Bitcoin Is As Good As Gold - Why The Market Has Decided That Bitcoin Is More Valuable Than Gold
One reason why Satoshi Nakamoto created Bitcoin was a frustration with central banking and the monetary policy that followed the financial crisis of 2008 and 2009.
The Legal Tender Act was passed in 1862 and essentially said U.S dollars were legal tender, had to be accepted for all debts, public and private. After the Legal Tender Act was passed, someone could say “I don’t want to pay you in gold coins, I want to pay you in these depreciated and these depreciating dollar bills.” The Legal Tender Act says that that’s completely fine.
Because the central bank wants to ensure that its money is accepted and ensure that its monetary policy is effective is going to have to ensure that the money that they print is accepted, and so the Legal Tender Act and Legal Tender Laws, generally, around the world act as a kind of monopoly advantage to central bank currency.
Digital currencies like Bitcoin challenges the Legal Tender Laws in the same way Uber challenges Taxi monopolies.
Previously, there had been a system where, in New York City, the yellow taxi cab was the gold standard and it was the only one that was sanctioned by the government.
Then, Uber comes around and provides people an alternative and they really like this alternative. So, what the government has essentially done is turn a blind eye and say “we’re not going to privilege the yellow taxicabs anymore.”
And so, they can have a similar response to their money. They can say, “Listen, we think that dollars are good, but we think that they should be competing on the free market.” Those are the benefits of competition.
It is essentially allowing the market to satisfy consumer demands, and we don’t know what consumer demand is, but we know that one provider of a good is probably not able to satisfy consumer demand in a way that multiple actors are.
The downside of competition, from the government’s perspective, they’re no longer possibly able to effect monetary policy in the way that they would like to.
If individuals stop transacting in dollars or euros, especially international transactions, central banks are going to have to change how they do things.
For example, central banks would no longer be able to inflate their currency or engage in the kind of quantitative easing and the kind of monetary policy that has come to typify responses to financial crises.
Many say that the Legal Tender Laws are necessary and needed and allow the government to conduct monetary policy, but some, like F.A Hayek for instance, would have the idea that instead of having a government dictate which money wins out, what you should essentially have is market forces determining which currency is going to become the predominant one.
Supply and demand would dictate the value of a particular currency, just like any other commodity. Judging by the price of gold compared to bitcoin, the market is deciding they like what bitcoin has to offer.
As of the moment (March 3rd, 2017) the market values Gold vs Bitcoin at:
- Gold at $1,234.54
- Bitcoin at 1288.00
In this vast market where there are millions of actors and they’re all giving their information, you’re able to get a more robust solution to the question of what money should we have, and it might not be one answer.
Some of the possible reasons bitcoin , and the digital cash alternatives like it, are becoming more widely used and accepted are:
- easy to transfer internationally
- easily divisible
- accessable to a wider population
The list goes on.
So, as it stands right now, central banks don’t really face competitive threat from digital currency, but in the long term, the idea of having a currency that’s not susceptible to the vagaries of counter-cyclical monetary policy is posing some kind of a threat, or provides an honest check to central banks because they no longer have as secure of a monopolistic advantage..
It's also going to be very interesting to see how business models will evolve around this new type of currency. The possibility of excepting micro-payments, for example, may open up new business ideas that were not possible before due to prohibitive fees for smaller transactions.
Removing obstacles to transferring even small amounts of money on a global scale could lead to new innovation in how we do business.
In any case, the price of bitcoin has surpassed the price of gold in value, so clearly, there is a demand for bitcoin and people are using it.
These are exciting times we live in and who know how high bitcoin, or other cryptocurrencies, will climb and how many more people will begin to use it. These are just some of my personal thoughts about why bitcoin is doing so well and is not to be taken as investment advice.
Why do you think the price keeps rising on Bitcoin?
References
https://www.scribd.com/document/179649765/What-Men-Know-That-Women-Don-t-pdf
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I have recently begun thinking how my little deli might have been affected (grown) if we were still open and I accepted bitcoin or other alt currencies for payments. We were getting killed on fees when someone wanted to swipe their credit card for a $1.50 cup of coffee. It was ridiculous, hurt our bottom line, but we couldn't say no because it was that or NO SALE.
Perfect example.
I feel it is all here to stay however there will be a big push towards who is accepted and who can obtain the publics trust and faith. Without faith you do not have a perceived value and the currency will fail. History proves that. There will be a big battle for position this year. Massive swing towards infrastructure, usability, communications, and security of coins and those who invest in these areas will do well. It will all come down to major relationships with corporate interests, manufacturing and consumer based industries. Ethereum is a bankers coin and so is Ripple (from what I know) so they are obviously now swinging hard towards cryptos and spending millions on a system adjustment. I feel everyone should tread with caution as I feel there will be a joker amongst these coins and heavy losses could be experienced if invested in the wrong coin who fails to compete and prove to the consumer they are truly valid. This will become a currency war over the next 5 years. Which coin(s) will the central banks market and enforce to the majority with governmental legislative support? My instincts say Ripple and Ethereum however there maybe a birth of a new coin or it is sitting in the shadows amongst 630 other coins waiting for the right moment. Exciting times. Gold and Silver for me will still be on top of my list though. If it is in my hand it is real.
Good points you make. I can appreciate the tangibility of gold and silver.
But usability counts for a lot too. People can buy things all over the world easily with bitcoins. As long as people keep using it, it will have value. Banks are trying to centralize and regulate the technology and save on costs, but they can't dictate which currency people use anymore. We have an exit from central banks that didn't exist before. Interesting times indeed.