Bitcoin as a Black Swan?
Yes indeed. The development of crypto currencies, such as bitcoin, or perhaps others to come soon, IS the black swan. Prepare accordingly.
There are compelling reasons for this conclusion.
(1) Use of crypto currencies, such as bitcoin, cannot be stopped by centralized authority absent total shutdown of the internet. Bitcoin is peer to peer, meaning that if part of the network is destroyed, or shut down, then the bitcoin network will still function, just as the internet designers contemplated when they designed it to withstand nuclear war.
But even if something or someone were to make the internet suddenly stop working, is this really likely? How will those in charge have the ability to communicate electronically? Or complete ATM or credit card transactions, or any of the other billion transactions that happen every day? So, is the internet kill switch option really an option? I think not.
(2) Bitcoin, or litecoin, or something else that comes along, takes the electronic transaction between buyer and seller away from the central planners. This is a game changer. That means the regular folks have an alternative to the valueless FRN notes and all the other fiat paper being printed from thin air.
(3) Crypto currencies are not about substitutes for money. Crypto currencies are not gold. There is no substitute for gold, or silver. It is best to stack physical, for sure. I do, and will always do. But, recognize that bitcoin or their competitors are currencies, just like FRN’s or gold coins or silver coins. They serve the same functions, that is, bitcoins used on the bitcoin network are a means of exchange, a unit of account, and for some, a store of value.
Crypto currencies have their negative issues, but reading through the links below, one must be PRECISE in analyzing those issues. If not, then one will confuse the Bitcoin network with the actual bitcoin unit and make mistakes in analysis. The Bitcoin network has tremendous value. There are real resources behind it. Study up and read for yourself. Do not take my word for it.
Remember, the same questions can be asked of physical gold. Why is gold valuable? Because, for one thing, it costs time and labor and resources to extract and refine. The gold coin in one’s hands has value precisely because of this scarcity and effort to produce. The Erik Voorhees Liberty Blitzkrieg article linked below is a must read. It is THE KEY analytical tool, and makes for an easy read. The arguments are compelling.
(4) Normalcy bias, and closed mindedness are deathly. So too is a knee jerk reaction to bitcoin. Under a Darwinistic view of evolution, it is not the strong that survive, it is those that can ADAPT that survive. Us here on TFMR, we are too small in number to force our viewpoint on anyone. Instead, our greatest strengths are our keen insight, and our unbiased intellect which allows us to constantly adapt based on circumstances, and to share this insight in a persuasive manner. Look at Mr. TF himself. He told us all to be wary of the Comex for it is rigged. Yet, he was formerly earning his living from being a Comex trader. He came around, persuaded us all to listen to him, and the next thing you know, this great site grew and grew. We should all be so similarly open minded and view new developments with an open mind.
(5) Bitcoin is RISKY!!!!! I am not saying to go out tonight and buy a bunch. Heck, I have not even spent one penny on it, yet. I am trying to be anonymous, and have listened to tmosley’s suggestions, among others. I am considering coinbase.com, and perhaps my own offline wallet. I am also seriously considering doing what this guy says here:
(6) Getting a wallet set up, getting some bitcoins or other crypto currencies takes time and effort. It is well worth it, if not strictly for the education it provides in learning about the mechanics of it, and having first hand experience as opposed to hearing others, like in Plato’s cave, discuss a shadow representation of what they think bitcoin really is.
(7) There are many merchants out there, who are moving to bitcoin as a means to accept payment. Bitcoin can be part of an overall means to diversify risk, and prepare for the unknown to come.
(8) TPTB have started condemning bitcoin. That for me proves it is time to jump in, and pronto.
(9) This crypto currency genie is OUT OF THE BOTTLE. I believe this is going to be as revolutionary as the original credit card idea in the 1960's. Back then, it was revolutionary. Now, EBT cards, ATM and credit cards are the norm, while checks and cash are looked at like the anachronistic relics they are. Crypto currency is no different than that, EXCEPT, there is no central command structure. I like that A LOT. Think about that concept. That alone is what changed my mind.
(10) And for the kicker: I had a long-time client ask me whether he should transact his herbal pharmacological supply business using crypto currencies or not. I realized that my advice I give him on this point is somber. I have not given it yet. I am still thinking about it. I have an ethical duty to be a zealous advocate. How can I tell my client NOT TO USE bitcoin, when it is legal, in use all over the world, largely anonymous (if done properly and correctly using on and off line wallets), and could protect him against law enforcement activity or physical robbery from using cash or other currencies to transact? On the other hand, how can I tell him TO USE bitcoin, when it is so new, so risky (although, relatively not the case given his herbal business), subject to wild fluctuations in FRN exchange rates, and when a bitcoin itself in an off line wallet has ZERO VALUE in and off itself, and only has value as a medium of exchange on the bitcoin network, which could fail, be seized, be monitored by the feds, etc.?
Such a conundrum, no?
I LOVE conundrums, though, hence my efforts to educate myself and think about this more and more and to post to all you brilliant thinkers.
There are the IRS issues, too. Is bitcoin a currency, or an investment? Different tax rates apply. How does one prove a capital expenditure, or a loss, or a gain? Who in their right mind would even report such a thing?
There is the bankruptcy angle, too. What if one has a stash of bitcoins, and declares bankruptcy. Are the bitcoins valued as a currency on the schedules, or as an investment, or what? Further, who would even claim such a thing on their schedules when they are so easy to simply hide?
Does this concept not open up a whole industry of bitcoin entrepreneurs? I can envision that a person will offer a service to hold a bankrupt debtor’s assets in the form of bitcoin until after the bankruptcy discharge. The debtor would convert everything into bitcoins before the bankruptcy filing, transfer them to the holder for a small fee, file the bankruptcy, then wait for discharge before getting the bitcoins back from the holder. It is seamless, anonymous, and untraceable. It preserves the debtor's assets, while simultaneously allowing the debtor to eliminate debts owed to unsecured creditors. After the bankruptcy, the debtor emerges free and clear, with his or her stash intact. This is massively deflationary for the big banks, and for the whole daisy chain scheme of collateral in general, and the central banks or authorities have NO remedy or way to prevent this from happening.
There is not a single bankruptcy attorney I can think of who can figure this one out and prove that the debtor was hiding assets. There is thus, no effective remedy to prevent massive bankruptcy fraud by any debtor willing to undertake this scheme. It is akin to the MFGlobal theft. We all know what happened, but it cannot be proved, and Corzine walked. The little guys now can do the same thing, risk free. Why will they NOT do it?
A business can do the same thing. Imagine a medium size business, saddled with losses, suddenly just closing shop, filing a chapter 7, and shutting down. Meanwhile, the owner has secretly converted all of the assets to bitcoin, stashed them away instantly, securely, anonymously, then hires a bankruptcy attorney to file the petition and get a discharge. Once the discharge happens, the owner can start fresh, but with all his money intact? The owner would not need to tell his attorney. The creditors could never find out. The court would never find out. All the wealth would be concealed, hidden, beyond the reach of legal process.
Has ANY COMMENTATOR analyzed bitcoin from this angle yet? Not that I know of. Will the mainstream media report on this? Heck no! But, will sharp folks figure it out and take advantage of it? Of course!
So, how does this prevent the FRN currency users from wanting to ditch the FRN’s? It does not!
This is a game changer. I say it again. Just start thinking, and the ideas will flood to mind.
The big thinkers out there are already way on top of this. I am sure there are countless other examples.
See what decentralization of the currency does? Even if TPTB try to stop it, they cannot.
Freedom is emerging. I ask each of you to carefully think about this new crypto currency paradigm before closing one’s mind totally because of a narrow focus on bitcoin not having any intrinsic value.
I hope to have a robust discussion, and let’s remember, this post will be here forever in the ethernet, so anyone who is strident or cocksure, may want to couch one’s opinions in the event one needs to save face later on. Just saying . . .
Ok, have at it everyone.
Bitcoin articles of note: