GoldMoney Founder and Chairman James Turk
TGR: Recently, you talked on the “Keiser Report” about Bitcoin (starting at timestamp 11:20). Does it matter if digital currency has no value beyond accounting? Are there parallels between gold and Bitcoin?
JT: Bitcoin is not only a digital currency, it is a crypto-currency, a technological innovation we have not seen before.
The parallels to gold are quite interesting. I did a study recently for the GoldMoney Foundation showing that the aboveground stock of gold grows by about 1.8% per annum, year after year after year. That number is approximately equal to world population growth and new wealth creation, so gold’s purchasing power has been consistent over long periods of time. Gold mining does exactly what Milton Friedman recommends in his K-rule: it grows the gold money supply by the same amount year after year after year.
Bitcoin is designed in essentially the same way, but instead of mining the earth you are mining mathematical formulas to arrive at a very consistent growth of Bitcoin until 2040, when approximately 21 million Bitcoins will be in circulation.
“Bitcoin is not only a digital currency, it is a crypto-currency – a technological innovation we have not seen before.”
Bitcoin and gold each have advantages and disadvantages. The piece of gold you hold in your hand has 5,000 years of history. Bitcoin has maybe four years of history. On the other hand, because you can hold gold in your hand and store it in vaults, it can be confiscated by governments. Bitcoin, because it is a crypto-currency based on mathematical formulas stored in computers all around the world, cannot be confiscated.
Bitcoin has value to people who understand that confiscation is a real risk. In the last century, Lenin, Mussolini, Hitler and Roosevelt all confiscated gold to increase the power of the state. Once the state controls the money we use, it can control economic activity, which explains what we are seeing today around the world.
Crypto-currencies are here to stay and should be looked at closely by everybody, particularly those who understand sound money and appreciate the value and usefulness of gold.
TGR: Is Bitcoin an investment vehicle?
JT: No, because neither gold nor Bitcoin generates cash flow. Both are sterile assets. Investments generate cash flow. You put your money at risk in the hope of getting cash flow from your investment.
Gold is money. When the price of gold goes up, you are simply taking wealth that is already created and in the hands of people who own fiat currency, and transferring that wealth to people who own gold.
The same concept applies to Bitcoin. Bitcoin is money, not an investment. Its exchange rate can go up or down just like the price of gold. In that sense, Bitcoin could be called a store of value just like gold. The difference is that gold has a 5,000-year history; Bitcoin is much younger. We will have to see how Bitcoin plays out as a store of value in the years ahead, but regardless, Bitcoin is a useful currency because it makes possible low-cost global payments. It is a technological advancement that leaves bank payment systems in the dust.
TGR: Will governments see Bitcoin as a threat because it is an alternative currency not under their control?
JT: They may see it as a threat, but there is nothing they can do about it unless they seize every personal computer in the world. People are studying it, becoming familiar with it. Some day there may be a Bitcoin2 or a Bitcoin3 that is even better than the original.
That is the beauty of technology. Technology enables society to move forward and improve everyone’s standard of life. Crypto-currencies may be the technological innovation that gets us out of our current monetary malaise arising from state control of money and enables us to return to vibrant economic activity that results when we use sound money.