I must confess at the outset that when I first heard about Bitcoins, my skepticsm was overwhelming. Who could possibly put value in an financial instrument that had nothing supporting it. The value of a Bitcoing was entirely dependent on how much value the persons exchanging them would see in them.
But then I reflected that our Almighty Dollar is not very different. The dollars issued by our Department of Treasury have no financial backing other than the promise of the United States Government that they have value.
The dollars used to be backed by gold but that ended nearly 50 years ago when President Nixon took us fully off the gold standard, a process begun 38 years earlier by President Roosevelt. So what you have is a promise by our Government to use its full faith and credit to provide value to the dollar.
That is not significantly different from the merchant who allows you to buy a car for two bitcoins, worth roughly $30,000, and then trades those Bitcoins along with his other bitcoins for more new cars. Each is relying upon the belief of the other that the coins have value. Should those merchants become fearful that in fact the emperor does not have any clothes, the trading of bitcoins would likely slam to a halt.
But that end is not foreordained. As long as people share a view as to their value and are willing to trade goods and services for them, the Bitcoins will continue to be the coin of their own realm.
And frankly, the promise of the United States which is being governed by political operatives who appear unable to agree on the time of day, much less how much full faith in credit is worth makes the Bitcoin look like a reasonable investment.
December 11, 2017