Bad News Likes to Travel in Packs
With the current round of negative market news making its rounds through the Press it is no surprise that the bitcoin bears have been rearing their ugly heads as of late. The recent Berkshire Hathaway annual meeting last weekend was the spring board for VP Charlie Munger and Bill Gates and Warren Buffet to collectively slam bitcoin on CNBC "Squawk Box" on Monday. The negative perspective of bitcoin was laid out in full force firstly by Charlie Munger who stated “Bitcoin is worthless, artificial gold”1 then Bill Gates who claims he “would short it if there was an easy way to do it,"2 to Warren Buffet’s statement that “It doesn't produce anything except more buyers looking to sell”3. There is some value to the argument that a fiat currencies in of themselves do not produce anything tangible, and certainly cannot have all the same economic properties of gold and silver. Rather than focus on what role blockchain and crypto currencies cannot provide in this post I will focus on what they offer to our community and how this is of value in the market of currencies.
Bitcoin are closer to each other that you think.
Definitions do Matter
The best description of Fiat currency and Money comes to us from the great series called The Hidden Secrets Of Money by Mike Maloney from GoldSilver.com. As Mike succinctly puts it “Currency is a medium of exchange, a unit of account. It is portable, durable, divisible and something called fungible. Fungible means that each unit is the same as the next unit. A dollar in my pocket buys the same amount as a dollar in your pocket. Money is all of those things plus a store of value over a long period of time.”4. Let us take a look at each one of these characteristics and draw up a comparison of government back fiat currencies and bitcoin/crypto currencies.
Both the blockchain crypto currencies and government back fiat currencies are portable in fact Bitcoin may be much more easily transported with substantially less interference and risk of theft. It remains very risky to transport large sums of fiat currency and can often have high transaction costs. These costs are not relevant to bitcoin. I would say that Crypto currencies and bitcoin have been shown to be much more flexible in terms of transferability when compared to regular fiat currencies given that they have no time delays which are caused by multiple intermediaries in the payment chain of fiat currencies. Just to send a SWIFT wire is a complex and stressful ordeal which can take anywhere from 1-7 business days. My personal experience with clients wiring money incorrectly due to the over-complex SWIFT system and its components of intermediary banks is a common experience in the international banking business. The fiat currency in your pocket is durable within limits of wear and tear and can be circulated with minimal damage to the paper or polymer bills. Technically your Bitcoin private key can be memorized limiting it only to your memory, further to this there are multiple storage devices and methods which make durability a non-issue for Crypto Currencies. There is no maximum limit to divisibility for any given crypto currency which means as the currency gains value you can subdivide for ease of transactions. Crypto currencies are fungible as each unit is replaceable with every other unit of currency and are completely interchangeable for transactional purpose. As stated by the Federal Reserve Bank of St. Louis, the main difference between government fiat and bitcoin is that the blockchain “technology allows us to store and transfer a monetary unit without the need for a central authority, similar to cash.”Pg.15. This advantage must not be understated as central authority in this new government digital currency age can mean direct control over what you can buy and sell which is a fundamental human freedom and responsibility which must not be given away so easily.
Come to Your Own Conclusions
Charlie Munger and Bill Gates and Warren Buffet are not collectively attacking government fiat currencies as such attacks would certainly have repercussions to their businesses dealings with the various countries they operate within. The argument often quoted against bitcoin is that although it is portable, durable, divisible, fungible and scarce within programable limits thus a reasonable storing method for value it still has no intrinsic value. I on the other hand agree with the Federal Reserve Bank of St. Louis when they state the following; “State monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either. They are fiat currencies created by government decree. The history of state monopoly currencies is a history of wild price swings and failures. This is why decentralized cryptocurrencies are a welcome addition to the existing currency system””Pg.9. Blockchain based currencies provide something that government fiat currencies cannot which is a currency where the rules of the game cannot be manipulated for political gain. The value to a consumer of a stable crypto currency with a fixed set of rules which cannot be violated by any actors within that community is enormous, and this will continue to push groups to invest and transact using this alternative cryptographic blockchain technology.