It doesn’t have to be, at least not long-term. Out of the roles money fulfills, I’d say keeping commerce peppy is probably considerably more important than providing a service which you can fulfill with a reasonable investment portfolio.
Currency is called currency because it’s supposed to move. Otherwise, it would be called stagnantcy.
It is for the short term. For example, the $1.50 I have on my dresser is enough to buy a soda at a specific machine now, and I reasonably expect it will be enough to buy a soda at a specific machine six months from now. It won’t be enough ten years from now, but one year? Probably. The point is that inflation is slow enough you don’t have to get paid at noon every day to buy bread on your lunch break, as people famously had to during the worst part of Germany’s hyperinflationary period.
As I and others have said, however, currency shouldn’t be a good long-term or even medium-term store of value. That encourages hoarding, which is the antithesis of a healthy, growing economy.
A morally good investment gains value by providing value to society. It is the representation of money that’s out there, helping others do things, creating value in the form of start-up companies, new houses, new road construction and maintenance, new cars being made and old ones being fixed, and everything else a society sees fit to do. Money that encourages people to convert it into currency and stick it in a vault is, therefore, morally unsound, even if it’s never converted into a physical form. It discourages the social goods a working, active, virile monetary system produces in the world.
A healthy fiat money is backed by the reasonable expectation the economy which produced it will keep working. An economy can only keep working if money continues to flow within it. A deflationary money discourages its own flow, sticking in the vaults like cholesterol sticks in an old man’s arteries. It is stagnation and it is death. Happily, Bitcoin isn’t nearly influential enough to be the death of anything more than a tiny sliver of a sector of our total economy.
Looks like BitCoin has droppd 40% in value today based on a move by the Chinese government to restrict converting RMB into BitCoins.
This highlights the biggest problem with BitCoin. The three primary uses are, right now:
(1) Avoiding currency controls
(2) Buying illegal items
(3) Hoarding by fiat money is evil types
You’re making a good case against a national currency that is deflationary.
But isn’t it at least somewhat important to encourage some level of savings? Inflation - or the expectation of it - tends to work against this. I know more than a few people whose attitude is that only the foolish are not taking on a decent measure of debt, in the expectation that it will be repaid with dollars that are worth substantially less.
Well, let’s differentiate between saving and hoarding.
With saving, whether in a brokerage account or even in a straight bank savings account, the money doesn’t vanish or remain static. Instead, if it’s invested it gets to work - providing money to firms or other investors and so forth and hopefully generating a return for the holder. If it’s placed in a CD or standard savings account, the bank will loan it out and the velocity of the money in increased - in general, there are exceptions.
However, hording money - whether bitcoins or dollars - takes the currency out of circulation entirely. That’s not a good thing and should be avoided.
So it’s possible to both save and see that money moving around the larger economy.
The pound (Sterling, UK) has lost 94% of its value since 1963, and 56% since 1988. I’m not sure the calculations are directly comparable, but it’s at least in the same ballpark and probably worse.
And the reason for this isn’t because of some Wall Street/Government/Illuminati conspiracy, it’s because the BitCoinists are stubbornly (re)learning the hard way all the common problems involved in banking systems, like undercapitalization and the incentives for insiders to cheat. We figured this stuff out 80 years ago. The technology changes, but the human problems remain.
The main benefit of bitcoin was to not need banks. You could store your bit coins securely yourself and easily send and receive bitcoins to others. If bitcoins cannot do these things then it fails as digital cash.
More headaches for Bitcoin supporters…the IRS has ruled Bitcoin should be treated as property, not as currency, for tax purposes:
I don’t know that that’s really a headache. At least they’ve issued some guidance.
And if you hold them for at least a year, the capital gains tax rate is going to be lower than the forex gains rate, so this means lower taxes for most people.
An interesting follow-up to the IRS ruling on [url=]Salon. Jeremy Liew, managing director at the Silicon Valley venture capital firm Lightspeed Venture Partners, gave what I consider a pretty good review of where Bitcoin has been and where it is going:
It’s this last phase where BitCoin has potential: As a secure means of making one-shot on-line payments. That is squarely at odds with what some libertarians initially hoped for the currency:
The real problem with bitcoins as others have pointed out elsewhere is that early adopters hold a vast majority of the currency. Imagine if after the first 50 years of the US that all the currency that was ever going to be used were printed and after that just redistributed. And of that currency, the distribution was heavily weighted to those in the US since the beginning?
So the step now is to look at the successes of bitcoins and weight its failures against other currency systems and figure out how to have the best of both worlds. For example, what if rather than having bitcoins harder to manufacture as time goes on, the same amount of bitcoins get made per unit time like 1000 bitcoins per week or whatever. The tradeoff is that now more people are chasing them so it is still deflationary.
Someone needs to explain to them that no one has any legal, constitutional, or moral right to be invisible to government, nor to do business out of its sight. Privacy rights do not extend to the point of conducting untaxed commercial transactions.
That would be awkward; a penny would be worth too much to spend in small transactions.
Plus another thing about BTC re: deflation. You cannot mine anymore without dedicated hardware and to break even we’re talking paying $1000s. Imagine needing $10000 in cash today to get a job at Walmart.
The trouble as I pointed out is that Nakamoto decided to jumpstart its popularity by heavily rewarding early miners. The question is for BTC v. 2 does there have to be such a huge front-end reward system.
Another thought, suppose I live my dream of owning Bir Tawil and I decide that as Emperor Saint Cad I that I will use cryptocurrency. What impact does that have on the one I choose? What about on the ones I don’t choose?
I would alter your statement a bit. While no one has a legal or constitutional right to do so, everyone has a moral right to try to be invisible to government. No one has the moral right to succeed at it, however. And certainly has no legal or constitutional right to same. Nor a legal or constitutional right not to be punished for a failed attempt. If you can manage it, bully for you. But don’t bitch if they catch you. You had no right to succeed at it, in the first place.
The problem with bitcoin is that it is generally not accepted as legal tender. If someone is accepting bitcoin but then turning around and selling it then it isn’t currency. If Bitcoin did not have market-makers who were willing to buy and sell from all comers, it would have virtually no value at all.
The technology is nice and maybe some outfit like paypal might sell dollar backed bitcoins that can trade anonymously but bitcoin won’t survive in its current form. Of course, you will have financial reporting requirements imposed on the market-makers of electronic currency so the anonymity will disappear but i can see the credit card company chop disappearing soon.
A sort of tangential question which I hope no-one minds me asking here instead of starting a new thread, but I don’t get the point of the additional crypto-currencies like LiteCoin or DogeCoin - what are they intended to achieve?