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Greenspan Baffled Over Bitcoin 'Bubble': "To Be Worth Something, It Must Be Backed By Something"

"In order for currencies to be 'exchangeable' they have to be backed by something," is the remarkably ironic initial comment from none other than debaser-of-the-entirely-fiat-dollar Alan Greenspan when asked about the "bubble in bitcoin," by Bloomberg TV's Trish Regan. Unable to "identify the intrinsic" backing of Bitcoin (or see bubbles in equity, credit, real estate, or greater fools) Greenspan is, apparently, capable of identifying Bitcoin "as a bubble," because "there is no fundamental means of "repaying' it by any means that is universally accepted." The farcical double-speak continues as the Maestro does a great job of making Bitcoin (which Ron Paul earlier noted could be the "destroyer of the dollar") look even better than the readily-printed fiat we meddle with every day.

Greenspan explains...

"when we were on the gold standard, [currencies] had intrinisc value which made people willing to exchange their goods and services with no question."

"Alternatively, when we went into "currencies", it was the "backing" of the issuer of the currencies... whose "great credit-standing meant his checks could circulate as money."

So either its backed by real physical metal with intrinsic value - or the promise of someone...(increasingly politicians of course) with good credit (or a big army)?

http://www.zerohedge.com/news/2013-12-04/greenspan-baffled-o...

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wolfe's picture

Greenspan is not wrong.

I know everyone wants to say the USD isn't backed by anything, but indeed it is. It is backed by violence.

1) Domestic taxation.
2) Foreign oil (petro dollar).

Both of these things impart value because of the need to transition to the USD to either 1-Protect yourself. or 2-Purchase oil.

The USD is not sound money, nor is it's backing a good or moral thing but the point that Greenspan makes is very valid. Bitcoin has no sound backing, nor does it have the ability to impart value through violence or any other means.

Without -any- value, it cannot and will not survive, unless it finds a way to create value. As of this moment, that simply doesn't exist.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

what an idiot.. intrinsic value doesn't exist..

All value is subjective..

The DP on Bitcoin:

http://i.imgur.com/pjidr8J.gif

"We’ve moved beyond the Mises textbook. We’re running in the open market." - Erik Voorhees

As the kids say

My sides are in orbit.

Keep talking Ben, America

Keep talking Ben, America could use the laughs.

"In order to be worth

"In order to be worth something, currency must be backed by a country that is $17 trillion in debt and with no restraint on spending in sight."

________________________________________

It's backed by "F**K THE NWO", that's what.

Any other questions?

"We are not human beings having a spiritual experience; we are spiritual beings having a human experience"—Pierre Teilhard de Chardin

Quick basics of money

The qualities of money are:

  1. durability
  2. divisibility
  3. transportability
  4. noncounterfeitability

Gold and bitcoin both meet these criteria.

If:

A is the subjective asset value of a unit of money
C is the subjective currency value of a unit of money
The value V of a unit of money is given by the equation:

V = A + C

So gold has a positive A value and will always be worth something. Bitcoin has no A value, and could be worth zero, if C went to zero.

But when something becomes money it's A value is much lower than it's C value. Moneys are rarely actually consumed once they become money. Most of the value of a money is in C, not A.

The A and C values of money are both always subjective. Mises' regression theory suggests that moneys have historically come into being through the following sequence of events.

  • t0 - something (eg gold) has the qualities of money but is not yet valued as an asset, A = 0 and C = 0.
  • t1 - it becomes valued as an asset, A is now > 0
  • t3 - due to it having the qualities of money people start to trade for the money, not for use, but because they know they can in turn trade it for something that is directly useful, C is now > 0

So the question is, can you skip the first two steps? I think we have seen the answer and it is yes.

Would it be likely to happen if fiat money didn't already set the example of a money with A = 0?

Probably not.

Would people prefer a money with A > 0?

Probably.

But governments have outlawed moneys with A > 0.

Given that, a money with C > 0, that cannot be arbitrarily diminished by inflation is superior.

Will bitcoin, or some other crypto-currencies go away?

Maybe, but only if money with A > 0 are made legal again.

an honest question

In what way has the government outlawed moneys with A>0?

As far as I understand, governments have imposed regulation and tax burden on those moneys, but not outlawed them.

Tell that to Bernard von NotHaus

In the current statutory situation the C value of gold is almost nil. Part of gold's value is that people think it has a potential to have a C value in the future, and I would say potentially immense C value.

And yes it is primarily the tax burden, notably taxing appreciation of gold as a capital gain, that effectively outlaws it's C value and thus makes it impractical as money. Zero C value = not a money. Any law which keeps the C value of something at zero or close, has outlawed that as money.

And if they could figure out a way to reduce the C value of btc to zero, they would have destroyed btc as a money, and since it has no A value, that's it. But btc is designed so that it's is very hard to destroy it's C value.

But if they do there will always be market forces for a better crypto currency, so long as money with an A value isn't allowed.

ok, you were refering to the capital gain tax.

That definitely makes it difficult (and potentially costly, depending on what happens to the dollar) to use as a currency.

the same bitcoin that is worth more than $1,000 was only worth

8 or 9 cents in 2009.

THATS when you should have gotten into bitcoins.

Did you hear about the British guy who managed to acquire 7,500 bitcoins in around 2009 for 8 or 9 cents each? He had them safely in a hard drive that he had removed from laptop but then not thinking threw it way.

Those 7,500 bitcoins would be worth some $7 million 500 thousands dollars now But the hard drive is in a landfill in Wales.

He is trying to look for it.

http://www.skynews.com.au/offbeat/article.aspx?id=929177

reading these comments makes me sad

how far and how few here have actually learned Austrian economics and/or cared to "get" why sound money was a core principle in the first place.

I own countless books on

I own countless books on economics, and I love Bitcoin because it IS a sound alternative.

Value is subjective.

But I'm not sure why you and others that are like-minded, continue to just wail on Bitcoin. It's money, created by the free market. No government is forcing it's value on us. It's very secure. And has a lot of intriguing digital properties.

Again, value is subjective though. I love it, you hate it.

But it's very weird to me that somebody like you, think it's important to tell us how wrong Bitcoin is. It's a free market solution that has side-stepped government, I would figure even an opponent of Bitcoin -- who's a believer in the free market -- would still like to cheer for it on the sidelines.

I will continue to compliment gold with bitcoin. And will encourage others to do their research on bitcoins.

I'm with you Troy

pretty sad.

Goldspan

You have indeed shown your lack of fidelity with this comment. Ron Paul, James Corbett, Karen Hudes and myself all respect alternative currencies. And (pick up a book, or moooove you mouse and click), they all have spoken about bitcoin.

Why do you try to label me as anything other than respectful to Honest Money and the Rule of Law. LOL

Seriously Bass…..I am going to say this with all deference.

You are an idiot.

First of all….you obviously DO NOT know the definition of “sound money”.

Secondly …..Why do you shoot from the hip without understanding THE MOST BASIC PRINCIPLE of Libertarianism. Sound Money is at the corner stone of Austrian economic thought.

Third……why in the world would you make a statement about a topic you don’t know anything about without looking it up? Man…..I will never understand you. You have this amazing tool called the internet at your fingertips that can teach you just about any topic and you just refuse to use it……Hell if you can’t read……look up “sound money” on YouTube.

Fourth…..Ron Paul is not in favor of “alternative currencies” so much as he is an advocate for “competing currencies” …..If that happens to be an alternative of a “sound dollar” so be it…..but we don’t have a sound dollar. If the dollar was sound then he would favor the dollar along with other privately issued competeing sound currency.

Here is a quote from Ron Paul’s book “A Case for Gold”

This report was written to demonstrate as clearly as possible the choices available to us: political (paper) money or commodity (real) money. It is imperative that we make it clear to the American people the alternatives they have, and that they make the correct choice. Making the wrong choice will jeopardize our political freedom and destroy the possibility of restoring a truly productive economy. Making the correct choice—limited government, free market, private property, and sound money—ensures liberty and prosperity.

Fifth…..You asked me on the other thread to recommend a book to you. I was going to start with something from Rothbard…..But after this post I think you should start at the VERY beginning, because you obviously DO NOT understand the concept of Liberty. So start with Albert J Nock …Our Enemy; The State. But I am going to ask two things from you before you read this book….One is, stop posting on here completely until you read and understand this book…..second wipe your mind of everything you think you know( which shouldn’t take too long) and read this book as if you know nothing….( which is really the case….but what I really mean is don’t read it trying to prove me wrong…..because you will miss what it says….read it with an open mind).

Six…..Please just stop with the Karen Hudes crap….seriously ….once you get a little education in you ……man you are going to look back on posting this stuff about her and be so embarrassed…..just stop….she is crazy. ….remember what I said don’t become a zealot…..if you knew….you wouldn’t post her stuff.

Seven….I don’t care about Bitcoin….in the real world it doesn’t exist…..at least not yet…..it could someday…..right now it’s equalivent to a penny stock. With 30 years of trading experience I would say this thing could be over……don’t know for sure…..but after falling from its most recent high there is going to be a lot of overhead resistance with a lot of inexperience investors…I think it goes down from here…..at least that’s what my experience tells me.

Seven….James Corbett is AN IDIOT….period.

Here is what you may have found if you had researched “sound money”.

The sound-money idea became one of the most popular points of the liberal program. Friends and foes of liberalism considered it one of the essential postulates of a liberal policy. Thus the sound-money principle has two aspects. It is affirmative in approving the market's choice of a commonly used medium of exchange. It is negative in obstructing the government's propensity to meddle with the currency system. It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Modern cryptodespotism, which arrogates to itself the name of liberalism, finds fault with the negativity of the concept of freedom. The censure is spurious as it refers merely to the grammatical form of the idea and does not comprehend that all civil rights can be as well defined in affirmative as in negative terms. They are negative as they are designed to obviate an evil, namely omnipotence of the police power, and to prevent the state from becoming totalitarian. They are affirmative as they are designed to preserve the smooth operation of the system of private property, the only social system that has brought about what is called civilization.

Base it is your so called “Rule of Law” that gives us fiat currencies…Sound money derives from the market place…..and therefore Liberty. If you stick with me one day you might wake up to realize that you are no better than the people you describe and call names for being people sheeple…..but then again……your ego might just keep getting in your way.

Read a book

Hey Goldspan

What do you know about bitcoin?

Séamusín

Hey Sea

Before I forget…hope you and your family & friends have a Happy Holiday Season. Of all the things we take the time to think and talk about, there really is nothing more important….So Marry Christmas my friend.

You asked what I think about Bitcoin. Well thats a pretty broad question. But honestly …..not much…meaning I don’t send a lot of time thinking about it.

What do I think of it as a competing currency to the dollar……it so far from happening that it will never occur in my life time? Is it possible…..maybe one day. But is it really a sound currency….not at all. The reason gold and silver are sound currencies is an ounce of either is and ounce, the measure of weight does not change….only the price that is convertible in dollars ( or any other fiat currency) is what changes. Bitcoin will have this characteristic once they stop expand it….which is my understanding at about 2025. Does Bitcoin have any intrinsic (and please everyone I am not interested in a discussion of the term intrinsic value.)

Here is a post I wrote back in Aug.

http://www.dailypaul.com/294793/why-bitcoin-will-fail

Gold and Silver have the intrinsic value of capital resources being diverted from other opportunities that give it a value from the supply side point of view…..This concept is the essences of Adam Smith’s Invisible Hand Theory from the Wealth of Nation. But Smith only used this term 3 or 4 times in this book and more predominantly with the balance of payment between nations, which is a mercantilist point of view. A better understanding and more Austrian perspective came from Richard Cantillion 50 years before Smith. But read that link it explains more and I addressed issues I had with Bitcoin.

If you are asking about the trading of Bitcoin lately, Technically ( chart analysis) I see that Bitcoin has sold off about 50% or so….that’s about 50% from where it went parabolic to the peak….and back down to about the 50% level….applying Fibonacci retracement analysis Bitcoin should trade back up to near 900 before it sells back off. You have to understand the psychology of anyone that bought it at higher prices then here……they have the mindset that if it just gets back to where I bought it and I can break even I am getting out. This is where understanding systems and understanding human behavior collide. With what I imagine so many novice and young people buying this thing, it is will play out right on Que.

The thing most of them don’t even know (much less understand) how a bid/ask market works. The quotes does not represent the value…the quotes represent the price that the next transaction at will occur at…and now that this thing is trading in 1/1000th of a coin…..if you had 10 Bitcoins you may only get one /one thousands of your trade off at that next price….you could get stuck in this thing, the bid will go away at twice the speed as the offer(asked) did on the way up.

Level two trading.

http://www.youtube.com/watch?v=4YHspuv3418

At the 1:40 mark when the speaker starts to explain the bid price ( and then the offer price) you have to take off you retail investor hat and put on you trader hat…..or in reality the hat of the firm that the letters represent…..these are abbreviations represent the firms the makes a market in Apple…with is the stock he is looking at.

So what do I think about Bitcoin……not much really……but what do I know about how the system works….well quite a bit (so to speak)…… Here’s a site providing quotes.

http://bitcoinity.org/markets

K

So this is the little bit I know about bitcoin and my thoughts on it.

Bitcoin was created to replicate the qualities that a commodity born money has. It was also created to be a decentralized autonomous network of recorded transactions between individual accounts. The network is powered by computer processors around the world that verify these transactions through a cryptographic protocol and as a reward for for this processing power they get new percentages of bitcoin that are mined into existence.

When you conduct a transaction you have an option to pay a users fee. If you dont, your transaction has no guarantee of ever being processed. The user fee is determined by the number of miners in the network and is distributed amongst the miners(thus applying market forces to the mining pool).

In regards to whether or not bitcoin is money, I think the question is irrelevant. The objective of the bitcoin network is to replace fiat currency, in the same way fiat currency has replaced money.

In regards to whether or not bitcoin is sound, this is where I have to offer criticism to your post. Bitcoin is indeed sound if I define sound in these terms. Something that cannot be replicated at will, and thus something that cannot be inflated through dishonest lending schemes.

In my opinion this is the real beauty in the protocol. If you have a bitcoin in your wallet, there is no question as to whether or not that bitcoin is real. There is no way to pass off something for a bitcoin, or something that represents a bitcoin.

The only sound dollar is a gold dollar. I mean one that's made of gold. As soon as you draft a note, you place reliance on the institution that holds the actual commodity that the note maybe redeemed for.

Gold was chosen to be money because it was the most manipulate-able, and least functional(conjectures on my half), relatively rare and sorta pretty precious metal around. This is where I have to draw some conclusions from a rational analysis of my own personal experience. I hate gold. I do not think that gold is so valuable to anyone in today's society as it was as it was when it became the first commodity money. I have no real use for it except to trade, and even then it's functionality is lacking somewhat.

The bretton-woods collapse taught us something. It taught us that we don't need sound money to have a functioning economy. Sure you could certainly make the case that the demand for the dollar is artificial, but for the vast majority of folks who use dollars on a regular basis, that statement is meaningless and even wrong.

The truth is the question of what the intrinsic value of something is has been permanently disjoined from the question of money which is, what is its purchasing power. The demand for dollars is real because its purchasing power is real.

Its purchasing power is real because it's commonly accepted as a medium of exchange. I believe it was from this revelation that the developer(s) of bitcoin discovered a new way of looking at money.

Then there is the matter of awareness amongst a world wide, ever growing, technologically savvy, generation of kids witnessing the failure of central planning, central banking, and ever encroaching government. sounds like a market for a decentralized crypto currency to me.

Now I have never heard a bitcoin user say no to use gold as a store of value, and yet from the gold bugs, a different story. I think what the bitcoin folks just want is to let the market decide. The value of anything in a free society is determined by the individual. Apparently what bitcoin offers an educated population is valuable enough.

Séamusín

Why didn't you just say that to began with?

Your question should have been….Goldspan, what do you think of Bitcoin as money?

I would have answered that question this way.

Anything can be money, if people are willing to exchange goods with it. Barter being the first order of direct exchange. A medium of exchange developed for numerous reasons by the market place for indirect exchange. Commodity money became the standard, just as the VCR became the standard for recording TV, Just as 120v became the standard for power distribution (at least in this country, did you know at one time people actually were as knowledgeable about power distribution and the volts it took to operate appliances as electricians are today)…the economy demanded a standard and the market place responded (sometime by government fiat). The reason gold is thought to be a store of value is because you came depend on it in weight (unless the government debases it) because an ounce of gold is and ounce of gold….I have no feelings about it at all.

But heres the thing and for the life of me I don’t understand why this concept just does not gain traction. Gold’s value developed over time because of the concept of “opportunity cost of capital”. The productive capacity to mine an ounce of gold (through hundreds of years of barter and exchange) developed in the market place to be the equivalent to the productive capacity of other products in the market place. Like 400 loaves of bread……or a nice suit of clothes. Those exchange values still exist today, The bread I like cost about $3.50 a loaf (I could buy cheaper….but I really like this bread and it the most healthy on the market……subjective value)…….but the “store of value" exist not because the prices equate…but because the productive capacity to mine an ounce of gold is the same as the productive capacity to makes this bread when you calculate the “opportunity cost of capital”. DO NOT dismiss this concept it is one of the natural laws of capitalism…….it's what Adam Smith referred to as the “invisible hand”.

Now ask yourself this…….what is the opportunity cost of capital for Bitcoin? What is the indirect exchange of Bitcoin to any other product? What is the price of 400 loaves of bread in Bitcoin without the exchange rate to the dollar….a fiat currency? Is Bitcoin a fiat currency because of this exchange rate to the dollar? When Bitcoin is exchanged in gold……it is based on the exchange rate of gold to dollars….not to a measure of weight in gold. It is going to take tens (if not hundreds) of years for this market price discovery to occur.

You made this statement
“This is where I have to draw some conclusions from a rational analysis of my own personal experience. I hate gold. I do not think that gold is so valuable to anyone in today's society as it was as it was when it became the first commodity money. I have no real use for it except to trade, and even then it's functionality is lacking somewhat.”

I don’t not really understand your line of thought here….you said you hate gold, because it has no use other than to trade……isn’t that the whole purpose of money. You have to remember when you see the prices of gold fluctuating…….what you are really seeing is the price of your dollars fluctuating. The same could be said for Bitcoin except the exchange rate was initially set against fiat currencies. I suspect whom ever set this up did not want it to be tied to gold for a reason…….you would have to ask them.

I am ambivalent to Bitcoin…..just as I am to gold….do I own some gold, yes I do…..would I buy Bitcoin……no…I have no use for it….subjective value.

BTW Bretton Woods was the “New World Order” after WWII. The last remanence of the Classical Gold Standard was completely abandoned by 1913 (but I think sooner by the Civil War) and the Gold Exchange Standard was implemented. Have you ever read Rothbard’s “What has the government done to our money”?

My problem is we have the solution and it is so easy……but “sooooo many people” want to create a whole new system to prove they are “soooo smart” when the basics work……it doesn’t have to be this hard…….but people being people…everyone thinks they are smarter…….just let the market decide and get the government out of the business of money…..period. But that will never happen because without them being in the business of money they cannot finance their deficits…..and without that.... they cannot cheat the system.

This is fun

When I said I hate gold, I meant as a commodity. I dont wear it adorn my household with it, cast statues out of it or anything else. I think it's ugly. This is the whole intrinsic value thing that you didnt want to get into. Sorry, but just being able to melt it down to wear around my neck doesn't cut it. I do have use for it as money, but I would rather something that that could divide easier, make change with, and with more plentiful divisions. Gold did a really good job of serving as money, but in a world of computer technology and automation, its just not as valuable as a commodity or as money as it used to be.

I own gold just for the record.

One more critique on gold and then I will move on. Gold is heavy. Cumbersome, and obvious and thus it is more dangerous to carry around. Gold is the reason we created notes. Notes are the reason we have fractional reserve banking. Fractional reserve banking is not inherently evil, but it is dangerous to an economy. Bitcoin deals with this problem quite well.

Now to address the opportunity cost. I had a feeling that this was where your head was. That's why I addressed it, albeit subtly, in the above post. You see the opportunity cost of powering the network and the cost of use are inextricably linked. Then the two are together hurled at the market.

Let me explain again differently what I tried to explain before. There is a user fee that must be included in every transaction, if it's not included then there is no guarantee that the transaction will be processed by the network(that costs computer processing power and thus opportunity cost). Demand for computer processing power is expressed by the minimum user fee to process transactions. The reason is that it is those user fees that are rewarded to miners when the bitcoin supply reaches its limit.

Adam smith's critique of gold had everything to do with opportunity cost of capital, didnt it? Krugman just wrote an article about it. But what krugman doesn't understand (one of many things krugman doesnt understand) is that the real resources that are consumed to power the bitcoin network are paid for by the people who use it, in the currency that they have chosen to use. The network is essentially a service being provided to consumers for a fee that the market determines.

Ok, maybe you still can't get behind bitcoin. At least recognize that who ever developed it had an awesome understanding of free market economics and money in particular.

Séamusín

Sea,

Ok you’re looking for fun…..here you go. I thought you meant gold as money because that was the discussion, not ornamental gold…..that never even crossed my mind.

The Opportunity Cost of Capital/ Cost of Capital … I will use computer definition to save typing.

The Opportunity Cost of Capital: The difference in return between an investment one makes and another that one chose not to make. This may occur in securities trading or in other decisions. For example, if a person has $10,000 to invest and must choose between Stock A and Stock B, the opportunity cost is the difference in their returns. If that person invested $10,000 in Stock A and received a 5% return while Stock B makes a 7% return, the opportunity cost is 2%. One way of conceptualizing opportunity cost is as the amount of money one could have made by making a different investment decision. Importantly, opportunity cost is not a type of risk because there is not a chance of actual loss.

Cost of capital: The cost of funds used for financing a business. Cost of capital depends on the mode of financing used – it refers to the cost of equity if the business is financed solely through equity or to the cost of debt if it is financed solely through debt. Many companies use a combination of debt and equity to finance their businesses, and for such companies, their overall cost of capital is derived from a weighted average of all capital sources, widely known as the weighted average cost of capital (WACC). Since the cost of capital represents a hurdle rate that a company must overcome before it can generate value, it is extensively used in the capital budgeting process to determine whether the company should proceed with a project.

OK here’s the thing. Every corporate manager& CEO has to make difficult decisions every day. When deciding on whether to undergo a new line or product or even a new business venture he will do a cost benefit analysis. In order to make an informed decision he will ask his people to determine the “economic value added”. This is where the cost of capital will come into play….are the expected profits greater than the cost of the venture. Is the “internal rate of return” positive? This is not only an accounting profit but an economic profit? (Economic profits include EVERYTHING including cost of capital) If the answer is yes, the project should be accepted, if not, it should be rejected. This is an internal analysis that every firm does to analyze growth.

The Opportunity Cost of Capital is an external analysis that is calculated by not only entrepreneur but investors. This is when a project is usually underway and profitable and has been discovered by investors (or entrepreneur) to have an higher then natural rate of return economic profit. Capital will flow to the firm and or line of business diverting it from other opportunities. But what happens when these economic profits are really high and above normal rates of returns…… others take notice? Let me give you an example.

In the early 1980’s Sony introduced the VCR and they sold for $600. Did it cost $600 to manufacture the VCR….No. I would say the cost of everything, including all fixed, variable assets and cost of capital was about 100 bucks per unit.( by the end you will see why I can say this with some authority) So how could they get away with selling it for $600…as von Mises and Cantillion described…..subjective value. This was a HUGE economic profit…..I will call it 500%......with stock returns on a good year 20%, bonds 7.5% ( which sounds huge today) do you think this would attract competitors? The free flow of capital will go where it is treated best. So as competitors entered the market and fought for market share…450% profit still looked pretty good……soon the market was flooded with machines and the prices fell and the economic profit disappeared…..and then went negative….and this drove capital from the line of business until price discovery was achieved with an economic profit that was just about the same a cost of capital……the essence of capitalism the “invisible hand”. Of course Adam Smith was not as smart as Cantillion and really didn’t understand this very well. Adam Smith believes that the price in the market place should be equal to the cost of labor and resources (with no value put on human capital). This is what’s called the “labor theory of value” which Marx espoused in his Socialist Utopia and that is also where Krugman lands on this subject…..and I don’t even have to read any of his material to know this….I know Krugman…..I could eat Krugman’s lunch….. he’s a pin head.

Money:
Exchange between people developed because the people understood the comparative advantage of the division of labor. Barter worked for a while but had its limitations. So the desire of indirect exchange developed and money was born. From beaver pelts to sea shells, notes developed from warehousing commodities, whether it be gold, silver or tobacco (as you said). But Gold and Silver emerged because of all the reason we all know. And then the Government came in and issued notes that were on par with the notes in existence and low and behold managed to fuck it all up……just like they are doing right now with healthcare.

So now that we have a clear understanding of what drove capital to the miner to mine gold….Opportunity Cost of Capital…let examine his motives…his human action so to speak.

At first, I would say presumptively, that the barter exchange between gold and other goods was positive or negative (depending on your point of view) until enough barter settled the exchange value in the free market. I will gather to say as gold became accepted as money with positive economic profits others seeking an opportunity were draw into the business and the natural law of the opportunity cost of capital took over and this is how gold became money and those exchange values still hold true today.

So now let’s look at Bitcoin. I will tell you the things I like about Bitcoin and then as this unfolds and address some of your comments and you will know why I don’t like it.

I like it because it was developed in the free market and that the government has not got their hands on it yet…….that’s it….that why I like Bitcoin. Neither is a reason for me to get involved with it.
Ok As far as the initial development of Bitcoin. The code that it took to write it was a human resource and a computer……but the computer is negligible…so it was all human resource…..I am ok with that……sure ……smart guy. Then the cost to market it…..getting businesses to accept it…..again negligible….does not bother me. But the valuation …..ever see Shark Tank….it’s all about business valuation…… those economic profits. OK ….let’s say that the designer valued Bitcoin a 1 dollar per Bitcoin. The total number to be issued is 21 million. That means upon opening up for business the designer valued Bitcoin at 21 million dollars…..is it worth that…..with it trading at about $1,000 that would value it at 21,000,000,000 that’s 21 billion dollars. It’s only intrinsic value is that it is exchangeable into dollars. Now you can say the same thing about gold too…..it’s only intrinsic value is what someone is willing to trade for it, but gold has a 6000 year history of setting the exchange value…..Bitcoin has 3 years. Bitcoin has gone from just a few dollars to now a thousand…..why. Has the dollar fallen in value by 1000% in just a few week time? It has taken the Fed debasing the dollar for 100 years and gold in now just at $1250. Bitcoin by definition is a bubble. In fact it reminds me of John Law and the Mississippi Bubble of 1720. Study that and you will see the Bitcoin of the past…..do you know who made a fortune on that bubble…..Richard Cantillion.

But think about this designer. He had to have kept some for himself…..even if just 10% he can sell it and make a huge profit….an enormous economic profit. The “Miners” you mentioned along with the fees….thats just cost of operations and don’t really have much way in factoring cost of capital…..What you need to be aware of is other players coming into the market. Now in the computer age this thing could be move a light speed. If other seeking to take advantage of the huge economic profits….competitors will enter the market. Price discovery will occur and a normal rate of economic profit will eventually materialize.

Bitcoin (if it survives...…a lot of first to the market don’t survive) and the cryptocurrencies will discovery their intrinsic value in the market place. Right now….it’s trading more like a penny stock, which is what I think the value is…..under a dollar…but that’s what makes markets….disagreements.
Hope this is as much fun for you.

It is, thanks. I place a very high value on your discussion

I hope you dont start demanding value from me in return.

Do you recognize that the massive amounts computer processing power used to process transactions is a capital investment? What I mean is that do you understand that that processing power could be used to process physics, engineering, scientific solutions.

I'm talking quantum physics, molecular modeling, astronomical research etc...

Do you understand that bitcoin consumes more computing power than anything that has ever been developed.

http://www.forbes.com/sites/reuvencohen/2013/11/28/global-bi...

I am not sure this can carelessly be dismissed as cost of operations.

Séamusín

Thanks sea....I feel the same here

If you weren’t already providing value,I wouldn’t waste my time.

Like this article….you have to remember, you are talking to a dinosaur when it comes to computers. I still prefer books…..the actual ones you can hold. Thanks for setting me straight on the amount of computing power it takes to make Bitcoin work. How much physical space does that require? Will it fit in a bread box?....a room? A building? That would require much more start up capital….now this gives me something to work with……Lets say it takes 210 million dollars (which would put an intrinsic value on Bitcoin of 100 dollar per Bitcoin) to create one of these cryptocurrencies, if they did not return at least that much value the project would not be duplicated. The reason I say duplicated is very often inventors will undergo projects because they are a passion…..but only when the product or service is put into the market place do they find out if the consumer will value it enough to pay the price to make it profitable, which gets us back to the whole Opportunity cost of capital thing.

The reason I make such a big deal about this it that I believe the “invisible hand” is the invisible hand of God ( I don’t care which God you worship…..we are all children of the God of Abraham). I believe that God created things like Gold and Silver for us to discover and value and use as a way to live and do business honestly with others. I believe that HE also provided us with a road map of the honest way to conduct business by providing us with the integrity of looking after our own interest while serving the interest of others. This is what the concept of OCoC does in a free market. I also believe just as Milton Friedman stated…..”Corruption is the intrusion into the free market through government regulation”. To me there is nothing more insidious then inflation and intergenerational debt. I believe that inflation and intergenerational debt breaks down the very fabricate of the human spirit and promotes a dog eat dog mentality. I believe that the use of government force to gain at the expense of others (mercantilism) should be exposed for what it is…..a SYSTEM of leaches of unproductive people (politicians) sucking off the lifeblood of productive people.

I believe that in the not too distant future we are going to have to make a decision , more government or less government. What I mean is the dollar WILL crash at some point…..will we give up our remain sovereignty for security and comfort…to someone that can provide the next source of inflation…..a bigger government……or will we choose the honest road and return to the honest money, self-reliance, reliance on and for your neighbor and less government. The Federalist vs the Anti-Federalist debated this back in the day and the Anti-Federalist comprised and look where that has taken us. And this is what sickens me when talking to other about all this conspiracy crap……the conspiracy kooks say they want to fix the problem….but they don’t really the just want to change leadership…..to their leaders….I don’t need a leader….I need a honest man ( or woman) to do business with. Sorry soap box ….later Sea.

I don't know about high value

But I am a goldspan fan. ;D

Hey Goldspan

Happy Advent to you and your family!

Thanks Granger

to you and yours also!

What a happy little group we have here ;)

I'm upvoting you all.

Honesty, Truth, and individual Responsibility have been redefined by you all over time and posts.

God Bless ;)

Read a book

don't be an Ass!