Gold vs. Dollar vs. BitCoin Revisited - InflationData.com

Why Bitcoin and all crypto-currencies will continue to plummet

When Bitcoin first started to gain some traction, what were the selling points? The first was that it was useful; the block-chain technology offered a currency that was infinitely divisible, decentralized, and open source. Although the Bitcoin nay-sayers have attacked some of these merits, I don’t think this is where the problem lies. Bitcoin and block-chain technology is clearly very innovative and useful.
However, besides being useful, the other crucial selling point of Bitcoin is its scarcity. A currency is utterly worthless if it can be created or counterfeited at will. Bitcoin seemed to easily answer this problem by setting a hard limit on the number of possible Bitcoins to ever exist – 21 million. As these Bitcoins are “mined”, the mining process becomes more difficult and more time consuming, meaning the rate at which new Bitcoin comes into existence slows
asymptotically. Additionally, considering that all Bitcoin is stored digitally, there is an increasing amount of the currency that is stored on hard drives that are either inaccessible or destroyed. In other words, we will reach a point where the amount of usable bitcoin in circulation actually decreases. Then it seems as though Bitcoin has the problem of scarcity solved, right? After all, it can’t be counterfeited and no more than 21 million can ever be created! Well, it depends.
Let’s take a quick detour into simple economics. Let’s say you are looking to buy some peanut butter. You find the peanut butter aisle and see a couple of different brands. You see a jar of Skippy peanut butter priced at $4 and an equally sized jar of Jif for $5. In your mind, peanut butter is peanut butter, so you go with the less expensive Skippy brand. In this case, Skippy and Jif are considered substitutes. Furthermore, in your mind, they are perfect substitutes, meaning you will always choose the cheaper one regardless of how much cheaper it is. But what if everyone considered Skippy and Jiff to be perfect substitutes? Well, it should be pretty obvious that in this case, Skippy peanut butter would be flying off the shelves and not a single jar of Jif would be sold (assuming sufficient Skippy brand was in stock, of course). How would the manufacturers respond to this situation? Well, if Skippy was smart, they would raise the price until the price was only one penny less than that of Jif. They would still ensure that only Skippy brand butter was bought, and they would maximize their profit per jar sold. But Jif, being equally smart, would try to adopt the same strategy and always attempt to beat the price of Skippy by a penny. This perfectly competitive behavior would ultimately result in each firm producing and selling peanut butter at the same price- competitive equilibrium. The important lesson is that perfect substitutes will have identical prices, and any change in one price would mean an identical change in the other.
So how does this knowledge of substitutes and perfect substitutes apply to crypto-currency? It should be fairly obvious by now that I mean to show that Bitcoin has near-perfect substitutes. Of course, Bitcoin, Bitcoin Cash, Ethereum, and Litecoin are not identical. There are differences in fees, payment processing times, and infrastructure among these most popular currencies. In fact, even the prices of each coin are staggeringly different. How then, can I argue that these coins are perfect substitutes, or even substitutes at all?
First, we must acknowledge the fact that the vast majority of crypto-currency investors are very poorly informed when it comes to the technical aspects of any given coin. The vast majority of investors also do not even intend to use their crypto-currencies as currency, but instead are holding these currencies as a speculative venture. In other words, the difficult-to-understand technical differences between these coins don’t even exist for the majority of investors.
But if these coins are perfect substitutes in the eyes of investors, why are the prices so drastically different? Didn’t I just explain that perfect substitutes have identical prices? Well, in one sense, the prices are very different. The price of bitcoin is close to $4000 and Ethereum is hovering around $35. This would seem to indicate that Ethereum and Bitcoin are very different. But we have to remember that we are talking about digital, infinitely divisible, scale-independent items. These aren’t like jars of peanut butter. The important thing is that any movements made in the price of Bitcoin are mirrored, to scale, in the price of Ethereum, Bitcoin cash, and Litecoin among other coins. This can be seen at almost any time in the Coinbase App, where the price history charts for any established coin appear to move identically 95% of the time. This symmetry in price indicates that the vast majority of crypto investors view these coins as nearly identical, perfect substitutes.
So what’s the big deal? What’s wrong with having substitutes? Well, having perfect substitutes for Bitcoin defeats, entirely, the purpose of artificial scarcity. There may only be 21 million Bitcoins that can ever exist, but there is absolutely no bound on the number of identical crypto-coins that can exist. Saying Bitcoin is valuable because it is scarce is like saying Skippy peanut butter is extraordinarily valuable because the company will only ever make 21 million jars, even though a different company with the identical recipe continues production. Skippy peanut butter really isn’t scarce, and neither is Bitcoin.
New crypto-currencies pop up like daisies because there is an ability to make an immense profit from an ICO. But where does that money come from? In almost all certainty, this money is largely coming from money invested in other coins. In other words, it is money that is being moved from one coin to another as opposed to brand new investment. This is important. The amount of money being invested into crypto currencies exploded during Bitcoin’s rise to $20,000, but has since tapered off. At this point, especially when the prices of all crypto-currencies are falling, new investment is extremely hard to come by. Every day, there is less money and more coins (perfect substitutes) to invest it in. This means the prices of all coins will continue to fall, barring some extraordinary increase to crypto investment. But even with an increase to crypto investment, new coins will continue to be created, and speculative investment will continue to be split further and further.
There is no reason to think this trend will change. This will continue until nearly all speculative investment in crypto currency is withdrawn or lost. After the dust settles, this will ultimately result in coins with different prices (much lower than current values) according to infrastructure and usefulness. All coins that have no real infrastructure or use as a currency will reach $0, and all crypto investment will be focused on a few, easily purchasable, easily usable coins.
But we still have a long way to fall. The fact that the prices of the most popular crypto-currencies essentially mirror one another despite important technical differences between each coin indicates that the vast majority of remaining crypto investment is speculative as opposed to real investment. The bubble is still popping.
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Bitcoin, A Mine of Internet Gold

I had a class this semester called Impact of Technology. It's part of my core courses for civil engineering. Basically the course covers topics related to the advancements of technology and the repercussions due to that. One of the requirements was to write a paper illustrating a criteria or list of reasons why you are adopting a new technology. I chose Bitcoin obviously! The professor for this course is a dinosaur when it comes to any sort of recent technology, especially computers. I think he still uses Windows 98. With this in mind I had to approach the paper with the most simplistic explanation of what Bitcoin is and why I chose to adopt it. Also, one more thing to be mindful of, this paper was written in late March during the Cyprus fiasco and before the big bubble popped. Hopefully this can help some newbies understand Bitcoin better and give them an incentive to join. Here is the paper:
Bitcoin, A Mine of Internet Gold
Try to imagine a global currency that is not controlled by a central authority like governments or banks. Some people might find that hard to conceptualize. You may be asking yourself, "how can the whole world population use one currency?" That question has many answers. One of them is; through the use of internet technology and advanced programming algorithms. Bitcoin aims to use a combination of internet peer-to-peer (P2P) technology and an extremely secure algorithm that is metaphorically a mine of internet gold. "Bitcoin uses peer-to-peer technology to operate with no central authority; managing transactions and issuing Bitcoins are carried out collectively by the network. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems."[1] This means that one can use Bitcoins to send money to anybody in the world almost instantly. There will be no more waiting for bank transfers and excessive bank wire fees. Bitcoin is like virtual cash money of the internet and you can use it to buy anything while remaining anonymous just as you would with cash. "Bitcoin is a currency, a protocol, and a software that enables instant peer to peer transactions, worldwide payments, low or zero processing fees ,and much more!"[1] I have already bought some Bitcoins and the following criteria will explain why.
But before I tell you why, you need to understand what Bitcoins are on a basic level and I feel the best way to explain that is to think of Bitcoin as internet gold. Bitcoin is essentially a computer algorithm that acts as a mine. This mine is a collection of encrypted computer code with addresses that point to areas with internet gold or none. In order to get the gold out of a mine miners are needed to dig away and sift through the rubble. For Bitcoin, miners are also needed but instead of digging and sifting through rubble they use computers to hash away through complicated mathematical equations in order to decrypt the internet gold mine and obtain Bitcoins in return. Once Bitcoins are discovered the entity that discovered them can claim them and either use them to buy something or sell to somebody who wants Bitcoins. The people that make up the Bitcoin network are free to trade Bitcoin amongst one another for services or goods. Like gold the quantity of Bitcoin is finite. There will never be more than 21 million Bitcoins ever mined due to the protocol limitations.
This leads me to the first point in my criteria for why I'm buying Bitcoin, scarcity. Currently approximately 10.957 million Bitcoins are in circulation. Bitcoin's algorithm makes it harder to find them as more are discovered. In other words it becomes more and more difficult to find some and miners require more effort in order to carry out the mathematical equations required to earn coins. In 2025 90% of all Bitcoins will be mined and 100% of all Bitcoins will be in circulation by 2140.[2] The algorithm determines the monetary inflation path ahead of time and is determined by unchangeable mathematics. Bitcoins that are lost to misfortune, like forgotten passwords, failed hard drives with no backup, etc, are lost forever and extremely improbable to recover. This also means there cannot ever be counterfeit coins. Thus, Bitcoin is the world's first, truly monetarily deflating currency.
That brings me to the next criteria which is Bitcoins divisibility. Each Bitcoin is divisible to 100 million base units called "Satoshi". That gives us a total of 2.1 quadrillion monetary units which is a sufficient supply to support a global economy. As Bitcoins become more scarce through attrition it is possible to mathematically "split" Bitcoins to increase the monetary base without creation inflation, it's very similar to splitting a stock. This way as the value of the Bitcoin increases people can still trade it using smaller monetary units so it is convenient.
A requirement of money is that they be durable. Good monetary units are not perishable like produce. Bitcoins are extremely durable because the algorithm keeps an accounting ledger of all transactions ever made over the network and cryptographic keys (that give everyone the ability to spend their Bitcoins) are distributed to hundreds of thousands of servers, networks, computers, and users around the world.
Money should also be portable and Bitcoins are highly portable in a variety of ways. You can access your Bitcoins over an internet connection, in paper wallets, physical coins and a concept called "Brain Wallets". If you have your cryptographic key and password memorized in your head then you can travel around the world and recovespend those Bitcoins from any computer where you feel safe. The best part is that the amount of money you can travel with is unlimited.
To add to the criteria Bitcoin is 100% transparent because it is a peer-to-peer network. There are no secrets inside the software or how it works. Everything is entirely auditable and verifiable because the protocol is 100% open source and can be viewed by anybody. This gives me great trust in the system because they are not trying to hold anything privately like banks or governments do.
Another reason I have Bitcoins is because they are anonymous to a certain degree. Bitcoin accounts are simply cryptographic keys that can be created at will and have no requirement to be registered with any entity. You can create a Bitcoin "account", spend money to it, and never have to reveal the who the owner of those keys are. This makes it very similar to cash money.
Further adding to the criteria is that Bitcoin is extensible. The Bitcoins protocol is highly extensible and it harnesses limitless capabilities and innovations that can be added. Some examples of these are auto executing contracts, escrow services, inheritances, etc... This means that as Bitcoin progresses and more uses become desired for it, extensions to the protocol can be added whenever.
Most importantly comes the attribute of value and Bitcoin has accumulated a significant amount of it since 2009 when it first started. In the early stages of Bitcoins it was quite easy to discover coins and the concept was not yet widespread so the value was as low as 0.05$ a coin. Yet over the years as scarcity and public awareness increased the Bitcoin has climbed to approximately 80$ a coin at the time of this writing. With the price increasing towards a market capitalization of almost 1billion dollars Bitcoin is becoming more mainstream.
People are turning to Bitcoin because of currency instability and losing trust in their banks. A good example of this can be seen in the Euro economic crisis currently unveiling; many Europeans are losing faith in their banking system and are turning to alternate currencies controlled by themselves. This is but one of the reasons why the value has grown so much. I find it best to look at the key similarities that Bitcoin has with precious metals that give them their ultimate value:
That being said I will keep buying more Bitcoins due to the above mentioned criteria consisting of the important attributes that I believe will make Bitcoin the very first mainstream online global currency technology. It's scarcity gives it the characteristic of being finite in quantity so only 21 million coins will ever be in circulation. It's attribute of almost infinite divisibility gives it the ability to still be usable as the value of the Bitcoin rises. They are extremely durable, impossible to counterfeit and easily portable to anywhere in the world. It is anonymous just like cash money so you can spend your money freely. The protocol is 100% open source so you know that the developers are not hiding anything from users. The most important reason why I'm investing in this currency is because of the potential store of value. I believe that Bitcoins are the currency of the future and that one day a significant amount of global trade will be paid for in Bitcoin. I've already quadrupled my initial investment and I'm confident that it will continue to grow.
References: [1] Bitcoin, Project. "Bitcoin." Bitcoin Foundation. Bitcoin Organization, n.d. Web. 27 Mar 2013. http://bitcoin.org/en/. [2] Bitcoin Charts. "Bitcoincharts" Bitcoincharts. Bitcoincharts Organization, n.d. Web. 27 Mar 2013. http://bitcoincharts.com. [3] Global, Macro. "Bitcoin Bubble or New Virtual Currency."macrobusiness. 25 Mar 2013: Web. 27 Mar. 2013. .
If you found this helpful in anyway and you`re feeling generous please donate
BTC: 1Gh8aNT1kwriQ5hP2RqVKBYEoehzQMLFJ9
LTC: LVhtbRzBaWJxSSx7AvbCHVVnobndtpxy73
XRP: r4CUaRNYak7XLjr9Z4Ds55v4JpZjhkQWKo
Also, if you're bored, check out a project my friend and I have been working on - negocoin
For those interested in the grade I got on the paper: I got an A (lost marks for various punctuation mistakes and some grammar. Hey, I'm in engineering not English!)
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Here’s why you really should own at least some bitcoin By Dominic FrisbyToday we consider bitcoin.I found myself writing the following phrase to begin this morning’s missive.“Bitcoin has been stuck in the $8,000-$12,000 range since In bitcoin miner gerät 83 gh s Zeit hört man immer mehr über die Internet-Währung Bitcoins und dass man damit auch Bitcoin ag schweiz verdienen bitcoin 21 millionen infaltion, bitcoin chart euro 2019 allem wenn man sie wie beim Forex-Handel aufkauft und als Wertaufbewahrungsmittel einsetzt. Steigt der Kurs entsprechend an, kann man seine Bitcoins wieder gewinnbringend verkaufen. Doch was ... A bar of gold. A disk of iron. A chain of beads. A card of plastic. A slip of cotton-linen paper. These things are worthless. One cannot eat them, or drink them, or use them as a blanket. But they are valuable, too. Their value comes from the simplest thing. People believe they are money, and so they are. If every cur Dollars are easily divisible down to the penny level. Bitcoins are almost infinitely divisible down to 1/100,000,000th of a bitcoin which incidentally is called a “satoshi”. Gold is divisible by ounces and grams. During goldrush days panning for gold resulted in gold being found from small flakes to large nuggets, so change was made using a ... Something that is not easily divisible, such as a piece of gold, makes for a poor currency. Cryptocurrencies like bitcoin are no different. In most use cases, fiat currencies can be split down to two decimal points, such as $0.01. Anything below that is usually rounded up or down. The reason for this is because fiat currencies need to be able to exist in physical form. For instance, if you ...

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Bitcoin Price Will Close 3rd Best Month Ever if $10K Holds Until March

Close. This video is unavailable. Bitcoin has quite an impressive history of crashes within its 9 years of existence. In the last year a lot of new people and investors came in our market unaware about the volatility of Bitcoin. I ... The Bitcoin ( BTC ) versus gold debate rages on this week as reports reveal fake bars fuelled a $2.8 billion corruption scheme. As Chinese media outlet Caixin reported on June 29 via Nikkei , a ... Thus, bitcoin can be viewed as infinitely divisible. "On the level of assets, we no longer have a simple “one chain, one asset” maxim; individual chains may support arbitrarily many assets ... bitcoin hack http://tinyurl.com/lmkuhcs bitcoin hack Bitcoin is money based on mathematics. Bitcoin’s mathematical design is open and transparent. Anyone in ...

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