Bitcoin Versus Gold By James Cox

Posted 21 Feb 2013

Editor's Note: James Cox has written three good articles for GoldMoney. For some reason they rejected this well written and balanced article not on its merits but because it is too sensitive.

Here are RunToGold the things we are most sensitive about are (1) our net worths in terms of gold ounces and (2) our freedom of speech; not whether seashells, metallic atoms or organized cryptographic hash are the best forms of money or currency.

Since gold has collapsed relative to Bitcoin for four consecutive years therefore we feel it not only important to discuss this new crypto-currency but vital to the financial safety and sensitivity of our readers. Bitcoin will not be ignored; the balance sheet demands it be paid attention to. Enjoy!

Bitcoin Versus Gold By James Cox

If you are reading this article you are almost certainly familiar with the fact that the life expectancy of any fiat currency is 27 years.

Any given monetary system has a lifespan of 30-40 years. This current one started in 1971. So the gold and silver bugs, of which I count myself, happily point out that gold and silver are money and have been so for 5,000 years.

However, you may or may not be so familiar with Bitcoins. A decentralized censorship-resistant digital peer to peer currency created by Satoshi Nakamoto in 2009. Users of this currency can buy goods and services over the Internet, without having to pay bank fees or governmental tax. The transactions are anonymous other than a very long piece of code.


This has given to the rise of the ‘Silk Road’, which is the Internet’s black market. Whilst it is largely believed that Nakamoto is a pseudonym, the theme of anonymity is crucial to its success. In terms of music sharing, Napster failed because it had a centralized location where the authorities could address their response; whereas subsequent decentralized censorship-resistant file sharing systems like BitTorrent have succeeded. The same has accounted for previous digital currencies.

This above logic brings with it a difficult conundrum with regards to gold and money. Over the eons, bullion warehouses would keep gold and silver for their clients for a storage fee and provide a warehouse receipt for their customer’s wealth. This was abused by the Medici family in the 14th century and later mutated into the massive fraud of fiat currency and fractional reserve banking of today.


Apologists for this debt based fractional reserve monetary and financial system point out that gold cannot be forced down a wire. But given the birth of the Internet this is no longer relevant as it can be digitally allocated within a vault like in GoldMoney. Which brings us back to the subject of trust.

For a sound money banking system to succeed then every ounce of gold must be accounted for and be physically held somewhere secure and the service must be honest, transparent and offer the chance of physical redemption at anytime. Currently, the best and most trustworthy institution that offers this service is GoldMoney.


However, given that the financial and political elites have a fanatical dislike of gold and a fixed physical address for such a service then it becomes apparent that they also have the ability to hinder the institution with infinite restrictions and rules. These rules, constituting economic censorship, are usually not applied to the state favoured fractional reserve banks. Even in the cases of serious misconduct such as the LIBOR scandal the rules of fair conduct are simply overlooked by regulators. Consequently, this regulatory capture along with tax policy and legal tender laws puts sound money institutions at a huge disadvantage.


As a result, the current monetary system is so inefficient, expensive and egregiously unfair that the market craves an alternative. Bitcoins provide a creative and sophisticated solution that satisfies capitalism’s most desperate need - free money. Bitcoin allows the movement of any amount of money to anyone at anytime from anywhere and cannot be impeded, frozen, seized or confiscated.

This new monetary system is set to effectively stop supply at 21 million Bitcoins. This should happily dispel the belief that a currency needs to be constantly inflated to allow for market growth. Bitcoin is only 4 years old and gains people's confidence with every passing day and some suppose that it may meet meet massive opposition from the governmental and financial elites should it manage to gain any additional traction.

A fascinating similarity between gold and bitcoins is that they both must be mined. With gold individuals mine through dirt and stone seeking particular atoms that are distributed based on an financial algorithm (ore grade) determined mainly by energy input costs and has resulted in a largely consistant annual increase in supply. With Bitcoin a software algorithm means that no matter how many people attempt to mine for the ‘blocks’ and receive the 25 bitcoin reward and results in a predictable increase in Bitcoin supply.


The moral of this story is that the free markets crave a solution to the pricing mechanism of economic calculation. Sound money, such as gold, remains a caged lion lashed about with regulation resulting in economic censorship. Even if censorship-resistant Bitcoins fail, and they could, they will still have played a part in this great saga of power versus market.

Bitcoin has demonstrated that the free markets demand a fixed and free currency supply. Bitcoin is forcing the elites to reconsider gold as a monetary system component in which they are still included in the narrative and not completely routed around.

They may see their frightening alternative as alluded to by the European Central Bank's report on Bitcoin. If they do not comply with this market demand then their power base, derived from their ability to issue fiat currency, may be completely eroded and therefore their entire existence could be replaced at the click of a button by billions of individuals.

After all, who wants to buy a buggy whip, telegraph, 8-track tape, Tower Records or newspaper?

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