Why Bitcoin Matters

Bitcoin article

Bitcoin, a little know currency that emerged in 2009, has achieved what was previously thought impossible, a digital cash. It went up from a market cap of under $1 million to today’s $6 billion. It also got Central banks excited by the concept of issuing virtual currencies, and a real shot  at eradicating cash. Never has the role of Bitcoin been more clear. In a world of state issued digital monies, a censorship resistance digital bearer asset is the only check against bad government.

Just yesterday, Reuters reported ‘China’s central bank plans to launch its own digital currencies’.

the People’s Bank of China (PBOC) wants to launch its own digital currencies to cut the costs of circulating traditional paper money and boost policymakers’ control of money supply

In my macro economic circles,it is a well known fact that Central Banks are colluding against cash to have most, if not all of the world’s monies in digital form. The Chief Economist at the Bank of England has called for the abolition of cash. Cash, they say, is filthy, prone to abuse by terrorist and money launderers, and crucially, limits monetary policy tools’ effectiveness. By having a government-backed electronic wallet for instance,

It would allow negative interest rates to be levied on currency easily and speedily
said Bank of England’s chief economist – Financial Times

But, that is only half of it.

An often left out consequence of adoption of such forms, would be the loss of privacy of money that we enjoy today, and perhaps, to an extent take for granted. If all digital money is centrally issued, then it can reasonably be traced to source and established who spent what, to whom, where and when. Effectively, we lose ownership and control of our money.

Richard Gendal, on Is Blockchain Different than Bitcoin,

physical cash really is fundamentally different to every other form of money: only physical cash is a bearer instrument. And only physical cash can be transferred without permission – censorship-resistant.

Legally, the bank owns any money put in it making depositors unsecured creditors holding IOUs or promises to pay. Thus, if all your money is in a bank, in electronic form, what happens when the bank says you cannot have it? OR a government imposed mandatory tax on all deposits means you are entitled to only half your savings? We only need to look back at 2015 Greece capital control measures, or a 2013 emergency move by Eurozone troika to bail Cyprus banks by confiscating depositors funds

Deposits below €100,000 would be subject to a 6.75% levy or “haircut”, while those over €100,000 would have been subject to a 9.99% “fine.”

Why would such events spark off speculation on silly internet money?

Bitcoin, a digital bearer asset, is immune to confiscation and peer to peer; it can be held outright and transferred to anybody you choose without permission from anybody.

Traditionally, bullion Gold has served the role of a safe haven assets for investors fleeing bank induced financial crises. Today, Bitcoin is increasingly compared to digital gold, driven by sensationalist headlines linking it to – capital controls in China, currency devaluation and stock market bubble corrections. Regardless of the truth to these claims, they reinforce the public perception of bitcoin as a hedge against fiat asset crisis. Inflation and bad monetary policy are huge incentives for Bitcoin, when people are looking for alternatives.

the bubble and the fraud is in fiat, and that when the ‘crack up boom’ happens (devaluation, hyperinflation), value will flow to both Bitcoin and gold. That’s why I’m bullish on both

  – Tuur Demeester in How to position yourself for the next rally

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  1. […] have written about how this transition affects you and I, and why it matters. In Why Bitcoin Matters, I blogged on why Bitcoin (and other non-confiscatable assets) have a role to play in a world full […]

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