Source :
http://www.zerohedge.com/news/2017-11-30/time-different-part-i-what-bitcoin-isnt“Backed by nothing”
This is the goto criticism for people who simply don’t understand that crypto-currencies are based upon mathematics, zero-trust, open-source and consensus. They think that bitcoins can simply be created “at will” and are backed by nothing.
They also say that as if the world’s reserve currency, the US dollar, isn’t, literally, “backed by nothing” and hasn’t been since 1972; and as if it can’t be created at will, which it most certainly has, with a vengeance.
Indeed as Galbraith continued in our earlier passage:
“This was true in one of the earliest seeming marvels: when banks discovered that they could print bank notes and issue them to borrowers in excess of the hard-money deposits in the banks’ strong rooms”.
All fiat currencies today really are backed by nothing and can be created at will (that’s what the word “fiat” actually means), and perhaps unbeknownst to many we are right now in a protracted, global currency war. Every nation is “racing to the bottom”, trying to devalue their currency against their trading partners so they can:
- give their exporters a competitive advantage
- pull stronger currencies in to make money on the exchange, and
- service their ever expanding debts back with devalued, cheaper currency
This is why everybody’s purchasing power is going down despite tenured academics and central bankers incessantly complaining about “low inflation” and political spokesmodels always talking up a “strong currency”.
In Bitcoin or other true crypto-currencies, early holders are not receiving bitcoin from later entrants.
In fact, quite the opposite is happening.
Later entrants must entice earlier ones to part with their bitcoin. Since Bitcoin cannot be created at will, it must be mined at a rate that drops over time (this year approximately 640K new bitcoin will be mined, about 3.8% of the total supply).
Demand for bitcoin is simply outstripping supply of new coins being mined (for reasons we will discuss in Part II).
If said price action rises dramatically (like for example, Bitcoin suddenly became the highest performing asset class in the world) then a feedback loop would occur.
Ever higher prices would be required to induce earlier holders to sell.
Tulipmania
What is described above is the same dynamic that occurs in any “bull market”, as buying begets more buying, and “fear of missing out” kicks in. It is said one of the most accurate gauges of “happiness” correlates closely to how much wealth one has when compared to one’s brother-in-law. Alex J Pollock describes it in “Boom and Bust: Financial Cycles and Human Prosperity”, as “The disturbing experience of watching one’s friends get rich”.
Finally I found Anne Goldgar’s Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, which is the most in-depth investigation to the rise and subsequent fall of Tulipmania extant today. In it we learn about the circular references that went on to inform our present time about Tulipmania:
“If we trace these stories back through the centuries, we find how weak their foundations actually are. In fact, they are based on one or two contemporary pieces of propaganda and a prodigious amount of plagiarism. From there we have our modern story of tulipmania.”
though very annoying that people still feed him/her