Joe has done us all a real service in putting together his three part (1, 2, 3) primer on Bitcoin (full PDF here).
I am curious, though, what the justification is for referring to Bitcoin as a “commodity” currency. Consider this from Izabella Kaminska at the FT Alphaville blog:
[Note: This is the third entry in a three part series. You can read the introductory post here and part two here.]
The Disadvantages of Bitcoin
For people who are not obsessed with anonymity and are not waiting for the U.S. to return to the gold standard, the reasons for avoiding entering the Bitcoin market are numerous:
1. Convertibility – Whereas other currencies are convertible into other financial instruments (dollars to checks to certificates of deposit, etc.) and through numerous third-party services (e.g., Visa, PayPal, Citibank), commodity currencies like Bitcoin can only be exchanged for fiat currencies—and then only through an online exchange. Indeed, unless your computer is working overtime on Bitcoin mining, the only way to acquire the currency is to buy it from one of the 30 online exchanges.
These exchanges are completely unregulated and are subject to problems that do not affect other financial markets. For instance, in 2011 the largest Bitcoin exchange, MTGox, had a security breach that resulted in the theft of nearly $9 million worth of Bitcoins. The theft caused the value of Bitcoins to crash from $17.50 to one cent before the market was able to recover.
2. Instability – The MTGox breach—and the subsequent market crash—taught Bitcoin owners a harsh lesson about commodity currencies: they can be wildly unstable. Over the 8 month span from October 1 2010 to June 9 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29.
The rate had dropped in 2012 and at the end of last year a Bitcoin was worth only $13.51. Last week, though, Bitcoins were trading as high as $266 before plummeting to less than $100. Anyone who had bought $1,000 worth of currency in October 2010 would theoretically have $4.4 million worth of Bitcoins. However, the convertibility problem would make it nearly impossible to extract that money without crashing the market and devaluing the entire currency. A gradual sell-off over an extended period of time would be necessary to take advantage of increase in valuation.
Still, being the seller of the overvalued currency is preferable to being the buyer. The Winklevoss twins, millionaires famous for their legal battle with Facebook, claim to own around one percent of all Bitcoins currently in existence (around 108,000). They began buying the currency in 2012, making some early Bitcoin holders very rich.
Read more on What Christians Should Know About Bitcoin (Part 3 of 3)…
We’ve had some intriguing discussion about Bitcoin at the Acton Institute offices today. It is certainly a phenomenon worth greater attention, and something of significant cultural, social and economic import. But I’m not buying Bitcoin, at least not yet.
In today’s Wall Street Journal, Jon Hilsenrath and Kristina Peterson report, “The Federal Reserve is heading toward launching a new round of stimulus to buck up the weak economy, but stopped short of doing so right away.” The predicted means of stimulating the economy is another round of the unconventional policy of quantitative easing (QE), i.e. when a central bank purchases financial assets from the private sector with newly created money in effort to spark economic growth. Thus, the quantity of US dollars would be increased, debasing their value and causing inflation.
Read more on The Prospects of More QE for Economic Stimulus: A Lesson from History…
Join us as we welcome Mr. Jeffrey Tucker for the AU Online presentation of his popular lecture, The Nature and Function of Money. The online session is scheduled for Monday April 16 at 6:30pm ET. In this lecture, Mr. Tucker explores the centrality of money to market economics, its origins, the history of its development, and its functions in modern economic life. Visit auonline.acton.org for more information or to register.
Read more on Up Next on AU Online…
Acton’s director of research Samuel Gregg is up at Public Discourse, with a piece titled “Monetary Possibilities for a Post-Euro Europe.” With his usual mix of sophisticated economic analysis and reference to deep principles, Gregg considers European countries’ options should the eurozone fail. If that happens, he says, “European governments will have a once-in-a-lifetime opportunity to rethink the type of monetary order they wish to embrace.”
In a recent article in the Washington Post, Juan Forero and Michael Birnbaum recommend that in the face of the looming specter of Greek debt default, Europe may learn a few lessons from South America. In particular, they point to the good example of Uruguay and the bad example of Argentina.
I was listening to news radio and heard an update in which the senate majority leader Harry Reid gave his interpretation of events on the debt ceiling negotiation. The part that really got my attention was where he insisted that further committee work would go after those “millionaires and billionaires.”
Camarin M. Porter of the Department of History at University of Wisconsin-Madison reviews a text edited by Stephen J. Grabill, Sourcebook in Late-Scholastic Monetary Theory: The Contributions of Martin de Azpilcueta, Luis de Molina, and Juan de Mariana (Lexington, 2007). The review appears courtesy of H-Net, a unique and indispensable set of list-servs hosted by Michigan State University.
Read more on ‘A Broadened Perspective on the Ethics of Early Modern Exchange’…
As we begin the New Year, I find myself thinking about books that fill the conservative armamentarium for resisting the left-liberal onslaught on the past handful of years. I’ve omitted some categories, like military and foreign policy, because they are outside my areas of expertise and don’t apply as much to the Acton mission, anyway. Here are my recommendations:
