Reading time: 6 – 9 minutes
Bitcoin is new. There has never been anything like it before. It is also risky. A lot of things need to happen for it to be successful in the long term.
But many intelligent people have missed the fact that Bitcoin is new. I am not an economist or investor, but I have not seen any economists or investors analyze Bitcoin correctly because they do not fully understand what Bitcoin is. This is a serious mistake. Failing to analyze based on correct facts can lead to wrong conclusions.
Bitcoin Reduces Privacy Cost
The main benefit of Bitcoin is vastly reduced costs. Bitcoin eliminates many costs, but one of the most important is the cost of providing personal information to participate in the economy; the privacy cost.
Cash and precious metals have the lowest privacy cost of any medium of exchange. But cash and metals are mostly limited to small, in-person transactions. The world needs something more.
Before Bitcoin, every other financial transaction had an extremely high privacy cost, along with lots of other costs. Checks, credit cards, and bank wires require a significant disclosure of personal information to banks and governments.
Personal Information Is Extremely Valuable
Personal information is valuable. The market values Google and Facebook so highly, in part, because of the enormous amount of personal information they collect. Before Bitcoin, market participants had no choice but to disclose personal information. Bitcoin allows users to protect valuable personal information.
Doug Casey Is Wrong About GoldMoney And Bitcoin
One of the best ways to see how well Bitcoin protects personal information and privacy is to compare it to one of its best competitors, GoldMoney, on those issues. GoldMoney tries to take the private exchange of metals into the information age while protecting personal information by operating in the bank privacy haven of Jersey, in the Channel Islands. Doug Casey is a very smart investor, but he thinks there is little difference between GoldMoney and Bitcoin, except that GoldMoney is better because it is backed by gold. As has been aptly pointed out, Doug Casey is wrong on that issue. There is a huge difference. GoldMoney is not just a gold-backed Bitcoin. GoldMoney costs a lot in terms of personal information and privacy, Bitcoin does not.
GoldMoney Wants Your Location
GoldMoney requires customers to disclose the country where they are located. They only accept customers from about half of the countries in the world. The other half, like residents of Argentina, Egypt or the Netherlands, are prohibited from using GoldMoney.
Of the customers that they accept, some are required to disclose a lot more personal information, depending on the country. GoldMoney follows the know your customer rules so things like name, address, tax identification, photo identification and many other things might be required. There are other restrictions based on where customers live. For example, Germans can’t make payments of metal to other people and physical delivery of metal is only available in 40 countries.
Bitcoin does not know or care what country users are from. It can be accessed by any user that can manage to get on the internet. Third party wallet services mean users don’t even have to own a computer to use Bitcoins.
GoldMoney Centralization Makes Them Vulnerable
GoldMoney is centralized. Every transaction is recorded in their system. A rogue employee could reveal those transactions to anyone they wanted. A warrant or subpoena served on GoldMoney could also reveal lots of personal information. The strong bank privacy laws in Jersey, like those in Switzerland, may prove to be no obstacle for a powerful government capable of strong pressure on the centralized organization. Hackers could also compromise the GoldMoney system.
The decentralized Bitcoin network cannot be pressured by any government. The network will route around any such obstacles. No organization exists to subpoena or submit to a warrant search. The public transaction record is pseudonymous and there are plenty of anonymizing services to eliminate personal identification. There are no employees to go roque. Even a rogue developer on the Bitcoin development team must operate in the open source light of day. A hack of Bitcoin would not reveal personal information.
If you have more than a combined $10,000 in foreign financial accounts, including GoldMoney, those accounts must be reported on the FBAR. You need to report your name, birthday, address, where the account is held, the account number and the highest balance during the year, among other information. I guess it is so the treasury can send you a birthday card.
There is no information reporting requirement with Bitcoin. Although you need to report income, there is no requirement to disclose your payment addresses, details of transactions, the balance, where you store your Bitcoin wallet, or even that the income was earned in the form of Bitcoins.
Sending And Withdrawing Funds
You cannot fund a GoldMoney holding without first having a bank account. For US citizens, that means a lot of personal information disclosures. If you are going to accept goldgrams for labor, services, sales of products, donations, gifts, or transfers, you must disclose that banking information to GoldMoney, which keeps it on file. If you want to fund your account by buying gold directly, you must do so through a wire transfer. That wire transfer information is disclosed to GoldMoney, to your bank and to SWIFT, the main financial transaction network for most of the world.
Bitcoin does not require a disclosure of any personal banking information. You can accept Bitcoins for labor, services, sales of products, donations, gifts, or transfers without ever opening a bank account. You can even buy Bitcoins from exchangers on the street for cash to get some Bitcoins without notifying your bank or SWIFT.
Gold will always be money. GoldMoney is an excellent service. But that service is very expensive in terms of personal information and privacy. The privacy cost is so high, only a very tiny fraction of the world’s population can even use GoldMoney. Bitcoin does things that GoldMoney can’t.
Bitcoin is still risky and some people may choose not to use it. It may fizzle into nothing. But, in terms of privacy, its cost is lower than any information age alternative. The value we give to the banking system is at least as much as the value we give to Google or Facebook. We give them that value by giving them our personal information. Individuals have had no private alternative until now.
More privacy is not the only benefit of using Bitcoin. Most people who use it once, even to transfer an immaterial amount, begin to realize how powerful it is. We will eventually see if the market values those benefits. Smart economists and savvy investors need to understand those benefits before they can make an accurate assessment of Bitcoin.
Support How To Vanish - Tip With Bitcoin
Find this post helpful? Please consider tipping with Bitcoin so we can continue writing great articles.