Saturday, December 10, 2011


Perhaps you've by now heard of BitCoin, the first functioning peer-to-peer currency.

Some detractors describe BitCoin variously as a Ponzi Scheme, or "A libertarian pipe dream traded via a program designed for Magic: The Gathering cards."

They said the same thing a few millenia ago about those new fangled toga-wearing hipsters with their "open source government" startup down at the Acropolis. That "Democracy" thing. Those DnD playing "philosophers" would never get any traction. "The Greek joke" a certain British monarch called it. The RIAA, MPAA and the rest of Media Mafia snubbed their coke-powdered noses at the notion of musical CDs being "ripped" and beamed at the speed of light to anywhere on the planet. That 'net thing's just a bunch of nerds reading too much William Gibson, fiddling with their vacuum tubes and peewee whistles between LARP sessions. Attempting to create "MUDS", collaborative Tolkien rehashes from the safety of their own mother's basements and university rooms. Book publishers, newspapers joined in the fun with the recording music industry. The CNN Empires, the Citizen Kanes of the 21st century continue to hide behind crumbling fortresses of Industrial Rev barriers-to-entry, continue to grasp at the strands of finely printed incantation that once held The Networks together as they're blown adrift on a tempest of off-message, infringing, and user dreams.

But I'm sure massively overgrown, apocalyptically destructive, completely obsolete institutions whose purpose is to hold a number in a database* for you and charge you 40% of your GDP to do it have nothing but sunny upside, smooth sailing for the next century.

*And they can't even manage THAT as proven by MF Global's vanished 1.6 billion in supposedly 'untouchable' client accounts, JP Morgan's MIA 16 billion, the CME and NYMEX trader's "ninja funds" which vanish into the ETF ether, along with the fact that the smart money is scheming up ways to bail out of the dollar. As Marc Faber (bravely) said on Bloomberg the other day when asked for investment advice, "I have a very special stock tip for you. The symbol is "G-O-L-D".

Other arguments against BitCoin: "the value of currency is largely set by the ability of the market to predict policy and supply, as well as the ability of ratings agencies to determine the value of bonds backed by the currency. Without those options a currency like Bit coin is essentially worthless except to individuals that place a value in it because it is NOT valued."

While this is may be true of traditional fiat currency, it does not hold for BitCoin. This is thinking in 20th century, bank-funded economics establishment paradigms. Firstly, governments, and ratings agencies have both proven to be completely bankrupt, untrustworthy, kowtowing flunkies to their monetarchy masters. Markets and rating agencies do not “predict policy and supply”. Beyond the restaurant/Craigslist level, there is no market. The “Market” is the Scottish Joke. Rather, Jamie Dimon, Lloyd Blankfein, David Cameron, Ben Bernanke, Mario Monti, and the rest of the gang sit down in the President Wilson suit (or teleconference on Fuckerbook, whatever) and figure out what value currency X should be that will best maintain their CEO and government positions and fortunes, then execute their plan. The dollar losing its value? Ok JP Morgan, you’re on point. Go counterfeit another two times global GDP worth in CDS and short the fuck out of gold and silver to manipulate the price of Benjamins back up so we can keep the shell game going. Guys, MF Global is set to blow this week, so make sure you triple-short it and do all your insider shadow trades before the opening bell. How’s Italy looking, Monti? Great, we’re shoving through another godzillion dollars in austerity, they’re on the fast track to the Greek wasteland. Heroin use up 20%, that’s a great sign.

And these ratings agencies are the same agencies that rated the 90% fraudulent, guaranteed-to-blow-up NINJA and LIARS loans, pressed through a salad shooter and formed like chicken McNuggets into CDOs, as “AAA” gold-plated zero-risk investments. YEARS after the FBI and other studies had reported incidents of fraud made up almost the entirety of the packages. The “governments” we have right now are just oligarchal wolves in democracy clothing, who will demand ten years in the slammer for starving black kids who jack a bottle of milk in Oakland or London, but who look the other way when former treasury secretary / ex Goldman Sachs CEO Hank Paulson tips off his cadre of white shoe boys (mostly former Goldman employees-cum-hedge fund managers) about what Fannie or Freddie or Lehman or AIG or other monstrosity is going to fail this week, allowing massive wealth-ripping insider trading, and destroying the concept of a “market” in which individuals participate equally. It’s a two-tier system, financial Apartheid: if you’re a Made Man in the inner bankster circle, like an Obama or a Paulson or a Corzine or a CEO of an oil company, then you get all the “first shot” warnings to bail at the peak before the star destroyer blows up, you get first-in-line precedence over the long line of “second-class citizens”. But when MF Global goes down, if you're one of the 99% "undesirables", you discover Corzine has shifted all your physical gold out to some small secret atoll a dozen miles off the Caymans. If you’re in the Washington-Wall Street Mafia, then you get a) the early-warning before Bank of America goes Lehman and thus the opportunity to bail and short b) to be at the front of the line of derivative counterparties of BoA who get first shot at that 21 cents to 60 cents on the dollar, and at the very end of the line is FDIC insured bank depositors. The 99% “black people” who get to sit at the back of the bus as it sinks below the waves of bankruptcy. And, again, this is not an “if” but a “when” question. BoA was already insolvent if you count all the skeletons in their closet being hidden through peekaboo accounting fraud, and that’s before its Merril acquisition which merely made it three times Bigger To Fail and ten times Guaranteed To Fail, with their 78 trillion in toxic derivatives, which the FDIC (funded by Joe taxpayer) is on the hook for – yes, we’re on the hook for 6 times the ENTIRE US GDP, just vis-a-vis BoA. After the Made Men are finished stripping down the carcass of the Too Big To Exist bank, what would you think is left over for the Uncle Joes, the 99% with their life savings tied up in CDs paying .23%, which they were perfectly willing to accept in exchange for the safety and protection of the US government and the FDIC?

In the case of fiat money, federal reserve notes which are fabricated and “backed” by a government, the value of a currency does depend to a degree on how much faith people have in the government which is doing the printing. But in the case of hard currencies, which are zero-counterparty currencies, such as precious metals like gold and silver, and now BitCoin, the value is simply intrinsic, as there is a [b]limited supply[/b] of these items and they are non-fabricatable. A federal reserve note, like that $1 bill, was originally simply the “promise” that some bank will pay you one dollar – a measurement of silver bullion. These made it easier for security purposes (outsourced to a large central bank vault protected by armed guards), and for convenience (instead of lugging around the heavy metal up and down the Silk Road, just carry light notes). But ultimately these pieces of holograph-etched green paper are simply “promises” that they can be redeemed for items of actual value: like a gallon of milk or Toyota Prii or a 10,000 square foot house. And unlike the hard currencies, there is an [b]unlimited supply[/b] potentially for fiat currencies, which can be printed willy-nilly by governments who want to cover up the termite-eaten unsustainable carcass of the economy for another election year. Which is why gold and silver have outperformed every pension fund, hedge fund and money market over the past decade.

The exchange is where the value is. And BitCoin can and is exchanged all the time. Just like US dollars are exchanged for WoW dollars which are exchanged for enchanted flaming swords of fire, or Facebook bucks are exchanged back and forth between Farmville turnips and yen. And more and more people are using BitCoin as a means of exchange, thus it is going up in value. Why? Because of the countless advantages BitCoin has on traditional government-issued currency.

BitCoins are encrypted files stored on your computer or any personal digital storage device like a flash drive. The money is in a cryptographic signature that is recognized by the bitcoin network, which means any given signature can only be transacted a single time from buyer to seller. This means you can copy paste the file as many times as you want, but unlike paper money, you cannot simply print more (this applies to both small-time crook counterfeiting operation, or big time banker-baron multi-trillion wealth-destroying Federal Reserves).

Say you want to send your friend in Australia half a coin, about the price of a burger (or the net value of Goldman Sachs if you marked all their off-balance sheet “assets” to market). You open up your BitCoin account (which looks very similar to a bank statement), choose your friend from the address book, click “Send Coins”. Your friend gets the money [i]instantly[/i], and the money is deducted from your balance. That’s it.

So what are the advantages of this over the US dollar or other currency?

- Nobody logged on to a bank of any kind.
- No bank page for complicated foreign transactions was loaded into any browser.
- No expensive foreign transfer fees were applied. In fact, no transfer fees were applied at all.
- No banks were holding on to the money for a couple of days. Your friend had the money instantly.
- No bank holidays were relevant. You did this on a Sunday.
- No governmental economic blacklist was consulted. He could be a criminal under Australian law for all you care, but what matters to you is that he is your friend.
- Nobody got the chance to seize the money before your friend in Australia got it. Or afterwards.
- An alternative to a bank transfer would have been to use Visa or MasterCard. They did not get a cut, either.

The BitCoin currency increased in value one-thousandfold against the US dollar in fourteen months. Yes, that is no typo: a dollar’s worth of BitCoin cost *one thousand times* more than it did in a little over a year. There is currently no indication for market saturation, quite the opposite. Who’s the idiot who didn’t get in on that investment? If you moved your life savings out of Bank of America, JP Morgan, MF Global, your 401k, mutual fund, any “AAA” gold plated “money management” fund and into BitCoin, you would’ve not only saved your money from being stolen out the back end through a London-based rehypothecation loophole to cover the bad bets tossed at European sovereign debt by banksters, or from being converted into Jamie Dimon’s next fleet of yachts, you would’ve MULTIPLIED YOUR NET WORTH BY ONE THOUSAND. Please tell me you didn’t not put any money in BitCoin. Bummer, dude.

BitCoin has seen it's ups and downs, and has presently stabilized after the "inflated expectations" stage of the Hype Cycle peak earlier in the year. If BitCoin can remain stable and mature, then we haven’t even seen the 1949 “Gold Rush” event from the Wall Street investors, who are looking into their accounts and discovering even their meager 2% yearly returns vanishing before their very eyes. They jump at the sign of even a 25% year ROI. But these numbers are in the three-to-four digit percentile. It is therefore very likely that larger amounts of money will start pumping into BitCoin just to ensure that they get in on the lowest floor of that boom that they can.

BitCoin is virtualized hard currency, it’s what Blade is to vampires and humans: all the advantages of precious metals (no counterparty), without their weaknesses (lugging kilo bullion bars around in your pocket is inconvenient, difficult to make payments on Ebay). It has the boons of paper money (easy to move around) without the drawbacks (does away with all bureaucracy, all transaction fees, and perhaps foremost, all transaction delays and gatekeepers in the financial system.) No wealth extraction via inflation or hyperinflation, no stealing money through hidden fees, no blowing of malicious speculation bubbles via zero interest rates. This is why the bank-government Crime Lords hate even the idea of BitCoin so much, because it is the invention of the h-bomb in the financial war on the side of the 99%; it is a legitimate threat to their continued reign of terror.

Still, it is not a perfect risk-free system. It is still in its early rag-tag stages, as all startups must begin, and thus is more volatile than a solid, mature market like gold and silver. If you lose your encrypted BitCoin files to a hard drive failure or just loose them out of your pocket, then you've lost them. But that's why you make multiple backups. And the same happens if you lose a ten dollar bill. But there is no such thing as a risk-free asset; even the 1%'s money in the safest vaults in the world are being looted by the 1% of the 1% (0.01%) banksters as Gerald Celente painfully discovered when he called his agent about his 600k in gold and received a big question mark. Holding dollars even in your local bank is a risk as the money presses continue to run making us ever-more resemble Weimar Germany and the market manipulation schemes propping up the dollar continue to grow weaker and falter. It's just a matter of looking at the fundamentals and assessing whether the benefits of having some money in BitCoins etc. outweigh the risks.

There are some things you can’t yet buy with the coins, however the BitCoin “Craigslist”s are growing and you can get even cutlery, solar panels and gold/silver bullion with BitCoins last I checked. If nothing else, you can always buy that hotdog on the corner if you just convert BitCoins into another currency by selling them. I could see some blend of BitCoin or a similar virtualized hard currency utilized for making long-distance purchases and paying the electricity bill operating in tandem with silver/gold rounds for more local exchanges at the grocery for the laundry soap and such. A hybrid physical/virtual hard currency system. Like a non-fucked up, non-wealth-stripping, non-real economy-nuking version of paper dollars and credit cards – silver dollars and BitCoins.

Is it a perfect system? No. But I think the fundamentals for BitCoin are looking pretty good. Especially in comparison to the other options. To paraphrase Churchill’s aphorism on democracy and the best form of government: “hard currency (like BitCoin) is the worst form of money, except all those other forms that have been tried from time to time.”

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