May 24, 2011

Currencies rarely ever move more than 3 or 4% in any given month but there is one currency that has skyrocketed. It's a new, digital currency called Bitcoin and it could very well be the future of money.

We first found out about it a few months ago from friend and subscriber, Jeremy Bernal who we met at Doug Casey's La Estancia de Cafayate in Argentina (we told you that some of the world's most interesting people are building homes there and Jeremy is just another example). He told us about this new digital currency which is completely unregulatable, untrackable and as long as the internet exists there is no possible way for any government to shut it down. We told Jeremy he had us at "unregulatable".

Already, the statists and governments are lining up to try to slander the currency. They state the same old tired propaganda, "because it is untrackable it could be used for money laundering by people who sell drugs or weapons".

Well, drugs shouldn't be illegal. The "War on Drugs" is simply just a "War on Freedom". And the biggest seller of weapons in the world is the US Government and the military industrial complex. So, both are ridiculous arguments.

The beautiful thing about Bitcoin is, even if the US Government, the biggest nemesis to freedom on the planet, wanted to shut down Bitcoin, it can't. No one can.

Jeremy is an anarchist (definition: wanting to live free of government control) and a real student of free-market currencies. We asked Jeremy if he would sit down with us for an interview to learn more about Bitcoin and he accommodated us. Here is our interview with Jeremy Bernal on Bitcoin.

The Dollar Vigilante (TDV): Where did you hear of Bitcoin?

Jeremy Bernal (JB): I first heard of it from my friend Marco, a fellow anarchocapitalist. I checked it out that night, downloaded it, and started playing around with it to see how it worked.

TDV: When did you first start using Bitcoin?

JB: Right away. First I tried to generate my own Bitcoins, until I read about the statistics on how they are generated and just how much time and computing power you need to actually get any headway. Since I don't have a dedicated computer sitting around for that, and need my webserver's processing power for webserving, I decided to see if I could get some by selling my site subscriptions in Bitcoins. I was successful, and I began accepting them when they were about USD$0.70 (editor's note: they are now around $7).

TDV: What are your thoughts on Bitcoin?

JB: I think it's the next big thing, honestly. It takes all the good things about currency, and removes just about all the bad things. Most importantly it makes irrelevant the concept of banks, regulation, and government involvement. A Bitcoin "bank" which could facilitate online transactions instantly by ways of an escrow would help push its use along greatly, but I can understand why it hasn't been done yet (or why I haven't done it yet) especially considering what recently happened to Bernard VonNothaus (Liberty Dollar), egold, ePassporte and the long list of other roadkill. Also, one of the most important aspects of it is that since it has no central base of operations or operators, it cannot be stopped.

TDV: Do you understand most of the technology? If so, can you explain in civilian language a bit about how it works?

JB: The website or wikipedia page could probably do it more justice than I can, but basically it's an open-source, decentralized distributed-computing platform that generates currency based on coded blocks of data. There is no bank, there is no server. You run the program and it seeks out other running programs to communicate with and "sync the economy". Each operating copy of bitcoin seeks out the most complete set of data, so as long as there is one computer running it somewhere in the world, it will contain a copy of the entire history of creation of data blocks. The information is as redundant as the user base is large, and is virtually indestructible.

To actually "mint" a set of Bitcoins, computers have to toss math problems back and forth while encrypting the next blocks of data. It takes a while to do so. As in several weeks to a month or more. The maximum amount of bitcoins is capped at 21 million, and once it reaches that point there will be no more created. We're almost 1/3 of the way there. They can be divided to 8 decimal places to make up for price deflation. Lost ones will be lost forever. Make backups!

Transactions are all anonymous (your account numbers can be issued by you, per-transaction, so you can change them on a whim), but also peer-verified, meaning that the transaction is processed by the entire pool of users. This means nobody can get away with double-spending currency units or counterfeiting. Everyone's software is watching the entire data pool. It's very clever how they set it up.

TDV: Bitcoin has been increasing in value at "bubble" like speed, what is your thoughts on this?

JB: It deserves every bit of value it earns, in my opinion. It took a long time to ramp up; apparently it's been around since 2009 but I hadn't heard of it until late 2010. Surprising since I have always been a supporter of alternative currencies. I've often dreamed of creating an electronic currency like Bitcoin but could never figure out a way to do it without dangerous exposure to being screwed by the dictatorial government. The Bitcoin crew has finally figured it out, I think.

If you look at numbers, there are almost 6.3 million bitcoins in existence. Just looking at MtGox's exchange data, today's bitcoin trading volume was over 100,000. The 30-day is over a million bitcoins, totalling 4 million USD. Also, just this last month, it has gone from about USD$0.75 to nearly USD$8.00. What really set it off, I believe, was an article that appeared in Newsweek in late April or early May.

Bitcoin 1 Month Chart

Since then it's been an increase of media coverage. I am guessing the "silent majority" wants in on bitcoin.

There is a huge amount of bitcoins being held onto, with sellers camping out on ask prices as high as $18. There is some stuff moving around at lower levels but for the most part, the sellers have the power at the moment. If you look at the charts right now, I can't see much downside even getting in at $6 or so. I just bought more at $6, I am hoping it will go up to $12 but I'm hanging on for the long haul.

Gresham's law is driving me and I assume many of the others. I've already made 11x on my entry investment so even a big correction won't feel so bad at this point :)

I had to change my monthly subscription price on my website from 15 bitcoins down to 3, and I will have to lower it again if things keep going the way they are. There are other trading channels as well (http://bitcoincharts.com/markets/) but MtGox is the biggest.

TDV: Do you think bitcoin will become a widely used currency?

JB: Yes and no. If it becomes more widely used it will drop in value (higher velocity). Right now it is getting stronger because it has fewer outlets than inlets (basically the same drivers of recessionary deflation). Once a major player like Ebay or Amazon starts facilitating payments in Bitcoin, I think there will be a big crash in its USD value. I want my Bitcoins to keep shooting through the roof but I also want more ways to use them and I want to see it kick the ass of government-issued toilet paper.

Too bad PayPal has already screwed up on Bitcoin by freezing the Paypal accounts of two online Bitcoin dealers; they could be making lots of money being the middleman in that $4+ million monthly trading volume. They aimed to shoot bitcoin down but all I see is a smoking hole in PayPal's own foot. Whoever is running MtGox is making a pretty decent profit even on the tiny transaction fee they charge.

TDV: Thanks very much for taking the time Jeremy.

JB: My pleasure.

Bitcoin is exciting for a multitude of reasons and just goes to show what the free market can and will come up with if governments did not have a monopoly over the money system.

It's repercussions for other "alternative", non-fiat monies like gold are yet to be seen. But we highly doubt that after thousands of years of humanity using precious metals to store wealth that a new, digital currency will upend the precious metals any time in the near future. Instead, the most optimistic scenario in terms of world peace and prosperity would be to see the fiat government currencies quickly gravitate to their intrinsic value (zero) and have free market currencies like Bitcoin and precious metals become widely accepted.

The Dollar Vigilante has proudly begun to accept Bitcoin as payment forsubscriptions.

We will be following it's evolution with great interest.