Tweet
Some
supposed monetary theorists assert that Bitcoin is not tangible. This is no
doubt a problem due to the prison house of language the human mind dwells in
when trying to convey ideas. But this conclusion is either the result of
confused definitions or incorrect being based on several faulty premises and
flawed logical reasoning. Bitcoins are tangible assets.
Those who took my advice 11 months ago have returns of about 175%
in FRN$ and 156% in gold.
MONEY, ILLUSIONS AND CURRENCY
In The Great Credit Contraction, which
was written in 2008 before Bitcoin was invented, on page 12 I attempt to
provide some definitions to lubricate the discussion for practical purposes
and distinguish between money, money substitutes, illusions
and currency.
Currency can be either money, money substitutes or an illusion and is the
instrument or tool we use to perform ordinary daily transactions. “Money must
have intrinsic value by being a tangible asset. … An illusion is
a negotiable instrument that promises nothing and has no intrinsic
value.”
The use of the adjective intrinsic is in the sense of belonging
naturally or being essential and not that is has a particular value because
value is subjective based on human action. This is used in contrast to an
illusion which has extrinsic value.
To further clarify the characteristic, the market tends to place
value on currency because of its scarcity and the issue is whether
that scarcity is intrinsic or extrinsic. For example, gold is intrinsically scarce
based on the laws of physics and chemistry whereas FRN$ or Euros are extrinsically scarce
based on the laws of men with regards to counterfeiting, etc.
One common analogy I like to use when explaining Bitcoin is that Bitcoin
is to gold what math is
to physics or chemistry. Money fashioned from gold is
composed of atoms while money (not just currency!) fashioned
from math is composed of numbers.
TANGIBILITY AND CORPOREALNESS
A few years ago I was in Tampa Bay, Florida having dinner with Eric King
of King World News and he said, “You are a philosopher.” Well, there is a
long line of monetary scientists who were also philosophers so perhaps after
reading this section you may agree that Mr. King was correct in his
assertion.
Critical to this discussion is the issue whether corporealness is
either an element or a factor for tangibility in the context of monetary
theory. In other words, can something be tangible and incorporeal?
First, it is important to get the definitions correct.
The Greek word tetagon means to touch lightly and is the root for tangible
and tangent.
The word tangent was first used by the Danish mathematician Thomas
Fincke in his 1583 work “Geomietria Rotundi” and meant
“to touch”, obviously in an abstracted sense, and was used in the sphere of
knowledge known as geometry with regards to tangent lines and tangent
planes.
The etymology of tangibility
shows that in the late 14th century it was used as a “tangible thing,
something perceived or presented to the senses”.
Second, it was not until hundreds of years later that the
word tangibility was also used to describe corporeal items which
could likewise be physically touched. But even the distinguishment between
the corporeal and non-corporeal gets fuzzy at the quantum mechanic level because of Planck’s constant. And this branch could lead
down a very deep rabbit whole with: Dubito, ergo cogito, ergo sum.
Consequently, it appears from historical usage that corporealness
is not an element for tangibility.
And I would argue, while begging the question what is real, that (1)
anything real or definite is tangible and (2) that
tangibility can operate on a sliding scale with some things being more
tangible than others over the time continuum axis.
So, there are figments of the imagination like flying spaghetti
monsters which are not tangible. Then there are extremely tangible things, or
in other words having a long time decay period, like hydrogen or gold
and concepts or processes like gravity, electricity,
algebra, geometry and calculus. And finally there are tangible things
which have a short time decay period
like currency from Yugoslavia where the tangibility is much more limited in
the space-time continuum.
And what would be supremely tangible truths of the universe?
Numbers, if they can be perceived or presented to
your senses. For example, a gold coin or fish food would be tangible to a
goldfish but numbers would not because the goldfish is incapable of
perceiving numbers. Mathematical law is based on purely logical proof where
as even Newtonian physical law may be subject to revision based on additional
theory or observation like with Einstein’s relativity.
There is a difference between gold and a legal claim to gold.
JAMES TURK IS CONFUSED ABOUT TANGIBILITY
In this exchange, Felix de la Cova, who is Spanish so his use of English
words may be limited due to it not being his native language, cross-examines
James Turk of GoldMoney in regards to Bitcoin, gold, GoldMoney’s
payment system and Information Age transactions.
3:31 – James Turk: I will bring up something a little bit
more fundamental. First of all, I recognize the points that you are making
and I do think that preventing the double spend is a brilliant advancement in
the nature of currency. … Where I have issues is that Bitcoin is not
a tangible asset. If I have a piece of silver or a piece of gold in
my hand it is a tangible asset and if I use that to purchase from you an
asset or good or service the exchange is extinguished at the moment that
those assets are exchanged for one another because you are giving a tangible
asset in exchange for a tangible asset. But what has happened in the last few
hundred years is that currency has moved from being a tangible asset to being
a financial asset. A financial asset has counter-party risk; there is someone’s
promise that this currency will have value in the future.
4:38 – Felix de la Cova: Of course, but how can you use a
tangible asset online?
4:42 – James Turk: Well, you use them online with
GoldMoney where the tangible asset stays in the vault and the ownership
of that tangible asset transfers instantaneously when you click it from your
holding to someone else’s holding which is the nature of the patents that
were eventually granted to me. Because what we have done with digital gold
currency is create a new type of currency that enables gold to circulate
without having the payment risk that is associated with a currency that is
itself not a tangible asset. And that is the issue I have with Bitcoin.
This is a fairly interesting exchange from a monetary theory viewpoint but
Mr. Turk is baited into the Information Age by Mr. Cova’s question and
quickly sinks into a logical fallacy. The irony is that Mr. Turk’s error in
logic because it is GoldMoney Goldgrams which are of limited
tangibility, which can be arbitrarily changed like with removal of the
payment system resulting in extremely reduced liquidity, and Bitcoins that
are tangible. Bitcoins, like gold, are equity based monetary instruments and
not financial assets with counter-party risk.
Yes, gold is a tangible asset which is intrinsically
scarce by chemical law. But legal rights resulting in ownership,
are they tangible? Yes, but only in a sliding scale through the
time continuum and based on the time decay period dependent upon the
particular costumed criminal gang being in power. This may be why in most
legal systems legal tender is treated as tangible property. The delusion is
palpable.
Goldgrams, the currency that circulated and is
the subject of the patents Mr. Turk references, are merely
legal claims to gold held in vaults and fashioned from numbers.
Thus, Goldgrams are not money but money substitutes. There is a
difference between gold and a legal claim to gold. The only
substantive difference between a US gold certificate and a Goldgram, which
are both money substitutes, is that one can still be redeemed for physical
gold. But for how long?
Thus, one issue becomes how real or definite, or in other
words, how tangible those legal claims are. This is directly related
to the time decay period of the legal jurisdiction where the bullion is
stored. Yes, I think they are much more tangible than other gold related
instruments such as the GLD ETF, safety deposit boxes or Germany’s gold
held at the NY Fed. After all, that is GoldMoney’s business model: to store
your bullion in the safest geographic areas. Nevertheless, there are
risks because a legal claim to gold is not as tangible as gold
itself because it is based on the laws of men and not natural
law.
Understanding the risks associated with any asset or investment is
critically important for investors. Especially so when the legal
underpinnings are increasingly being compromised and currency wars escalate.
For example, both the records and precious metals in the vault could be
compromised through fraud, the vaults could be compromised by violence such
as war, civil war, radioactive contamination (like in Goldfinger!), a
sophisticated cyber attack or terrorism. Additionally, holdings can be
frozen, seized or confiscated through legal channels. Worse GoldMoney has
and will rollover like a submissive little poodle in obeisance to
these laws of men.
Meanwhile Bitcoin has its risks but none of those. Consequently, I highly
recommend all government bureaurats to get out the machine guns and shoot the
math problem known as Bitcoin until it complies with subpoenas or
other control freak demands. And while you are at it pass a law that stops
massive damage from storms like Hurricane Sandy by causing them to dissipate.
Most importantly Bitcoin allows for honey badger-like financial disintermediation.
DIGGING INTO THE GUTS OF BITCOIN
So, let’s start digging into the guts of Bitcoin. There is no reason to be
afraid of the math; numbers do not bite. Let’s bring in Prof. David Evans who
holds too many degrees from MIT.
How many times can Bob spend the coins? 0, 1, 2 or as many as he
wants.
How the Bitcoin Network Provides Scarcity
Solution to how the Bitcoin network provides scarcity:
How the Double Hash provides scarcity:
Solution to how the double hash question:
The Longest Blockchain Rules
With gold bars it can be cumbersome and expensive to verify both
the quantity and quality. There are service providers, like
the GoldMoney Standard, which seek to make this
process faster and cheaper.
So likewise there are tools which make it very easy to quickly verify the
quantity and quality of bitcoins in a particular wallet address. For example,
as of 7 Nov 2012 there were about 50,000 BTC leisurely relaxing in
this wallet [tip: when viewing the wallet click the
green box to see the current value in FRN$]. And since Bitcoin is a mere
four years old, compared to four thousand years with gold,
and cheaper, faster and more private than centralized currencies therefore it
is reasonable to prognosticate that there will be more tools
developed that will make Bitcoin easier to use which will make it more
accessible to larger demographics.
BITCOIN PRICE PREDICTIONS
On 19 December 2011 in the Solid Bitcoin Consolidation Finally
Bears A Breakout I wrote:
Taking the current price of $4.00, the 200 day moving average of about
$8.50 and extrapolating this upleg with a 12x 200dma top we could see a price
of around $80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing
$80 per BitCoin by around June or July? Maybe if the odds are around 5%. But
I would take a bet for BitCoins to hit $7.50 by June or July at around a
50-70% probability.
Once again, I was right with the $7.50 price call. Those who took my
advice 11 months ago have had ginormous returns of about 175%
return in FRN$ and 156% in gold. Not too shabby! Any
donations would be greatly appreciated and you can send bitcoins here:
1RTGQXW6Vb6L9DUHhVJ3Rdriz2b21X9e1
So, where is the price of bitcoin going from here? Well, because of the
wealth transfer and wealth generation effects therefore I think it is headed
up in terms of both gold and FRN$.
First, there are a lot of uncertainties with
the Federal Reserve and ECB. By analogy, once they pull the plug on
the bathtub, you need to be able to calculate the difference between the
water coming into the tub (QE) and the water going down the drain (balance
sheet shrinkage from maturity) before you can know if the current water level
(Adjusted Monetary Base) will be maintained, increase or decrease.
Second, due to this uncertainty I see
reasonable arguments for the gold price to either decline or advance by
around $500. Yes, we could see $1,200 gold within the next 12 months although
I think there is a higher probability it will be around $2,100 by May. But
this volatility does not impair the usefulness of gold as numeraire.
Third, The current price, which I keep updated with all
the Key Ratios, is about 157 BTC per ounce of gold.
Fourth, let’s put some supply and demand numbers
in comparison. There will eventually be at most 21 million bitcoins in
2010 with about 10.5 million currently and I estimate about 2 million
destroyed where the private keys have been lost. With about five billion
ounces of gold above ground that equates to about 230 ounces of gold per
bitcoin and about 485 ounces of gold per bitcoin if you count those ounces
still in the ground.
Fifth, there is huge demand for safe
and liquid assets in The Great Credit
Contraction as capital burrows down the Liquidity Pyramid. As already established
Bitcoin is clearly a tangible asset because it is real and definite being
fashioned from numbers.
Just a few of the potential sources of demand, besides just those holders
of capital looking for safe and liquid assets, are (1) tens of trillions
of dollars in offshore bank accounts looking for a safe haven from tax
authorities with all the expanding Tax Information
Exchange Agreements and nasty reporting requirements like the FBAR and FACTA [friendly reminder that you better
report your GoldMoney holdings; meanwhile Bitcoin private keys would not be
reportable], (2) the $10 Tillion System D economy,
(3) tens of thousands of people who think Paypal
Sucks and (4) Visa, MasterCard and Paypal have blocked Wikileaks
from receiving donations and showed the world that even without
a court order the major payment processors will greatly hinder political
speech therefore posing a tremendous risk to civil rights.
If FRN$ or gold are the blood with Visa, Mastercard, banks, etc. being the
veins then Bitcoin is both the blood and the veins. Despite
its incorporeal nature it is already backed by the largest
distributed computing network in the world with about 310 petaflops
and therefore is one of the safest and most liquid
ways for capital to be held. So, Bitcoin increases the monetary offering in
terms of safety and liquidity while lowering the costs in terms of time,
money and privacy. What a competitor!
Hopefully Mr. Turk was inadvertently confused about Bitcoin or
still had not thoroughly thought it out despite knowing about it for at least
a year and was not intentionally ‘talking his book’ by disparaging this great
new and ultimate ‘last plane account‘ called
Bitcoin to the detriment of those paying attention. But you should keep this
potential bias and conflict of interest in mind when assessing advice from anyone
else such as trust and estate attorneys, asset protection experts, offshore
entity formers, etc. because Bitcoin eviscerates entire volumes of legal
statutes rendering them inert. And whether a merchant accepts Bitcoin is
a great litmus test of their sincerity in helping you take control of your
freedom instead of just trying to charge you fees.
Even the European Central Bank has admitted
on page 47 of a 55 page report focusing on Bitcoin that:
However, it can reasonably be expected that the growth of virtual
currencies will most likely continue, triggered by several factors: a) the
growing access to and use of the internet and the growing number of virtual
community users, b) the increase of electronic commerce and in particular
digital goods, which is the ideal platform for virtual currency schemes;
c) the higher degree of anonymity compared to other electronic payment
instruments that can be achieved by paying with virtual currencies; d)
the lower transaction costs, compared with traditional payment systems; and
e) the more direct and faster clearing and settlement of transactions,
which is needed and desired in virtual communities.
For all of these reasons, I think that over the next 18 months we will see
the price of bitcoins move to at least around 50 bitcoins per ounce of gold.
Then over the next 5-10 years we will see an inversion in that price where it
will take at least one ounce of gold to buy a bitcoin. And these targets are
likely understated given Bitcoin’s potential to go viral.
CONCLUSION
Bitcoin is no longer an imaginary currency in some science fiction novel.
Bitcoin is a real tangible non-corporeal functioning protocol based on
industry standard cryptography. Bitcoin is a financial black hole where visible
capital goes in and does not come out. Bitcoin has attracted the attention of
the most powerful monetary interests in the world resulting in a very serious
55 page report. Bitcoin is very likely not going away anytime soon. Bitcoin
is the opening of Pandora’s Box and it is going to change things, big time.
Competently driving a car or flying an airplane requires both book
knowledge and practical skill. This is why there is a written
test and then a performance test before being credentialed. So likewise, one
major problem I see with so many of the
people ignorantly pontificating about Bitcoin is that they have never
used a bitcoin to buy anything. That is like someone who has never driven a
car giving advice on how to drive a car. Why believe them?
They do not have any practical experience or knowledge driving cars. They do
not have a clue what they are talking about!
This is one reason I put together the Free Bitcoin Guide. It will drastically reduce
your learning curve, help you get your first bitcoins and make your first
purchase. You could get the Bank
Privacy Report and Get Your Gold Out Of Dodge for about $30 in BTC
instead of the $65 normal price thus experimenting with Bitcoin for
a mere $40 or so. Sure, it could be easier but more developments will come
with time. After all, I started recommending bitcoins when they were around
$0.05 each and the learning curve and available tools were nascent. But that
is part of the reason those who followed my advice then have reaped 200x
rewards instead of a mere 1.75x which is still orders of magnitude higher
than the 0.0025x you can expect from Treasuries, etc..
Plus, having an economy where the average IQ and tech savviness is two
standard deviations above that of normal society is very helpful when it
comes to relative productivity. Do not skate where the puck is; skate
where the puck is going to be. Welcome to the new world, welcome to the
Awakening!
Tweet
5,244 random numbers