Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Stock Market At Minor Top - 22nd Dec 14
UK Christmas Sales 2014 High Street Start Dates List - 22nd Dec 14
Ruble Takedown Exposes Cracks in Putin’s Defense - 20th Dec 14
Oil Drilling Our Way Into Oblivion - 20th Dec 14
Stocks Bull Market Resumes - 20th Dec 14
Gold And Silver Nothing Is Ever As It Seems And No Respite For PMs - 20th Dec 14
What Are Technical Indicators Saying About the Stock Market? - 20th Dec 14
Here’s How You Can Still Make 27% With Apple Even if You Buy Now - 20th Dec 14
Gold Stocks to Shine in 2015 - 19th Dec 14
Why Alibaba Stock Shares Are a Screaming Buy - 19th Dec 14
China, Dollar, Japan, Europe Burning Questions for 2015 - 19th Dec 14
U.S. Economy is in a Sweet Spot! - 19th Dec 14
US Dollar and the Gold Fairy Tale - 19th Dec 14
Show Me The Money (Flow)! Tracking Money-Flow Through Value Shifts In Stock Markets - 19th Dec 14
The Commodities Market Is Not Dying, It’s Just Hibernating - 19th Dec 14
The Price Of Gold And The Art Of War - 18th Dec 14
Euro Succumbs to ECB QE Expectations and FOMC - 18th Dec 14
John Williams: A Downhill Run for the U.S. Dollar in 2015 - 18th Dec 14
Outrage at Taliban Islamic Fundamentalists Massacre of 132 Pakistani School Children in the Name of God - 18th Dec 14
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

Bitcoins Risk Reward

Currencies / Fiat Currency Apr 17, 2013 - 12:14 PM GMT

By: BATR

Currencies

Money is supposed to be a store of value. After the recent collapse in the dollar convertible price of Bitcoins, the inevitable scrutiny in the viability of the monetary system is warranted.

The official description of Bitcoin states: Bitcoin is an experimental, decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority managing transactions and issuing money carried out collectively by the network. Purported myths and ground rules on how the alternative currency operates, provides calculated reading. Whether this accounting system can or would be accepted as an credible medium of exchange on any large scale is certainly an open question.


The need for an alternative currency to fiat debt created tender is apparent. However, establishing faith and acceptance in a competing and digital method of payment for transactions is almost inconceivable to the average consumer.

The Business Insider in Bitcoin Is Changing The World provides an analysis and a risk warning report.

"Bitcoin’s inventor, Satoshi Nakamoto, is a mysterious hacker (or a group of hackers) who created it in 2009 and disappeared from the internet some time in 2010.

Reddit, a social-media site, and WordPress, which provides web hosting and software for bloggers. The appeal for merchants is strong. Firms such as BitPay offer spot-price conversion into dollars. Fees are typically far less than those charged by credit-card companies or banks, particularly for orders from abroad. And Bitcoin transactions cannot be reversed, so frauds cannot leave retailers out of pocket.

Yet for Bitcoins to go mainstream much has to happen, says Fred Ehrsam, the co-developer of Coinbase, a Californian Bitcoin exchange and "wallet service", where users can store their digital fortune. Several Bitcoin exchanges have suffered thefts and crashes over the past two years.

But the real threat is competition. Bitcoin-boosters like to point out that, unlike fiat money, new Bitcoins cannot be created at whim. That is true, but a new digital currency can be. Alternatives are already in development. Litecoin, a Bitcoin clone, is one.

A less nerdy alternative is Ripple."

Wow . . . the innovative advantage for merchant acceptance might make one think that Amazon will be jumping into the cauldron and become the big daddy digital vender. Nonetheless, the spike and fall that has the appearance of a Bitcoin bubble will certainly give pause to any large retailer that is flirting with accepting payment through an exchange.

The implication in the article, Why Bitcoin crashed, and how Ripple might avoid the same fate, sets out the risks involved.

"That single point of failure is the most popular Bitcoin currency exchange, Mt Gox. There are other exchanges, but the bulk of Bitcoin trading happens there. Mt Gox claims to have been hit over the last couple weeks’ mania by the twin ills of denial-of-service attacks and sudden, excessive popularity, both of which amount to the same thing: Mt Gox’s systems falling over. The operation (which is based in Japan) has also shut down its own service at least once in an attempt to "cool down" the market.

And every time that has happened, a panic sell-off has been the result. That’s not surprising: Mt Gox’s status as the best-known exchange has led it to become the main data source for most of the Bitcoin rate visualizations out there, so when Mt.Gox goes down it affects visibility for a lot of people. And when people can’t see what’s going on, they panic, find another exchange and sell, sell, sell. Same goes for the biggest exchange unilaterally deciding to cool down the market – hardly a sign of viability."

If the Bitcoin crash was simply a function of clearing house settlement failure, the claim that Bitcoins retain the properties of money evaporates. Blaming the breakdown on an exchange, illustrates that Bitcoins have more in common with the properties of a stock or commodity, than a hard currency.

The video, Bitcoin Mania! DDoS Attacks & Phishing Scams, reports on the speculative nature of a virtual currency that operates in the etherzone of the cyber world.

The Fierce Markets site announces Jeff Berwick’s effort, Here come the Bitcoin ATMs.

"Somewhat like a traditional ATM, says Berwick. Instead of connecting to your bank account, the software he and his team have developed is installed on an ATM and converts cash to Bitcoins stored in a Bitcoin wallet or extracts cash based on what's stored in your personal Bitcoin account."

Bitcoin convertibility back into a legal tender paper currency might go a long way to establish a workable alternative to using the bankster banking system. However, this digital currency is only as solid as the confidence level of users to store wealth in a medium that promises the return of capital or its equivalent value.

For now, Bitcoins has all the trappings of a speculative scheme to harvest profits, explained in the article, Bitcoin Miners Are Racking Up $150,000 A Day In Power Consumption Alone.

"Bitcoins are "mined" by unlocking blocks of data that "produce a particular pattern when the Bitcoin ‘hash’ algorithm is applied to the data."

Blockchain.info, which tracks Bitcoin-related data, estimates that miners are generating $470,000 in Bitcoin-related revenue per day. In fact, due to the recent interest in the virtual currency and its popularity, operating margins for Bitcoin miners are close to record highs."

Such practices do not conform to the properties required to qualify as money. It would seem to describe Bitcoins as an alternative accounting organism to the central banking system. In that regard and goal, the merits of instituting a functioning and reliable digital currency, should be encouraged. Nevertheless, the lack of market stability in Bitcoin value convertibility dooms this experiment in the absence of manipulative swings in currency quotations.

The destructive consequences of floating currency rates have plagued consumers and savers alike for decades. The desired objective is a decentralized monetary system, digital or coinage that has a fixed convertibility and stable purchasing value.

Source : http://batr.org/gulag/040713.html

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2013 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors

BATR Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014