Digital Currency

One of our government's current goals is to devalue George by 2% per year (reference)

Digital currency appeared in United states over 200 years ago - way ahead of its time. Here is an excerpt from the Wikipedia article Bit (money):

In the United States, the bit is equal to 1/8th of a dollar or 12.5 cents. In the U.S., the "bit" as a designation for money dates from the colonial period, when the most common unit of currency used was the Spanish dollar, also known as "piece of eight", which was worth 8 Spanish silver reales. One eighth of a dollar or one silver real was one "bit".

With the adoption of the decimal U.S. currency in 1794, there was no longer a coin worth 1/8 of a dollar but "two bits" remained in the language with the meaning of one quarter dollar, "four bits" half dollar, etc. Because there was no one-bit coin, a dime (10 ¢) was sometimes called a short bit and 15¢ a long bit.

So by this earlier reckoning, a dollar was equivalent to 8 bits, or a byte.  For various reasons (possibly, in part, because the bits were created by repeated physical halving of gold coin dollars) this binary accounting lost favor. 

But now, with the advent of the Bitcoin, we may be making a big swing back to digital currency. This time to one that is of quite a different nature - a currency that is completely intangible. This currency has no paper form, no coin form - it exists only as bits of digital information in the form of stored data and as data processed within a computing system or network.  (For more information and background on Bitcoin go to one of my earlier posts on the subject.)

Today the value of 1 Bitcoin is about $92 and the net value of all Bitcoins in circulation (about 11 million) is $1.064 billion. I find this currency to be very interesting because it is not under the control of any single nation, or any group of nations.  According to its charter, the number of Bitcoins in circulation gradually increases (in accordance with a pre-determined schedule) over the next 20 years until it reaches a permanent maximum of 21 million. Then no more Bitcoins will ever be created.  Because of this, the Bitcoin currency is not subject to government inflation, devaluation and other manipulation. The design and intent of the Bitcoin is such that, aside form its issuance plan, the only driver of the Bitcoin value is the free market supply and demand by the people and institutions who hold it and use it as currency.

I hold a few Bitcoins, and I occasionally exchange these by buying and selling them for $ (details here.).

My biggest concern with putting any of my savings into this digital currency is the possibility that the US government might at some point decide that the Bitcoin threatens the US dollar's position as the de-facto world currency (something which benefits the US hugely in trade transactions all around the world, see here). And on deciding that, the US government might then make a move to kill the Bitcoin - something I believe they are very capable of doing.

So I guess what we fans of digital-non-govenment-currencies need to do is to see that our servants in Congress pass some US laws that will prevent our government from killing the Bitcoin. This might be much easier said than done - our public servants don't seem to do much these days..

Another tact would be to have many Americans, including wealthy influential Americans, all transfer significant portions of their savings (say 2% or so) into Bitcoins. If we all did this and then our government were to try to kill the Bitcoin, then public outrage would kill the government action!  

OK, here's the plan. On day 1, get everyone you know to invest .1% of their net wealth into Bitcoins.  On day 2, invest another .1%. And so on for 20 days. The net wealth of american households and non-profit organizations is $55 trillion (source), so, at the end of the 20 days the amount invested into Bitcoins will be 2% of this - or $1.1 trillion (1000x today's market value of all bitcoin). So with this, the value of a Bitcoin will have risen by 1000x (because its supply will be unchanged while demand will have gone up 1000x), and, we'd be well on our way to switching our savings to a currency that is immune to the 2% devaluation/year that our government is currently targeting for the $. And, to boot, we would have likely helped our government toward its 2% devaluation goal for the dollar:)

Whatdoyathink?