Home > Articles by PoliticalMetals > New Digital Currency backed by nothing outperforming all other fiat currencies

New Digital Currency backed by nothing outperforming all other fiat currencies

BitCoinJust around the time silver suffered a waterfall decline, one little known “asset class” experienced an explosive gain of around 800% in a matter of weeks. It’s not gold, certainly not silver.

It’s BitCoin, a revolutionary 2-year old  Digital Currency that’s not issued by anybody nor owned by anybody, and hence not controlled by anybody. Utilising an ingenious decentralized structure, Bitcoin relies on cryptography and mathematics to ensure security and reliability. If you understand P2P technology, you get the idea.

At first glance, it appears to be a just another high-tech virtual currency backed by nothing, certainly not by gold or silver. But how does it compare with other fiat currencies?

The USD (or any local equivalent) in your pocket is backed by nothing save by the “full faith and credit of the US government” and can be created at will out of thin air. Unlike the USD & all other fiat currencies, new BitCoins cannot be created out of nothing by a select few. Work, in the form of computing resources, has to be expended before each new BitCoin can come into existence.

BitCoin in Circulation

BitCoin creation over time, with a maximum of 21 million. Current BTC in circulation is around 6,519,900

While Ben Bernanke or any other Central Banker is able to create an infinite amount of new fiat money, BitCoin has a built-in mathematical limit of 21 million BTC (unit of BitCoin), expected to be reached in the year 2140.

Perhaps the most significant is the difference in the rate of new money creation. Fiat money is being created at an exponentially increasing rate, while creation of new BitCoins is mathematically restrained to be increasingly more difficult to create over time.

Don’t have any BitCoins but want some? You may want to start Mining for BitCoins before it runs out!… Or considering how difficult it already is, you’ll probably be better off just waiting to invest in a junior BitCoin mining company :)

Could this potential scarcity be what’s driving up the BitCoin exchange rate over the past few weeks? Or was it just due to a burst of publicity. Whatever it is, anything that rises in a hyperbolic manner falls just as fast. See the chart below, captured at time of writing (11.30am NZT).

BitCoin Exchange Rate

BitCoin Exchange Rate as at June 13 NZT


Watch the Startups interview with Gavin Andresen and Amir Taaki, 2 of the developers currently behind BitCoin (recorded when BitCoin was at about $5).


You may want to fast-forward to about 7mins into the video


Updated: 15 Jun 2011 - BitCoin exchange rate has bounced off its recent low as quickly as it fell. Currently between it’s 10 day and 25 day simple moving average.

BitCoin Chart - Mt. Gox Exchange (USD per BTC) as at 21:45hrs 15Jun NZT

BitCoin Chart - Mt. Gox Exchange (USD per BTC) as at 21:45hrs 15Jun NZT

Click on the image for live chart


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