A true information gathering question for a post today: What do people think about Virtual Currencies (e.g. Bitcoin and its competitors).
I have precisely zero knowledge of such things. I have tried to do some reading on Blockchain Technology and "Defi" (Decentralized Finance, to you oldsters like me) but do not seem to grasp the basic concept of it.
I do, however, grasp the concept of anything having the value that two individuals ascribe to it and that with such value, anything can be used as medium of exchange. To be fair, I am also attracted by the fact that a currency without government interference - the amount of dollars we have been pumping and will be pumping into the economy last year and into next year suggests that at some point, inflation starts and the dollars we all currently hold will be worth less overall.
One could argue - and many do - that precious metals fill this void and in some sense they do. My complaint in that regard is simply that the purchase market for this seems a bit rigged. Between the amount I would pay in spread to cover the seller's "costs" and their shipping, immediately upon purchase I have to wait for the price to increase 10-20% to recap my loss.
Full disclosure: I own a bit of virtual currency. Turns out if one goes to Coinbase, they will give you small amounts of virtual currency just for watching some videos. The amounts they give you, based on the actual value of the currencies, is not much - for example, I own 0.00031015 of BitCoin, or $11.00 today - and the whole point of it is to get you to buy more, but I am in some small way "invested".
I do get the very real sense in some ways it could be the proverbial "Ponzi" or pyramid scheme, but I also am a believer that as the push for electronic currency and transactions continue, there will be an equal push for a system in which government or banks are not involved and cannot interject themselves into the system, for example deciding where one can spend their money and where one cannot.
As I have said, I have been trying to read up on the subject and find myself having to constantly stretch my mind and learn new things, which in no case is a bad thing. I have to tell you that many of this seems way beyond what I can muster for understanding, which suggests I may need a more basic course. But I was this way about stocks once upon a time too; I can learn anything, given time and effort.
But I am truly curious: Thoughts and opinions on the concept of virtual currencies and decentralized finance?
I'm in the same boat, and even the beginner's explanations are over my head (reminds me of trying to learn about computers.) So I don't know enough to have an opinion. I do agree about metals, but it seems that's how every game involving making money is played - stacked in favor of the middleman.
ReplyDeleteLeigh, I really believe myself to be not a stupid man, and I cannot understand 90% of the explanations. To be fair, I get the sense that in some ways the explanation is used to keep out the riff raff (A rather short term solution, if you want to increase the adoption of something, right? Make it easy for everyone).
DeleteI remember once upon a time - you do as well, I bet - when one still found silver coinage in ordinary change. I once got an 1879 Morgan Silver Dollar when I was working. Those were the only times there was no cost involved - but those days are long gone.
Not a currency guru in any sense of the word. For me, the plus is can be accessed in any location in the world with electronics. The minus - you never real have 'hand on' possession of it. Sort of like what that recent example of the German programmer is is set to lose a substantial amount of of because of the loss of a password.
ReplyDeleteI guess as a backup for extreme emergencies where you are stuck in middle of no where - probably worth it. If the account were kept to less than $5000, would be nice to have. If lost, not a life changing event.
Anonymous - That is a good point and a fair one, the access. With currency, of course, I am limited to what I have on hand or a bank. With a credit card, I am limited to who takes them. The electronics portion means my phone can be my "Wallet" (I do have a wallet on my phone, but with nothing in it). The bad part - I was not aware of that story, but makes sense - is the risk of losing currency through something relatively benign like a password change (and I already know I am bad at those!).
DeleteYou probably suggest the wise, middle course - like most things, perhaps a small amount but never a great deal. In some ways, it really is like gambling. If I account the money as gone already and it is not much, no harm.
I only know enough to be dangerous too. Here is what I do know: But Bitcoin is like any other fiat currency. And all fiat currencies, historically without exception ultimately fail. That is why our grandparents almost went to war with the guys that took our currencies off the gold standard.
ReplyDeleteYou buy physical metals as insurance only. (Only the sharpies day trade in metals and they may be gone already - the bots trade at the speed of light now). You buy your metals (I prefer silver) and stack it in the safe and essentially forget about it.
If the currencies fail THEN you are in the driver’s seat. Starved for hard currency in something like a Weimar style meltdown... your metals will typically increase in value between 400 and 800 percent. Like preppers, stackers become targets in collapse situations if they are indiscreet. The cagey stackers will hoard in small denomination silver coins rather than flashing gold around.
I dunno how much precious metals are “enough” but the preppers I see seem to be around 30% of their total savings are in precious metals.
Glen, just looking at things I am priced out of anything except silver anyway (and realistically in a failure situation, who can make change for gold?). And having it as an insurance policy is understandable (although oddly enough, I know no-one who has "cashed in" their insurance policy). It is telling that no matter how much governments decry the concept of precious metals, they still hold them. Which tells me something.
DeleteI do not know that I can approach anything like 30% now. I do have a bit and may look to see if I can increase it incrementally over time.
The fiat currency is worrisome - I do not know about Canada, but with the paper money we are pumping into the US economy, this does not end well.
You want a couple gold pieces for the ultimate SHTF moment (or so I’m told). Imagine - for example - the zombie apocalypse happens, and the last train is pulling out of town... and you want your daughter on it. A conductor may take a couple gold coins in exchange for making room for her on the train.
DeleteI don’t have gold at all ... if things get that bad I have brass and lead if ya catch my drift.
I’m interested in cyber currencies though. I am convinced they are compromised and that all transactions are tracked. If they weren’t they’d instantly become the currency of the underworld and the govts would be waging war on them.
That is one example Glen. Back in the mists of time when I traveled Eastern Europe in the late 1980's, I was told a carton of Marlboros $20, and a pair of Levi's could get someone a lot of things. To some extent to the individual receiving the material it is the idea of what the perceived value of the item is.
DeleteCyber currencies are interesting - and my very basic, painful understanding of blockchain technology is that in a sense all transactions are "Tracked" (although I do not know how anonymous they are within the blockchain - as the people that design these things have some level of cryptography, not sure how much they want to reveal themselves or what they buy).
I've come to some conclusions of my own on the virtual currency market. One would expect inflation to eventually follow the fiat money expansion. As of now, digital currencies continue to climb with dips like any other financials. I would expect governments to attempt to destroy alternative digital currencies and force their own digital currency upon the masses. Gold and Silver have been reliable sources of "wealth" for as long as man has recorded history and have been used for trade between men and nations for longer. In the largest picture, you can't eat Gold or Silver, but they can be buried in the backyard.
ReplyDeleteJust So - You make an excellent point: a government or governments can easily outlaw or destroy a virtual currency if they believe it to be a real threat to their existential existence - and one could argue that in some ways, they allow this to occur to get people accustomed to the idea. My understanding of virtual currencies is that there is a fixed number of each currency which is (in theory) supposed to prevent the additional creation and devaluation of it - but I am no economist to say that.
DeletePrecious metals do have a very long history - and as noted in my response to Glen, the fact that governments continue to keep them tells me something about how they view them. My only question would be, given where we are a society, what would that look like if we had to go back to such an economy now? There is a significant generation gap in how money is used - I think, for example, my children seldom pay by cash anymore. How would they deal with such a situation?
If and when the current system breaks down, the immediate future is barter work for food or prostitution for food. Ghastly future for those without precious metals or commodities.
DeleteSome communities have developed chits that trade freely within closed and defined neighborhoods. The minors were given scrip for the company store. Even the US government issued steel pennies and manganese nickels in WWII. In point of fact, the US has debased all coinage for the past 50 years, replacing precious metals with zinc and promises.
Crypto is probably a fantastic investment if the current world order continues without open war between nations. During any war, the opponents seek to introduce counterfeit currency to wreck their adversaries economics. If we seek to place value outside of the system, the system will surely seek to destroy that outside value.
I agree with capping your exposure to something that can blow away in the wind, perhaps as much as $50,000. That amount would make a good start if you were thinking of escaping to warmer climes, and the borders were still open and the lights still on.
I do remember that in some cases - the Pacific Northwest maybe - communities did issue their own version of internal currency - wooden currency, as I recall.
DeleteCrypto does indeed assume a certain amount of continuity of the major international order staying in place - and civilization, for that matter.
I will certainly continue to do my research - after all, it is only costing me time at the moment!
I have heard virtual currencies explained a number of times and every time I understand exactly what they are saying just like when I hear people explain dark matter and black holes. But for some reason, less than a day later all the intricacies have disappeared and I'm back to not understanding.
ReplyDeleteI think virtual currencies will be the destruction of our economy sometime in the future. When the government can't control it, they our government will suddenly appear as what it really is, an entity who never learned how to budget until it was way too late. At that point the economy will collapse and we will be in for a generation... or more, of suffering and austerity measures.
I don't think having a bag full of silver or gold coins will help at all for the vast majority of people. What will I need with a useless silver coin when what I probably will want is simply food to put on tonight's table. You can give me an entire bag of coins but they are of little value compared to the guy who has an entire steer fattening up out back.
Ed, dark matter and black holes sounds like an apt comparison. I simply do not understand what they are talking about. I do not think this is a methodology to make your proposition more accepted, but rather less - why create knowledge as a barrier to entry?
DeleteDestruction of the economy - that is an interesting perspective and one that I have not heard before. I can certainly understand the chain of events as you describe it - what would be the trigger for such an event?
As noted in Just So's comment, I wonder if we could even meaningfully go back to a gold and silver exchange environment as many young people do not even use cash as all. I know that the concept of it as a store of wealth is real - the little bit of coinage I am in possession of has increased in value over the years and I would definitely reap a profit were I to sell it today - but that would only be in terms of whatever the current means of exchange is. Now it is dollars; in an austere economy it may be in carrots. How many carrots to a silver dollar? And, for example, if I am in an urban environment, will anyone even have carrots to exchange for me?
In such a world, tangible and useful items - sides of beef, carrots, wood, an ax - have actual value above that of just a precious metal.
Sure, Ed.
DeleteHow do you propose to buy the steer? People say, “Barter!” Well... barter what? What happens if you have nothing he wants to barter for? This is exactly why money was invented.
Largely depends on the situation and the society I suspect, Glen. In certain times or situations even precious metals have had less "value" than in others. It also assumes that things like government confiscation does not occur (here in the U.S., circa 1933).
DeleteI'm in agreement with you Glen about the hardships of bartering in an apocalyptical world for reasons TB mentioned above. Someone may want my steer which largely depends on me getting it to point B. My feelings is that an apocalyptical world will be a dark place indeed and only those with certain knowledge and assets will survive it. I hope that with my brass, lead and land, I will be able to keep my family fed until some order returns. I'm not counting on bartering but I feel I will be in a better position to do so with mostly assets used to produce food than same someone in New York City that paints or write magazine articles for a living.
DeleteFair Ed. As they say in real estate, location, location, location.
Deleteremember the Biblical prophecy about people seeking necessities travelling as far as they can carrying their treasure?
ReplyDeletethey travel til too tired to carry it, drop it by the side of the road and are found dead of starvation further along
if there are neither food nor water all your gold will be as useful to you as it was to king midas
that is why we pray for mercy
That is true Deb, and Scripture has multiple admonitions about gold and silver rotting and burning the flesh of the greedy on the day of judgement.
DeleteAt the same time, we are encouraged by Scripture to live lives where we provide for ourselves and plan for the future accordingly. It is always a balance.
This does not cover "the love of money" of course, which Paul strongly advocates against and which gives rise to the pictures which you suggest here.