For those of you who follow financial or political happenings you know that many conservatives and libertarians favor investing in gold, silver and related commodities because their value cannot be altered by central banks around the world. Congressman and former libertarian presidential candidate Ron Paul actually asked Federal Reserve Chairman Ben Bernanke if he sees gold as a currency. Paul has advocated taking the US to a gold standard for years and while this likely won’t happen any time soon, conservatives and libertarians have invested in commodities as a way to protect themselves from the US and other central banks who purposely devalue their currencies.
If you missed the debate BTW, it is a great watch. Bernanke is adamant that gold isn’t a currency – this is likely in my opinion because the federal government can’t manipulate it.
Recently the IRS ruled that bitcoin is not a currency but rather an investment meaning you have to pay capital gains on $300 profit if for example you purchased a bitcoin at $500 and used it to acquire a suit for $800.
As a student of history and technology I know that disruptive innovation in the tech world is difficult to predict but I know when something has the potential to change how the world operates. Many of us saw this with the advent of the web, VoIP, e-mail, e-commerce, e-auctions and more.
Currency is one of the next areas ripe for disruption. Will bitcoins be the future? Who knows? To some degree a virtual currency is like a gift card or a traveler’s check but in a world awash in irresponsible central bankers racing to devalue their currencies, there is tremendous demand for alternatives.
This is why Marc Andreessen just said libertarians will eventually be big backers of bitcoin. If I were him I would have hedged the statement by using the term “virtual currency” but other than that I agree with his statement.
The interesting point here is if libertarians (I would add fiscal conservatives to this group) start investing, then we can expect the value of the whole segment to increase. Challenges of course, will abound as bitcoin has already become as volatile as a dotcom stock.
Still, issues like volatility will get worked out – most likely through companies which offer some protection from it through hedging which the typical person will be shielded from. In other words, just like a bank has FDIC insurance and passes the cost on to the consumer, new bitcoin companies will protect your virtual currency from fluctuation but at a price.
The bottom line is the US federal government doesn’t see bitcoin as a currency – possibly for the same reason I outlined above – because it can’t manipulate it. It is worth mentioning that central banks cannot only devalue currencies over time by printing (electronically or otherwise) money but they can prop them up to boost confidence in the underlying denomination and economy.
As virtual currencies fight to transform today’s currency to currency 2.0, there are a host of challenges the financial and tech worlds will need to work out to ensure new currencies have all the benefits of government-issued currency but with limited drawbacks. When these items get resolved, we can expect even greater use of bitcoin and its currency 2.0 alternatives by libertarians, investors and everyone.
If you are a libertarian, conservative, investor or developer or want to learn more about the future of currency, be sure to come to Currency 2.0 Conference July 22, 2014 in NYC and register now to secure a pass before it sells out. And yes, you can use dollars.