This article posted to LewRockwell.com on December 18th 2013 by Glenn Jacobs touches on a few of his reservations and concerns about the digital crypto-currency Bitcoin.
I personally have lost Bitcoin, and have been unable to recover them as of yet, 6 months later. Whether the problem is user error, or software or hardware is still undetermined. With a decentralized style of transmission and storage it puts a lot of responsibility on the user to hold onto their coin and keep it safe from prying eyes or hands.
I know many of individuals who have had nothing but a positive experience with Bitcoin and many who have had similar situations as my own. Either way this new technology comes with a great deal of risk and as the early adopters have shown a potential for a large of reward.
By Glenn Jacobs
December 18, 2013
Within the liberty community, there is a raging debate about the merits and future of Bitcoin. Because Bitcoin has been by far the best investment of this decade, that debate is quickly making its way into the mainstream as well.
Many smart folks whom I like and respect are enormous proponents of this digital currency. Some of them go so far as to say that Bitcoin will fundamentally break the power of the State by undermining its ability to control money. This a laudable goal indeed. Bitcoin is also the first exposure that many people have had to the idea of competing currencies, which is a welcome development.
Nevertheless, I have some serious reservations and concerns about Bitcoin.
While digital currencies like Bitcoin may play a role in a future monetary system, I still tend to believe that gold and silver will reemerge as the dominate forms of money, and it is the precious metals which will eventually overwhelm and supplant government issued fiat currencies.
First of all, as the hard money camp points out, money, i.e. a society’s medium of exchange, emerges on the market. It is not introduced from the top-down, but comes forth from the bottom-up. No one “invents” money, not even governments. Throughout history, governments have taken control of the currency, and then gradually weaned them off of their precious metal backing.
When presented with this argument, Bitcoin supporters claim that the first people to start using gold and silver as money did indeed introduce them into the market. The problem with this argument is that no one planned on whatever commodity being used as money. Folks simply begin trading this particular item because that good happened to be the one that everyone else would accept. It was the society’s most marketable commodity.
Bitcoin supporters claim that its value is derived from the fact that Bitcoin can be exchanged. In other words, it is a form of money, which is what makes it valuable. Again, this argument puts the cart before the horse. Gold and silver became money because of their value as commodities, not the other way around.
We often hear that gold and silver have intrinsic value. This statement is false. Austrian economics teaches us that value is subjective. Nothing has intrinsic value. Goods only have the value that individuals assign to them.
Nevertheless, human beings have desired the precious metals for thousands of years. This track record proves that the metals have value in and of themselves. Conversely, what gives Bitcoin its value? I assert that folks value Bitcoin because it is not the Dollar or the Euro or the Yen. Unlike gold and silver, folks desire Bitcoin because of what it isn’t, not because of what it is.
This brings us to a very important question: if the precious metals were actually allowed to compete in the market as money, would there even be a need for something like Bitcoin?
There is another concern about Bitcoin that gnaws at me. Control of money is the State’s most important tool for maintaining power. Controlling money allows governments to engineer society, rewarding the politically connected while keeping the underclass content. It gives government the ability to promote the illusion that there is such as thing as a free lunch, and that the State is the fountainhead from which all good things flow. Thus, governments will crush anything that undermines their control over money. Absolutely no competition in this area is allowed.
Of course, hard money–gold and silver–is the ultimate competitor to the State’s fiat currencies. For this reason, Western governments* have long exhibited outright hostility to the metals:
- •From 1933 until 1975, it was illegal for US citizens to own gold bullion.
- •The world’s governments and central banks actively manipulate the price of gold through market interventions like the now defunct London Gold Pool.
- •Officials such as Ben Bernanke ridicule gold, saying that central banks hold it is reserve not because gold is money, but as a matter of “tradition.”
- •In the US, gold and silver are taxed at prohibitive rates compared to other investments.
If you need any more evidence of the government’s hatred and fear of the precious metals, just read what U.S. Attorney Anne M. Tompkins had to say during Bernard von NotHaus’s counterfeiting trial. She described the Liberty Dollar–a privately issued currency backed by precious metals–as “a unique form of domestic terrorism” that is attempting “to undermine the legitimate currency of this country.”
On the other hand, government and central bank officials have given Bitcoin lukewarm approval. Ahead of congressional hearings into Bitcoin, Bernanke wrote a letter to the Senate Committee on Homeland Security and Governmental Affairs saying that digital currencies such as Bitcoin “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.” During the hearings, the Department of Justice stated that Bitcoins can be “legal means of exchange”
Perhaps it’s my conspiratorial side, but something smells fishy here. If Bitcoin is as dangerous to the State as its proponents in the liberty movement claim, why isn’t the State already moving to crush it?
All this excitement about Bitcoin may divert interest away the precious metals, which is probably exactly what the State wants. Meanwhile, all the money that could potential flow into Bitcoin is money that will not flow into the precious metals, meaning that fewer folks will own the ultimate money.
While I wish Bitcoin and its supporters success, and I love the idea of competing currencies, I fear that Bitcoin will act as a foil for the real once-and-future money–gold and silver.
*While the Chinese government appears more sympathetic to gold, many (including myself) suspect that the goal of the Chinese is to introduce a gold-backed currency to rival the dollar. The Chinese are not goldbugs. They recognize the importance of issuing the world’s reserve currency in positioning themselves as a new superpower.