By John Paul Valdez
In order to understand what a Bitcoin is one has to have some understanding of currencies in general. First, “Bitcoin” is a brand name. There are several decentralized virtual currencies, which is what a Bitcoin is, but this brand has most of the market as it pushed the idea to where it is becoming more of a household name today.
A Bitcoin started out at about $13 dollars per Bitcoin. Today one Bitcoin is about $735 dollars, and was about $1200 dollars at its high in November. This kind of volatility in a currency is not generally welcome. The whole idea of a virtual currency is however highly valued.
A currency is nothing more than a store of value. The paper money we recognize as a $US dollar has no intrinsic value. It is simply a promise to pay. The same is true for Euros or any other currency. You must also consider the exchange rate which becomes more apparent if you travel or send money overseas.
The problem has finally arisen, that people no longer believe that the two major reserve currencies of the world (the $US and the Euro) are fail safe. Within the last year our wonderful congress has threatened not to honor our promise to make good on our currency to the outside world on many occasions and that has brought risk into what was previously defined as a risk free financial instrument in a US Treasury Bond.
When you lend money you lend it according to the risk of getting back the value represented by the loan. This is the risk rate. When the US government used to lend to banks they would do so at a favorable Federal Reserve rate approaching zero. These days a zero rate is no longer even theoretically possible because the congress has threatened nonpayment on a previously risk free currency. You can see the difficulties that arise in not raising the government’s ability to “print money in the basement” as many ignorant politicians try to sell this activity. If you stop printing money, you stop paying and you render your own currency worthless. All governments print money.
Getting back to Bitcoins, they are not subject to governments not paying up. They exist at the will of the holder whoever that may be. As a result they are a world currency, and they escape being tract easily by governments. People are now trading in Bitcoins on the internet and many charities are receiving donations and political campaigns being funded by Bitcoins. Thousands of international companies are now accepting Bitcoins in payment for their goods and services.
The eyes of each country’s government are being swiftly open by this activity, as it is an admission that economic sovereignty is a thing of the past. Only, geographic and political sovereignty remain. At some point it will become evident that we are all in this world together. It is this writer’s opinion that we should embrace such changes before our own financial systems exhibit further self-destruction at the will of small groups of people which in the end endangers all those around the world depending on us not to do so.
Believe it or not the first Bitcoin was launched in 2009. It’s a brave new world.
