Bitcoins Overtaking as Gold Standard? Not Likely

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Upon trying to dig ourselves out of the rabbit hole we fell into regarding bitcoins in Part One, what they are and how they work, here’s how we can answer the question, “how do I pay my rent with bitcoins?”

According to Jack Hough writing in the Wall Street Journal, “it’s a purely online currency with no intrinsic value; its worth is based solely on the willingness of holders and merchants to accept it in trade.”

So there appears to be no way to “earn” bitcoins from ground zero (at least as I understand it), as you would earn actual dollars for a good or service rendered, or  dollars on top of dollars in the case of investment interest; it seems you only begin accumulating them once you get a “bitcoin wallet” and the required software.

Therefore, the lack of physical, reliable backing – the support of a government, say – is rather worrisome. But now that bitcoin slowly but surely begun to gain global acceptance, what does that mean for metals such as gold?

Is Bitcoin Better Than Gold?

Here’s the simplest rationale I can offer: when a gold bubble bursts, at least physical gold is still left behind. When bitcoin bursts, what will be left? Nada. Just a bunch of suckers. (At the very least, notwithstanding gold-as-hedge, the metal still has limited technological and industrial applications, even though I know gold investment is a lot more complicated than having bullion in your closet.)

The article I referred to in Part One argues that “other big sound money fans [have] seen huge potential for the virtual currency. Bill Bonner opines that bitcoin ‘could also make gold obsolete. This new money is easier to use and costs nothing to store.'” True, no storage costs, as there are evidently no transaction fees levied by banks – a big selling point for bitcoin – but a big con is that speculation and the nebulous ‘finititude’ surrounding the virtual currency leave still too many people wary (especially regulators).

According to a citation in Wikipedia, “Professor John Quiggin of the University of Queensland has noted that since Bitcoin by design has no intrinsic value, it is ‘perhaps the finest example of a pure bubble’ currently known, but cautions that we have no way to predict when the value of bitcoins will return to zero.”

Hopefully, for the sake of non-computer-geeks everywhere, that will be very soon.

Obviously, this is not the end – much more to come as we track the implications of bitcoins on gold and other physical metals markets.

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