Since the beginning of the Cyprus debacle (followed by Russia's call for repatriation of all offshore capital and then Japan's willful debasement of their currency), which appears to have awoken many to the fact that banks and politicians can't be trusted , the 'price' of the virtual currency Bitcoin has quadrupled - touching an incredible $162 this morning. While most people believe the only way to 'spend' this currency is on drugs or blogging sites, Liberty Blitzkrieg's Mike Krieger points out there are in fact hundreds of places (growing daily) where this as-yet unregulated store of wealth can be spent. However, what is really driving this surge in demand for a different kind of 'money' is the wholesale loss of faith in the status quo - nowhere is this clearer than in the words and actions of the people of Cyprus and this devastating clip capturing the thoughts and feelings of ordinary Cypriots after their bank accounts were frozen. "Nothing has started yet... everything is going to fall down like dominoes because people don't trust the banks."Zero Hedge
Rethinking Money With Bitcoin Quadrupling Since Cyprus
Submitted by Tyler Durden
The key question with money is what drives it in the sense of creating stable demand for it.
The EZ crisis seems to be driving a lot the recent enthusiasm for Bitcoin. Doesn't bode well for the euro. It's a vote of no-confidence.
Lack of confidence in state currencies is also a driver of alternatives. In the past this has mostly been precious metals, gold in particular, but digital currency is a lot more handy if people think it works. And it is people thinking it works that make it work.
Once something becomes a medium of exchange, then it is accepted more widely in exchange. That is happening with Bitcoin. More merchants are accepting it in exchange for goods. But it's an issue for them, since Bitcoin cannot be used to finance investment. Firms have to fund themselves in the state currency and also accept Bitcoin on trust hits convertibility will be stable enough to service finance charges.
There is big downside exposure. The sudden appreciation against the USD doesn't look like that is being discounted. The stability issue remains to be determined.
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Lack of confidence in state currencies is also a driver of alternatives. Tom Hickey
State currencies should work just fine except government backing for the banks allows them to create vast amounts of inflation and deflation in those currencies.
One thing I've noticed over the past few days in reading some of the bitcoin euphoria pieces is that while the concept of digital money is no big deal to people who have been reading Warren Mosler for several years - and who know that a large portion of our standard, government-managed money has been digital for a long time - the "digital" nature of bitcoin seems like a dazzling new thing to people who haven't thought much about monetary systems before. It is hard for such people to make rational judgments about bitcoin and to understand what is and is not different about it.
Even Monopoly money is valuable if you can get people to accept it. But of course sustaining a pattern of broad-based acceptance of monopoly money would be a pretty tall order. Bitcoin is benefiting from a temporary surge of wide-eyed fascination on the side of people who haven't quite figured out that bitcoins are just Monopoly money made out of electronic entries in data tables rather than pieces of paper.
I think that this is one of the chief benefits or byproducts of the Bitcoin experiment. Suddenly the idea of digital currency is coming widely appreciated, if not yet well-understood. But I think that people get that it is just bits of information, and that alone is a huge step forward for humankind into the Information age and Knowledge Society. It really brings home that information is primary, and knowledge is potentially unlimited in dealing with information at negligible cost.
Of course, it it ends badly, this would be a bit of set back, but I think that it would just be temporary. The cat is now out of the bag.
Or maybe better, we've opened Pandora's box and can expect emergent challenges resulting from the introduction of greater complexity that follows upon greater power.
"Bitcoin is benefiting from a temporary surge of wide-eyed fascination on the side of people who haven't quite figured out that bitcoins are just Monopoly money made out of electronic entries in data tables rather than pieces of paper."
I thought thought the production of Bitcoin was predicated on many different market participants mining for them according to some progressively complex mathematical algorithm. In any event for the time being there appears to be enough non-tax driven demand for Bitcoin to propel the dollar value of its exchange rate ever higher. Kind of reminds me of how the Eurodollar market got started. Does anyone know if there is such a thing yet as Bitcoin time deposits?
Maybe if, as or when the market gets big enough, sovereign CDS could be denominated and settled in Bitcoin?
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