Friday, October 18, 2013

Gold versus Bitcoin

My advisory to pull money from the banking system has resulted in number of commenters hailing bitcoins as the solution to the banking system dangers. It seems their idea is to move all their funds into bitcoins. This is a dangerous idea on a number of fronts.

First and foremost, investments and cash holdings should have some degree of diversity. It is absolutely insane to put all ones funds into one vehicle, especially Bitcoins, where it is unclear what further steps government authorities will take against this instrument.

The shutdown of Silk Road and the arrest of Ross Ulbricht, plus a number of Silk Road dealers, shows that even the most careful operators were not careful enough to escape being caught by the government.

Unless extraordinary precautions are taken, Bitcoin usage is an open book. Once the government knows your bitcoins, it can follow your blockchain activity from the day you bought your first bitcoin. And don't tell me your bitcoins can be mixed via outfits that will disguise you as the source of your bitcoins. How do you know such bitcoin mixers aren't being monitored just like Silk Road was? How do you know that the some of the mixers aren't government investigators that are tracking the bitcoins they give back to you? Bitcoin mixers strike me as exactly the type of activity that government regulators would consider money laundering.

Bitcoin purchases are not, in other words, going to allow you to escape the prying eyes of government, rather it will make tracking your every move that much easier.

Now consider gold.

An old  Swiss proverb goes:
Gold has no smell.
It means that gold can not be tracked.  It doesn't reveal where it has been. If one gold coin is discovered on a person, it does not link back to the other 1,000 gold coins back at a person's home. It does not reveal where the coin that is on the person came from in the first place. Gold is a much more of a privacy oriented vehicle than Bitcoin.

This doesn't mean that you shouldn't have any bitcoins, like I said, diversification is important, but I would hold $100 of gold and silver to every $1.00 in Bitcoin.


  1. What happens if/when the Feds get to Ulbricht's ~$80mm worth of bitcoins, which currently are not part of the "bitcoin supply" since they can't currently be used to bid up assets? The feds might flood the market with them, causing a huge spike down ... the market will recover from that one time sale, but the supply of bitcoins will increase enormously as, apparently, 5% of all existing bitcoins will be available for use

    1. Bitcoin is already inflating at roughly 3600 coins per day (block rewards of 10 BTC every 10 minutes, or 24 * 6 * 25). At 148, that is over 500,000 million dollars a day. We have 12 million BTC and that pool is rising at 3600 to 4000 coins a day.

      Adding back a sudden 5 percent isn't going to increase the supply of Bitcoin "enormously", but it might delay the rise in price of BTC by about six months. Nothing to really worry about.

    2. Gold may have no smell, but Gold shows up on scanners. Any interesting amount of Gold is hard to hide.

      Bitcoin is just like an offshore account where nobody can break into your account without your private key. Secure your private key, and you are safe.

      Gold is expensive and difficult to secure. That is why we give it to Banks with Vaults. Then trust them that they will not give your gold to someone else.

    3. There is a way to hide coins from scanners. There is a cooper coated paper that you wrap them in and it can't be detected. You can buy it on the internet.

    4. The govnt is already squaking about placing internet controls....what happens to bitcoin if they shut it down?

  2. Gold > Bitcoin
    Bitcoin is cool, but it might just be a fad.

    1. The internet was a fad too. Things start at the beginning.

    2. Notice he didn't say bitcoin ís a fad, inferring it is worthless, he said it "might" be, as opposed to gold, which has a millennia long track record, which is why he prefers it.

    3. The internet is not a fad by definition, something is only a fad if it is fleeting, a classification you can only give in hindsight (you might be confused with a 'trend'). He doesn't know this for bitcoin yet, hence his use of the word 'might'. Notice he's not saying bitcoin *is* a fad, inferring it's not worth consideration. On the other hand, gold has a millennia-long track record, it has proven it's not a fad, which is why he prefers it over bitcoin.

  3. Receipts for gold purchases can be tracked, right?

    1. Cash can be tracked. Pay with bitcoin.

    2. "Cash can be tracked."

      I suppose this is possible if you are transacting in serialized bills that are being recorded on a ledger someplace, like bitcoin I suppose.

      The only time I seem to recall such a tracking in cash is if you are a drug dealer being profiled by law enforcement or something along those lines.

      Paying with cash is pretty damn anonymous if done right. You certainly don't have to wash it through two corporations to get anonymity.

    3. Luke-Jr, Bitcoin developerOctober 20, 2013 at 7:41 PM

      Bitcoin is easy to trace, compared to cash.

  4. A little knowledge goes a long way.

    First, some background:

    Here are just a few mixing/anonymizing tools currently in use or in development:





    BitcoinFog (shared spend)

    CryptoCurrency Exchanges:

    Shared Wallets:


    Etc., etc.

    Simply run your coins through at least two of these services (reduces the chance of them both being a "honey trap") before spending. You can check the traceability or "taint" at

    Bottom Line: It is not too hard for someone to mix their coins if they are determined to protect their privacy. This will get even easier in the future because the coders are rising to meet the market demand.

  5. The old Swiss Proverb that gold has no smell may have come from a story of the Emperor Vespasian:

    "When Titus found fault with him for contriving a tax upon public conveniences, he held a piece of money from the first payment to his son's nose, asking whether its odour was offensive to him. When Titus said "No," he replied, "Yet it comes from urine."

    Suetonius, _12 Caesars_, "Vespasian"


  6. Fingerprints on gold coins can be tracked. This is a spurious argument. There is plenty of info out there about how governments other that the US are approaching Bitcoin, from the downright friendly (Germany, Finland, Iceland, Belgium) to the hands off (Canada, the UK, just yesterday China).

    The fact that the feds caught Ulbricht but have not been able to even access, let alone control the alleged 80 million USD in bitcoins (which incidentally was never the case, as that was only the amount of BTC *transacted* through the Silk Road, not in their possession) is pretty clear evidence of the fact that Bitcoin actually works.

  7. Capital controls coming to America, feds printing like no tomorrow and default looming over the horizon. Think your money is safe in Gold? Think again. The US made gold illegal to Owen from the 30's to the 70's and gold confiscation brought pennies to the dollar. Bitcoin is way better that gold IMHO

    1. Guy Ferrante, you're not entirely correct. The gooberment only outlawed the possession of more than five ounces of gold Per Person. That was a Lot of purchasing power back then. As I understand it, a family of four could have legally had 20 ounces!

      The gooberment can only outlaw something so much before the law abiding refuse to obey.Pardo's law, or something like that.

      Even if the gooberment did outlaw gold, consider how effective they've been in outlawing drugs, ...or speeding. The gooberment cannot control those physical things (so far) with an absolute iron fist. The same might not be true of the electrons called Bitcoin.

      Possession is 9/10's of The Law.
      Gold shines, Bitcoin has no luster.

      - RothbardianamericanHelot

    2. My grandfather stashed his gold He left me and my cousin a stash after passing away! In fact, most people back then did exactly that and did not turn in their gold. They used a bit of it and passed it along to family members. Diversification is good but what happens if/when the govnt shuts down the internet?

    3. This is one of those tropes that continues to be put out there. It bugs the hell out of me. I'm pro bitcoin AND pro gold, but the thing about the government shutting down the internet is pure populist fantasy. EVERY SINGLE DEVICE connected to the internet is capable of serving web pages. In order for them to ACTUALLY shut down the internet would require them to shut off all of their satellites, the hardline phone service, all cellular networks, and jam all radio frequencies. This would cripple THEM more than us. The 'net will be there after the government is gone.

    4. Go see "Gravity"

  8. Bitcoin is just another asset. It has its strengths and it weaknesses. The same goes for gold, silver, stocks, bonds, five gallon buckets full of Bic lighters, etc. It doesn't matter what your favorite asset(s) is/are as long as you spread out your risk.

    Wenzel is right: diversity is key. Don't get obsessed with just one asset as a hedge against the coming economic inevitability.

    All that being said, I knew Bitcoin was something to take seriously when I heard Chuck Schumer have a stroke about it in public. : )

  9. One other asset to consider is .999 silver coins meeting the AOCS standard. If you deposit these at the Free Lakota Bank, which is on a "sovereign" Indian reservation in South Dakota, they will pay you a good rate of interest, payable in sliver, on 1-year or longer term accounts. Also, there are foreign banks in Panama and Australia that are still friendly to Americans. They also pay higher interest then US banks.

    1. Free Lakota Bank? Now I don't read much news but I know this info is trouble.
      See the following:

      Caveat Emptor

  10. Except gold HAS a smell: and they *will* steal it from you.

    In contrast, look at how the shitheads of the FBI could NOT steal the big stash of coins that Dread Pirate Roberts has.

    Bitcoin might have a smell, but it is invulnerable to theft.

  11. The article is interesting, but as a German native I have to inform you that there is no such thing as this old Swiss proverb. The author might have thought of the proverb "Geld stinkt nicht", which comes from the Latin "Pecunia non olet", but this only means that money (instead of gold) has no smell.