July 25, 2013 by Liberty
Looking at the Bitcoin’s price going up and down over the period of a day can make any potential Bitcoin investor a little leery. I can’t blame them. I still have that natural tendency. It’s like watching a roller coaster ride over and over again. The price goes up. The price goes down. At any point you can get the impression that it’s just going to spiral out of control and leave all the riders scattered across the libertarian/anarchist/anti-fed amusement park. (I’d totally visit that amusement park.)
To keep this metaphor going a little bit longer than it probably deserves: Government issued currencies are similar to driving down the road. There are some ups and downs but the roads are designed to make everything smooth for the average automobile. Then, on top of all that, people are used to riding in their cars. When people ride in them daily, they lose the sense of going up and down. On the positive side, it looks like there is no place for them to fall. (With all the guns, why would anyone go agorist and ruin the value of the dollar?)
Then one day…
A bridge collapses and they die. Fewer people die from roller coasters than from bridge collapses.
TA-DA. Okay. I’m not being completely fair but it’s the general idea of Bitcoin volatility versus US currency volatility.
(For the record, approx. 2 deaths a year from roller coasters including suicides. Approx. 3 deaths a year from bridge collapses excluding suicides)
Volatility is Not Necessarily Dangerous
You cannot assume that the volatility of Bitcoins is the same as them being a dangerous investment. All of the most secure and valuable assets in the world have significant volatility. Looking into any commodity can show a similar volatility. The perceived value of any asset changes by the second when their are millions of transactions taking place a day. The dollar only appears to be more stable than that. Any currency investor can tell you the truth.
Currencies go up and down in value faster than any person can keep track of and quite frankly, no one really understands why it goes up and down. If they did, they’d game it for profit until it’s mere existence collapsed the value of the system. No one can predict the markets. Prices go up and down every second of everyday.
The Fascinating New Style of Sale
Imagine if your local super market could account for the instantaneous price changes of the dollar. You might go into the store to buy a .99 cent candy bar (great deal these days.) You see the candy bar and pick it up to bring it to the register. When you get the the register you need to pay 1.01 for the candy bar. because the value of the dollar just took a hit in value.
That would probably freak you out quite a bit. If you waited another 30 seconds you might only have to pay .98 cents for it but you might be wrong and need to pay 1.05. The vast majority of people are not equipped to survive that trip to the supermarket. We’ve been accustomed to the enforced dollar for a very long time but it’s costing a lot of money.
When you buy the candy bar for 99 cents, and the dollar is worth less money in that moment, the business owner needs to pay for that cost and risk. They’re accepting the US dollar under the faith that the government will make sure the money is worth the same by the end of the day.
Customers get what seems like a comfortable ride. Just like the roads we drive on. The ride may be more comfortable but it doesn’t mean it’s safer or better for anyone.
Bitcoins have the capability of easing the transition to a more natural economy. Being an electronic currency sellers can adjust their costs with changes in value automatically. Since everything is computerized, nothing is overly complicated for an individual. Online Stores generally won’t need to relabel all their products when the value changes. Retail stores may have challenges but it’s introducing a great opportunity to update the financial system and make all transactions safer for everyone.
This may seem like a minor change but it’s worth billions of dollars a day. That is, not over the short term but over the long haul.
So They’re Safe?
I didn’t say that either. I’m currently working with them significantly for my own personal use but the safety has a lot to do with technology as well as economics. Economics are not predictable. (Just like currency values. One of the biggest problems with economics is missing the elephant in the room.)
You might want to consider a team of economist chickens that use economic figures to keep track of the chicken farmers actions. Every day the chickens watch the farmer feed them. That increases the economist chickens confidence that the farmer is their friend. Until the day their heads go rolling then all the figures in the world meant nothing.
The elephant in the room is technology.
Technology is the most important part of Bitcoins. All the right economic figures mean nothing if someone smarter than the majority can significantly and consistently game the technology. Technology is the government figure in this transactions. It is the way that people can lose out on Bitcoins.
Now, I trust technology a whole lot more than governments (less people waving guns and preaching patriotism… well, they do preach a little) but no one should overlook their own personal limitations before taking a risk in Bitcoins. Silver and gold have thousands of years of history to back them up. If you’re not into learning the new technology as it’s developed then use them for security in your money.
I’m working out my limitations in the technology right now. If you’re not interested in learning a whole lot about the technology, it might be best to wait until Bitcoin’s are mainstream. That is, IF they ever do become mainstream.
Volatility is not the problem that people need to be worrying about. It’s their own personal limitations. A volatile currency is natural. Gold is volatile. Stocks are volatile. Dollars are volatile. Technology and personal interest in keeping up is the problem that people need to be watching out for.