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Last Updated on: 29th October 2013, 01:11 am
The US dollar has been the world’s reserve currency for nearly fifty years. Dollars are in every bank around the world, making up almost two-thirds of all foreign bank reserves. And whether its oil, soybeans, or sugar, dollars are used to settle the majority of commodity transactions around the world.
But as ubiquitous as it is, the dollar is vulnerable.
It’s vulnerable to massive devaluation because of Federal Reserve easy-money policy combined with stifling amounts of government debt, now topping $17 trillion. Including our obligations to Social Security, Medicare, and other entitlements, the debt approaches $60 trillion.
So the Fed will continue to print money out of thin air until the tipping point is reached, and then all confidence will be lost in the dollar.
When that happens, millions of Americans will be wiped out. Older folks who have saved their entire lives will have no means to take care of themselves. The middle class will join the ranks of the poor.
This day of reckoning is looming somewhere off in the future. But with the last round of political buffoonery that threatened a default on our debt, Americans realize that day may be closer than we previously thought.
It’s time to start thinking about diversifying into different currencies.
There’s an upstart in the currency arena called Bitcoin.
Introduced in 2009, Bitcoin is the leading cryptocurrency and exists solely in the digital realm. There are no Bitcoin “bills” or actual coins that you can stuff in your pocket. They are stored on your computer or smartphone.
Bitcoin was not created by a sovereign nation. It was created by an anonymous group of people who were smart enough to stay under the radar, since bad things happen to people who threaten the existing financial structure when suggesting new currencies.
Because Bitcoin is an electronic currency, it can be transferred to people directly online relatively easily. They are completely free to be sent, without any Paypal to give you a haircut on the amount received.
Possibly the most important aspect of Bitcoins are that they are sent anonymously. It does this by using cryptography, a mathematical method of attaining both security and anonymity.
Unlike the Dollar, Bitcoin Has No Baggage
Bitcoin is a peer-to-peer currency that functions without a central authority. According to CNBC sycophant Jim Cramer, “Bitcoin is not reliable because it’s not regulated by a central bank.”
Actually, the fact that it doesn’t have a central bank interfering with its legitimacy is one of Bitcoin’s best features.
There’s no Federal Bitcoin Reserve that will print $85 billion in new currency each month, creating inflation and diluting the value for those that use it.
That’s not to say that the amount of Bitcoins will stay static. The expansion of the Bitcoin base is pre-programmed to increase quickly in early years and much more slowly as it matures. The result is that the number of Bitcoins in existence will never exceed 21 million. This algorithm was chosen because it approximates the rate at which commodities like gold are mined.
As represented by the chart above, the expansion of the dollar base would appear to be the polar opposite to Bitcoin.
Three years before Bitcoin was created, Milton Friedman, the Nobel Laureate and world renowned economist, advocated for a pre-programmed, automatic expansion of the monetary base and to abolish the Fed.
In other words, he wanted to put our money expansion on autopilot and decentralize our currency, just like Bitcoin.
What Critics Say
Critics say Bitcoin is a bubble – an anomaly that’s destined to collapse because it has no intrinsic value. It’s been said that Bitcoin is a Ponzi scheme that relies on the greater fool theory, and when people lose confidence in the upstart currency it will collapse.
It could be argued that it’s no less valuable than the US dollar, which by the way has no intrinsic value either, and is well on its way to failing. And as far as losing confidence, the dollar appears to be losing confidence at faster rate as it has fallen -1.2% compared to Bitcoin’s eye-popping +1348% return this year.
And with Chase Bank just announcing a limit of $50,000 on foreign wire transactions by businesses, currency controls in America just got real and Bitcoin just got a bit more relevant.
The need for a way to transfer money anonymously has always been in demand, and will likely increase in the future.
I wouldn’t bet everything on Bitcoin, but I’d bet it outlives the US dollar as it exists now. However, if you want more information about the world's most reliable currency that’s survived every war, crisis, and bad government policy in human history, Click Here.