Playing Catch-up With Bitcoin

June 30, 2014

By: Kelly Diamond, Publisher

A little topic I’ve not indulged for a while is Bitcoin (BTC). There have been some interesting developments surrounding this particular virtual currency. Mt. Gox was hacked back in February and filed for bankruptcy by month’s end. Prior to that, Mt. Gox Vice Chair, Charlie Shrem, was brought up on charges for knowingly selling to Silk Road proprietor and patrons (the formal charge being money laundering).

These last few months have been rough for Bitcoin, to be sure. If you read the comments for any of the reports talking about Bitcoin being a fraud and a failure, you’d see the vindicated skeptics beating their chests chanting “I TOLD YOU SO”.

Then came the most recent piece of news. Of ALL the places, the People’s Republic of California decides to “legalize” Bitcoin. I didn’t know it was illegal to begin with, but apparently there was a law on the books banning “anything but the lawful money of the United States.”

The pendulum is swinging back to the legitimizing end for Bitcoin. The use and implementation of competing currency does what the “commerce clause” of the Constitution originally intended: it regulates commerce… that is, it keeps the flow of commerce moving. When people are able to trade in other stores of wealth, there is more commerce. And where there is more commerce, there is more prosperity.

This is simply the other side of the coin to diversified investing, when you think about it. When you diversify your holdings and investments, you can prosper with those investments that do well, and be safeguarded from those that don’t. So, in the end, you make MORE. It’s calculated risk as opposed to going all-in at a poker table. It is investing as opposed to gambling.

Competing currencies makes as much sense as any other competing service. The end user gets the best deal for what they are seeking. They maximize value.

Something bigger is happening, however. Beyond the other virtual currencies like Darkcoin and Litecoin surfacing, there are businesses using virtual currencies as well.  Virtual and alternative currencies are far more pervasive than I think some give it credit for.  Perhaps it’s that they are called something other than currency or that it’s become common place to call them by different names that many don’t see them for what they are.

Starbucks now has an app for your phone where you can just “scan a bar code” and pay for your purchase. Sound famililar? Kohl’s has “Kohl’s Cash” that you can earn from purchasing and can later be redeemed at any location. It is treated the same as FRNs (or Federal Reserve Notes) in their stores.

Stores are allowing their customers to “earn points” and redeem them, much like credit card companies have been doing for a while now. And remember good ole coupons?

When I think about all these things that are already legally in circulation, I wonder why Bitcoin was such a big deal. I mean, coupons say right on them that they are worth 1/100 of their stated value if redeemed for cash. So they make no claim of them holding any value outside the context of stores willing to honor their value.

These are ALL tiny competitors to the FRN. The US government can’t very well contend they are afraid of “competition”. That raises a whole litany of questions and issues from a reputation standpoint. It does, unfortunately, like to play the “money laundering” card.

Here is the working definition of money laundering: the concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses. There is a more elaborate one on Wikipedia, if you’re interested.

The concealment of the origins of illegally obtained money? Hmmm… Like the Federal Reserve? How hard do they balk at the idea of just an AUDIT?

Why is the government so upset over Bitcoin when you have a perfectly easy means of laundering money in the legal marketplace? You might know it better as gift cards. If you think BTC is ripe for money launderers, ask yourself if gift cards are any different. You take cash from an unknown source, hand it over to a business in exchange for a new store of wealth, and then, you either redeem it for something later at the store, sell it online to someone else who is interested in buying that gift card, OR redeem the card itself at these new “Gift Card Redemption Centers” located in various grocery stores.

You have companies willing to accept competitor coupons. So perhaps therein lies the threat? Is it a fear of a more universal application or use of Bitcoin that poses the real threat to the US government and other governments around the world? The point isn’t an advocacy for money laundering. It’s to expose the bogus claims being made by the government against Bitcoin. It’s likewise to expose the arguments thus far that I’ve heard against Bitcoin from the skeptics at large.

People want to put their faith in that which is tangible. I don’t blame them. That is ONE store of wealth among many. Real estate is another. And virtual currency is another. Gold only has value because people say it does. Value relies on context and the parties involved in the exchange. If I have something you want to buy, but I won’t take what you’re offering as a means of paying for it, then it’s no deal. Your currency was just devalued to Zero.

I believe in keeping it all in perspective. So while I don’t see Bitcoin as a fraud or a hoax, I also don’t advise putting all your eggs in that one virtual basket. I see Bitcoin, the way I see all emerging and existing forms of virtual currency: a healthy challenger, and a welcomed – dare I say much needed – competitor to the FRN.  Diversify your investments, your real estate holdings, your residencies, the countries in which you store your wealth…  It ultimately will amount to more streams of income, mitigated risk, and more ways in which to trade within the global marketplace!