Sunday, November 24, 2013

How bitcoin is going to fail and why it is not a gold equivalent.

Being a libertarian means I often get into discussions with other libertarians that non-libertarians simple do not have. Lately many of those discussions have been about bitcoin. In case you are normal and don’t know what a bitcoin (or BTC) is, it is a cryptocurrency that acts as digital cash and allows for easier more anonymous payments for goods across the internet. It was promoted by libertarians from the early days, nobody knows the true identity of the original creator. It has had a meteoric rise in value, less than a dollar a few years ago and recently had a high of over $900 before falling again, and there is an amazing amount of volatility.

There are a lot of great things about bitcoin, and that’s what makes it popular to those who know about it. Having a digital cash for the internet is probably the best thing about it.

Some people like to claim it is anonymous, but that is only partially true. Each bitcoin transaction is traced through the bitcoin network and each user has one or more “bitcoin wallets” and the transaction from one wallet to another wallet is tracked, this can be anonymous as long as the owner of the wallet remains anonymous.

Here is why I don’t think BTC is as good as gold and why it will eventually fail. The claim that bitcoin is limited is misleading. It is true that bitcoin itself has a limit of about 21 million bitcoins. However, it is not true that cryptocurrencies as a whole are limited. Bitcoin was invented by a person or persons and can be recreated by other people making competing versions of the cryptocurrency and this is why it is not like gold. Gold is gold, it is not man made and although many alchemists have tried to reproduce it, they have been unsuccessful. There is also always a true cost in mining gold, it is never free or easy to obtain more, this limits the new production automatically, even if there were some new vein found, that would not make it available until someone could extract it.

The fact it is man made and reproducible is why bitcoin is destined to fail. If the idea of a cryptocurrency gets popular enough, governments will create their own versions and will make their version easier and more legal to use, they will tie the digital currency to their own currency and will make it legal tender to pay taxes with. They will allow seamless transactions between whatever the regular currency is and the cryptocurrency and this will be done through the banking systems that are so regulated as to almost be an extension of the government already in most countries and are controlled by the government in other countries. Imagine this: The federal reserve comes out with their own version of the bitcoin, let's call it the “USDcoin”, they make a .001 (or some other arbitrary number) USDc the equivalent of $1 and they make it very easy to use. You can have these deposited into your existing bank account and they are immediately converted to dollars and when you send dollars out of your account they are immediately converted to USDc. Then the government also implements anti-bitcoin laws that make using bitcoin difficult or impossible to use. Of course they will claim bitcoin was being used for illegal purposes and money laundering. This will be the end of bitcoin. I do expect in the process some of the privacy aspects will be lost, but other positives will occur in the end the USDc will win out by a combination of making it easier and more attractive to use than BTC and by forcefully making it impossible to use other cryptocurrencies. Other countries will follow suit.

USDc or BTC won’t be a store of value and people who desire such a thing will go back to other options to retain their purchasing power. Since I am not truly talking about a separate currency and only a digitized version of the USD that operates on a diversified peering network that would be obvious to the banks and the federal reserve, but is transparent to the end user, the federal reserve and the banks could do this on their own without the government. It would operate like bitcoin on the network, but to users it would look like they are transferring USD directly without fees. Bank accounts that are already used would double as "wallets" for digital cash on the network and those accounts would be insured by the FDIC. If you don't think the government is thinking about this, you have to admit that the bankers must be thinking about this at the very least, they do not want to see bitcoin become a competitor.

Who knows what the final product would truly look like, but the basics would be that a new system would be created with the backing of the banks and the government and it will get adopted and not BTC as the digital currency of choice. BTC might still be in existence, but it would not matter and for all practical purposes BTC would be dead.

Backers of bitcoin often ask the wrong question, they understand the virtues of bitcoin and they hope one day it will be a widely circulated currency, but what they often fail to see is that it is reproducible and the if the federal reserve ever decided to make their own version, that would end the dream of BTC ever becoming a currency in the united states at least.

Would the fed have as good of a product as bitcoin? Probably not, but history is filled with inferior products winning out if they have enough backing (public education). There are also benefits the fed and the banks in conjunction with the government could implement that would offset some of the negatives. By tying the digital currency directly to the dollar it eliminates the wild fluctuations BTC has, they could make it legal tender and it would get used at all stores if it were tied into existing bank accounts as well as debit cards and allowed for transaction-fee free money movement as it would be a digital version of existing cash, the cost savings of not paying a fee to Visa or Mastercard on debit card transactions would be the incentive to widely adopt for business. The elimination of competition would be the incentive for the banks and the fed to adopt and the government wants the visibility of digital cash transactions for taxing purposes.

Sunday, July 14, 2013

Zimmerman not guilty, and should not have even been tried

This case seems to have really hit a nerve with me, not only because I see Zimmerman as the victim of an assault he was forced to defend himself against. But also because of the media and the liberals and race baiters and how they skewed this case, from calling Trayvon a "child" to calling Zimmerman a "white Hispanic". It all just gets to me. As far as I can tell Zimmerman was honestly trying to do his best to help stop crime in his neighborhood and Martin was a violent kid prone to beating people up who attacked Zimmerman because Zimmerman was following what to Zimmerman was a suspicious character. A 6 foot tall, 170 pound man who did not live in Zimmerman’s closed off neighborhood and was not with a resident and had no obvious business being there. This would make anyone suspicious and it was not because he was black like so many want to assert, and the suspicion was only heightened by the fact there had been recent burglaries in the complex. There were many ways to diffuse the situation if Trayvon felt fear of Zimmerman, but Trayvon decided to punch Zimmerman instead of engaging him in conversation or just going to his father’s apartment. I feel like Zimmerman being basically a weakling had little choice but to defend himself with a weapon instead of his fist once the fight started. Now Zimmerman's life is likely ruined, when all he was doing was to try and protect his neighborhood. In retrospect it is easy to say "Trayvon was unarmed", "Trayvon was most likely not going to burglarize a house" etc. How would Zimmerman have known any of that? Once Trayvon threw the first punch, he was the aggressor.

Saturday, June 8, 2013

Unlike Bush Obama is too smart to not be responsible for his own actions

In some ways George Bush lucked out when the media and the left started portraying him as an ignoramus. It meant that he could get away with the most awful of political crimes and the liberal critics had to defer blame away from him, because to accept that he was responsible would go against their belief he was too stupid to pull off such tyranny and so they found others to blame, mostly Dick Cheney. Obama does not have that luxury, nobody accuses him of being too dumb to possibly be responsible for the actions of his administration. Instead he hides behind race, managing to paint his critics as racially motivated even when there is no evidence of such. I wonder if he can continue to pull that off as his crimes are becoming so numerous that even his allies on the left are beginning to turn against him for his attacks on civil liberties, his spying, etc. 

Thursday, May 9, 2013

What takes me 5 minutes, takes the government 5 months

On the news this morning there was a story about daycare workers with criminal records. It seems that the way daycare's are expected to do background checks is to submit the information on their new hires to the Colorado Bureau of Investigation, then 5 months later the CBI provides the criminal background for that employee. This was the big reveal on the news, that the CBI was taking 5 months to return a background check. The part I thought was more revealing was that the news said if you are concerned about your daycare, get the employees name and birth date and go to the CBI website and you can find their criminal record. What takes the government 5 months to verify, can be verified in a couple of minutes on the web. 

Saturday, April 27, 2013

Air traffic control; why does the government do this? And do it so badly?

Apparently the FAA has been delaying flights around the country and forcing pilots to make public announcements that the delay is due to the “sequester”. If a tiny cut in their budget at a time when there are fewer commercial flights than there were just a few years ago is going to cause so much trouble, then this is a good indication that the government has no business being in the air traffic control business. They should take their cue from Canada and turn that responsibility over to private industry. 

Saturday, March 9, 2013

Bradly Manning should not be in prison

Bradly Manning should not be in prison, and if Obama was actually the caring, loving, person his followers claim he is, a full presidential pardon would have been issued years ago.

When I made a statement like this to a co-worker, my co-workers response was something like “well, Obama does not have the power you think he does”. I have to call bullshit on this, first off the president can pardon anyone. Then my co-worker said something to the effect of “Manning may have broke the uniform code of military justice” as if this makes it more difficult to pardon Manning. I simply cannot believe the cognitive dissonance some people have when it comes to Obama. We were both in agreement that Manning is not a criminal that should be in prison, and yet he refused to believe that the commander and chief of US military did not have the ability to pardon a military prisoner, when this is one of the powers of the presidency that has been long standing and should be common knowledge to even the most braindead Obama supporter. People if Obama cared about Manning, or any other political prisoners he would grant them pardons.   

Housing bubble, not a result of the free market

I had a conversation the other day and I was told that it was the free market that created the housing bubble. This idea is so patently false I cannot believe anyone believes it. I don't need to know the minutia of what regulations were repealed or changed leading to what missteps by what banks to know that the root of the housing bubble was the government and the federal reserve.

I think everyone can agree that the housing bubble and subsequent crash was caused by people buying houses they really could not afford by getting loans for them, and when the housing prices dropped they went underwater and defaulted on their loans. They were led on by low interest rates and easy access to money for their houses.

In a free market the only money that can be loaned out, is money another party has saved and made available to loan. During the housing bubble savings rates were at a low, debt was at a high. This is a situation that can only occur in an artificial situation where the amount of money available for loans has no connection to the amount of savings available to be loaned out. This situation can only be created by the government. In a free market when savings rates are low interest rates are high, and when savings rates are high interest rates are low, in the years leading to housing bubble the opposite was occurring and this is just not possible in a free market. Therefor the only conclusion to be made is that the housing bubble was caused by the government and the federal reserve and not the free market. I can draw this conclusion without knowing what regulations were changed by the congress, what programs George Bush wanted, etc. 

Monday, February 18, 2013

Obamacare driving old people out of the country?

I met an interesting guy in Austin, he drove me from the car rental company to the hotel. His name was Carl; he told me that he was moving to Ecuador to retire because he cannot afford to live in the US any longer. He was a white guy and was in his early sixties. He said that he was doing pretty well until last August getting enough hours at Enterprise that he was almost bringing home full time pay, but in August they cut his hours back to 25 hours a week so they would not have to consider him a full time employee because of changes in the law related to “Obamacare” that would have required they provide him health insurance if he got more hours. He just cannot afford to live in Austin on his meager income and cannot go full time and at his age other opportunities are not really popping up, so moving to Ecuador where he can afford life on his social security payment made the most sense for him.