Gold: a symbol, not of investment, but mainly of the desire to become a global power (Russia/China).
You said,
Anything which is infinitely divisible (which digital currency is) cannot function as a store of value.This is simply not true. Bitcoin is not infinitely divisible... but for practical purposes, it nearly is. It was designed with 8 orders of magnitude of divisibility. Gold, while thought of as infinitely divisible, actually is not when you get right down to it... a single atom is the smallest division of, "Gold", and while the number of atoms is huge... it is not in fact infinite.
Anyway, back to the idea of divisibility. Divisibility and store of value are in no way mutually exclusive… in fact, divisibility, like that of Gold or Bitcoin, actually enables the store of value function, since deflation is beneficial to store-of-value holders. When you have a form of money that cannot be infinitely printed, like Gold, or Bitcoin… you can expect that, as long as they are considered money, that the long term trend will be for an ounce of Gold to be worth the same or more, and a single Bitcoin to be worth the same, or more. As Bitcoin rocketed up in value, from $14 to over $140… the purchasing power of 0.1 Bitcoin now had the purchasing power that 1.0 Bitcoins used to… see how it works? Sounds like a pretty good store of value to me… the key is scarcity integrity… Bitcoin and Gold have it… debt-backed fiat currency does not. I think you have confused divisibility with printability.
We have been brainwashed by bankers to think that money like Gold or Bitcoin is not good because it cannot be expanded upon fast enough… the idea that there is, "not enough of it". That is total BS, meant to obfuscate the fact that the bankers make money by exercising their right to manufacture… well… more money (as debt). If you take away their power to manufacture money… they become relatively powerless. Thus, the brainwashing. There is always enough Gold… the only question is this; what is one ounce of Gold worth… what does it need to be worth to be spread around and do it's job as money? If the same amount of Gold (money) must support a growing economy with more people and more goods… then the value of each Gold unit will simply go up to match the size of the economy. It could not be more simple.
Hi Jim,
I haven't confused the issue of divisibility at all. Gold, as you say, is not infinitely divisible because physically its lowest denomination is the atom - quite right. Practically it will be a little bigger than that as to be observable by the human eye, plus the accuracy of our cutting tools get rather expensive at that end of the scale.
Bitcoin, on the other hand, is an abstraction, it is a digital string of bits containing various 1's and 0's. But that string length is infinitely divisible depending on what denominator you want to use. You can have 1 bitcoin, 0.1 of a bitcoin, 0.01 of a bitcoin, ad infinitum. Currently it does not do this, but neither is it mandated by law not to perform this function should demand require it. In fact, the bitcoin website clearly states that in the future it has the potential to do this.
Taken straight from the horse's mouth
Won't the finite amount of bitcoins be a limitation?
Bitcoin is unique in that only 21 million bitcoins will ever be created. However, this will never be a limitation because transactions can be denominated in smaller sub-units of a bitcoin, such as bits - there are 1,000,000 bits in 1 bitcoin. Bitcoins can be divided up to 8 decimal places (0.000 000 01) and potentially even smaller units if that is ever required in the future as the average transaction size decreases.
For me, this is the fundamental difference in value between the two. Gold has a limit set by nature. Bitcoin has a limit set by man.
Is Bitcoin fully virtual and immaterial?
Remind me how that ended?Bitcoin is as virtual as the credit cards and online banking networks people use everyday.
Luke,
"The result is more paper claims exist in relation to physical assets which translates to fractional reserve banking. Anything which is infinitely divisible (which digital currency is) cannot function as a store of value."
Calling it gold backed currency may have given the wrong impression. The gold would be the store of value and medium of exchange and the debit card, storage facility, and software would only to transfer the gold from the consumer's pile of wealth to the retailers pile of wealth when the consumer take possession of goods. There would never be more than 1 claim on the gold.
"At one time I did like the idea of a gold back currency that can be electronically issued - but how do you trust centralized government to remain honest?"
The storage facilities would be private companies. The only government involvement would be to prevent theft and fraud. So the company would be kept honest by free market competition as well as government law enforcement, and the government would be kept honest by not being permitted to touch our money! This type of system could be used alongside gold and silver coins, but to remove the ease of electronic payment transfer, especially in the internet age, I don't believe is reasonable.
Thoughts?
Ken, these guys are all about bubbles but gold aint in a bubble?
its symmetrical and all just like Martenson explains in his video. what gives?
Luke, I am having trouble following your logic. The quote you included in your latest post confirms my point regarding the current design limits of divisibility for Bitcoin. It would have to get awfully popular before it uses up the eight decimal points of divisibility. Your argument that digital currency is not a good store of value seems to have more to do with the idea that it is abstract… is that correct? If Bitcoin became so popular that we needed to allow the Blockchain to grow through another doubling, let's say to 9 orders of magnitude… that would be bad why? It would mean that original holders of any Bitcoin unit would have had their store of value go through another 10X increase in buying power. That is bad why?
Regarding the abstraction… Bitcoin is software that happens to function as money. It is no more or less abstract than software we use for productivity (spreadsheets, emails, this website) corporate accounting (SAP), or gaming… we seem to accept the value of these other forms of the software abstraction. I could wax on about how elegant the Bitcoin ecosystem is (miners are motivated to maintain their reflection of the blockchain in the process of mining and gaining Bitcoins for themselves) or how it provides the only known solution for triple entry bookkeeping, or how it is the ultimate way to skirt capital controls… but I am not going to do that here.
Bitcoin is the first manmade money that mimics the scarcity integrity of Gold. Is the scarcity integrity as good or as high as that of Gold… maybe not - there is the whole quantum computer concern out there in the future… but it is still leagues better than state sponsored fiat currency… so I still don't get your point. I would like to understand your point better, so please keep up the dialogue.
BWH,I have similar concerns about internationally transferrable wealth - as you say, digital transfer is by the far the most efficient system we're come up with for exchanging funds. Additionally, given the frequent mobility of people around the globe being able to transfer £100 into someone else's bank account from over 2000 miles away to get them out of a bind is definitely an advantage. Using physical gold and silver for every transaction would inhibit global as well as national trade as transfer of funds would prove to be a logistical nightmare.
As you say, perhaps storage facilities locally placed with the ability to communicate with each other globally would be the way forward. Again, the concern i have is transparency. How would you prove that storage facilities weren't gaming the system by issuing more gold certificates than they had gold to back them?
Cheers,
Luke
Last question was excellent. I've had similar fears.
However, today I read the 34 page Hard Assets Alliance Introduction quite thoroughly (took quite a while) and now feel convinced that this group has created a good system. In fact, I was quite impressed with their whole modus operandi. It seems that transparency in built into the system. I highly recommend you read their proposal. I will open an account there very soon and start leaving my metals there. Must thank bostonJumper for the lead, even though Chris and Adam some long time ago also highly recommended it, and had an interview or two with them.
Good luck!! Zen
Luke I think the answer to the issue would be free market competition between the storage and transfer facilities. Extremely stiff laws preventing theft would also be a good idea. As you know trust in the monetary systems is paramount. If the facilities allow for retrieval of your gold, and offer good security, and other sound services they will win market share. If they commit fraud or steel then they will go out of business. All good businessmen know that the way to make the most profit is to offer a good service, not mistreat or steal from your customer. I have no doubt there would be theft, and fraud, but they would be small and isolated, unlike daily theft committed by the bank and government under the current system. It is up to the diligent consumer to determine where to put their money. Again this would be a way to assimilate our modern economy with gold money, you would still be welcome to use gold and silver coins as cash and coin are used today. Would the system be perfect, no, but there is no perfect system. This is the system I would prefer for my children.
Additionally, given the frequent mobility of people around the globeAww man. Haven't we got of the planet yet? What is taking so long? This divisibility exercise reminds me of first year maths. On the number line, for all alpha, there exists beta such that beta plus gama is less than alpha. Or words to that effect. In other words between 0 and 1 there exist an infinite number of Reals. Let us not bring number lines at right angles into the discussion. On reflection- Lets. It might explain a lot. At right angles to the number line the exists the imaginary numbers, every bit as "real" as the Reals. Perhaps this is where the ivory tower is getting their imaginary money from. Please tell them about Rhiemann's Zeta that converts Cartesian space into something else again. That would give them a whole new world to get lost in.
I didn't start it Arthur…and I still have no idea what this guy Luke is talking about when he points to the divisibility of Bitcoin as a negative. Sometimes we have to state the obvious here on the internet in order to get to the root of an argument… take nothing for granted… you know? I am thinking of attending the MIT Cold Fusion course this January… anyone you know going to be there?
Hi Jim, Ruby might be there. I shall tell her to look out for you.Be prepared to be both challenged and bored. The frontiers of science are not as they are depicted in the movies.
Prof. Hagelstein will be there. He is special. Anyone who hangs on in the face of his peers' approbation is a hero in my eyes. (And they have a sneaky admiration for him too, because we know who has been sniffing around the CANR/LENR site.)
But the prof knows what he saw and knows too that there must be an explanation for it. He has had to toss at least 130 hypothesis in the bin, bury them in the back yard as he likes to say. He might be on to the right one at last as he managed to predict the emission of collimated X-Rays from the surface of the metal mercury, much to the annoyance of the physicists over at Physorg.
The core body of researchers are convinced that there is but one theory that will explain all the phenomena. I doubt it because of the range of phenomena that are reported.
They are a tight knit bunch who have each others' backs, as one might expect after, what is it? 30 years in the wilderness.
Carl Sagan famously said "Extraordinary claims require extraordinary evidence." Less famous is his regret for saying it. Because it is a load of trite hogwash.
Did you know that in the days of the Airships, because Europe did not have any helium a Swedish chemist tried to produce Helium? (Yes-I know it is an element). Anyway, he reported success but decided that it was pointless as too much heat was produced by the process.
I read this story on yahoo.
http://finance.yahoo.com/news/keep-eye-feds-accelerating-asset-234357888.html
Essentially is states that the fed is selling assets. I have written on the subject and floored by what I read until…I actually did some fact checking. As I suspected there has been no reduction in the feds balance sheet and it still sits at an all time high. Here is where I am getting my information:
So that said, how can Yahoo, actually CNBC through yahoo, make such clearly obvious errors and why? Screw with Algo's, screw with the investing public, or just plain poor reporting? I find the later hard to believe, at least to this level.
Thoughts?
Here's what I see on the FED's balance sheet… some slight fluctuations… such that you could state that there is some slight reduction from one period to the next, if you cherry pick the period. There was a peak on the Nov. 19 entry at $4.493 Trillion… and we are at 4.486 as of Dec. 3; http://www.federalreserve.gov/monetarypolicy/bst_recenttrends_accessible.htm
15-Oct-14
4474360.00
4208523.00
234.00
1674.00
22-Oct-14
4481616.00
4214342.00
239.00
1671.00
29-Oct-14
4486754.00
4219168.00
206.00
1679.00
5-Nov-14
4486585.00
4219177.00
147.00
1679.00
12-Nov-14
4488895.00
4219197.00
131.00
1679.00
19-Nov-14
4492759.00
4236210.00
131.00
1681.00
26-Nov-14
4485931.00
4230112.00
112.00
1681.00
3-Dec-14
4486190.00
4230106.00
100.00
1681.00
My understanding is that, post taper completion, the FED is reinvesting all bonds that mature… i.e. that there should be little or no net reduction in the balance sheet based on stated policy… and that is exactly what we see above. I agree that there is no basis for the article you cited.
In an unraveling situation depreciating cash won't do as well as long term assets such as liquor, metals, tobacco, and some storable foods. Green coffee beans come to mind as an example. Not that holding cash is a bad strategy for emergencies, it just won't be holding up well in the great unraveling-maybe even useless.
So, it sounds like you are actually saying that an argument over how many atoms of gold can be balanced on the edge of a Bitcoin is unwinnable. Right?
I'm going to sound like a conspiracy loon here:
All of these color revolutions, aimed at Russian allies, started after Putin booted the "oligarchs", Rothschild proxies, from Russia, and seized their assets. They had, after buying Russia's industries at Yeltsyn's post crash fire sale, started looting Russia, instead of redeveloping the country as a capitalist industrial center.
Apparently, this generation of the Rothschild family are a bunch of short sighted spendthrift-trust kiddies. Mayer Amschel Rothschild would be spinning in his grave at their stupid. When he ended up owning Great Britain, he was smart enough to use the country as his personal wealth generating machine. These kiddies … not so smart.
Bitcoin is dependent on electricity, energy and thus infrastructure - computer systems - all of which can fail abjectly.
Give me gold and silver (even paper) thanks over something that is inaccessible should the lights go out and the internet go down.
Bitcoin is clever wank and like all software/encryption subject to hacking. If you think internet banking is safe then Bitcoin is for you. Gold and silver, as yet, can't be hacked., disconnected or turned off.
Jim H,
Fair point. Perhaps i've got this the wrong way around. To increase the money supply Bitcoin increases fractions rather than wholes. So that rather that 1 Bitcoin becoming 2 Bitcoins through multiplication, 1 Bitcoin becomes 1/2 and 1/2 by divisibility (I know you've stated it divides in 8 orders of magnitude but i've simplified the numbers a little). In monetary terms this prevents 2 Bitcoins chasing available goods as we retain the initial 1 Bitcoin so zero monetary inflation. I have a question, whose Bitcoins does the algorithm divide? Those which are existing or those about to come into existence? If it divides those in existence then i still lose purchasing power as half my capital is instantly transferred without my consent. Or is this why the fractions are so small? To limit the amount lost from current Bitcoin holders? Think I may just have answered my own question there.
My problems with Bitcoin are as follows;
-
Man-made
-
Energy Conversion
-
Man-made - open to abuse. As you've stated, Bitcoin increases through divisibility by virtue of its source-code. The counter-argument is foul play - someone deliberately manipulates the code either as an act of sabotage to cause price instability or out of greed to acquire more funds. My knowledge of how the source-code functions is limited so i'm unsure on likelihood.
-
Energy Conversion - Equality of transactions. I was actually in the process of making another point but after a bit of digging i came across something i hadn't considered - energy unit per bitcoin
Taking the average of 25 bitcoins issued per block mined (for this i just went to the daily stats page and divided last 24 hours worth of bitcoins issued per block mined 3450/138 = 25 bitcoins per block at time of writing. (1 block mined every 10 minutes in rough terms)
I then had a look at the hash-rate and compared it with the bitcoin rate. Hash-rate graph is exponential yet bitcoin rate graph is linear. I then researched the best energy return on investment per hash and found it to be roughly 0.38 Joules/Gigahash as of late 2014 compared with an average 50 Joules/Gigahash as of early 2012. So let us say that the energy efficiency of bitcoin miner rigs have increased 100 times in the last 2 years and apply that to our hash-rate graph;
Hash-rate graph
Bitcoin rate graph
(Note: my browser won't allow me to post images so please click on the two graphs and select 'all time' at the bottom)
hash-rate of total bitcoin network was 12,000 Gigahash/s in Feb 2012. Total daily energy consumption of network to produce 25 bitcoins per block (mined every 10 minutes) was 12,000 x 50 = 600kJ
hash-rate of total bitcoin network is 300,000,000 Gigahash/s in Dec 2014. Total daily energy consumption of network to produce 25 bitcoinsper block (mined every 10 minutes) is 300,000,000 x 0.38 = 140,000kJ
I could not find a direct link to the bitcoin per joule ratio over any period of time, hence all the sums.
My point: As the difficulty for mining increases so too do the energy costs which the increases in rig efficiencies just cannot keep up with. It's no longer the lowly miner with his/her laptop doing the mining, it's now the huge corporations with the ability to power mainframes.
Is there not a better use for all that energy? Which has kind of changed my stance on the whole money situation - perhaps we should just use the joule as the monetary standard and ensure equality of transactions on that basis.
To me, it seems the best time to acquire bitcoin was about 4 years ago and sell 1 year ago. Plus, how will all of those transactions continue to garauntee the security of the network if all bitcoins have been mined thus eliminating incentive?
Perhaps life itself is just one giant ponzi scheme and only now am i coming to grips with it
All the best,
Luke
Jim H,
Fair point. Perhaps i've got this the wrong way around. To increase the money supply Bitcoin increases fractions rather than wholes. So that rather than 1 Bitcoin becoming 2 Bitcoins through multiplication, 1 Bitcoin becomes 1/2 and 1/2 by divisibility (I know you've stated it divides in 8 orders of magnitude but i've simplified the numbers a little). In monetary terms this prevents 2 Bitcoins chasing available goods as we retain the initial 1 Bitcoin so zero monetary inflation. I have a question, whose Bitcoins does the algorithm divide? Those which are existing or those about to come into existence? If it divides those in existence then i still lose purchasing power as half my capital is instantly transferred without my consent. Or is this why the fractions are so small? To limit the amount lost from current Bitcoin holders? Think I may just have answered my own question there.
My problems with Bitcoin are as follows;
1) Man-made 2) Energy Conversion
1) Man-made - open to abuse. As you've stated, Bitcoin increases through divisibility by virtue of its source-code. The counter-argument is foul play - someone deliberately manipulates the code either as an act of sabotage to cause price instability or out of greed to acquire more funds. My knowledge of the source-code is limited so i'm unsure as to likelihood.
2) Energy Conversion - Equality of transactions. I was actually in the process of making another point but after a bit of digging i came across something i hadn't considered - energy unit per bitcoin
Taking the average of 25 bitcoins issued per block mined (for this i just went to the daily stats page and divided last 24 hours worth of bitcoins issued per block mined 3450/138 = 25 bitcoins per block at time of writing. 1 block mined every 10 minutes in rough terms)
I then had a look at the hash rate and compared it with the bitcoin rate. Hash rate graph is exponential yet bitcoin rate graph is linear. I then found the best energy return on investment per hash and found it to be roughly 0.38 Joules/Gigahash as of late 2014 compared with an average 50 Joules/Gigahash as of early 2012. So let us say that the energy efficiency of bitcoin miner rigs have increased 100 times in the last 2 years and apply that to our hash-rate graph;
(Note: my browser won't allow me to copy images so i've linked to graphs)
hash-rate of total bitcoin network was 12,000 Gigahash/s in Feb 2012. Total daily energy consumption of network to produce 25 bitcoins per block (mined every 10 minutes) was 12,000 x 50 = 600kJ
hash-rate of total bitcoin network is 300,000,000 Gigahash/s in Dec 2014. Total daily energy consumption of network to produce 25 bitcoins per block (mined every 10 minutes) is 300,000,000 x 0.38 = 140,000kJ
I could not find a direct link to the bitcoin per joule ratio over any period of time, hence all the sums.
My point: As the difficulty for mining increases so too do the energy costs which the increases in rig efficiencies cannot keep up with. It's no longer the lowly miner with his/her laptop doing the mining, it's now the huge corporations with the ability to power mainframes.
Is there not a better use for all that energy? Which kind of changes my stance on the whole money situation - perhaps we should just use the joule as a the monetary standard and ensure equality of transactions on that basis.
The best time to buy bitcoin was 4 years ago and the best time to sell was 1 year ago. Perhaps life itself is just one giant ponzi scheme and only now am i coming to grips with it
All the best, Luke
[Message to Mods: Please delete my previous submission under the same title 'Bitcoin and energy' submitted 10 minutes ago - i couldn't get the images to load anyway]