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The Bitcoin Debacle Shatters the Myth of Virtual Money
Townhall ^ | 03/05/2014 | Peter Morici

Posted on 03/09/2014 11:21:43 AM PDT by SeekAndFind

Bitcoin believers were shaken to their digital souls when Mt. Gox, the world’s largest exchange, defaulted on $470 million worth of deposits and closed.

The virtual currency was supposed to provide a safer, more private and less costly alternative to money issued by governments, but lacking the imprimatur of a sovereign is failing.

Fundamentally, money provides a secure place to keep your wealth—you can store your savings for later use at a government guaranteed bank. And it eliminates the inconvenience of barter—a necessity for even the most rudimentary market economy.

Money permits a nightclub singer to buy bread from a baker who gets his music from iTunes. All accept dollars, because the U.S. government declares those to be “legal tender for all debts public and private.”

You can do business through barter or some alternative currency. However, workers, suppliers and landlords expect to be paid in dollars, and the IRS will require dollars at tax time for income earned through barter.

What gives money its value are the goods and services that may be purchased and taxes paid within the sovereign jurisdiction of the issuing government.

The earliest currencies were coins, often with the face of the sovereign stamped on gold or silver to instill confidence. Yet, governments minted coins with non-precious metals, and the Chinese issued paper money more than two thousand years ago.

The creators of Bitcoin and advocates of virtual currencies are fixated by the temptation of governments to print too much and destroy its value through inflation. However, inflation is hardly a problem in the United States, Europe and Japan, and central banks in other countries hold dollars, euro and yen to back up their currencies.

Bitcoin is created by ordinary folks solving increasingly difficult mathematical problems defined by the virtual currency’s creator, and like gold, is naturally limited in supply. It is stored in virtual wallets on private computers, or deposited at exchanges like Mt. Gox. These function much like commercial banks but are not guaranteed for safety by the FDIC, Federal Reserve and similar regulatory agencies around the world.

There is no “Bitland” where a government has declared it legal tender to buy goods and services and pay taxes. Lacking such a tangible connection to the real economy, it is very hard to value day-to-day, never mind next year.

Bitcoin traded for $1,117 on December 4, and now commands only about half that amount.

It is no place for your children’s college fund or retirement savings.

Bitcoin is hardly secure. A hacker can steal it from your digital wallet or an exchange that holds your deposits, just as pirates stole bank debit and credit card numbers from Target. And the government does not stand ready to back up Bitcoin exchanges that lose your money or identity to thieves.

A 2013 study found some 45 percent of all Bitcoin exchanges closed, taking their depositors money with them.

Bitcoin is supposed to be more private, because unlike commercial banks, its exchanges are not monitored by regulators, and its private payments system charges lower fees than do Visa and MasterCard.

However, personal and business transactions can be spied by hackers or government security agencies through its fairly open payments system. The government can subpoena your Bitcoin records or those of your exchange when it needs.

Factoring in such risks and potential intrusions, Bitcoin is a lot less private and more expensive to use than advertised.

Detractors of paper money have always been fixated by the absence of gold to back it up, but they fail to recognize what really makes a currency accepted and secure—the government guarantee and the good sense of the sovereign not to abuse its franchise.

It’s not the gold but the face of Caesar—the promise his image carries—that makes a coin money.

-- Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: bitcoin; currency; virtualmoney
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1 posted on 03/09/2014 11:21:43 AM PDT by SeekAndFind
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To: SeekAndFind

Strictly speaking, a currency didn’t fail. A single exchange/bank did.


2 posted on 03/09/2014 11:27:37 AM PDT by SeeSharp
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To: SeekAndFind

I’m trading Bitcoins for carbon credits. Half off. Today only. No checks.


3 posted on 03/09/2014 11:29:43 AM PDT by Drango (A liberal's compassion is limited only by the size of someone else's wallet.)
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To: SeeSharp

Yep. This is how a monetary system should work. If an exchange mismanages money it fails and dies. It doesn’t get propped back up with tax payer money.


4 posted on 03/09/2014 11:30:35 AM PDT by miliantnutcase
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To: Drango

I was just going to say, can I buy carbon credits with bitcoins?


5 posted on 03/09/2014 11:31:50 AM PDT by MNnice
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To: SeekAndFind

Rainbow unicorn fantasy money. Just another liberal fad fueled and hyped up.


6 posted on 03/09/2014 11:32:23 AM PDT by Spartan302
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To: miliantnutcase; SeeSharp

RE: Yep. This is how a monetary system should work. If an exchange mismanages money it fails and dies. It doesn’t get propped back up with tax payer money.

Think about it... you won’t have any trust in any currency... the single slightest rumor ( true or false ) will cause a run on the currency.

You’ll have massive inflation and deflation weekly or even daily.


7 posted on 03/09/2014 11:33:47 AM PDT by SeekAndFind
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To: SeekAndFind

When you use Bitcoin for money laundering and black market however, it is just another cost of doing business.


8 posted on 03/09/2014 11:34:03 AM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: miliantnutcase
It doesn’t get propped back up with tax payer money.

Or have its obligation to redeem suspended by legal fiat - the traditional way insolvent banks got bailed out.

9 posted on 03/09/2014 11:34:32 AM PDT by SeeSharp
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To: SeekAndFind

Townhall is on the Bitcoin warpath today.

Is Bitcoin Legal? Illegal? a Currency? a Commodity?
http://www.freerepublic.com/focus/f-news/3131268/posts


10 posted on 03/09/2014 11:34:39 AM PDT by Lurkina.n.Learnin (This is not just stupid, we're talking Democrat stupid here.)
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To: SeeSharp

RE: Strictly speaking, a currency didn’t fail. A single exchange/bank did.

According to the article, A 2013 study found some 45 percent of all Bitcoin exchanges closed, taking their depositors money with them.


11 posted on 03/09/2014 11:34:49 AM PDT by SeekAndFind
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To: SeekAndFind
It’s not the gold but the face of Caesar—the promise his image carries—that makes a coin money.

"By decree of Caesar Augustus in 15 B.C.E., the denarius was nearly pure silver, 95%-98%, and had a fixed weight and value in relationship to the rest of the Roman monetary system. Over the next 270 years, the silver content of the denarius declined gradually and then precipitously to about 2%."

Caesar's image is your tip off that debasement follows.

12 posted on 03/09/2014 11:35:00 AM PDT by Gunslingr3
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To: Spartan302
I love the silly wagging tongues that weigh-in on BTC issues.

BTC now trading at 638USD.

13 posted on 03/09/2014 11:35:22 AM PDT by corkoman
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To: Spartan302

RE: Just another liberal fad fueled and hyped up.

Not sure if supporters of this currency are really liberal. Many users and enthusiastic supporters I know are anti-big and centralized government.


14 posted on 03/09/2014 11:36:54 AM PDT by SeekAndFind
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To: Spartan302
Rainbow unicorn fantasy money. Just another liberal fad fueled and hyped up.

Liberal fad?

Who do you think prefers a monetary system where the government can print all the money it wants to spend?

"We can guarantee cash payments from here on out, what we cannot guarantee is the purchasing power of that cash." -Alan Greenspan during remarks on Social Security, Feb 16, 2005

15 posted on 03/09/2014 11:37:14 AM PDT by Gunslingr3
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To: MNnice

Yes you can. 1/2 off today only...send me your account number and pin.


16 posted on 03/09/2014 11:37:21 AM PDT by Drango (A liberal's compassion is limited only by the size of someone else's wallet.)
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To: Spartan302

Bitcoin is best used for “illegal” activities.

Trying to take it mainstream legit produces public debacles and government intrusion if not outright bans.


17 posted on 03/09/2014 11:37:26 AM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: Errant

Ping


18 posted on 03/09/2014 11:37:39 AM PDT by Lurkina.n.Learnin (This is not just stupid, we're talking Democrat stupid here.)
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To: SeekAndFind

>Many users and enthusiastic supporters I know are anti-big and centralized government.

i.e. engaged in illegal activities


19 posted on 03/09/2014 11:39:34 AM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: corkoman

I just bought some silver, its only 3 one ounce bars, but its a start, got it at a good price.may get some fives and tens in the near future.


20 posted on 03/09/2014 11:39:35 AM PDT by Spartan302
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To: SeekAndFind
"Bitcoin is hardly secure. A hacker can steal it from your digital wallet or an exchange that holds your deposits, just as pirates stole bank debit and credit card numbers from Target. And the government does not stand ready to back up Bitcoin exchanges that lose your money or identity to thieves."

The boneheaded author probably has no idea how to secure a computer and does not seem to realize that it is in control unlike his credit card details swiped into a merchant computer. Unlike the too-big-to-fail banks, the very largest bitcoin exchange failed and nobody needed to be bailed out. Sure some people lost (or will likely lose) what that had at Mt Gox but that loss was due to greed, pure and simple. Keeping coins at an exchange means you are either flipping them in and out of meat world currency and speculating, or you are cashing your bitcoin proceeds for meat world currency instead of spending or donating them inside the digital world. It's true that people need meat (food) to survive and might go through an exchange for that, but not 100's of thousands of dollars worth.

However, personal and business transactions can be spied by hackers or government security agencies through its fairly open payments system. The government can subpoena your Bitcoin records or those of your exchange when it needs.

Now I know the author is just a bonehead. The transaction chain is public because it has to be for the system to work. Nobody legitimately looking into bitcoin is doing so to evade government spying, but are rather trying to use the currency for what it is good for: digital transactions for digital goods. The drug dealers and others with physical goods are just as stupid as the author.

Detractors of paper money have always been fixated by the absence of gold to back it up, but they fail to recognize what really makes a currency accepted and secure—the government guarantee and the good sense of the sovereign not to abuse its franchise.

The author seems to not realize that the government is printing 10's of billions a month to give to politicians to spend. He is either extremely stupid or agrees with that practice and maybe gets a cut himself.

21 posted on 03/09/2014 11:40:09 AM PDT by palmer (There's someone in my lead but it's not me)
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To: UnbelievingScumOnTheOtherSide

How do you roll a Bitcoin up to snort a line of coke?


22 posted on 03/09/2014 11:42:56 AM PDT by Lurkina.n.Learnin (This is not just stupid, we're talking Democrat stupid here.)
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To: SeekAndFind
That is what cryptocurrencies are currently facing, that's true. However, I think it should be allowed to play out to see where it goes. Deregulated banks have typically been safer than their counterparts. It's current limits are growth, since it cannot expand at a rate needed to be a major currency. Bitcoin will probably die out, but right now there's hundreds of others being developed with lessons learned from it.
23 posted on 03/09/2014 11:51:25 AM PDT by miliantnutcase
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To: UnbelievingScumOnTheOtherSide
i.e. engaged in illegal activities

Physical illegal activities are better paid in untraceable cash or trade (sex for drugs). Using bitcoin just adds a layer of traceability. It's not perfect but it works to the extent that the data can be clustered (e.g. drug dealer gets statistically associated with other dealers).

The point that you and the other detractors are missing is that bitcoin is used far more often for legal activities that are outside the purview of corporations and government. For example, someone can hire anyone they want for as little or as much as they can pay if that person is willing to provide a digital good. In the future the majority of forums will be run like that, get paid for high quality timely information.

24 posted on 03/09/2014 11:52:27 AM PDT by palmer (There's someone in my lead but it's not me)
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To: Gunslingr3
. Over the next 270 years, the silver content of the denarius declined gradually and then precipitously to about 2%.

That's pretty slow. The Treasury and Federal Reserve clipped the dollar down to 4% of its value in only 100 years. At that rate the dollar would be worth 0.02% of its 1913 value after 270 years. And that's under the government's optimistic official inflation rate.

25 posted on 03/09/2014 12:00:01 PM PDT by KarlInOhio (Republican amnesty supporters don't care whether their own homes are called mansions or haciendas.)
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To: SeekAndFind

Is that paper in your wallet not a “virtual currency”? It’s value is based on the fact that someone says it is. Really it’s nothing but a representation of debt paid for by future production. People recognize it for having “value” I guess, so whatever. From what I understand, history isn’t very kind to societies/civilizations/empires that go down the road that we’re on....


26 posted on 03/09/2014 12:15:13 PM PDT by KoRn (Department of Homeland Security, Certified - "Right Wing Extremist")
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To: palmer

I’m not a detractor.

>>>>legal activities that are outside the purview of corporations and government. For example, someone can hire anyone they want for as little or as much as they can pay if that person is willing to provide a digital good.<<<<

And that sounds illegal on its face, i.e. to evade taxes, minimum wage laws, evading cash reporting laws, illegal gaming, avoiding political contribution reporting, supporting subversive activities from America to China, child pornography etc.

You take one, you take all. You kill one, you kill all. You design a system to subvert the laws of repressive regimes, it will be even more effective at subverting the laws of so-called free countries. But both will be just as eager to repress such systems for their own purposes and become equally intrusive. That is at the heart of the NSA issue.


27 posted on 03/09/2014 12:19:45 PM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: Lurkina.n.Learnin

Ctrl + PrtSc


28 posted on 03/09/2014 12:23:54 PM PDT by EEGator
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To: KarlInOhio

The dollar is about the right value now.

Remember back in the 60s and 70s when to keep things 19 cents or 39 cents, they had to keep making things smaller?

With money today worth 1/10 as much, it is easier to change the price of that “19 cent” item from $1.99 to $2.09 and keep a standard size.


29 posted on 03/09/2014 12:28:14 PM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: SeekAndFind

It is an UN regulated peer to peer currency.

What is it that people don’t understand about UN regulated? It’s the Wild West.


30 posted on 03/09/2014 12:30:10 PM PDT by Vermont Lt (If you want to keep your dignity, you can keep it. Period........ Just kidding, you can't keep it.)
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To: UnbelievingScumOnTheOtherSide
And that sounds illegal on its face, i.e. to evade taxes, minimum wage laws, evading cash reporting laws, illegal gaming, avoiding political contribution reporting, supporting subversive activities from America to China, child pornography etc.

Wow, are you sure you are on the right forum? Minimum wage laws do mostly economic harm especially to those they pretend to help. Reporting political contributions recently produced government targeting of political groups.

It would be profoundly stupid for a terrorist to support terrorism using bitcoin unless it is strictly digital terrorism (which is a threat, but not a major one). As soon as a terrorist tries to turn bitcoin into fertilizer that will be instantly traceable back to the source.

Your only possible valid argument is that it would facilitate digital transactions for illegal digital goods (e.g. child porn). I'm not sure it will make it worse than it is currently since child porn is frequently traded for child porn and thus is even less traceable.

Basically you need to educate yourself about what bitcoin is and isn't and slough off the statist baggage like taxes are only possible if the state tracks all commerce. Many people declare and pay tax on income that the state does not and cannot track and that's the way it should be.

31 posted on 03/09/2014 12:30:56 PM PDT by palmer (There's someone in my lead but it's not me)
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To: SeekAndFind

An exchange is not a bank. If they left their money on them, they are idiots.


32 posted on 03/09/2014 12:31:44 PM PDT by Vermont Lt (If you want to keep your dignity, you can keep it. Period........ Just kidding, you can't keep it.)
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To: UnbelievingScumOnTheOtherSide

It is funny how the “conservative” “small government” and “anti regulation” folks walk around pounding their chests against the evils of bitcoin. But the bitcoin world is EXACTLY what a small government, low regulation, personal responsibility world looks like. There is no government safety net and mistakes are met with harsh reality, not do-overs or protection from bad guys.

It is the jungle.


33 posted on 03/09/2014 12:35:56 PM PDT by Vermont Lt (If you want to keep your dignity, you can keep it. Period........ Just kidding, you can't keep it.)
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To: SeekAndFind

remember this argument the next time a bank is robbed or closes as its a sign the dollar has collapsed and the entire financial system is broken


34 posted on 03/09/2014 12:36:38 PM PDT by sten (fighting tyranny never goes out of style)
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To: corkoman

that just means bitcoin is 638 times stronger then the US dollar


35 posted on 03/09/2014 12:39:12 PM PDT by sten (fighting tyranny never goes out of style)
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To: Vermont Lt

>It is funny how the “conservative” “small government” and “anti regulation” folks walk around pounding their chests against the evils of bitcoin.

Face it, almost everyone is Big Government for their particular moral code and when it’s their own ass. Change has to come from the ground up. Ironically, the same technology that makes more government intrusion possible also makes government irrelevancy possible. There isn’t enough silicon in the world - and the crust is 27% silicon - for the NSA to store enough data to keep track.


36 posted on 03/09/2014 12:56:37 PM PDT by UnbelievingScumOnTheOtherSide (HELL, NO! BE UNGOVERNABLE!)
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To: SeeSharp

Bitcoin is the future, a simple glitch in the system notwithstanding. When everyone has a cybercurrency wallet, retailers will be forced to accept them. The so-called “money” that is being use NOW only has value because people believe it does... And it gets devalued DAILY by the Fed. I’ll take my chances with bitcoin.


37 posted on 03/09/2014 1:03:56 PM PDT by HMS Surprise (Chris Christie can STILL go straight to hell.)
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To: Lurkina.n.Learnin; nascarnation; TsonicTsunami08; SgtHooper; Ghost of SVR4; Lee N. Field; DTA; ...
Thanks Lurkina.n.Learnin


Click to be Added / Removed.

38 posted on 03/09/2014 1:43:45 PM PDT by Errant (Surround yourself with intelligent and industrious people who help and support each other.)
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To: HMS Surprise

You might also take chance with State Coins.. states can’t print paper but can coin coins. That’s why we remember Texas Silver Dollars over JFK silver coin.

If Bitcoin can be, so can Texas Silver dollars again.


39 posted on 03/09/2014 1:47:58 PM PDT by txhurl
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To: HMS Surprise
Bitcoin is the future

Actually gold is the future. But if Bitcoin helps break down the current fiat paper then regime more power to it.

40 posted on 03/09/2014 2:11:13 PM PDT by SeeSharp
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To: txhurl
states can’t print paper but can coin coins.

No they can't. They can make gold and silver coins legal tender but can't themselves mint any coins as money.

41 posted on 03/09/2014 2:14:08 PM PDT by SeeSharp
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To: Vermont Lt

They’re either hypocrites or don’t under the principal that they claim to support. Too many Conservatives still live in the illusion that the government stats could be trusted. They still think US have low inflation. They believe the “good” job numbers as well because they only look at the headline newsreport


42 posted on 03/09/2014 2:20:30 PM PDT by 4rcane
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To: SeeSharp

No they can’t. They can make gold and silver coins legal tender but can’t themselves mint any coins as money.


What are your favorite sources to illuminate your claim?


43 posted on 03/09/2014 2:38:16 PM PDT by txhurl
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To: SeeSharp

Gold is fine, but you can’t order from Amazon with a gold coin. Bitcoin will be the preferred medium of exchange within 5 years. . And every entity that deals in “money” will adapt or die. Period.


44 posted on 03/09/2014 2:53:29 PM PDT by HMS Surprise (Chris Christie can STILL go straight to hell.)
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To: txhurl
What are your favorite sources to illuminate your claim?

Article I, Section 10, Clause 1

To wit:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

45 posted on 03/09/2014 2:56:11 PM PDT by SeeSharp
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To: HMS Surprise
Gold is fine, but you can’t order from Amazon with a gold coin.

Why not? Strictly speaking, you can't order from Amazon with paper dollar bills either can you? Buying over the web usually requires a intermediary payment processor of some kind. The accounts can be denominated in gold as easily as anything else. All that is needed (beyond the abatement of legal impediments) is a price structure.

46 posted on 03/09/2014 3:05:25 PM PDT by SeeSharp
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To: SeeSharp

Coin Money. But we can can coin rare-earth minerals, No, we can’t.

This is a most interesting vaunt, what we can and can’t coin, base on what metals we have.

Thank you again for your instructed posts.


47 posted on 03/09/2014 3:06:30 PM PDT by txhurl
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To: SeekAndFind

There are 3 major benefits of Bitcoin that I can see: it’s private, you can easily transfer money, and it has a limit. However, the concept of Bitcoin mining seems to be an absurdity that confers absolutely no value. Ascribing value to the ability to solve complex equation seems to parallel the socialist notion that the value of labor should comport with the complexity of labor. Rubbish.

“It’s not the gold but the face of Caesar—the promise his image carries—that makes a coin money.”

This statement is true in the sense that fiat money does have value even when not backed by PMs. Fiat money is backed by taxation/and or the forceable extraction of resources from the people. In other words, fiat currency is backed by a gun.

Now if Bitcoin or some other crypto-currency could compete with the world wide gangster government fiat currency at the same level, we would have a winner. Perhaps, if Bitcoin successfully found a way to fight back against governments, central banks and agencies intent on the destruction of Bitcoin, we would see an unprecedented advance in personal freedom. Instead of the Bitcoin mining of useless equations, why not develop the means to hack and attack hostile forces?


48 posted on 03/09/2014 3:13:33 PM PDT by grumpygresh (Democrats delenda est. New US economy: Fascism on top, Socialism on the bottom.)
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To: SeekAndFind

For those who are wise money is simply a “hot potato” token of value to be used to facilitate the exchange of physical assets. The higher the inflation, the hotter the potato.


49 posted on 03/09/2014 3:28:05 PM PDT by The Duke ("Forgiveness is between them and God, it's my job to arrange the meeting.")
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To: SeeSharp

Your reasoning is intentionally obtuse. Of course anything can be denominated in anything. 4 eggs equal a pair of socks and so on. Gold is denominated in bitcoins NOW, and will be in the future, depending OF COURSE on what the market agrees upon based in recent tranactions.


50 posted on 03/09/2014 3:48:25 PM PDT by HMS Surprise (Chris Christie can STILL go straight to hell.)
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