If you invest in any of the currencies of African countries, you will take a great risk of high losses. Anyway African currencies are absolutely legal and you can buy and sell them as much as you want. At the same time the leading central banks of the world one by one are starting fierce attacks on the Bitcoin. Why Bitcoin is bad and too risky for customers, while Zimbabwean dollar is absolutely legal to buy, along with the shares of Facebook that are highly overvalued? Why you can risk with thousands of assets on Wall Street or Nasdaq, but you cannot buy and sell Bitcoins? Why government “protection” is needed with Bitcoin and not needed with obvious market bubbles that almost sure will burst one day and bring enormous losses?
The general market answer of this question is that in the market everyone is responsible for his own actions. So everyone takes the risk and either makes profit or suffers a loss.
But the Bitcoin is forbidden? Why?
The answer of this question is obvious – because Bitcoin is too good to be true. Or to be more exact – it is too bad for the governments to allow its existence.
Bitcoin is nothing than a mathematics. It is a formula of generating numbers, that Bitcoin-fans call “money”. Under the formula, the created numbers are limited as a quantity. And as the system is based on peer-to-peer technology, so it is de facto absolutely independent from anyone.
Being pure mathematics, the Bitcoin has an advantage over any of the fiat-currencies that dominate the world. There is no currency that can give a guarantee of not being issued in uncontrolled quantity. As this brings fears, so the Bitcoin answers them. Nothing more – Bitcoin is just an answer to the government stupidity that leads the financial system towards catastrophe.
Would Bitcoin be popular if everything with fiat money was OK? No, absolutely No. All such type of inventions are made in crisis times. In 80s and 90s when the fiat-money world was stable and perspective, gold started to lose ground. No one wanted gold, central banks started to sell it and invest the money in interest bringing assets.
Bitcoin is like Gold – useless asset, that people accept as money, just becase it can not be issued in unlimited quantity. It aso can be easily saved and has thousands of years reliable history. So in crisis times people return to gold. But not only. They are also seeking for other investments. And Bitcoin with its mathematical perfection is attractive.
The natural way to kill Bitcoin is to bring back the order in public finances and in monetary policy. So just as people ran away from gold they would abandon the Bitcoin either. And vice versa – the most reliable way to help Bitcoin to rise is to ban and repress it. Governments are afraid of gold and often they are repressing its owners. But this usually makes the gold even more expensive. The same happens and will happen to Bitcoin.
In fact at current moment trying to make Bitcoin illegal will only help illegal businesses. Bitcoin is the perfect payment system for big transactions in underworld. Imagine a drug-boss that has to pay $100 million for cocaine. There is no way to do this via official financial system. So he has either do it in cash or in other asset. But can you imagine what $100 million in cash is? The risk of transporting such assets via borders is enormous. So the criminal business has inevitable high transaction costs – through offshore accounts, false companies, etc.
And now they have the Bitcoin. Yes, it is a volatile asset. But it is becoming more stable with time. And in fact criminal bosses have interest to help it become more stable. Because $100 million it Bitcoins means just a click of the mouse to transfer. And no bank records, no FBI agents tracking bank-wires, no transaction costs. Do you think the underworld will miss this opportunity?
As this way Bitcoin has guaranteed minimum number of users it is ridiculous to try to destroy it by limiting the ways to be used by common people.
But more important is something else. Now governments are trying to crash the Bitcoin by cutting it from the old financial system. It is very difficult to buy Bitcoins with credit card or with PayPal. Obviously the idea is to make the crypto currency isolated from the real market. But with time if Bitcoin survives and becomes a mass used tender, then the old financial system will become isolated from the real world. And this will be a problem for it. The experience with gold shows that repressions does not hurt gold, but hurt disconnected from it fiat-money that become to devalue.
It is understandable that printing money governments are afraid of the competition of Bitcoin. But it just shows them the truth about their own perverse policies, that are to be changed. The bad policies are the problem and not their consequence called Bitcoin.
Bitcoin is not perfect. It is not well designed from economic point of view. For instance the formula does not answer the question how to be replaced lost Bitcoins. Every currency has some losses that are compensated by either the Central bank or by producing new quantities (gold). Bitcoin with its absolutely limited final quantity presumes to be a deflationary currency, that one day will disappear by itself, due to uncompensated losses. It would be wiser if it was planned in the formula for instance a 1% increase every year with no limits. This way would be guaranteed for a long term the “digging”, i.e. supporting computer equipment that administers the Bitcoin world. Bitcoin is not perfect also as an idea of doing useless calculations to obtain it. It would be wiser all this power to be used for programs like SETI-AT-HOME. But generally, Bitcoin is a good answer for current times of escalating political irresponsibility. It is guaranteed for at least some decades to have additional yearly supply, and using computer power more rationally is a question of the social choice and not a question of money itself.
So we are looking at Bitcoin repression and we are seeing stronger and stronger, surviving any challenge idea. It is obvious who will laugh at the end. My prediction is that after Russia, China and Japan attacking the Bitcoin, will follow 2 major blows – the equivalent of financial nuke – ECB will ban it and at the end – FED will ban it. In these days Bitcoin will lose value. But just to demonstrate its vitality after all weapons of governments are being exhausted.
Bitcoin is born by government foolishness and is being fed buy its abundance. You cannot destroy it while feeding so generously.
April 4th 2014