The modern economy is a modern marvel. It has grown into a monster that can not be contained no matter how hard we try. Money has been transformed from a store of value pegged to a commodity — ie: gold — to a commodity that is traded. Now, money is a currency that is backed by the faith that we have in our government.
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Let’s explore this concept a little further. In a sense we are still using the barter system in our current economic system. For the purposes of our discussion, we are going to be using the US dollar (USD) in our examples.
The dollar used to be pegged to gold. Gold is a commodity that is traded and whose value goes up and down according to the demand in the market. The dollar was “backed” by this gold, and every dollar in circulation had a dollar’s worth of gold to back it up — in theory (going into this theory is another topic for another day).
Now, when President Nixon took us off of the gold standard in 1971, the USD became a fiat currency, which is to say it’s value was based on other currencies in the world and became a commodity — being traded against other currencies in a currency pair. Note: I am over simplifying this very much for the purposes of our discussion. You can find out more on fiat currencies and FOREX on Wikipedia by clicking here.
These currencies are centrally controlled by the respective governments who issue the currency — in the US it is the Federal Reserve. This is all part of modern banking and the fractional reserve system. Essentially, the fractional reserve system creates an infinite money supply that is based on supply and demand. The federal government makes a call to the Federal Reserve bank and requests additional money be “printed” (nowadays, most of the money is created digitally) out of thin air.
In theory, this works because as an economy strengthens and grows, the money supply needs to expand with the economy. This creates inflation and debt, which according to fractional reserve banking, is necessary for the monetary system to grow. The problem with this system is that human beings are in control of it, and that brings greed into the equation. A great movie that explains Modern Money Mechanics is Zeitgeist: The Addendum and can be watched on Netflix.
Now that you have a basic understanding of how modern currencies work, let’s explore Bitcoin.
Bitcoin is a decentralized currency. That means that no government is in control of the supply or the regulation of the currency. It is “mined” by miners using sophisticated computer hardware and there is a limited supply of it. This is extremely scary to governments the world over, because it is controlled by the people who use it. Due to the fact that there is a finite supply of Bitcoin — 21,000,000 — and that amount won’t be in circulation until the year 2140, creates a true supply and demand situation. If you want to know all of the gritty details about Bitcoin, click here for a great article on Wikipedia.
In terms of age, Bitcoin is very young, but shows a lot of promise. As the technology matures, it gains credibility and many business people and venture capitalists are taking notice. The hotbed for innovation in America is Silicon Valley, and companies are popping up specializing in the cryptocurrency.
We are going to go into depth on the 3 companies we recommend to use Bitcoin for everyday purchases. We call it the Bitcoin trifecta, and use these 3 companies everyday — from buying a coffee to making purchases on Amazon. It is exceptionally simple, and with a little know-how you too can use it.
It is fun and exciting, and being part of the growth of something new helps to push it forward and legitimize it. With all of the uncertainty of the modern financial system, it just makes sense. We are not advocating to invest your life savings into Bitcoin — honestly that would be extremely stupid. We are promoting using Bitcoin for everyday purchases. At the time of this writing, 1 (one) Bitcoin (BTC) is trading at approx $464! The first article we wrote on Bitcoin was published on Apr 14, 2016 (you can read it here) and at that time, 1 BTC equaled $426 — it is up $38 in just 11 days!
That may sound great — and it is great — but you could wake up tomorrow and it could be down $30; I’ve seen it happen. This is why we do not recommend BTC as an investment.
I don’t want you to get scared off by the numbers above; you can purchase ANY amount of BTC you like. You do not have to purchase whole numbers of BTC. Bitcoin is divisible down to 8 decimal places — 0.00000001 — and is represented using numerous values such as millibitcoin (mBTC), microbitcoin (µBTC), and satoshi. This is similar to our money system with quarters, dimes, nickels and pennies.
As we move forward with our Bitcoin series, we are going to talk about the 3 companies we recommend, BTC wallets, BTC exchanges, and how to use these Bitcoins for everyday purchases. Just think if you had bought some BTC 11 days ago and saw that return. You could have used that for your everyday purchases and it wouldn’t have cost you anything — except for the exchange fees and possibly mining fees, which are minimal (we will explain all this to you in plain English). You can’t do that with any other store of value that I know of.
Stay tuned for more on this exciting technology.