Production Of Bitcoins By Mike Caldwell of CasasciusToday China announced that its central bank may no longer recognize bitcoin as currency. In the short run, this means that the Chinese, who have been buying up Bitcoin like crazy as of late, would have a more difficult time converting their Bitcoin to spendable currency. But this is actually good for Bitcoin. It was never intended to be a tradable commodity. It was designed to be an electronic currency and making it difficult to convert does two things: 1- It drives the value up and 2 – helps spawn an even larger online-only business community.

The long-term promise of Bitcoin is to have a globally accepted currency for trading goods and services. Since it is an electronic currency it is best suited for online goods and services including real-world goods that can be bought online. With services such as grocery shopping and home goods now available online again, it is feasible that within a few years one could exist nearly completely online. The real question is, would you exist like that if you could? What if you owned your house outright and all you had to pay was property taxes and utilities? Everything else could be bought and sold online with Bitcoin?

Why would anyone want to do that?  Here are a couple reasons:

1: Anonymity. Nearly all bitcoin transactions are anonymous so no-one know who you are or what you are buying (except of course for shipping address). Even those of us with no illegal trade intentions might liek the security of knowing that our now-intrusive government is not spying.

2: Taxes. It is much easier for bitcoin merchants to avoid paying and charging taxes. But even if they do, it is just a fee. You personally don’t feel invaded upon.

3. Fluidity. The same coins are accepted worldwide with no bother about exchange rates or middle-med pocketing percentages for conversions. Note: There are small fees every time bitcoins change hands but those go to the network to help keep bitcoin alive and also to the developers who provide wallets and other online services.

Would you like to live in such a world? How would you hedge against a complete crash? If it were all online would there even be such thing as a crash? Who cares what the dollar value is if you and I still agree in a relative value for the exchange of services?

Yes, there are negatives. Those ‘real world’ goods are manufactured and paid for with more ‘normal’ currencies. So until that changes, any online transaction is still tied to the currency of some nation. And it is possible that governments globally could crack down on any business accepting bitcoin, forcing it underground. But let’s not spoil the fantasy just yet.

I welcome your thoughts.