Photo by YOSHIKAZU TSUNO/AFP/Getty Images The collapse of the Mt.Gox currency exchange has called into question the future of bitcoin, the digital currency and peer-to-peer payment system that arrived on the world financial stage in 2009.Bitcoin bears argue that the failure highlights the currency’s inherent weakness and explains why it will soon disappear.Bulls argue that despite the failure, bitcoin will rebound and eventually secure its rightful place as the world’s sole currency, sweeping aside the dollar, euro, yen, and other major currencies.The bulls maintain that bitcoin is as good as gold.And they are right.Universal adoption of bitcoin would be very similar to adopting the gold standard.And that would be a disaster.One of the great attractions of bitcoin for its boosters is that it prevents central banks from creating money.Like gold, there is a limit on the overall number of bitcoins that can be created, so an inflationary over-issue of money is not possible.Bitcoin terminology plays up its similarity with gold: New bitcoins are not created, they are “mined.” This comparison with gold also serves to highlight the shortcomings of bitcoin as an alternative currency.

Gox episode—in which 740,000 bitcoins disappeared, possibly forever—showed that bitcoin’s safeguards are not as ironclad as its backers would believe.If bitcoin had been hacked after it had become the world currency, the resulting panic would make the recent subprime and eurozone crises look mild by comparison.The proprietors of Mt.Gox should not feel too bad, though: The gold standard was also subject to hacking—both official and private.From ancient times, gold coins were minted with identifying marks—a likeness of the king was common—and a denomination.bitcoin news forkThis process helped indicate exactly how much gold was contained in a coin and, therefore, how much the coin was actually worth—its “face value.” Counterfeiters devised ingenious ways of removing small quantities of gold from coins, leaving the perpetrator with both their original coins, plus some extra gold that could be melted down and turned into additional coin.bitcoin komputer

Private hackers weren’t the only ones undermining the currency: By minting coins containing less gold than promised on their face, the king could produce more money with less gold, enriching himself in the process.So bitcoin exists in finite quantity, like gold.It can be tampered with, like gold.And, like gold, bitcoin makes it impossible for the central bank to undertake low interest rate policy during an economic slowdown.Britain’s return to the gold standard after World War I is a textbook example of the gold standard gone wrong.bitcoin toiIn order to re-establish the gold standard, the Bank of England had to maintain high interest rates for much of the 1920s.bitcoin asia pacific limitedThis contractionary monetary policy exerted a persistent drag on British economic growth throughout the 1920s, leading to high unemployment and one of the worst labor disputes in Britain’s history.bitcoin in euro auszahlen

This explains why, when writing about Britain’s monetary system, the English economist John Maynard Keynes called gold “a barbarous relic.” When the Great Depression erupted at the end of the 1920s, Britain was one of the first major countries to sever the link with gold and, as a consequence, recovered from the Great Depression relatively quickly.The Americans, French, and many other countries clung to the gold standard for several years longer than the British and endured much slower and more painful recoveries.bitcoin moon gifSmall wonder why Keynes wrote after Britain left gold: “There are few Englishmen who do not rejoice at the breaking of our gold fetters.” The eurozone crisis offers yet another example of the perils of being shackled to a monetary policy not of your own making.bitcoin money laundering lawGreece discovered this in 2009 when it became clear that its budget deficit was far larger than anyone had anticipated.bitcoin xenforo

Had Greece been able to manage its own monetary policy, it could have expanded the money supply, lowered interest rates, and allowed its currency to depreciate, which would have eased the burden of its debt payments and stimulated its exports.However, because Greece was a member of the eurozone, it no longer had control of its own monetary policy and could not undertake these measures.As a result, it endured a dramatic economic slowdown, crushing unemployment, civil unrest, and the seating of members of a neo-Nazi party in parliament for the first time in its history.litecoin still worth itThe United States is fortunate that it was not on a “bitcoin standard” when the subprime crisis hit.Because it was not, the Federal Reserve was able to undertake extraordinary monetary easing, pushing interest rates to near zero and increasing the supply of money.The subprime crisis is often called “the worst financial crisis since the Great Depression.” Had the Federal Reserve’s hands been tied by the bitcoin standard, the economic and financial devastation would have exceeded that of the Great Depression.

Bitcoin is as good as gold.For a monetary standard, that is not very good.Bitcoin exceeded the price of gold on Mt.Gox this morning, an event bitcoin advocates say is symbolic for the virtual currency.The price has since dipped, and at the time of writing is trading at $1,146 on Gox, below the gold spot price of $1,246 per ounce in US dollars.The price of the coin, which broke $1,000 just a few days ago, has been rapidly approaching the price of gold, which has fallen in recent weeks.Today it reached a high of $1,242 on Mt.Gox, topping gold’s $1,241.98 at the time.Erik Voorhees, an early entrepreneur in bitcoin, was in jubilant spirits.Voorhees, who sold his gambling site SatoshiDice for 126,315 BTC this year, said that it was a psychologically significant event.He said: “For believers, it means bitcoin is really becoming a ‘respectable asset’.Clearly, bitcoin is no longer a penny stock.It's playing in the big leagues - a share being worth more than a share of Google or Apple, and even more then an ounce of gold.” “Many of us two or three years ago said that bitcoin could (and probably should) absolutely cost more than an ounce of gold.

We were laughed at and ridiculed.Now we can just look and say, ‘scoreboard!’.” This isn't bitcoin's first symbolic price threshold, points out Anthony Di Iorio, the head of Canada's Bitcoin Alliance, a national organisation that promotes bitcoin."It went past $500 and then $1,000, and now it's past gold," he said.It is widely known that the value of the virtual currency surpassed silver long ago.Bitcoin may have been rising to meet the price of gold, the precious metal has also fallen to meet it.The price of gold has taken a dive this year.At the start of the year, it sat at around $1,700 before plummeting to a yearly low in July.It rallied to just over $1,400 in September, but since then it has fallen to a four-month low.Gold's latest fall saw it drop $10 in around 10 seconds on 20th November.This drop accompanied news that the UK's Financial Conduct Authority (FCA) have begun an investigation into pricing methods for gold on the spot market (the market where people trade directly between each other).

Traditionally, gold spot prices are set during a London-based conference call between five banks.Prices from those discussions are used to set spot prices for gold worldwide.In addition to the FCA investigation, the German regulator, BaFin, is also said to be exploring the issue.Other issues affecting the price of gold in recent months include fears over a potentially early end to US stimulus measures, as stronger economic data emerges.When the US central bank buys bonds it tends to boost gold prices because people buy it to hedge against possible inflation.Could bitcoin be gold 2.0?That’s unlikely, thinks Voorhees.He remarked that the cryptocurrency has several advantages over the precious metal.Primarily, it can be transported anywhere in the world instantaneously, making it suitable for Internet payments.It is also far easier to divide and recombine than gold.He added: ”Put simply, it's impractical for normal economic exchange.While it's true that a digital gold could exist, such as e-gold, we know how that turned out.” On the other hand, gold continues to work even when the Internet does not, and it is a long-standing, stable, and well-understood commodity.

It's immune to bugs, hackers and the loss of community support.“This is very special, and cannot be replaced by bitcoin for a very long time,” Voorhees said.Although we know how many bitcoins we can mine, we only have a rough idea of how much gold is left in the ground, and how difficult it is to get.According to the World Gold Council, we have mined 174,100 tonnes of the stuff since civilisation began, which would fit into a 21 metre cube.Much of that is, of course, locked up in jewellery and industrial applications (and a considerable number of teeth).Actual world gold reserves total 31,575.1 tons.The US is the largest single holder of gold reserves.Bitcoin's market capitalisation today is around $13.5bn.The total value of all gold mined in the world, at today's price, stands at around $7.6 trillion.The total value of the world's current reserve holdings is around $1.38 trillion.Di Iorio says he lost 20% on his own gold investments last year."I took my loss and put it into bitcoin and got my return back," he said.

"I no longer have gold holdings.I believe much more in the fundamentals of bitcoin."Gold is superior for conservative, steady, long-term storage of wealth, Voorhees suggested, while bitcoin is far better for commerce and payments.Voorhees advises people to keep their savings mostly in gold, and their spending money mostly in bitcoin.“As bitcoin's price crosses that of gold, it shouldn't be taken as an indication that ‘bitcoin is better,’” Voorhees concluded.He added: “They're just different, and a proper understanding of the monetary virtues of both gold and bitcoin puts one ahead of just about everyone else on earth.” Not everyone agrees, though.Venture capitalist Chamath Palihapitiya, who heads up the Social+Capital Partnership, has gone on the record to advocate bitcoin's potential for stored value."What you’re talking about right now is, for the next three to five years, an unbelievably better stored value.It is gold 2.0.he said to Forbes in April, arguing that bitcoin can be used to store long-term value outside of government control.

I can do the same thing with Bitcoin, only I can do it outside the purview of every single government.It’s being used everywhere you would think it would be used: Russia, Iran, Iraq, Egypt, Venezuela, Argentina.Everywhere you have currency pressure.Everywhere you want to basically shield your assets.And then, after that, it will probably become a payment mechanism."In this Bloomberg article, Palihapitiya says that he transferred 1% of all his assets to bitcoin as 'schmuck insurance', lest catastrophe in the financial markets cause problems for the precious metal.He also calculates how much a bitcoin would be worth if all bitcoins were to have the same capitalisation as all the mined gold in existence.He divides his estimate ($8 trillion) by the theoretical number of bitcoins (21 million) and comes up with a theoretical upper bound of $400,000 per bitcoin.This symbolic crossing for bitcoin does not necessarily mean that it's better than gold, but it will likely bode well for the currency.