Cryptocurrency and the fate of the dollar
An article by a famous American financial expert and writer Jim G. Rickards
At different times, feathers were money, shells were money. Dollars and the euro is money. Gold and silver are money. Bitcoin and other crypto-currencies can also be money.
People say that some forms of money, such as bitcoin or US dollars, are not backed up.
But this is not true. They are supported by one thing: trust. If you and I are sure that something is money, and we agree that this is money, then this is money. But if I call something money, and no one else in the world so does not call it, it's not money. The same applies to gold, dollars and crypto-currencies.
Governments have an advantage, because they force you to pay taxes in your money. In other words, governments essentially create artificial use for their own forms of paper money, threatening people with punishment if they do not pay taxes denominated in their own fiat currency of this government. And the dollar has a monopoly as a legitimate payment tool for paying US taxes.
According to John Maynard Keynes and many other economists, it is the ability of the state to force to make tax payments in a certain currency that gives the currency its intrinsic value. This theory of money boils down to the fact that we value dollars only because we have to use them to pay taxes - otherwise we will go to jail.
The so-called crypto-currencies, such as Bitcoin, have two common features. First, they are not issued or regulated by any Central Bank or a single regulatory body. They are created in accordance with certain computer algorithms and are issued and transmitted through a distributed computer network using open source code.
Any particular computer server that hosts the ledger or register cryptocurrency may be destroyed, but the existence of the currency will continue to be on other servers around the world and can be quickly replicated. It is impossible to destroy a crypto currency, attacking any one node or group of nodes.
The second common feature of crypto currency is encryption, which is part of the "crypto" in the name. It is possible to observe the transactions taking place in the so-called block, which is the main register of all currency units and transactions. But the identity of participants in transactions is hidden behind what is considered an indestructible code. Only the parties carrying out the operations have the keys necessary to decode information in the chain of blocks in such a way as to gain access to the possession and use of the currency.
This does not mean that crypto currency is fault-tolerant. Large amounts of crypto-currency units were lost by those who introduced them to some unregulated bitcoins-banks and exchanges. Others were lost because of elementary fraud. Some of the tools were lost, because personal hardware keys containing encryption keys for "digital wallets" were lost. But in general, the system works well enough and grows rapidly both on legitimate and illegal transactions.
It is worth noting that the US dollar is also a digital crypto currency for all purposes and tasks. Just dollars are issued by the central bank, the Federal Reserve, and bitcoin is issued privately. While we can keep several paper dollars from time to time in our purse, the vast majority of transactions expressed in dollars, whether in currency or in the form of securities, are digitized.
We pay bills online, pay for purchases with a credit card and receive direct deposits to our bank accounts in digital form. All these transactions are encrypted using the same encoding methods as Bitcoin.
The difference is that the ownership of our digital dollars known to some trusted counterparties, such as our banks, brokers and credit card companies, while ownership of Bitcoins is known only to the user and is hidden behind the code in blokcheyne.
Bitcoin and other crypto-currencies present certain problems for the existing system. One of the problems is that the cost of bitcoin is not constant in US dollars. In fact, this cost is quite volatile, ranging from $ 100 to $ 1,100 over the past few years. Currently it is about $ 575 (at the time of writing the article in August 2016 - S.B. comment).
Truth and dollars fluctuate in value relative to other currencies, such as the euro. But these changes, as a rule, are measured in shares of pence, and not by jumps in the $ 100 per day.
This gives rise to tax problems. For example, if you buy bitcoin for $ 200, and later buy it for $ 1000, you have a profit of $ 800 to buy and sell the bitcoin itself. From the point of view of the IRS (the US Internal Revenue Service), this profit does not differ from the fact that you bought a share of the stock for $ 200, and then sold it for $ 1000. You must report the increase of the drop