EspañolPaper money once used to be backed up by a physical good. It was convertible for a fixed quantity of a good, usually precious metals like gold or silver, through a bank, currency exchange, or a similar institution.
For example, the participants in the Bretton Woods agreements of 1944 laid down that each ounce of gold would support some US$35. This fixed conversion rate began to collapse in the 1960s, and ended up disappearing during the Vietnam war, when President Richard Nixon publicly announced in 1971 that the dollar would no longer be backed up by gold.
So we come to the present day, where the majority of national currencies are fiduciary: they depend on our trust, and not a predefined convertibility to something else.
Many have described bitcoin in the same way, given that — just like the US dollar — it has no “backing” other than our faith in it. Others also might say that gold is different, given that it has an “intrinsic” value — a worth independent of exterior factors — due to its industrial or decorative value (for example, for ornamental use or jewellery).
What’s certain is that since the end of the 19th century, thanks to the simultaneous discoveries of William Stanley Jevons, Léon Walras, and Carl Menger, we know that value is subjective, and that it also depends on our perception of whether an object, tangible or not, will help us achieve our ends. What’s more, this perception changes in time and space.
Gold may be very valuable, but if we find ourselves dying of thirst in the desert, we’d value a glass of water more than all the gold in the world. The same idea is expressed in the famous line by William Shakespeare’s Richard III: “A horse, a horse, my kingdom for a horse!”
The value of a good therefore depends on its scarcity, but also its utility: be it a bicycle transport, the philatelist’s pleasure in licking a postal stamp, or the gambler placing a bet on the roulette wheel.
Simple economic convenience generates a demand for this kind of technology, which ends up having an economic worth.
And the “intrinsic” value? As the British politician and academic Enoch Powell said: “If people value something, it has value; if people do not value something, it does not have value; and there is no intrinsic about it.”
Bitcoin and Use-Generated Value
The fiduciary state currency, in money or coins, has the utility needed to pay taxes. Moreover, in many countries it’s also made mandatory (not accepting it results in fines or being locked up), so its utility, demand, and value are in no doubt.
At the same time, precious metals also have uses that we’ve already mentioned that generate demand and a corresponding worth.
So, what’s going on with bitcoin? Perhaps we’re not as accustomed to its uses as we are with gold. However, to simplify things with an example, we can infer that if we need to transfer value from one place in the world to another, and if doing so via the bitcoin network is far more economical than doing so via a remittances company, simple economic convenience generates a demand for this kind of technology, which translates to economic worth.
This is no assumption: except for during the fist 10 months of 2009, bitcoin has always had a market value which represents and quantifies this worth.
Physical Backing and Centralization
Lacking a physical fallback in the form of an already existing material is usually seen as a disadvantage when it comes to analyzing bitcoin as a currency. It’s understandable: it’s easier to tie value to something that already exists than to to posit an alternative whose price we can’t predict. However, the absence of a physical support is what permits the greater part of bitcoin’s qualities and uses, in particular, those which derive from its naturally decentralized nature.
Let’s imagine a digital currency that had a backup like gold. Each unit of this currency would have to have a counterpart in gold stored somewhere in the world. And we should be able to change this digital currency for the corresponding amount of gold if we wanted to.
The problems with this proposal for a digital currency would be multiple. It would necessarily imply centralization, given that a safe place would have to exist where we could rely on the gold not being stolen; that would implement sufficient security measures to avoid robbery by third parties; that wouldn’t function as a fractional-reserve banking system; that the gold would be of proven quality, etc.
Bitcoin solves the the inconveniences inherent to trusting the middlemen that traditional currencies require.
That’s not all. Looking to history, we’d also have to trust the government in whose jurisdiction the vault was located. And, in the end, we’d have to trust that the organization guarding the gold wouldn’t be accused of money laundering or financing terrorism simply because some of the users of the digital currency have committed these illicit acts.
Bitcoin, by contrast, solves the the inconveniences inherent to trusting the middlemen that traditional currencies require, although it also comes with its own problems resulting from technologies and an infrastructure that still have plenty of room for improvement.
When it comes to analyzing bitcoin and its lack of “backing,” developers may actually mean it when they say, “It’s not a bug, it’s a feature.”
Translated by Laurie Blair. Edited by Guillermo Jimenez.
EspañolAfter two years on the run, Honduras's National Police captured on Thursday the former congressional candidate, businessman, and alleged drug trafficker José Miguel "Chepe" Handal Pérez in San Pedro Sula. The city's security forces received a tip-off on March 12 that Handal was at a hospital visiting his critically ill father. After holding police at bay from his vehicle during a tense 40-minute stand-off, Handal eventually surrendered and was taken to the nearby barracks of the 105th infantry brigade, where his arrest was formalized. In 2012, Handal ran for congressman for the United Liberal Front (Full Toro) for Honduras's Cortés region in the northeast of the Central American country, although he failed to pass the primaries stage. US Treasury Takes Aim The US Treasury Department accused Handal of narco-trafficking activities in April 2013. Washington linked him to the Sinaloa and Zetas cartels, Mexican criminal groups led at the time by Joaquín "El Chapo" Guzmán and Miguel Treviño Morales, respectively. In a statement issued two years ago, the US government accused Handal of being "the head of a Honduran-based drug-trafficking organization (DTO) responsible for the coordination and distribution of multi-ton shipments of cocaine from Colombian sources of supply into Honduras." The statement further alleged that Handal "invests in and coordinates the receipt of drug-laden aircraft departing from Apure, Venezuela into Honduras via clandestine airstrips." Adam J. Szubin, director of the Treasury's Office of Foreign Assets Control (OFAC) also stated that "Chepe Handal plays a critical role in the transportation and distribution of drug shipments between South America and the Sinaloa Cartel and Los Zetas." Handal immediately denied the accusations, while several of his properties were confiscated due to alleged links to trafficking and money-laundering activities. Washington registered its approval of Handal's capture via US Ambassador to Honduras James Nealon, although Nealon is yet to comment about the possibility of Handal's extradition to the United States. https://twitter.com/USAmbHonduras/status/576385676859568128 Despite this possibility, Honduran President Juan Orlando Hernández has signaled that Handal will be judged in his home country. The detained drug lord was subsequently moved to the island of Roatán, where the order for his capture was first issued. There, he will await transfer to jail in Tegucigalpa or San Pedro Sula pending trial. Handal's defense lawyer René Altamirano has meanwhile argued that Handal should be tried in Honduras, as the order for his arrest was issued there. In the early hours of the morning on March 13, former President Manuel Zelaya denied via his Twitter account any links with Handal, who was a candidate with Zelaya's own Liberty and Refoundation (LIBRE) party. https://twitter.com/manuelzr/status/576283658501357568 "I don't have, nor did I have any personal relationship with Chepe Handal. I've never met with him in any form; I deny this information." Hunt for Narco-Politicos Continues In the early hours of Friday morning, Honduran security forces rapidly surrounded and seized some 18 properties belonging to Mayor Alejandor Matute Meza in the towns of Santa Ana, La Masica, and La Ceiba, located in the north of the country. Matute Meza, also a member of LIBRE, is accused of activities linked to drug trafficking, arms smuggling, and money laundering. Since 2002, the Honduran authorities have had information about the mayor's participation in illicit dealings, and attributed responsibility to Matute Meza for distributing drugs in various areas of the region. He is currently fleeing justice. Among the goods seized are houses, rural properties, and businesses, belonging to the mayor and other individuals allegedly linked to his criminal operations. Nevertheless, the government has clarified that his arrest is not linked to the capture of "Chepe" Handal. Translated by Laurie Blair. Edited by Guillermo Jimenez.