I hate the term ‘goldbug’. It's usually used as a slur to belittle the sound-money viewpoint and avoid rational discussion.
That said, there are many people out there that believe gold (and/or silver) is the answer to our economic woes — at least as many as believe Bitcoin is the answer — and that community is most typically referred to as the ‘goldbug’ crowd.
I happen to fall somewhere in-between; I think a widely-adopted crypto-currency could be an incredible boon for humanity, but I also feel a lot more comfortable with precious metals serving as the core of my savings. So after I wrote a letter to the proprietor of a popular gold-focused website recently, I thought it might contain something worth sharing with the broader ‘goldbug’ and Bitcoin communities. Here it is, with some minor edits:
Dear Advocate for Honest Money,
I've been tempted to write in on past occasions when Bitcoin was mentioned on your show — in the best cases with guarded curiosity but, more often, with ridicule — but I couldn't help chiming in this time after hearing one of your guests once again mock what I believe is the most important technological innovation since the Internet.
First, let me reassure you that I am in the same camp as you and most of your guests in almost every other regard:
- I believe gold is the ultimate vehicle for wealth preservation and financial safe-haven.
- The core of my investment strategy revolves around gold, and the conviction that it's exceptionally undervalued due to the paper/futures-market manipulations discussed frequently on your show.
- I have not sold a single gram of gold or one ounce of silver to buy bitcoins (though I have purchased both gold and silver with bitcoins).
So then, why Bitcoin?
Well, in short, because precious metals do not provide us with a fully-functional “financial system”. I can't send gold to my parent-in-laws in South America (in any reasonable amount of time or with any certainty it will arrive). I can't get paid by a client in Japan for my consulting services in silver. And indeed, I can't even pay back a friend on the other side of town, short of meeting him in person, using platinum.
Now, admittedly, we're a long way from price stability in the Bitcoin market. But Bitcoin, as a financial system and as a currency, already enables all of the aforementioned use-cases, and it already enables everything one can wish to do in the old financial system (as far as payments go at least)... And it does it a whole-lot better — faster, cheaper, with no third-party, and with the option of more privacy.
But isn't Bitcoin just another “fiat” currency? In short, no.
Is it a ‘virtual’ token, a figment of the collective imagination, and without a physical form in the real world? Well, sort of; but every Austrian economist knows value is subjective, and so we must also accept that the value assigned to a lump of yellow metal is a man-made construct, even if it has a basis in physical reality.
But the important quality, the one that gold and ‘bitcoins’ share, is rarity. And additionally that, to the extent that their supplies increase, they do so slowly and with a good amount of predictability.
Now, I'm leaving out an awful lot of technical detail here... (E.g., how is it that something ‘virtual’ can also be limited in supply?) I would love to get into all that stuff; it's very interesting. But I just want to make the case that believers in sound money should be, if not believers in, watching Bitcoin with a keen eye.
That is, at least until the day we can pay for our gold-stock newsletters without needing the very fiat money we're crusading against.
If I can leave you with one point to consider, I think it would be that, Bitcoin like gold runs counter to fiat money; Bitcoin, at least in its intentions, aims to give people honest money, just like precious-metals advocates want of gold.
Bitcoin and gold can be seen as complementary — as teammates. Bitcoin can give us a transactional, day-to-day money; one we can use in place of credit cards, paper notes, and fractional-reserve scams. Gold can continue to give us the assurance that we'll have purchasing power at the end of the day, if worse comes to worst.
Bitcoin (notwithstanding some scaling issues which are actively being worked on) is a stand-in replacement for the crumbling, fiat-money, centralized financial order that exists today.
Again, I insert the caveat that at present the Bitcoin price is not stable. I believe, however, this is an inevitable hurdle any “startup currency” must overcome, just as is the case with any startup company. In time, though, this will resolve itself if Bitcoin as a technology and social phenomenon continues to prove resilient.
I would be more reluctant defending what may appear to be a fad by many in the gold crowd, but I know my views are shared by many intelligent minds from the financial and technology worlds alike, and indeed are now even shared by many across the gold world (which is something I couldn't say two years ago).
I think it would be fantastic if you had on a serious guest to discuss Bitcoin. Even if you remain a skeptic, it would give your service a lot more credibility in my eyes. After all, even one (at least) of your regular guests has warmed up to the potential of Bitcoin; and, I believe he is even offering a service to securely store bitcoins these days.
In closing, I do maintain the possibility that Bitcoin could fail tomorrow; it's entirely possible there's a so-far unforeseen security vulnerability, or that the central banks of the world come together to unleash a storm of computing power that brings the Bitcoin network to its knees. But what I'm fairly certain of is, crypto-currencies — of which Bitcoin is the first — are a phenomenon that is here to stay.
Best regards and thanks for an excellent show — I look forward to it every week!
CTO & Co-Founder
Here's to further adoption of Honest Money in 2015!