BitCoin, Silver and Coal

BitCoin

NB. Since I wrote this, Mt Gox – at the time the only BitCoin currency exchange – was hacked causing havoc.

Well the hype around BitCoin has exploded recently. If you haven’t already heard of it, BitCoin is a digital fiduciary currency (not fiat) concieved by the mystical Satoshi Nakamoto. People mine bitcoins using their computers (preferably with Graphics Processing Units and preferably not your laptop) to solve an algorithm. Everytime the algorythm is resolved 50 BitCoins are created. This number will decrease the closer total output gets to reaching the systematic limit 21 million BitCoins. So this a finite commodity. Granted it is not physical and it’s tangibility is as tangible as the data on your hard drive, but the system uses a sophisticated way of securing itself and many claim counterfeiting seems unlikely. The value of a bitcoin at the moment is going up and down but we started at zero and today a BitCoin is worth about $15us. Transfers are instantaneous and worldwide. Some organisations, such as Wikileaks are accepting BitCoins as payment and you can use the exchange service at Mt Gox in Japan to trade for currencies.

But the key fact about BitCoin and it’s viability is that it is a peer-to-peer currency. You know, like BitTorrent. And we all know how unstoppable peer-to-peer file sharing is. The legal letters at PirateBay should do to settle your concerns here. So even if this currency is deemed illegal, it may be unstoppable.

And it’s a free-market invention. A spontaneous and natural reaction to the currency crisis. Coincidently with the underpinning support of today’s hacktivist mindset. And yes, anarchists, this currency is… decentralised.

Some of the debate around BitCoin revolves around the lack of any physical backing to it. But there is too much talk, especially in Libertarian circles of how precious metals are money because they are physical. Which implies scarcity, which itself is not a problem with BitCoin as mentioned above. But as SilverFuturist notes, gold and silver had no industrial value when they were first currencies. Granted they were still physical, but they had as much utility as other physical commodities such plain old rocks. Yet they were still used as currency. And BitCoin reminds me of the Tally Stick as famously used by the Dutch East India Company. It’s just an entry in a book of accounts. I haven’t looked to deeply into how universally applicable the stick was to whole economies, but it is recognized as a form of money. And I can’t help but assume at this stage that the feasibility of BitCoin will come down to wether or not people perceive value in BitCoin. If people will trust BitCoin. I have recently been entertaining the idea that all money is, is reputation. Trust. Faith in another party to reimburse. Credit. And BitCoin could fit the measure. If something better, more secure, more trustworthy, comes into the market of peer-to-peer currencies, the market will simply upgrade. I am tremendously excited about BitCoin, but this is the entrepreneurial spirit in me. Not the conservative investor. I only look to see more information on how secure this system is. The legality is not so interesting to me. I’m confident that this kind of currency technology will evolve inspite of futile internet legislation. I was lead to believe that the more people subscribe to BitCoins, the more fraud-proof they become. In the meantime there are plenty of security scares.

Last thought on the topic, BitCoin’s PR has been extremely successful. Forbes Magazine, Reason Magazine, The Economist. That’s what I call being taken seriously.

Silver

Since my last article on silver we have seen a bubble expand and deflate. This has not been to bothersome for me as my stock has still doubled in value. And I reinvested a bit at £20.86 after the deflation from £29. I’m still confident in the governments capacity to decimate fiat currency, confuse the shit out of the stock market and encourage investment in safe havens like PMs. But there are lessons to be learned. After all, we virtually hit the Hunt Brothers high. That says something. And it has surprised me how much of this has been attributed to Max Keiser’s campaign. The crash confirmed the bubble. And many don’t think we’ve seen the bottom yet. There is a strong trend line from the housing bubble crash pointing towards £14.50 an ounce today. But I would suggest that we are beginning to see inflation across the board. And that that is something we need to add to that trend line. So we’re probably about on point at the moment, if a little over. In the long run, nothing has changed.

Coal

But in the fear of a collateral wipeout, many have been looking for other places to put their money. All eyes on the big players folks. This time Rothschild’s interest in coal. With murmurings of “green coal”, peak oil and the nuclear fallout in Japan, it makes sense to me that this is a winner. An abundant supply at the moment. Capable of hundreds of years of energy generation, the coal energy industry looks good to go up.

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