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Bitcoin, Virtual Currencies, and our Future?

February 25, 2014

Today, the virtual currency called Bitcoin dropped to $150 on the Mt. Gox exchange. Recently, Bitcoin was as high as $1200. At the end of January it was at $939. What does this reveal about ‘virtual currencies? What does this reveal about our ‘virtual’ currency called the ‘dollar’? What does this reveal about all our virtual currencies (yen, pound, euro, yuan, krona, peso, etc.)? Today, we have some 150 virtual currencies ‘floating’ within our digitized computer screens. Most monetary transactions in the Western world are now accomplished via our virtual fiat currencies. Historical MONEY (silver/gold) has mostly disappeared from our markets. Trading, investing, saving, speculating, lending, and borrowing are now accomplished via the globalized computer trading network which we witness within our real-time computer screens. All these currencies are now mostly Virtual!

Bitcoin is transferred from mobile device to computer (back and forth) and can work as a medium of exchange for certain transactions. The unit, however, is virtual and works only within the computer environment! It’s viability as a substitute for real physical MONEY is limited!

Practically all of our stock and futures exchanges are now electronic exchanges. All of our global currencies (our FX markets) are now traded via the computer. Our FX markets are now trading some $5.3 trillion of virtual currencies daily. The new concept within these markets is the concept of ‘pips’. Trading ‘pips’ to accumulate cash is the goal of most FX traders. Our world of money is now mostly within our consciousness and our extended consciousness (the computer screen). Virtual reality and cyberspace have replaced our historical markets of open out-cry/paper exchanges. Live human traders in the trading pit exchanging paper contracts are now obsolete. Today, all is trending towards electronic transactions (HFT and Algorithmic trading) and speed of light frequencies for the transmission of financial data. What a change from ‘yesterday’!

My personal sense is that Bitcoin is a precursor to an eventual digital currency for our planet. Bitcoin has captured the imagination of a vast audience of financial pundits and media personnel. The experiment with Bitcoin is touted as a free market currency, decentralized, and independent of all our Central Banks and their manipulations. You can witness a video on the history of Bitcoin and why many desire that a similar virtual currency replace all our existing paper currencies. Click here: Thomas Edison supposedly invented a renegade currency which would replace our historical paper dollar. Today, many view Bitcoin as similar (in concept) to the renegade currency originally invented by Thomas Edison. Watch the video, it does cover the issues of money and many other issues related to money. What, however, is the problem with all these virtual currencies?

Our American Dollar is similar to Bitcoin…both are ‘virtual’ currencies! If in doubt, ask Ben Bernanke!

To understand why Bitcoin or any other virtual currency can not work to promote Capitalism we need to understand some basics about money and its role within Capitalism. The major function of money is to serve as a proxy for ‘value’. The subjective concept of ‘value’ and the ‘measurement’ of value is why money was invented in the first place. A virtual currency can not serve this core function. Bitcoin, for example, has no intrinsic value. It has no lasting ‘store’ of value…and it has no physical existence. The only functions which Bitcoin (or any other virtual currency) can serve is as a ‘medium of exchange’and as a ‘unit of account’. All virtual currencies are metaphysical in nature (subjective units of consciousness). This limits these currencies when it comes to measuring ‘value’, storing ‘value’, or creating stable ‘prices’. As long as we have money (gold/silver) in our markets, these elements will prevail as ‘stores’ of value!

Money emerged from barter…its purpose was to measure (derive) VALUE! Virtual currencies can not work as proxies for measuring ‘value’. Price and Value are not the same!

Notice the huge volatility already experienced within the Bitcoin environment. The coin (an image within our computer screen) started at mostly a 1:1 ratio with the dollar. It then has fluctuated in relation to the dollar (via huge fluctuations) and is currently exchanged at $150. This type of volatility makes it useless for creating stable prices within any market.

This chart shows the volatility of Bitcoin as compared to the Dollar/Euro. Can this work as a viable currency?  Remember, the purpose of money is to measure ‘value’ and create ‘stable’ prices!

We can conclude this missive with the message that Virtual Currencies can only work for a limited time period. If our elite authorities want to create a single global virtual currency (administered from Basel, Switzerland or similar) it might work for a few years at most. Since virtual currencies are subjective and imaginary in nature, however, these units have huge limitations for advancing Capitalism. The purpose of Capitalism is to increase material WEALTH and advance PROSPERITY for the planet. A virtual currency disappears when the computer is not functioning. A virtual currency operates only within the closed system of cyberspace. And a virtual currency would not work within a BARTER environment! Retain your silver/gold coins for potential barter exchanges down the road!

Money evolved (within a Barter environment) to solve the riddle of VALUE (in exchange)!

Beaver skins worked as MONEY because traders viewed these skins as containing VALUE!

Bananas, chickens, smart phones can work as MONEY if people view these items as containing VALUE!

There is no objective reality, however, to a virtual currency…nor can these units serve to objectively measure, calculate, or derive stable values and prices for our goods and services. This means that virtual currencies can not work for any extended period of time. My sense is that Bitcoin is much like the tulip mania of the 1600’s. It has appeal at the moment (to some), but its lasting appeal will vanish when people recognize it real nature (its metaphysical and appears only within the computer screen)! Capitalism is based upon physical MONEY (items derived from a BARTER environment). Who in their right mind would choose an ‘imaginary’ item for exchanging VALUE when bartering goods? Items of physical FOOD would be much superior! Enjoy! I am:

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