In response to Gary North’s December 10, 2013 article, “Showdown: Bitcoins vs. Greenbacks and/or Precious Metals“:
“First, the primary benefit that libertarian promoters of Bitcoins offer in justification of their theory that Bitcoins will become an alternative currency is this one: Bitcoins offer privacy. Paper money today offers a much greater degree of privacy that Bitcoins do, plus a whole series of other major advantages that Bitcoins do not offer.”
– Except for that fact about governments and banks knowing who you are by the card you use to withdrawal your money.
“Second, money is the most marketable asset. Paper money is vastly more marketable than Bitcoins.”
– Yes, because of government force, not because of any inherent inferiority of Bitcoin.
“Third, gold-based and silver-based digital currencies are more likely to become future world digital currency than Bitcoins.”
– Yes, mostly because that’s what the international banksters want, for a time.
“He has a virtually unlimited number of establishments from whom he can make the purchases.”
– Not “unlimited” locally. If by the Internet, Bitcoin can also be widely accepted in time.
“Almost nobody knows how to buy Bitcoins.”
– More people know how to buy gold, but gold dealers like Bob Chapman estimated that only 1% of Americans even own any gold, let alone have bought any recently.
“He has no idea which ones are reliable. He risks getting into a Bitcoins-related Web business like Silk Road, which the government shut down.”
– Or with gold, the Ron Paul Liberty Dollar, so there’s nothing special about Bitcoin in that regard.
“In other words, there is a huge learning curve involved in gaining access to this privacy money.”
– There were a lot of people who didn’t know how to use ATMs at first, but once the banks started pushing them, it lowered the cost of learning to use them.
“Conclusion. Here is a fundamental economic rule: as the price of anything increases, less is demanded.”
– Only true if the supply is fixed or goes down, but there is still the concept of price inelasticity, where demand doesn’t drop as much, despite a big increase in price.
“Therefore, anyone who promotes Bitcoins is a viable alternative to greenbacks is ignoring the following: (1) the low information costs of gaining access to greenbacks;”
– A big reason is because of government force, which he is supposedly against.
“(2) the complete lack of interest on the part of the government or the bank in withdrawals of a few hundred dollars at the time;”
– With real price inflation in the past few years in the double digits, you’ll increasingly need more than a few hundred dollars for meaningful purchases, and cash is being increasingly phased out.
“(3) a market for this currency that is essentially the same as the market for digital currency;”
How? Digital dollars account for over 95% of the money supply. They are far more in demand than paper dollars, just by the numbers.
“(4) the possibility of negotiating discounts for purchases with this currency.”
– Mostly to avoid government taxes, and not because it’s more efficient.
“But, with respect to buying with this currency, there are no transaction costs.”
– False. The “hidden” transaction costs are borne by the stores, and passed on to the customer. There are handling and storage costs involved in facilitating these transactions.
“There are no search costs. You do not have to search for which companies are willing to sell you something for your paper money. They all are.”
– Actually, they’re not. A gym I went to didn’t accept paper dollars, just like an increasing number of businesses.
“Because there are no restrictions on the use of paper money, no question is asked at a retail establishment regarding the use of paper money to make a purchase.”
There are restrictions. Try buying something for one dollar at a dollar store with a $100 bill, and see if they will accept it.
“Bitcoins. You cannot use Bitcoins to buy anything in approximately 99.9% of American retail establishments.”
– You also can’t buy anything in 99.9% of American retail establishments with actual legal tender gold coins, since they won’t recognize them, and may even call the police if you walk off with the merchandise after tendering your coin in payment.
“You cannot buy what you want, when you want, where you want with Bitcoins.”
– You also can’t do that with paper currency for most Internet purchases.
“There are search costs involved in locating anybody who will sell you anything with Bitcoins.”
– They are relatively low, with an Internet connection.
“There is no checkout counter that converts Bitcoins into digital dollars, and then issues you a receipt for whatever it is you just purchased Therefore, Bitcoins have close to zero marketability.”
– Perhaps not, but there already is the world’s first Bitcoin ATM in Vancouver.
“The only way you can buy anything with Bitcoins is because the seller is going to convert the Bitcoins immediately into dollars.”
– Is the Mises Institute immediately converting Bitcoins into dollars? Their 501©(3) records will soon show us.
“Bitcoins do not have a separate market that is not tied to the banking system.”
– Gold, which he promotes, is even more tied into the banking system, directly, and Gold Eagle coins are lawful tender in the United States.
“Bitcoins all over the world fell by one-third within a day.”
– Gold plummeted by over 70% in 21 years from 1980 to 2001, and dropped around 30% in just a year and a half, from 2012 to 2013.
– In gold bug circles, this is portrayed as a “buying opportunity”, so what makes it any different for Bitcoin?
“The risk of holding Bitcoins more than a few seconds is way too high for any retail establishment.”
– This won’t prevent them from accepting Bitcoin, so long as they can convert the Bitcoins to dollars or something more stable at the time.
“So, for a retail establishment to be willing to sell you anything for Bitcoins, it must have a computer program tied to its bank in order to convert Bitcoins into dollars instantaneously.”
– Computing power relative to price is increasing exponentially, so it’s not a big issue.
“A joint announcement of the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan would complete the destruction. They could simply threaten expulsion from their respective banking systems for member banks that offered Bitcoins services. “Bitcoins, R.I.P.””
– They could do this with any private, non-coercive currency, so does that mean no non-gold private currencies should be created and promoted?
“Therefore, with respect to marketability, Bitcoins are an extension of the central banking system.”
– Gold is far more an extension of the central bank system.
“Conclusion. There is virtually no possibility that the Federal Reserve System is going to outlaw the use of Federal Reserve notes.”
– They will, once they no longer want to have paper currency.
“There is always a possibility of the Federal Reserve System will prohibit banks from dealing with any retail company that uses Bitcoins in its transactions.”
– Applies to any non-government currency, so is he saying we should not bother trying fighting the system?
“Proponents of Bitcoins are necessarily arguing that the unbacked fiat money that is produced by the Bitcoins system will be preferable to the vast majority of people who are attempting to escape the digital currencies of their central banks. Bitcoins will be favored, and digital currencies based on either gold or silver will be bypassed.”
– If gold and silver currencies are so good, why aren’t more people transacting in them now?
“This is an argument that says that Bitcoins, which nobody understands, are preferable to gold and silver, for which there is a long-established tradition in the Far East, the Middle East, and the West.”
– Nobody understands them? Gary North is apparently speaking for himself.
“We are expected to believe that Bitcoins, which were invented by a team of anonymous Japanese programmers, and which are promoted mainly by libertarians who do not have much money, and by programmers who do not have much money, will become the money of the future, whereas gold and silver digital currencies and coins will never come into widespread use in exchange.”
– A laughable contradiction with a previous article, since North laughably said “The promoters creators are now very rich, as measured in dollars.”