Authors

Economics

John Butler: Bitcoin, the Monetary Touchstone

Click to download PDF

Click to download PDF

Is Bitcoin a sound form of alternative money? Does it provide a viable, alternative store of value with gold? These are questions that John Butler answers in his latest Amphora Report, which is reprinted below. This article offers a useful background to the thinking behind Bitcoin and it’s potential as a disrupter of fiat currencies.

BITCOIN: THE MONETARY TOUCHSTONE Created in 2008 by the mysterious ‘Satoshi Nakamoto’, in the past few months bitcoin has gone from a fringe financial technology topic to a mainstream media phenomenon. The debate is now raging as to whether bitcoin is, or is not, a sound form of alternative money. As the Amphora Report has, from inception, focused regularly on monetary theory and the financial market implications of activist central banking, in this edition I survey a handful of prominent, diverging views on bitcoin and then share some of my own thoughts. In brief, I believe that bitcoin’s ‘blockchain’ technology enables a low-cost payments system capable of disintermediating the banking industry, but I do not believe bitcoin presents a viable, alternative store of value on par with gold. In any case, bitcoin serves as a monetary ‘touchstone’ of sorts, distinguishing those who lean toward economic and monetary authoritarianism from those who favour market-based organisation instead.

TO UNDERSTAND BITCOIN ONE MUST FIRST UNDERSTAND MONEY

Satoshi Nakamoto, the initially mysterious and now legendary creator of bitcoin, finally became a mainstream celebrity last week, having been ‘outed’ by US periodical Newsweek. Many who have followed the bitcoin story, however, find Newsweek’s claim rather dubious and instead believe that ‘Satoshi Nakamoto’ is a pseudonym adopted by either a single individual or team responsible for researching and publishing the original 2008 paper describing the specific, ‘blockchain’ algorithm behind bitcoin.

I have no strong opinion on Newsweek’s specific claims, nor on who, or what group, created bitcoin, although I am curious, for reasons that will become apparent. More important is to understand whether bitcoin could function as a sound, alternative money.

To begin, we need first consider why an alternative money would ever be necessary in the first place. Well, repeatedly throughout history, due to financial pressures, governments have chosen to debase their coins or inflate their paper currencies to service or settle their debts, by implication appropriating the wealth of prudent savers in the process. Wars, for example can be expensive and most large debasements in history have occurred either during or following major wars, in particular in those countries on the losing side of the conflict. But even the winners can succumb, as Rome demonstrated in the 3rd century or as the victorious WWI powers did in the 1920s and 1930s.

To continue reading, download the Amphora Report here (PDF): Amphora Report, Vol 5, 12 March 2014.

4 comments to John Butler: Bitcoin, the Monetary Touchstone

  • Paul Marks Paul Marks

    A very interesting article.

    Non government currencies started out as commodities that people valued BEFORE it started to be used as a currency. So saying “economic value is subjective therefore anything can be money” is wrong (flat wrong). Economic value is indeed subjective – but, unless you want to go down the government route of legal tender laws and tax demands (the vile Paul Krugman’s “men with guns”) you had better choose something that people already value BEFORE it is used as money.

    This does not mean that BC (Bit “Coin” – it is not coin of course) is useless. Far from it – for example BC has already forced down the charges that companies such as Western Union levy to change one currency into another.

    So BC (and other things like it) can be (are) of use – but one should not over egg the pudding (do a Max Keiser) and pretend that this is a new currency that will “change the world”, allow the masses of poor people in Africa to “go to university”, crush the “banksters” and on and on…….

    Even if BC was a new currency (and it is NOT) – a new currency would not change the world, as (a rather important economic point) money-is-not-wealth.

    A new currency will not make the poor people of Africa (or anywhere else) rich.

  • Paul Marks Paul Marks

    What does produce new wealth?

    Producing more goods and services.

    For example “fracking” to get oil and gas (which has propped up the American economy in recent years – boo-hiss the Koch brothers and others). Using new genetic technology to produce food and other products (boo-hiss – biotech corporations) and other things.

    Basically everything that “Russia Today” and “Al Jazeera” ATTACK – attack for reasons that are obvious (obvious to non idiots).

  • Craig Howard

    Paragraphs are our friends.

    My eyes hurt from trying to read this probably very interesting article. Edit please?

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Please leave an intelligent and civil reply in your own name.