 were bad ideas, but the lack of capital.
For centuries the limiting factor of gold caused a direct barter trade of goods like grain and fuels as they were measureable entities and in many cases such trades could be done without taxes because money did not change hands!  This alone created the opportunity of alternative commerce and the most recent refinement has been the "BitCoin" cyber-currency.

How do "cyber-currencies" work?  To start a cyber currency you only need to define one, say "1 million CyberBucks" and to establish it you set up a "Cyberbuck" trust in a bank with $100,000.  Each CyberBuck then has a value of ten cents.  Then you hype "CyberBucks" as the greatest investment of all time and get people to make deposits in your CyberBuck account.  

After your promotion you have collected one million Dollars!  Now you can say each CyberBuck is worth $1, a 1,000% increase!  You promote CyberBucks as the greatest investment of all time, but wait, CyberBucks are not being used for anything!  So you have to get to work on setting up ways CyberBucks can be used a medium of exchange.  That is the hard part.  Without it people will begin to pull their Dollars and the scheme crashes, which is the usual outcome. 
BitCoin has enjoyed success as it has become a way to launder money and the users of BitCoin have often been drug dealers and other criminals, most notably computer ransomware fraudsters.  

Now BitCoin is talking about setting up ATMs, but no banknote or coin design has yet appeared, save artist's renderings for publications and promotions.  It now remains to be seen if and how BitCoin survives commerce, criminal investigation, and acts of Congress as they may well prove to be more than a minor nuisance in the economy.

Where silver and gold actually have very little real worth we expect a serious re-evaluation of economic theory and practice simply because the opportunity exists.  Some author's right combination of words, book, internet promotion, TV appearances, may create a cryptocurrancy that becomes our medium of exchange!  

Adrian Vance

BROADCAST AUDIO

 

https://archive.org/details/Bitcoin_201712