During the Viet Nam war era, President Johnson spent a great deal of money trying to win an unpopular war while simultaneously launching the “War on Poverty,” intending to eliminate poverty in America. Together these two efforts consumed hundreds of millions of dollars. President Nixon took office following Johnson and continued costly Federal efforts to reduce poverty.
During the early years of Nixon’s administration, the U.S. also suffered a serious trade deficit. The country was buying far more from other countries than it was exporting. As a result, many billions of U.S. dollars were held by foreign companies and governments. To make matters worse, unemployment in the U.S. was greater than six percent and inflation was running at almost the same level.
Due to these monetary woes, foreign governments began to view the U.S. dollar as weak. Concerns grew that those countries would demand the U.S. exchange its paper money for gold. To prevent this, which would have required more gold than the U.S. owned, President Nixon declared that the U.S. dollar could not be exchanged for gold any longer. In short, he took the nation off the gold standard.
This created what is known as fiat currency – money that has no intrinsic value (like gold and silver coins) and nothing standing behind it except the belief that the money has a certain value. The United States and most nations conduct business today using fiat currency. Governments can print as much fiat currency as they wish to fund special programs, wars and other political and social initiatives. However if, money is printed without some measure of control, inflation occurs, causing the cost of everything in the economy to increase substantially.
Bitcoin is a form of digital currency that is produced by computers, not by governments. The rate at which Bitcoins are created is strictly limited by the software used in their creation. It is not possible to flood the market with Bitcoins. Further, the total number of Bitcoins is scheduled to reach about 21 million in the late 2030’s, after which no additional Bitcoins can be created. The software thus controls the amount of electronic money in circulation to avoid inflation. Bitcoins have a value that can be translated into dollars, Euros and other conventional fiat currencies via various on-line exchanges.
Bitcoins are the invention of a person known only by the pseudo-name Satoshi Nakamoto who published a paper that spells out how a “peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Anyone who possesses Bitcoins can directly pay any other person in the world for products or services rendered if that person agrees to take payment in Bitcoins. The value of a Bitcoin is determined entirely by the supply and demand for Bitcoins. At present, in 2013, the total value of Bitcoins in existence is somewhat more than $100 million.
In their earliest days bitcoins were used, by some, to buy illegal drugs and to gamble online. This caught the attention of U.S. Senator Charles Schumer who sought, unsuccessfully, to make bitcoins illegal. Today they continue to be owned, spent and received legally. Research shows that a substantial majority of all bitcoins produced to date are held in savings rather than in circulation, although hundreds of on-line vendors accept bitcoins.
Yes! They are legal, and a growing on-line community accepts bitcoins as readily as dollars, Euros and yen. Visit the Bitcoin Foundation to learn more, and the Sound Money Campaign to gain an in-depth appreciation for “honest money.”