Abney and Associates
BITCOIN: A NEW CURRENCY – OR A NEW SCAM?
I planned to spend the month of January clearing out files and getting old interests off of my computer to make room for new ones rather than doing any writing but a telephone call from a person well informed about banking, bank regulations, the American legal system, and many other things (including USA, Inc.), and it changed my plans. He called and asked a simple question: “What’s your opinion of Bitcoin?” I’ve had many other friends ask… and have avoided an answer – until now.
Banking, not currency, is my area of expertise… but the two concepts overlap. Without money, what good is a bank?
What is money? Before I address the topic of Bit coin, this question must be answered. What is money? What is wealth? What is profit? The three are intertwined, but they are not the same thing.
Money is a reward for labor and risk management. People who run their own independent businesses are rewarded with profit for their good decisions (or take losses for bad ones) involving risk management. People who work for them – or for multi-national companies – take no risk but provide the sweat of their brow to gain access to money. Stock market investors are rewarded for their good decisions with profit – or are penalized for bad ones. For most people, however, money is the reward for labor and risk management. After earning it, it becomes the means to survive, giving us access to everything from housing and comfort – to the opposite. Anyone who opens a business every day manages risk. Anyone who invests in various market products – from stocks to bonds and mutual funds and metals – manages risk. When you get to the bottom line, though, money is something the vast majority of people think they can stuff in their mattress or pull from their wallets to pay for a drink at the local bar or to tip a waitress at Denny’s for good breakfast service.
As long as government can put you in prison for not paying your taxes, what backs America’s paper currency is not “anything.” People tell you that but it is untrue. What supports the Dollar/Federal Reserve Note is the tax base of the nation. Our paper money is backed by the taxes paid by the American people, by the sweat of our brow, by the value of our real estate (before mortgage-backed derivatives ruined it), and our commodities. Generally, productivity determines our wealth, not “things.”
Money is a nationally-recognized medium of exchange – like the U.S. dollar (or Federal Reserve Note – bearing in mind that the word “note” also means “loan”) or the British Pound Sterling or the French Franc or the German Deutsch Mark. But money has changed in the past few years. Computers turned “money” into “virtual currencies” or “digital currencies.” The United States Federal Reserve Note is the largest digital currency in the world. Bit coin’s claim to being a digital currency is totally minimized when you think about the “digital dollar” for longer than a minute.
Bitcoin supporters – and they are legion – are as dedicated to the concept of a non-government backed currency like Bitcoin as any Greenie is to eliminating carbon footprints. They are pretty radical. They have found something to believe in… something they believe to be better than money produced and regulated and backed by governments around the world.
Supporters of Bitcoin think of it as a non-government (or post-government) currency – but it is not. Government can shut it down anytime it wants. And that was the first answer I gave to the caller who asked the question. A “virtual currency” (like Bitcoin) is invisible. It depends on billions of computers which are linked together. You cannot dilute Bitcoin, you cannot counterfeit it… and those two things make it highly desirable to many people who have lost their confidence in the current central bank-controlled world of money. The dollar is being counterfeited all over the world. The point is, the people have largely lost their trust in government. Like most not terribly bright people, they simply do not recognize the point at which they are going to kill the goose that lays the golden eggs and think that Gordon Gekko’s statement that “Greed is good” is accurate – into infinity.