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Author Topic: Gold-backed bitcoin  (Read 11189 times)
Freya
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« on: November 30, 2011, 09:19:32 AM »

I was thinking. Even though gold/silver are not legal tender any more in most countries. Barter trades are still legal as far as I know in most western countries (can they be taxed? as far as I know only sales of gold and not barter?). You already have gold storage accounts that allow you to hold gold/silver and other precious metals with a minimum size in grams, but as far as I know there isn't any digital currency backed by gold, like bitcoin but then backed with real gold. Perhaps something like this has already been tried or proposed within the libertarian community.

Has any ever heard of such a proposal? I am also curious if anyone here holds any precious metals, either physically or in some sort of vaulting system such as BullionVault and GoldMoney?

EDIT: from the bitcoin website

Quote
Because BTC is traceable, other alternative currency systems could be built on top of BTC. For example, if I had a lot of gold, and assuming that 1 BTC was worth less than an ounce of gold, then I could buy 1000 BTC and then say, "My BTC address is XYZ. Any BTC which was has passed thru this address is equivalent to a transferrable IOU for one ounce of gold from me.". Then I sell those BTC for whatever an ounce of gold is worth. This provides a standardized way to electronically transfer gold IOUs.

This would mean that those bitcoins would be backed by gold. It wouldn't mean that ALL bitcoins would be backed by gold. But, the fact that all alternative currency issuers utilizing this "marked coins" scheme on top of bitcoin first need to acquire bitcoins provides a backing for all bitcoins (the value of this backing would be much less than the value of the alternative currencies themselves, of course). In other words, bitcoin's inherent usefulness as a layer underlying other alternative currencies would be the backing.

EDIT2: GoldMoney allows users to use gold as payment between users. Unfortunatly they don't accept people from the Netherlands as costumers anymore. So I had to buy my gold at BullionVault.

EDIT3: discussion on bitcoin forum for a proposed goldcoin (I like bitgold more Tongue)
« Last Edit: November 30, 2011, 09:51:26 AM by EddyK » Logged
Seth King
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« Reply #1 on: November 30, 2011, 09:45:15 AM »

The only way I see Bitcoin having anything to do with gold is how the two exchange with one another in the open market. The problem with state fiat currencies isn't as much that they aren't backed by gold, but that they are inflatable at the will of a few people.

Bitcoin isn't counterfeitable. So you don't have to worry about being ripped off that way.

The interesting thing about Bitcoin is that it has made me re-examine my notions of what I thought money ought to be. It was my previous understanding that money had to be a commodity that also had many other qualities, such as durability, divisibility, etc. But because of Bitcoin I now think of money more as a network. The goal of money is to get as many people to participate in the money network as possible. The more people in the network the stronger the money is. This is why the Feds are so hell bent on getting the whole world to accept FRN's as the reserve currency.

They counter act the strengthening of the currency when they counterfeit it, however. But they counterfeit it because that is the source of their power. Bitcoin users, on the other hand, are trying to constantly expand its user base, or network, to make it stronger. Fortunately, there is nothing weakening Bitcoin, like central planners or counterfeiters.
« Last Edit: November 30, 2011, 09:46:48 AM by Seth King » Logged

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Freya
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« Reply #2 on: November 30, 2011, 09:55:02 AM »

They counter act the strengthening of the currency when they counterfeit it, however. But they counterfeit it because that is the source of their power. Bitcoin users, on the other hand, are trying to constantly expand its user base, or network, to make it stronger. Fortunately, there is nothing weakening Bitcoin, like central planners or counterfeiters.

There is not counterfeiting per-se but there is speculation/conspiracy theory that the founders and early adopters own so much of the bitcoins that they can easily manipulate the market, I'm not sure how much of it is true. I read an interesting article about that I'll see if I can find it. I guess this could be equally true for gold-backed versions of bitcoin though.

So do you own any metals?
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Seth King
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« Reply #3 on: November 30, 2011, 10:35:44 AM »

The people that are worried about early adopters manipulating the currency have a lot to learn about economics.
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Freya
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« Reply #4 on: November 30, 2011, 10:45:38 AM »

The people that are worried about early adopters manipulating the currency have a lot to learn about economics.

I don't understand enough about bitcoins and economy to substantiate any worries. I am merely saying what rumours are going around. I'm a recent convert to AnCap and before I was not much different from the rest of the sheeple thinking that my euros had any real value. Since converting I've become more interested in economics but I lack the time to really dig into it.

Do you have any suggestions on how to get started with learning more about the economy? (books/vids/articles) Also can you elaborate why you think that manipulation in bitcoins would not happen?
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Seth King
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« Reply #5 on: November 30, 2011, 01:01:33 PM »

There will be, and already has been, a ton of speculation with the Bitcoin currency. There's no stopping that in any market. Gold, silver, Bitcoins, Dollars, pig bellies. You name it, there will always be speculators. There's nothing wrong with that.

Just because early adopters of Bitcoin have a lot more Bitcoins does not mean anything. What's the worst they can do, sell their Bitcoins? Sure, it will lower the price, but that's it. There have always been unfounded fears that somebody will be able to sell a lot of something and lower its price, and then buy them back up again and make a bunch of money. Or vice versa. I'm not even going to justify those worries with a response.

Have you read Economics In One Lesson, by Henry Hazlitt? That's arguably the best book ever written for free-market economics. I think you'll really love it. You've already got the morality of the NAP down, but this book will show you why free-markets actually work better than coerced markets.
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« Reply #6 on: November 30, 2011, 05:07:09 PM »

EddyK, my favorite source is Peter Schiff (found on youtube and he has his own radio show).  A good first video to watch is "Peter Schiff was right".  He is quite knowledgeable and really easy to understand. 

If you're super new to econ, I recommend his book, How an economy grows and why it crashes.  It can be read in one sitting. 

My only caveat is that he's a libertarian so there will be mild statism. 



Bitcoins aren't counterfeitable!?!  I never even considered that, my mind is now blown. 
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Freya
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« Reply #7 on: November 30, 2011, 05:39:08 PM »

Have you read Economics In One Lesson, by Henry Hazlitt? That's arguably the best book ever written for free-market economics. I think you'll really love it. You've already got the morality of the NAP down, but this book will show you why free-markets actually work better than coerced markets.

I think I may have given you guys the wrong idea. I've read most of the "Imagine some people living on an isolated island" examples and understand them. I get the basic concepts of the free-market. I know how it works on a small scale and why it works better then coerced markets.What I meant was that I don't know many of the complexities of business and that I do not know much of the terminology that is used by economists. Sometimes when I listen to economists I have no idea what certain terms mean or I simply do not understand the inner workings of the complex systems they describe.

To summarize. I understand that theoretical model of the free-market and capitalism. What I lack is knowledge of how things are done in practice, how the complex models are built on top of the basic concept.

EddyK, my favorite source is Peter Schiff (found on youtube and he has his own radio show).  A good first video to watch is "Peter Schiff was right".  He is quite knowledgeable and really easy to understand.  

If you're super new to econ, I recommend his book, How an economy grows and why it crashes.  It can be read in one sitting.  

My only caveat is that he's a libertarian so there will be mild statism.

I have watched a couple of videos from Peter Schiff. In many cases I can understand what he is saying, but sometimes I lack the knowledge of terminology  or the more complex concepts in our economy. I couldn't for example tell you how the stock market operates.

I am familiar with the basic concept of investment, buying 'shares' in a company to be able to 'share'  in its profits or lending money to upstart companies with the intention of seeing them succeed and gain back your money + interest, etc etc. But these days the systems surrounding them are or at least seem so complex, their inner workings completely escape me.

I have heard about the books you suggest but I do not know if they contain anything new for me. If its only the super basic explanation of the economy then I might be further then that. If it complains more complex examples from how things are implemented and work in real life then it might be good for me.

For example. I would probably be investing my soon to be worthless money in stock, but I simply do not know enough to make good decisions. I could give my money over to some people who will "manage" my funds. But how could I know if its smart to invest with someone when I don't understand what they will be doing with my money? So instead I've put away some of my money in gold, because gold shows a 100 year trend that, while fluctuating, tends to go upward over time. It is an 'investment' that is easy to predict. But it wont really yield significant profits, its more there to protect purchasing power. Its basically just metal sitting in a vault, its not creating any wealth. Investing in companies and helping create wealth would be much more productive and profitable, if I knew how to do so.

I don't have very much as a student. But I would like to protect what I have from the upcoming euro and dollar crash, which now seem almost certain. I want to more actively participate in the economy with what little I have, but for that I need to understand the economy better.
« Last Edit: November 30, 2011, 05:52:58 PM by EddyK » Logged
Seth King
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« Reply #8 on: November 30, 2011, 09:18:34 PM »

Okay, I understand now what you're talking about. If you want to get hot and heavy in economics, obviously the Mises Institute will have everything you could want.

As far as investments go. I know people like Peter Schiff have excellent track records with investments, but he's still a statist and has a different paradigm than do I. Personally, I wouldn't invest with anything that is legal. If you put your money in any sort of a corporation, then you're essentially saying that said corporation will play ball with whatever the government says. Corporations are not going to disobey government and save the world. They'll go right down the tubes with government when government finally goes.

It will be agorist businesses that will save the world and pick up the pieces that the state left behind. So, if I were you, I think gold and silver are great ways to save your money, so long as you're holding the physical metals. But if you want to invest in businesses, install bitcoin, find agorist Bitcoin businesses, and invest in them any way you can. That's my two cents. I could be wrong.
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Freya
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« Reply #9 on: November 30, 2011, 11:17:33 PM »

Quote
So, if I were you, I think gold and silver are great ways to save your money, so long as you're holding the physical metals.

I don't have the facilities to store the physical metal, and I don't really have the time and money to invest in them either. I've put away some money in gold and silver that is held in my name in a vault in Zurich. This is the most convenient thing for me right now. Even though I completely agree that physical ownership is better.

It will be agorist businesses that will save the world and pick up the pieces that the state left behind. But if you want to invest in businesses, install bitcoin, find agorist Bitcoin businesses, and invest in them any way you can. That's my two cents. I could be wrong.

I'm even less familiar with the black market. I didn't even realize you had such things as investments there. I would have even less of a clue in what would be good businesses to invest in. I severely lack time and I already spend way to much of it on read AnCap literature and discussing on forums. Unfortunately the dollar/euro crises won't wait for me to graduate* and get more time to focus on investing. This is why I went for the easy option of buying gold/silver.

I guess my plan for now would be to hold on to the gold/silver and see where the dollar/euro goes. If gold/silver are up enough when I get more time I could always worry about investment. For now I guess I just want to protect my purchasing power. Do you think its a bad idea to buy gold that is not held by me? Its either that or euro's in the bank right now, which is probably the worst of evils. I would feel uncomfortable storing physical metal myself without taking the necessary steps to protect it.

*I know what some of you think about degrees and their value, but if I do not complete it then money that would otherwise be considered a government gift would turn into a student loans. Bedsides I'm nearly there and it would be a waste not to finish it.
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JustSayNoToStatism
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« Reply #10 on: December 01, 2011, 12:31:55 AM »

Hmm...you brought up a few different issues, and I'll try to discuss as many as I can.

1) Terminology: There's a lot of it. Many financial definitions have more than one name attached to them. If I remember correctly, English isn't your first language right? That may make it a lot more challenging. Learning technical definitions in a second language is a challenging thing to do. In fact, even in a first language it's tough. It's hard for me to come up with suggestions there. I guess wikipedia and investopedia will have to suffice unless you choose to become an accounting or financial professional.

2) How models are built: Do you have a solid math and statistics background? Any accounting? If you are okay with probability and statistics, then you could start with studying the Capital Asset Pricing Model, a simplified model, but one to get your feet wet with. It allows you to draw some pretty powerful conclusions about rational investing. I bet the khan academy has something on it. Other ways of valuing stocks include guessing the future dividend flows and future prices, and then assuming a certain interest rate, and using that to decide what the present value of the stock should be (it would be good to know a little bit of accounting for some of this). I would consider CAPM to be a financial economics model, and it's taught in both departments of most schools. But if you want something strictly economic, then most of the mathematical models are NOT going to be austrian. I just wanted to warn you up front. However, they may help you understand why people think the way they do. Usually the way these macro models are presented are by asking you to study, in this order: Keynesian Cross model, IS-LM, Aggregate Demand/Aggregate Supply (mainly because these models can be derived one from the other) and then other things like Phillips and Laffer curves and stuff like that. I hope I didn't forget anything in there...Another one often taught is the Solow Growth Model. These are things you can wikipedia if you want.

3) Advice on what to do:
***Spoiler alert***
The process of going through and learning CAPM from the ground up, is a beautiful experience. Discovering the results as you go is a great feeling. If you want to do so, then don't read any further. But if you don't have time to learn it, then go ahead and see the results, since they are easy to express.
- Putting aside that people's exact estimates of variances and covariances of stocks may differ, in theory, there are risky portfolios that no rational investor should hold REGARDLESS OF THEIR DEGREE OF RISK AVERSION...this of course assumes risk aversion up front, but the details are irrelevant to the results of the model. There are certain portfolios that are "efficient" in that no portfolio "dominates" the other. If you expand the model to assume there is a "risk free asset" (usually assumed to be government treasuries...I know...yuck), then everyone will desire to hold the "market portfolio" as a risky asset, paired with some fraction of the risk free asset, depending on risk preference. That's right, the part of your portfolio that has risk, should, in theory, be the same as everyone else's and it should be a microcosm of the entire economy. That means you want to have a little of EVERYTHING, in the value-weighted ratios that they are held in the rest of the economy as a whole. The practical implication here is index fund investing. If you add in some form of EMH, even weak form, then that's just more reason to think that paying for fund managers is a very bad idea. If people find any of this interesting, I could definitely write articles on any of these subjects (they would be more detailed and a lot clearer than this jumbled hodge podge mess of 20 different topics). If you come up with a question you think people would be interested in, and would attract front page viewers, let me know, and I'll tell you if I have enough background with it.

Of course, I cannot give you specific investment advice unless I knew more about your age, income, savings, debt level, personal responsibilities etc, so no one here should take any of this as specific advice. Just a taste of financial economics to get you interested. Random note on math models and austrianism: That's part of why I don't really consider myself "austrian." Mises' form of austrianism is way too bold. To think that math cannot be used at all in economics is too much. To define economics as strictly a priori reasoning would make a dead subject...Not that HA is boring, but I feel his anti-math attitude throws out a lot of useful work that people have done. I appreciate Mises' writing for what it is, but understand its shortcomings.

this is probably one of those tl;dr posts. Darn. For those who read through, good for you.
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« Reply #11 on: December 01, 2011, 12:40:09 AM »

And then to really set off a storm of controversy, I'll add in that I think gold and silver are overrated by the libertarian community.
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Seth King
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« Reply #12 on: December 01, 2011, 12:57:37 AM »

In your position, I really think the best thing you can invest in is yourself. Finish your degree, learn as many skills as you can and when the economy goes belly up there will be two types of people who slug through it, people with plenty of savings, and people who are young and productive. You and me, and most people on this forum are too young to have built up any savings. Fortunately, we're young and intelligent, so we should be able to provide value even in a depression, so long as we're willing to work hard, for ourselves, without permission, and possibly even for less than we're used to.

It's the people that are totally dependent on the state that will be hit the hardest.
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Freya
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« Reply #13 on: December 01, 2011, 08:03:42 AM »

In your position, I really think the best thing you can invest in is yourself. Finish your degree, learn as many skills as you can and when the economy goes belly up there will be two types of people who slug through it, people with plenty of savings, and people who are young and productive. You and me, and most people on this forum are too young to have built up any savings. Fortunately, we're young and intelligent, so we should be able to provide value even in a depression, so long as we're willing to work hard, for ourselves, without permission, and possibly even for less than we're used to.

It's the people that are totally dependent on the state that will be hit the hardest.

I guess without savings theres not much to do but work hard when the system comes crashing down. I'm a programmer so I don't really need much to be productive. A pc and an internet connection go a long way. My only worry is that in a time of crises there may not be very much demand for such skills.


And then to really set off a storm of controversy, I'll add in that I think gold and silver are overrated by the libertarian community.

Do you suggest holding dollars/euros instead? I do agree that gold/silver is overrated, its just a storage means for wealth and isn't really an investment, although they are both used in electronics. I guess owning or holding shares in a business would be the best protection of wealth, as they can create more wealth. But even land and real estate would be better then dollars, but I don't really have any savings to speak of. Think 4 digits at most. Student debt will be almost non-existant if I complete my degree, I only borrowed a bit extra to buy a much needed laptop for my studies. My parents still mostly provide for me at the moment, I'm extremely lucky with that.

But isn't gold/silver by far preferable over having my euros in the bank? Would holding bitcoins be a valid protection against inflation? I don't think you can buy many services here yet with bitcoin.
« Last Edit: December 01, 2011, 08:13:23 AM by EddyK » Logged
rahvin
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« Reply #14 on: December 01, 2011, 10:30:59 AM »

A book that really helped me understand financial markets was Peter Schiff's Little book of bull moves in bear markets.  He even discusses things you should look for in investment firms in order to pick a good one. 

What has the government done to our money by Murray Rothbard (should be found for free online) is also good. 

If you go to Forex.com, they have introduction videos to currency speculation that are interesting.

I definitely recommend the Mises institute, you'll learn tons from them. 

A website called quickmba.com may help with your terminology.  Or, I'm 15 days away from getting my economics degree  Undecided, feel free to ask me  Smiley
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