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Bitcoin, Sovereigns and the End Times

Peter Reville |

From currency analyst Christopher Vecchio, the quote of the day: “Personally it wouldn’t be my preferred vehicle to trade money because it’s unregulated. But people are deeming it legitimate even though it’s not backed by a sovereign. That could be the attraction behind it. There’s no sovereign credit risk to bitcoins.”

Unpack that: a digital scrip with nothing behind it but the full faith and credit of everybody else using it is preferable to currencies issued by sovereigns.

We’re in uncharted waters.

Several news outlets are reporting that the crisis in Cyprus has significantly increased the trading and value of bitcoins.  The value of a bitcoin has risen by 20 percent in the past week, with a one month gain of 41 percent.  Analysts report that much of this trading is coming from the stressed EU markets.  As consumers see what is taking place in Cyprus, some of them are looking for a safe haven for their money. One Canadian entrepreneur has even claims to be installing a Bitcoin ATM in Cyprus.

I have to admit it.  I have heard of Bitcoin and read a little bit about it, but I haven’t given it a lot of thought until now.  It was created in 2009 be a pseudonymous hacker named Satoshi Nakamoto, ostensibly to pay for goods online with digital currency.  There are about 11 million bitcoins in “circulation” with a market cap of about $1 billion.  Now that is far from the $4 trillion in daily trading of more traditional currencies, but it is growing.

The fact that an increasing number of people are looking for alternatives to national currencies and perhaps, ways to get their money out of the country is interesting.  Also of interest is the trust these folks have in a completely unregulated and mysterious currency.

Perhaps the old saying is true – “desperate times call for desperate measures.”

The surge in Bitcoin and the slump in Cyprus and their perceived link makes me think there are two stories that bear further investigation – alternative currencies and a watchful eye on the Euro crisis.

Topics: Economic Outlook

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9 Comments

  1. Jeff Swierk said on March 29, 2013 at 2:06 pm | Reply

    Great post. I think the Bitcoin should make us also think about the lack of faith in the “system”. Perhaps this saying holds true too- Strange times call for strange ideas.

  2. Bitcoin Domains said on April 4, 2013 at 6:31 pm | Reply

    Great blog entry!

    http://bitcoindomainsforsale.blogspot.com

  3. Alex Delmar said on April 4, 2013 at 6:51 pm | Reply

    Hi Peter-

    Great piece! I appreciate your open mindedness greatly.

    “a digital scrip with nothing behind it but the full faith and credit of everybody else using it is preferable to currencies issued by sovereigns.”

    Bitcoin is backed by one huge, worldwide asset: the internet. The existence of the internet is Bitcoin’s backing. The only way to stop Bitcoin: take down the net. Should the internet stop existing, we’ll have bigger things to worry about besides the demise of Bitcoin.

    Bitcoin is the network, monetized.

    http://peculium.net/2013/03/24/bitcoin-the-network-monetized/

  4. Myster Ious said on April 4, 2013 at 7:41 pm | Reply

    Dear Peter,

    RE: “mysterious bitcoin” – The program is open source, so you’re welcome to look at every line of code. Open source software is the furthest thing from mysterious. American rodeos are mysterious to some Britons. How much time do you need to adjust to a decentralized secure currency?

    RE: “hacker” – Calling the unknown cryptographer/coder a “hacker” is disrespectful. For all we know he could work for mastercard and have a very good reason for not wanting to be known… My personal theory? Bitcoin is a 20% project by a google employee.

  5. nambo said on April 4, 2013 at 7:58 pm | Reply

    replace “hacker” with scientist

  6. ignorant said on April 5, 2013 at 5:34 am | Reply

    Before you write things like it’s not backed by anything but trust, you should consider the following:

    1.) It is backed by the protocol (set of rules which every node must obey.)

    2.) fiat currencies are not backed by anything, it’s just a database.

    Before you get your pen and write about anything please at least read and understand the fundamentals.

    http://bitcoin.org/bitcoin.pdf

  7. Prophet said on April 5, 2013 at 11:47 am | Reply

    Personally, I have zero interest in another mastercard unless it is denominated in bitcoin. It truly is the future of money and now that I understand it I will never go back.

  8. Erik said on April 5, 2013 at 4:09 pm | Reply

    English is not my first language so sorry for any wrongly used terms ;)

    I find the concept of bitcoins rather interesting and think that if (and only if) more and more places, shops will start accepting bitcoins as an accepted means of payment it could actually become a good alternative to current currencies.

    Why wouldn’t Mastercard want to process bitcoin payments instead of Euro/USD payments? There is no ‘real’ difference; commission is commission whether it’s paid for in Euro or Bitcoins!

    What i find rather funny is this quote from your blogpost: “But people are deeming it legitimate even though it’s not backed by a sovereign.”. In the past, those so-called ‘sovereigns’ haven’t always been very reliable. Owning little over €100,000.- in Cyprus was never thought of as stupid, however, if you did, it’s now blocked and you cannot touch it.

    Also, virtually every currency has known periods of immense inflation. However, gold, for example has proven to have a very stable value and it has some striking similarities with bitcoins.
    - There’s a limited amount of it available
    - There’s no ‘sovereign’
    - It has it’s value only because owners deem it valuable.

    Your blogpost is very interesting to read and i like reading professionals’ view on bitcoins!

  9. Joe Cascio said on April 7, 2013 at 9:42 am | Reply

    Re: “the trust these folks have in a completely unregulated and mysterious currency”

    One of my favorite bitcoin mottoes is, “In Mathematics We Trust”. Bitcoin users know they can trust the math behind the currency. If you can read, it’s not mysterious. It can’t be changed or subverted for political or corporate gain. Math is not subject to persuasion, coercion, bribery, extortion, greed or corruption, i.e., all the hallmarks of of today’s political/financial oligarchy. That is what “these folks” find so reassuring about it.