The Subjective Valuations Of Bitcoin & Gold

In this editorial I aim to contend that the physical properties in gold are the same found in the digital properties of Bitcoin. That both are "social contracts" or spoken and unspoken agreements between humans, which can be considered intellectual property as well.

“There is no value outside the process of valuations” 

~ Ludwig von Mises 

Bitcoin and gold revolve around their usefulness and this is an indirect result of their demand. Consensus in computer science and mathematical equations are a reality. Just as the reality of time and physical space equations. Computational distributed consensus can also be related or an analogy to the biological genetic process. All of this is held between a social contract of consensus of humans to agree and disagree upon.

For thousands of year gold has been a commodity for the human race.  Its only significance in ancient times was its value in making pretty things, and you could make coins with it and trade as well. For many years chemical equations of the physical reality we know as 'gold' cannot be copied. Or at least to the point where it would take massive amounts of power and energy to recreate. Just like the Bitcoin network it would take large amounts of wealth and extensive energy to recreate a Bitcoin or double spends. Gold can be recreated, it is a complicated process which requires nuclear power to make even the smallest fractions of gold. Gold is based off the subjective valuations of the human race. Cryptographic hash is no different than the physical and chemical relations of gold. The trust we put into them, is based off the belief that they are scarce. This is a spoken and unspoken agreement among the people of this earth.

Bitcoins have more in common with gold than fiat. Bitcoin meets all five qualities of sound money: it's durable, scarce, has a trusted value and network effect, it's highly divisible, and is portable. Bitcoins mathematical equations are agreed upon by the network and outsiders. Like most computational consensus networks, it is the trust is in the system's reliability to thwart faulty processes. Bitcoin does this and achieves it through ‘Proof of Work’ a measure in economics to deny service attacks.

The belief is that we trust the network, its mathematical equations and dynamic network consensus subjectively. We all agree and trust in the encryption itself just as we do with the chemical properties of gold and its physical space.

“There is no value outside the process of valuations” Mises once said. As of now there is no conventional method of computing that can break the digital properties of Bitcoin. This is a subjective valuation of humans brought upon by demonstrated preference. The mathematical equations of Bitcoin hold the same reference to the physical properties of gold and its objectivity concerning reality. Subjectively subscriptions must be made by individual perceptions. However, this can be confusing as the ends or the rules of the game are often mixed with the means and physical givens. Again, both Bitcoin and gold lie in the latter not the former, and point of reference is demonstrated preference.

Encryption has always been one of the many concepts humanities have used as a form of value. In cryptography, encryption is the process of encoding and decoding messages or numbers. The earliest known ciphers were written in hieroglyphs. In time infamous forms of encryption, such the “Caesar Cipher” came into use in ancient days. Giving the value of encryption, this subscription humans use is no different than gold or its matter of age. The value can be regressed just as far as gold can. The use of mono-alphabetic ciphers were used often and trusted by humans until the late sixties and seventies when computational encryption came into effect. Alice and Bob were born into this world adding more depth into cryptography and game theory. Public and private key cryptography have been given even more extreme value by humans with a class or identification of asymmetric mathematical equations used by the public daily.

So what really is the difference between Gold and Bitcoin in physical and intellectual space? You know our human subjective valuations. If the Bitcoin's can be contained in a form of property or held in a device mathematically, then they are indeed property. Although this is only a social contract or agreement between the owners of such property with its users, miners, and coders in the network. Also between non users of the network. That the coins can be held as property and cannot be reforged in a different fashion. The same goes for the physical aspects of gold and its aspects in alchemy. The network or world, including outside forces are unable to break the "social contract" or "trust" just as the physical elements of gold or certain metals cannot be copied by a human/alchemist.

We already know that certain 'fakes' and real gold can be made. But it doesn't meet the world's criteria to fit the exact same mathematical and 'physical chemical' elements that make up mined gold. Otherwise we could all make shiny metals or we could all claim ownership to private keys in, which would manifest as the same as the next person. Unfortunately, we cannot. No one here has the necessary quantum computer power to break my mathematical SHA256 public/private key equation. No one can divide my Bitcoin. Not one person can claim ownership to my keys, how I store them in my brain, transfer them to hardware, or paper. Maybe I would hide them forever, so not one person could ever find these keys again. Until they do attain this power whether they attain it through code or through magic/alchemy it's is my property both physically and intellectually. Both mutually exclusive for the time being.


How is gold any more or less tangible than a contract of chemical elements humans have composed in books or on paper? It's a contract that cannot be broken unless the network or outside forces who oppose the network break the spoken and unspoken agreement. Same goes for gold. Gold is a "social contract" written on paper that cannot be copied or manifested differently. The physical elements of gold and its chemical makeup is a “white paper” for the whole world to agree to. These elements, thus far in our world have not been broken. The words written on the paper cannot be conflicted, with both Bitcoin and the physical elements of gold. If I were to create a fake gold with one chemical element missing from the equation, anyone could contest this with their peers over the difference. Otherwise, what's the use? It's a soft yellow metal that can be copied physically and can be tangible in the same way.

This "fools gold" can be made right now. But it doesn't meet the "white paper" on the physical and chemical elements that make up gold.

There is no difference between gold and Bitcoin in this fashion. It is agreed upon by its inherent demand and its value. Otherwise, it would not have demand or value properties among humans.

What do you think about the similarities and properties between Gold and Bitcoin. Let us know in the comments below. 

Images courtesy of Redmemes 

Force or Mathematics: Fiat VS Cryptocurrency

Some people believe the US dollar is backed by gold. This is inaccurate. The US Dollar is backed by something alright, but not by an object of value. Fiat notes are propped up by the truncheon and gun. “Fiat” literally means "by decree or arbitrary order". This implies that government Federal Reserve notes are only valuable insofar as their worth is dictated by a central bureaucracy.

Also read: Bitcoin in Review: Interesting Trends in Q1 of 2015

Fiat by Command and the Golden Ticket

It is true that some government certificates used to be backed by gold. This is not the case anymore. One cannot go to a bank or government institution and get an equivalent amount of gold for their money. Years ago, the United States government allowed people to possess gold certificates which translated into equivalent gold coins, but the State eventually remanded the ability to receive gold coins. They even made these golden tickets illegal to possess for a time. The only thing that supports modern fiat currency is government command.

In an essay titled “A Brief History of the Gold Standard,” Craig K. Elwell sums this up:

“The gold standard ended in 1933 when the federal government halted convertibility of notes into gold and nationalized the private gold stock. The dollar was devalued in terms of its gold content, and made convertible into gold for official international transactions only.”

Bitcoin, the Blockchain, and Mathematics, not Brute Force

With the advent of blockchain technology and digital cryptocurrencies, people can now enjoy money that is backed by something other than brute force. But many people, as a result of the preconceived notion that currency must be backed by a beautiful object like gold, erroneously believe Bitcoin is worthless.

This is a common misunderstanding of Bitcoin and the blockchain protocol. Bitcoin is not backed by anything tangible. Instead, it is supported by something superior: mathematics. When people dismiss Bitcoin on the grounds that it is not backed by anything, they do a disservice to the idea of a currency supported by value, because the blockchain protocol that runs Bitcoin was designed to create Bitcoins through the mining process, which relies on computational power to solve mathematical puzzles.

The blockchain protocol also uses complex algorithms to limit the overall supply of Bitcoin to 21 million units. This is an elegant solution to the problem of “backing,” because it works in a decentralized fashion. This prevents authorities from gaining access to the protocol and controlling it; there is nothing more valuable than protection against people who want to steal money or manipulate its supply. Bitcoin eliminates this threat, and other threats. Thus, its brilliant mathematical foundation is the ultimate form of backing in terms of financial security, stability and trust. This means everyone can sleep well at night knowing their hard-earned money is safe and sound.

Visit our wallets page to create your first bitcoin wallet!

Do you think Bitcoin's mathematical backing is better than being backed by gold? Let us know in the comments below!

The opinions expressed in this article are not necessarily those of Bitcoin.com. Sterlin Lujan

Gold-Backed Cryptocurrencies: Innovative or Redundant?

The debate between Bitcoin and gold is often waged by two opposing sides: those who believe that Bitcoin is the future currency of the world, and those who think gold is the only alternative to fiat. However, there is a third-party in this discussion -- although they are a minority in the cryptocurrency community.

Also read: Gold Takes a Backsesat to Bitcoin During Greek Debt Crisis

Disclosure: this author is a paid blogger at Anthem Vault, a company that has recently launched the Hayek, a gold-backed cryptocurrency.

This third group believes that a combination of gold and Bitcoin would result in a currency that takes advantage of the best of both worlds. Essentially, these people envision a cryptocurrency that represents ownership over an amount of gold in the physical world. The digital coin would act as a gold certificate, working as a perfect money substitute. The only time the tokens would need to be redeemed for gold is if the owner simply wishes to increase his or her physical store of gold.

Thus, by using a gold-backed cryptocurrency, we get the “intrinsic” value of gold as well as the speed and portability of Bitcoin. According to its supporters, this kind of cryptocurrency is capable of reaching a much broader market than a purely digital currency. Those who are reluctant to trust a computer program with their wealth, or people who doubt the reliability of Bitcoin’s digital scarcity can find solace in the token’s gold value.

Commodity-backed digital currencies have received support from people who tout sound money reform, but are not exactly familiar with Bitcoin’s technology. To them, cryptocurrency is a promising idea, but its lack of tangibility either intimidates them or rouses doubt. One of the most prominent people to get behind the concept of a commodity-backed cryptocurrency is Rand Paul, a Republican candidate for US President in 2016. In May of 2014, Paul stated that he would like to see a digital currency backed by a basket of stocks:

“I was looking more at it until that recent thing [sic]. And actually my theory, if I were setting it up, I'd make it exchangeable for stock. And then it'd have real value. And I'd have it pegged, and I'd have a basket of 10 big retailers… I think it would work, but I think, because I'm sort of a believer in currency having value, if you're going to create a currency, have it backed up by -- you know, Hayek used to talk about a basket of commodities? You could have a basket of stocks, and have some exchangeability, because it's hard for people like me who are a bit tangible. But you could have an average of stocks, I'm wondering if that's the next permutation."

While gold-backed cryptocurrencies may sound like a best of both worlds scenario, there are a couple things that could make them redundant. These redundancies could make commodity-based digital tokens unnecessary, since their purely digital counterparts would be less bulky.

Having a digital currency tied to gold drives up transaction costs. When a digital transaction takes place, and the ownership of physical gold changes hands, the gold storage facility will have to alter its records. Managing the records requires labor; even automated processes would have high capital and maintenance costs. These expenses would be reflected in transaction fees, meaning that the gold-crypto hybrids are not as “cheap” as pure digital currencies.

As far as a gold token’s protocol is proprietary, its users must trust the issuing firm. Since the tokens represent ownership over a physical supply of gold, they will most likely be premined to match the amount of gold owned by the issuing company -- and later to match the amount of gold deposited by customers. Therefore, the issuer will have the ability to create tokens in excess of its gold reserves, allowing it to operate with fractional reserves for its own benefit. Aside from devising a decentralized gold token, the only choice users have is to trust that the issuer will not engage in questionable activities.

An issuing firm can also use its gold reserves without the knowledge of its depositors. Since gold is not linked to a decentralized protocol that automatically logs all transactions -- like Bitcoin’s blockchain -- a customer will have a hard time knowing whether or not the firm is using his or her gold for personal gain. This practice also qualifies as running fractional reserves which, depending on the stipulations of the deposit contract, betrays the trust of the depositors.

The higher transaction costs and trust requirements associated with gold-backed digital currencies puts them at a disadvantage to purely digital currencies, but that doesn’t mean that they are totally useless. Having a token that acts as a hybrid between tangible and digital media of exchange builds a useful psychological bridge for gold bugs initially being exposed to cryptocurrency. This hybrid could ease newcomers into the digital currency world, making the learning curve seem smoother. Whether or not the users of such currencies complete the transition to totally digital coins, though, depends on whether or not they value decentralization and affordability over familiarity.

Are gold-backed cryptocurrencies a good idea? Let us know in the comments below!

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Images: Pixabay

The opinions expressed in this article are not necessarily those of Bitcoin.com.

Crisis and Bitcoin solutions

Amid the complex Greek crisis, professors, “economic" and "financial" experts offer solutions to the people in need. However with explanations like: “…People need to set some diversification strategies and build up some reciprocity relationships…”, most people will wonder what they mean. We will explain the more useful reactions that these experts offer and how the average Joe or Jane can protect them better when the next crisis hits. Bitcoin will play a pivotal role in all of this.

Diversification strategies

The experts love to use difficult words when on tv, radio or just doing an interview in a newspaper. What is this “diversification strategy” they go on about? Diversification strategies are strategies where people do not get, for example income, from one source or in one particular form. In so doing, you create a more stable situation for yourself. For example in some countries in the EU, employees receive they monthly pay in Euros and receive a percentage extra “pay” in the form of a special kind of “coupons”. With these “coupons” these people can buy food and other basic products. It is the same as a hypothetical employee is paid per month in Euros but receives a percentage of Bitcoins per month, except Bitcoin is more versatile than those coupons we spoke about.

Other diversification strategies are: using your currency to buy foreign currency, gold or any other precious metal that can be converted. With these strategies there are some problems that will crop up.

Precious Metals

If you divided your capital in real currency ( US dollar, Euro, whatever) and a precious metal, it can be good because you are going to be less affected by a crisis because you didn’t put all your eggs in one basket so to speak. However precious metals have an Achilles heel; you are dependent on the price of these precious metals (for example gold price if you bought gold).

A lot of people run to precious metals like gold and silver for financial security and protection, which is understandable. Gold and silver as a currency, as well as barter and trade, have been used much longer than any other modern day currency. Gold and silver are used by nearly every society on earth plus it can be fairly easy traded in. However you have to protect yourself against frauds and fake gold, which requires some know how. Also when you really need currency and are selling off some gold or silver, the buyers will generally pay a lot less than the gold or silver price.

Foreign currency.

The most obvious diversification methods are using your capital and spread it around over different currencies. The more likely the currency is being used ( like Euro, Yuan or US dollar), the more versatile you will be at weathering a crisis.

However fiat currency has a lot of problems themselves. With normal currencies you are linked to diverse banks, be it national or private banks, among other things. These banks have to listen to ( quite loose) international and national guidelines. If the Greek government decided that people can only get 50 euros per week from their bank account than the banks comply with that request.

Solution?

So what do you need to withstand crises according to the experts? If you want to survive a crisis, we focus in on the monetary side of the crisis; you need to have a currency or currencies that can be exchanged to any fiat in the world. The whole range of cryptocurrencies is a great solution here. Quick transaction speeds, much safer than bank or credit card use, low fees, can be used by anyone anywhere in the world, etc.

Bitcoin is one of the best examples of these digital currencies. For example; if a hypothetical crisis hit the UK, people can rely on Bitcoin to compensate because they have relative easy access to Bitcoin ATM’s or BTM’s if you will. This ensures that people that have Bitcoins can trade them in for British pounds or vice versa.

We see this also happening in the Greek debt crisis, where the only Bitcoin ATM in Greece has seen a surge of people taking to Bitcoin because it offers some stability, is decentralized ( so the Greek government has no control over it), easy accessible ,etc.

Bitcoin is also for everyone and everyone can buy them; it doesn’t matter if you have 10 euro-cents or 500 euros, you got the same deal. In the past, banks offered different interest rates on saving accounts or portfolios, depending on how a customer deposited at said bank. Bitcoin itself doesn’t have said inequality. The price is that amount of euros/dollars/pounds/etc, no matter how much you buy, you won’t get a discount or a more favorable position. Of course, there are some exchanges that will give you more than the actual Bitcoin price or sometimes less but that is up to the seller to determine which service to choose if he or she buys/sells their Bitcoins.

The Bitcoin price is kind of stable at the moment, hovering between the 230 – 260 US dollars. Some of the experts and bank spokespersons are cautioning people about Bitcoin because of its “volatility”. A little bit of volatility in the Bitcoin price is good because it may offer some profits for the people that own Bitcoins. For example if a Greek man or woman has bought 1 Bitcoin at 235 dollars in May and sold it at 262 dollars, he or she made 27 dollars profit. Some might say;” well that is not a lot” but if you convert it to percentages it is more than 11% profit in 2 months. This is much higher than any bank’s interest rate on a savings account. An added bonus is that most countries aren’t going to tax Bitcoin because they don’t see it as a “ fully fledged currency”.

Practical examples.

Percentages, profits and hypothetical scenarios are all good and well but how can people weave Bitcoin into their current situation? If we look at the Greek debt crisis one thing is clear: People are running to get some Bitcoins. But how do you get some Bitcoins if you do not have the money to actually buy some? It all depends on how innovative you are.

For example if you live near the coast and have a boat that you use to catch fish, you can offer to sell them for Bitcoins, alongside regular currencies. If you grow your own vegetables or have a surplus of vegetables you can sell them at the local market or in your neighborhood. If you have a little grocery shop you can accept Bitcoins for your goods.

If you have a spare room you can rent it out to tourists, with a kind of Bed and Breakfast flair to it, all the while accepting Bitcoin as preferred payment option. This can be done by setting the price for the rented room higher in fiat.

Bigger businesses like farms, book shops, coffee shops, etc can much more easily incorporate Bitcoin into their financial strategy because they have an already existing structure where they can “click” Bitcoin into that structure.

If we look to the Greek crisis, a lot of severely hit people live in the cities who don’t own land that they can cultivate. Most of these people live in apartment blocks and it is hard to cultivate anything there. However you can try to have small flower pots and sow/grow some vegetables (salad or tomato plant).

Another option open to them is being artistic. Draw, paint, airbrush, etc. works of art and sell them for Bitcoin. Another good way is looking for a job in the crypto sector. There are some websites and message boards that have been created especially for that purpose. If you are an unemployed programmer or someone with programming skills, these sites and message boards are always looking for programmers. Businesses can also issue their own “private currency” or own digital money, but this will cost more.

Now if you have a little bit of money stashed away for a rainy day, you can use it to create your own e-business, website or even a start-up project. Of course if you are already in a precarious financial position to begin with, it isn’t always possible to start an e-business. Another problem that people will have with this is that you need to have access to the internet. Of course you can go to internet café’s but if you have a very low income that isn’t always possible. The best thing you can do if you don’t have a lot of money, is to ask around the neighborhood who has internet. If he or she is willing you can make some kind of deal.

That way, reciprocity relationships will be created. This means that if you do something for someone (for example give a little of your surplus vegetables to those people), they will respond in kind if you are in need.

Conclusion.

To withstand a crisis, you need to spread out your income (whatever form it may be) in order to soften the blows of the crisis. In this article we have shown that Bitcoin is, so far at least, one of the best currencies to withstand crises. This is mainly because of its decentralized nature, easy to use, the fast and safe way to transfer Bitcoin, Bitcoin is used all over the world, etc. Bitcoin is also a fraud/scamming deterrent because every transaction can be checked in the Blockchain. That means that a hypothetical corrupt politician who receives stipends to from someone to look the other way, provided it is paid in Bitcoin, will show up and will be exposed.

We have also explained the experts more difficult vocabulary to a more comprehensible one for everyone. After the explanations, we provided some easy to implement solutions that do not necessarily cost an arm or a leg to set up. Some easy to implement modifications can also be used by the Greek people to survive the current Greek crisis and we encourage the Greek people to embrace Bitcoin in these troubled times.