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Author Topic: Gold collapsing. Bitcoin UP.  (Read 2009011 times)
cypherdoc
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February 04, 2015, 02:12:12 AM
 #20981

The key central bank invention was to transition money to a ledger account, which enabled instant transfers between accounts regardless of geographical location. Essentially fiat money could move as fast as information, this is light-years ahead of gold.

One has nothing to do with the other. You can use a ledger that's backed by units of gold, or a ledger that's backed by nothing and can be inflated on a whim. Sure you have to do audits to make sure a gold ledger isn't being inflated, but it can be done.

but from a practical standpoint, it's never been done.

just look at the largest supposed holder of gold; the Fed.  totally opaque.
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February 04, 2015, 03:49:46 AM
 #20982

Sure you have to do audits to make sure a gold ledger isn't being inflated, but it can be done.

No it can't.  That model has failed every single time it has been tried.  The dollar was once backed by gold.  That peg failed.  Egold was once backed by gold.  That also failed.  If you look through history, there are countless other failures of gold-backed currencies.  The reason:  a central point of failure.  Bitcoin is the only reasonable solution.  To attempt another centralized gold backed currency would be insane.


Counterfeit:  made in imitation of something else with intent to deceive:  merriam-webster
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February 04, 2015, 04:46:03 AM
 #20983

Sure you have to do audits to make sure a gold ledger isn't being inflated, but it can be done.

No it can't.  That model has failed every single time it has been tried.  The dollar was once backed by gold.  That peg failed.  Egold was once backed by gold.  That also failed.  If you look through history, there are countless other failures of gold-backed currencies.  The reason:  a central point of failure.  Bitcoin is the only reasonable solution.  To attempt another centralized gold backed currency would be insane.



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February 04, 2015, 04:53:57 AM
 #20984

The key central bank invention was to transition money to a ledger account, which enabled instant transfers between accounts regardless of geographical location. Essentially fiat money could move as fast as information, this is light-years ahead of gold.

One has nothing to do with the other. You can use a ledger that's backed by units of gold, or a ledger that's backed by nothing and can be inflated on a whim. Sure you have to do audits to make sure a gold ledger isn't being inflated, but it can be done.

I can see why you could think gold back paper is the same as fiat money, but here is why I think that is incorrect.

In a gold backed paper system, gold is the reserve base asset. Yes entities can issue paper or a ledger backed by gold but: 1) you have to trust those entities to be honest (and history has shown that many over leveraged and failed) and 2) you can only use paper or ledger transfer within that single issuer's system.

For example, if two people used the same regional bank that issued a gold backed ledger, they could transfer paper gold between each other using similar transfer mechanisms as fiat. However if those two people used different regional banks that issued separate gold backed ledgers, transfers between them would require the banks to physically transfer gold between them (or they probably would not transact directly and require a gold withdraw from one and gold deposit to the other). Similarly if two nations issued gold backed currencies, trade between them would finally have to be settled in gold. BTW, this is how the US slowly acquired it's gold horde in the 1800s starting from nothing, it traded services and slowly acquired physical metal, this happened despite most countries having paper currencies for end-user convenience.

For example when France and Spain traded, even if both countries issued paper currencies backed by gold, they would settle in physical gold eventually.

The key is gold is still the backing asset, and transfers between issuers of gold backed paper would still have to settle in physical metal. (This is where the phrase "cold hard cash" comes from, paper is neither cold nor hard.) Additionally if a backer issued more promises then held gold, that backer would eventually go bust because it would require a bailout by mother nature to magically issue more gold.

In a fiat system, a fiat currency or debt is the reserve base asset. This reserve asset exists as a man-made ledger item only (just like Bitcoin BTW). In today's global US dollar system, US debt functions as the reserve base asset.

Here transfers between different regional banks or even different countries is done 100% in a ledger form. Since US debt is the backing asset, and US debt exists in ledger form with the US treasury, transfers can be done between any two entities by the US Treasury, nothing physical needs to move.

For the same example, today when France and Spain trade, they settle in transfers of US debt, which are ledger transfers on at the US Treasury listing only.

The two systems may look the same from an end-user perspective (us plebs), but the mechanisms, trust and guarantees of the two systems are vastly different.
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February 04, 2015, 06:22:02 AM
 #20985

The key central bank invention was to transition money to a ledger account, which enabled instant transfers between accounts regardless of geographical location. Essentially fiat money could move as fast as information, this is light-years ahead of gold.

One has nothing to do with the other. You can use a ledger that's backed by units of gold, or a ledger that's backed by nothing and can be inflated on a whim. Sure you have to do audits to make sure a gold ledger isn't being inflated, but it can be done.

but from a practical standpoint, it's never been done.

just look at the largest supposed holder of gold; the Fed.  totally opaque.

Fully agree. Though to be fair, my understanding is backing did work somewhat OK in the US in the 1800s when banking was very fragmented.

My understanding is back then banking in the US was very fragmented, especially compared to Europe. Banks were largely small and regional and many issued their own paper notes backed by gold. The US also did not have a central bank to bailout banks or downturns.

The result was no bank was so large that it's failure mattered to anyone except their depositors/investors, to big to fail was not a concept yet. This also meant that if banks levered themselves slightly (meaning more notes than backing assets), they were exposed to a deposit run. To protect against this banks mostly kept leverage well below 2x. Yes, there was the occasional run and bank failure, but it would happen on an individual bank basis, and was not system wide.

Depositors (i.e. the market) were responsible to ensure bank honesty and most banks remained honest out of self preservation interest. If a bank acted even slightly irresponsibly (or was rumored to), it wouldn't take long for a depositor queue to form to drain reserves.

The key was the system was decentralized and fragmented, and so could withstand individual failures. This system worked for a time, and it was the most rapid growth in US history and when the US surpassed England as the largest economy.

When I've read the reasons behind why those who created the FED did so, they wanted to strengthen the system against two things. 1) They wanted protect depositors against failures and 2) they wanted to enable the government to have the ability to fund itself through downturns (previously during a regular recessions, the US government would need to turn to the JP Morgan's of the country for funding, they wanted to stop this).  

The problem is they didn't understand two things: 1) they eliminated market pressures from the system by making depositors not responsible for their loses and 2) they eliminated the decentralized nature of the system by structuring everything under one dominant entity (the FED).

Then in the 1920s two things then happened: 1) Leverage exploded in the banking system because banks lost their market pressure to be honest and 2) the FED issued many more dollars than they held in gold reserves. By the 1930s when this leverage process started to reverse, the FED found itself bankrupt with no ability to pay their obligations (they openly admitted this), additionally the FED had become a centralized To Big To Fail entity that everyone relied on. Since the FED was both bankrupt and To Big To Fail at the same time, the US fully defaulted and FDR banned gold ownership to keep everyone in the banking system.

What is heartbreaking to read in this history, is instead of learning from their mistakes and return to a decentralized and market based system that worked, FDR doubled down and created regulations in the place of market forces and banned individual ownership of money, and he was cheered for it. This is the moment America choose security over freedom and when the experiment failed IMHO.

The point to this long winded post is paper backed gold can (and did) work, it's just that it requires a decentralized system that can withstand individual failures and uses market forces to keep honesty. Sound familiar?
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February 04, 2015, 06:41:02 AM
 #20986

...
Yes Bitcoin provides a superior SoV function, but it has a superior Payment-Function to fiat and that is what will slowly win over individuals. Essentially Bitcoin provides all the benefits of fiat ledger money with the benefits of direct control/interaction (no middlemen), this combined with personal computing creates a vastly superior Payment-Function, which is what will drive adoption.
...


Bitcoin has a superior payment function *right now*. In theory, there's nothing preventing a cheap, global, fiat payment system except rent-seeking and politics. Granted those are strong forces, but in the face of enough competitive pressure from Bitcoin, the legacy system will be spurred to improve. That may already be happening as a direct result of Bitcoin, if you read between the lines of the Fed's recent payment-system-improvement paper.

So I think we need to expect that the legacy payment system is going to get a lot better quickly. Bitcoin will still have many broader payment-sys advantages (eg, no international friction, immunity to capital controls, etc), but the day-to-day "save 3% on CCs", or "don't wait 3 days for an EFT" arguments are going to be moot at some point in the not too distant future. Best to be conscious of that now in order to focus efforts where BTC has the longrun advantage.

Bitcoin is the first monetary system to credibly offer perfect information to all economic participants.
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grendel25
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February 04, 2015, 06:48:05 AM
 #20987

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will


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hdbuck
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February 04, 2015, 07:54:59 AM
 #20988

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will

you could gain what? 100%?
sidhujag
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February 04, 2015, 01:52:45 PM
 #20989

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will
dont be so sure

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tabnloz
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February 04, 2015, 02:11:25 PM
 #20990

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will

http://www.zerohedge.com/news/2015-02-03/another-conspiracy-theory-becomes-fact-entire-oil-collapse-all-about-crushing-russia
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February 04, 2015, 02:17:43 PM
 #20991

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will

http://www.zerohedge.com/news/2015-02-03/another-conspiracy-theory-becomes-fact-entire-oil-collapse-all-about-crushing-russia

hmm i was more into the theory about saudi arabia (or even russia?!) crushing oil to fuck with USA and their shale gas investments.
tabnloz
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February 04, 2015, 02:25:07 PM
 #20992

global economies trending up so oil and gold trend down.  I wish I had a Million dollars to buy oil right now... could be so rich when the price goes back up and we all know it will

http://www.zerohedge.com/news/2015-02-03/another-conspiracy-theory-becomes-fact-entire-oil-collapse-all-about-crushing-russia

hmm i was more into the theory about saudi arabia (or even russia?!) crushing oil to fuck with USA and their shale gas investments.

Who knows, geopolitics is like a real life Inception!
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February 04, 2015, 05:42:43 PM
 #20993

What is heartbreaking to read in this history, is instead of learning from their mistakes and return to a decentralized and market based system that worked, FDR doubled down and created regulations in the place of market forces and banned individual ownership of money, and he was cheered for it. This is the moment America choose security over freedom and when the experiment failed IMHO.

"If a problem seems intractable, enlarge it"

This is a commonplace government solution method, and it is often how we get bigger governments.

The point to this long winded post is paper backed gold can (and did) work, it's just that it requires a decentralized system that can withstand individual failures and uses market forces to keep honesty. Sound familiar?

More recently, the Liberty Dollar.  A gold and silver backed ledger using warehouse receipts, audited monthly.  All the audits were perfect and showed zero leverage.  The US federal government could not believe that someone would actually do this (because they don't) and so accused it of fraud and counterfeiting and conspiracy.  As it turned out there wasn't any fraud, and after fighting the case for the last 6 years, the government is finally returning the gold and silver.

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February 04, 2015, 07:06:40 PM
 #20994

https://twitter.com/napoleon/status/563046879295197184
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February 04, 2015, 07:13:46 PM
 #20995

cryptocurrencies are pump&dumps, but bitcoin is the worst because it is making the biggest damage compared to their little peers Smiley
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February 04, 2015, 07:14:50 PM
 #20996


Bitcoin rules them all. No point in dogecoin or litecoin smh
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February 04, 2015, 07:26:22 PM
 #20997

cryptocurrencies are pump&dumps, but bitcoin is the worst because it is making the biggest damage compared to their little peers Smiley

Bitcoin is already changing everything.  look at the fiat currency mkts.  shambles.
rocks
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February 04, 2015, 07:34:58 PM
 #20998

...
Yes Bitcoin provides a superior SoV function, but it has a superior Payment-Function to fiat and that is what will slowly win over individuals. Essentially Bitcoin provides all the benefits of fiat ledger money with the benefits of direct control/interaction (no middlemen), this combined with personal computing creates a vastly superior Payment-Function, which is what will drive adoption.
...

Bitcoin has a superior payment function *right now*. In theory, there's nothing preventing a cheap, global, fiat payment system except rent-seeking and politics. Granted those are strong forces, but in the face of enough competitive pressure from Bitcoin, the legacy system will be spurred to improve. That may already be happening as a direct result of Bitcoin, if you read between the lines of the Fed's recent payment-system-improvement paper.

So I think we need to expect that the legacy payment system is going to get a lot better quickly. Bitcoin will still have many broader payment-sys advantages (eg, no international friction, immunity to capital controls, etc), but the day-to-day "save 3% on CCs", or "don't wait 3 days for an EFT" arguments are going to be moot at some point in the not too distant future. Best to be conscious of that now in order to focus efforts where BTC has the longrun advantage.

Good points, fully agree.

The challenge for the FED though is even if they fully see Bitcoin for the threat it is and take an "all hands on deck" approach to completely revamp the current dollar system to better compete with Bitcoin, what will hinder them are the mountains of regulations they and their banking partners have created (ironically to entrench their position).

Sure the FED could create a Bitcoin style direct access for the dollar, but will anybody be able to directly access it? Or will the next changetip be required to go through mountains of regulatory approval requiring millions in startup funding that does not go directly to product development?

The other challenge for the FED is cross boarder transactions, which are critical in our multi-national world today. The FED can only create a US centric dollar, while Bitcoin is global. Humanity wants a single unit of money. The FED can only address this by assuming the dollar is the global unit of account, which it is today but many countries want off.

What Bitcoin has going for it is that it is censorship resistant and governments know they cannot control it. If it was in any possible to control Bitcoin the US government would have already shut it down the same as other attempts such as the Liberty Dollar.

Your point though is Bitcoin will start to see real competition, which is a good thing. That competition is why I think Bitcoin needs the ability to improve functionality over time through market based approaches (not centralized developers). This is why I think some form of SCs could be useful (if properly/carefully implemented, not Blockstream's approach), a good version of SCs could enable Bitcoin to extend it's functionality in a market based fashion, and compete with an aggressive FED. I've come around somewhat to Adrian's and cypherdoc's view though that the current Blockstream approach is at best not fully understood and more likely a threat to bitcoin.
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February 04, 2015, 07:41:30 PM
 #20999

What is heartbreaking to read in this history, is instead of learning from their mistakes and return to a decentralized and market based system that worked, FDR doubled down and created regulations in the place of market forces and banned individual ownership of money, and he was cheered for it. This is the moment America choose security over freedom and when the experiment failed IMHO.

"If a problem seems intractable, enlarge it"

This is a commonplace government solution method, and it is often how we get bigger governments.

The point to this long winded post is paper backed gold can (and did) work, it's just that it requires a decentralized system that can withstand individual failures and uses market forces to keep honesty. Sound familiar?

More recently, the Liberty Dollar.  A gold and silver backed ledger using warehouse receipts, audited monthly.  All the audits were perfect and showed zero leverage.  The US federal government could not believe that someone would actually do this (because they don't) and so accused it of fraud and counterfeiting and conspiracy.  As it turned out there wasn't any fraud, and after fighting the case for the last 6 years, the government is finally returning the gold and silver.

Isn't there a saying along the lines of to a thief everyone looks like a criminal?

Haven't followed the Liberty Dollar case closely. Were they convicted of anything? If not, are the courts going to let them operate again, or return their property but still ban them from operating "just because"?

"If a problem seems intractable, enlarge it"

It was also the approach used in 2008 to a debt problem, create 100% more debt to fix it despite the fact the private market clearly wanted no more.
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February 04, 2015, 08:00:11 PM
 #21000

Finex bouncing
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