Alternative currencies

[Steven Douglas]

How would you trade with metals? Say I went to a store with an ounce of silver. The previous day, the closing value was 33 dollars. So, I buy 33 dollars worth of goods. The next day, it goes down to 30 dollars/ounce. Would the merchant would lose money from my purchase?

That depends on what you count as money. He will still have the full ounce of silver. If you count the fiat currency as the value indicator, and trade directly in silver, the merchant would naturally gain or lose like anyone else, depending on how that metal performed day to day relative to the fiat currency. In a regime where everyone prices everything, including metals, in fed notes, the only thing that is certain is that the value of the Fed notes will continue to fall over time, as reflected in the general prices of metals in those notes, which will continue to rise.

Under the system I am working on now, you could own and trade with silver holdings only (or holdings for any other metal) at any divisible amount, as reckoned in fed dollars. That would be straight forward, and wouldn't have to be an ounce or a coin of any specific denomination. The merchant could still price everything in USD, and you would pay in exact equivalent USD using silver holdings (at fair market value for that day).


Another option, however, is a COMMODITY POOL, with diversified holdings that are far more stable in value (the more commodities there are, the more price stable the pool holdings).

HOW IT WORKS

Let's say you have 1 Troy ounce of silver, and want to add your silver into the local commodity pool.

Here's what an hypothetical pool looks like on the day you add your commodity:

POOL	Mkt Price	$/grain	Wt.	Grains	Value	Value Dist. %
Gold	1715.20	$ 3.57	50.00 oz.	24000.00 gr	$ 85,760	60.61%
Silver	33.66	$ 0.07	500.00 oz.	240000.00 gr	$ 16,830	11.89%
Palladium	663.00	$ 1.38	30.00 oz.	14400.00 gr	$ 19,890	14.06%
Platinum	1607.00	$ 3.35	10.00 oz.	4800.00 gr	$ 16,070	11.36%
Aluminum	0.92	$ 0.0001319	2000.00 lbs.	14000000.00 gr	$ 1,847	1.31%
Copper	7.20	$ 0.0010286	100.00 lbs.	700000.00 gr	$ 720	0.51%
Nickel	7.67	$ 0.0010957	50.00 lbs.	350000.00 gr	$ 384	0.27%
				TOTAL POOL:	$ 141,501	100.00%

That's the total pool. Holdings in that pool (for everyone) are based on their locked in percentage of ownership of the total value. That is physically allocated according to the value distribution of each commodity (far right column, total mass times the price of each).

Your silver is priced at USD $33.66 when you add it into the pool. Everyone in the pool agrees to trade the fair market value of your silver for the fair market value of a proportionate percentage of the entire pool. In other words, your one ounce of silver is buying into a lot of different metals, even as a lot of different metals are buying into your one ounce.

This zero-sum game exchange for everyone means that you no longer have one ounce of silver. You end up with the following:

YOUR HOLDINGS	Value Dist.	Grains	oz./lbs
Gold	₴ 20.40	5.7 gr	0.01 oz.
Silver	₴ 4.01	57.2 gr	0.12 oz.
Palladium	₴ 4.73	3.4 gr	0.01 oz.
Platinum	₴ 3.82	1.1 gr	0.00 oz.
Aluminum	₴ 0.44	3329.5 gr	0.48 lbs.
Copper	₴ 0.17	166.5 gr	0.02 lbs.
Nickel	₴ 0.09	83.2 gr	0.01 lbs.
	₴ 33.66
TOTAL SHARE:	0.02378221%	VALUE:	₴ 33.66

You now own holdings in gold, silver, palladium, platinum, aluminum, copper and nickel. Your share is now locked in (as a percentage of total pool value), and you are immediately diversified, as are all other holders.

(NOTE: I use the ₴ sign to distinguish holdings from their USD equivalent. It's called the hryvnia sign, and is used by the Ukraine for its currency. All computers have it, and Excel recognizes it as a currency symbol. I like it because it's basically a backwards S with an equal sign running through it)

PRICE OF SILVER FALLS

Now let's say that the price of silver falls to $30 the very next day, as you said. The value of your diversified holding would change to $33.22, not $30. On the upside it works the same way. Let's say that the price of silver (and only silver) changes, this time with an upward swing to $36. The market value of your holdings would only increase to $33.94.

So if you want to speculate, and put your trust in the one metal's performance over all others, stick with a single metal holding. If you want your holding to be more value stable through diversification, insulated and buffered from highs and the lows, you would participate in the pool.

Also note: one thing you cannot do is selectively pull out of a pool (i.e., you can't buy in with silver and extract gold). It's not a gaming and speculation tool, and you would not have the right or the power to "undiversify" everyone else in the pool. It's nothing more than a diversified store of value.

There's a lot more to it, of course, but that's partly it in a nutshell.

EDIT: One more thing. Let's say that you trade with a merchant using a SILVER ONLY holding. The merchant has the option of IMMEDIATELY converting that to a pooled commodity holding, to stabilize its value. But it's a one-way street. You can't convert from a pool to a single metal unless you have someone willing to trade their single metal holding for a pooled holding. That would be a separate exchange, external to the system.

[Elwar]

With the advance in technology, Bitcoins will eventually become an easier way to trade.

There are several competing technologies for just every day transactions using your cell phone. Bitcoin is the only one that is a medium of exchange and a currency.

I fully plan on dropping my bank (or just use it to transfer $ to BTC) once the Bitcoin debit card comes out. It will make it so that I can keep my wealth in the Bitcoin currency and still pay for every day things in the local currency.

[AFPVet]

Wow... look at platinum!

[Steven Douglas]

With the advance in technology, Bitcoins will eventually become an easier way to trade.

I LOVE the entire concept of Bitcoins and Bitcoin technology, for reasons that only partly apply to its utility. While I don't think anyone can predict exactly what place Bitcoins will ultimately have, or what other forms it will take, there is no question in my mind but that they are here to stay, and will fill specific needs and take a very valuable place in the overall conglomeration of economies worldwide. It's not going away. As purely a transfer and conveyance mechanism, it's ability to eliminate an oligopoly of middle men bankster controllers and their fees is quite powerful.

While Bitcoins addresses a number of important needs, it is not a panacea. The existence of Microsoft and Apple did not preclude alternative products and applications, or even "sandbox" products that fill niches, like Java, Flash, etc.,. In that regard, the "store of value" aspect of Bitcoins remains a valid question. My focus has always been how to tap into key parts of the Bitcoin concept, and adapt that to a commodity backed local currency in a way that it makes the currency debasement-proof, to every possible degree and extent that it can be on that level.

The current plan involves the use of modified Bitcoin technology (and all equally open source) in the context of a purely local, commodity-backed currency. On a local level there would be central management, but it would be scripted administration, never real control. And "LOCAL" is the only place where any kind of "centralization" (always independent cells of small scale) makes any sense to me at all anyway. The technology would be modified to fit the application, so, for example, since the scarcity component would arise on the basis of real tangible, physical, locally vaulted commodities, there would be no 'data mining' function to it. Your GPU cannot produce currency in this case. But it would be just a rigid in terms of physical allocation (down to every atom accounted for) with no "currency" issued on the basis of promises--past, present or future, and no contradictory or counter-party claims of any kind involved.

[Steven Douglas]

Incidentally, when I am ready (and I am not now), if there are any who would like to be involved in this process on any level (whether you just want to be kept posted, give general feedback, or might want to be considered for involvement in development on some level), send me a PM and let me know, and I'll add you to my list.

[Seraphim]

I agree ^^^.

Bitcoin is revolutionary in it's utility vs tyranny - as money, it is not tenable longerterm. It is currency. There will be numerous types of Bitcoin currency within 10 years.

There is only ONE gold, for example.

I'm not slamming Bitcoin at all - I like it very much.

[BAllen]

Steven:
So, basically, it's like a mutual fund. If any one takes a hit, you don't lose your ass.
I remember back in '79 gold went up to like 900 dollars an ounce, but the bubble burst and the price went back down. Can that happen again with the current market?
I was reading that Germany had a strong currency in Hitler's reign. It wasn't backed by gold, but by the people. How did that work?

[erowe1]

We need multiple currencies that make it big. So something like Shire Silver needs to make it big. Something like donttreadonmeme needs to make it big. And so on.

I don't think we need to look at it that way. Commodity-based currencies are all inherently fungible. So all that needs to catch on is the concept, whether with one form of currency or many. Actually, it's pretty much automatic that it would be many. But it won't be that they each need to make it big on their own, it would be that they would be the fruit of the general idea of commodity-based currency making it big.

[Keith and stuff]

BitInstant will be presenting at the New Hampshire Liberty Forum.

https://www.bitinstant.com/
https://www.facebook.com/Bitinstant

Liberty Forum
8 hours ago
BitInstant will be presenting at the Liberty Forum.
Learn what Bitcoins are all about!

https://www.facebook.com/LibertyForum


You should check it out. The 1st political candidate (a Ron Paul endorsing NH State Rep.) to take bitcoins as donations will also be at the Liberty Forum.

[Steven Douglas]

So, basically, it's like a mutual fund. If any one takes a hit, you don't lose your ass.

Yes, but a big difference is that a mutual fund is an investment in activity, with the possibility of a return, whereas this currency promises nothing but the existence of its underlying, privately owned assets, and would pay nothing. It's pure warehousing as bailments, with all holdings losing a fixed percentage of value (actual metal allocations) over time as bailment fees. (0.00002738% per day if the rate is 7/8 of 1% per annum). If you wanted to rent it out to someone at interest that would all be external, privately and individually handled. (banking, credit, finance, etc., will never be mixed with the storage, physical allocation and management of the currency itself).

I remember back in '79 gold went up to like 900 dollars an ounce, but the bubble burst and the price went back down. Can that happen again with the current market?

I would say highly unlikely, but of course it could. A lot of people think precious metals are in a bubble, with a lot of different rationale as to why they believe that. Just not many here, as this place is chock full of metalbugs (yours truly included).

If you look at the long term, however, all the short turn ups and downs average out into an exponential curve that becomes undeniable and self evident. It has less to do with the exchange value of the PM as it does the loss of exchange value of the exponentially inflated fiat currency it's priced in. So if you're talking long term, not a chance. Not unless you're betting that the fiat currency supply is going to be choked. If that was ever the case, the price of gold would go down--for anyone with two dimes to rub together (read=hardly anyone)--in the midst of a massive deflationary depression where the entire Ponzi economy is catastrophically full of defaults and wrecked for a time.

I was reading that Germany had a strong currency in Hitler's reign. It wasn't backed by gold, but by the people. How did that work?

By following a Keynesian policy (which Keynes himself viewed with favor at the time), by tying the fiat currency to promises that increased the national debt. Hitler appointed a man named Hjalmar Schacht to be the Reichsbank President in 1933, and together they created Germany's then-version of a deficit spending Ponzi scheme economy, with Germany's new Bills of Exchange. Unlike Fed dollars, that earn nothing, Germany's Bills of Credit circulated like Treasury bills circulating as currency. They were like Lincoln's greenbacks, in that they were a fiat currency printed out of thin air, but instead of promises to later pay in gold, Germany's bills promised to pay 4% interest (in that fiat currency, of course).

What many defenders of this scheme fail to acknowledge (or realize) is that any Ponzi economy, as this one was, can start out with a strong boom, with everyone believing in its magical powers to "create" wealth out of thin air and belief. But then the realities of its fundamentals kick in, and it ultimately ends in a bust. For Germany, there was a bust that covered that inevitable bust in the form of Germany's defeat in WWII.