How do you determine Bitcoin’s value? By it’s high energy requirements

There’s been a whole lot of discussion about the looming Bitcoin bubble burst or how valuing Bitcoin isn’t possible because “it’s not a value-producing asset”. Bloomberg seems to have figured out that even if Bitcoin isn’t a bubble, it will still fail because of it’s “exorbitant energy costs“.

We can’t assume that current financial transactions take place over a magic network that doesn’t require any energy to run. It takes energy to print paper money and to run the massive servers that banks and financial institutions use all around the globe. It’s not just magic.

Sid Verma is on to something about Bitcoin’s energy requirements, but he came to the wrong conclusion. Bitcoin’s exorbitant energy cost is NOT going to be Bitcoin’s undoing. Rather, it’s precisely what gives Bitcoin it’s value. The massive amount of energy required to mine Bitcoin means that you can compute a value for Bitcoin (contrary to what the “Sage of Omaha” thinks). Bitcoin will require more and more energy and hardware to continue to mine, increasing it’s real-world/tangible value. Even if energy costs decrease, more energy is required to mine at a far greater pace than the reduction in the cost of energy. The value of Bitcoin has a real-world justification for increasing because we value energy to support our digital world.

If the energy required to mine Bitcion will eventually surpass that of the entirety of Japan, Citigroup is suggesting that governments will tax miners for their high energy consumption. That doesn’t take into consideration renewable energy (there’s a reason why so much mining is taking place in Iceland: geothermal energy) and autonomy of energy. Ironically, this decentralized currency is ideal for decentralized (and cleaner) energy production as well.


Pay Per Mile

The pay-per-mile idea is gaining momentum like a big rig at the top of the Grapevine… Why this would even be a consideration as opposed to raising the federal gas tax is further proof of how our Federal government is lousy at making any kind of reasonable infrastructure proposal.

First, it has been our governments pushing vehicle manufacturers to become more fuel efficient. Didn’t they consider that if you push the vehicles to go from and average of 15MPG to 30MPG you’re going lose half of your gas tax revenue??? Did that not cross anyone’s mind? It’s simple math!

Second, and most importantly, a pay-per-mile tax is a bad idea because it taxes those who drive vehicles that put less wear and tear on our roads (e.g. small vehicles) at the same rate as vehicles that put more wear and tear on our roads (e.g. large vehicles). Unless the government plans on taxing large vehicles differently than small vehicles. Gas tax doesn’t have this problem. Larger vehicles are inherently lower MPG than smaller vehicles.

Third, certain roads require more maintenance than other roads. Weather conditions really dictate how long a road is going to last. So, some poor sap living in a mild climate region is going to be subsidizing someone living in a inclement region.

Raise gas taxes! Or better yet, make roads toll roads… Or even better! Issue Highway bonds (and make the purchase of them 100% income tax deductible)! For those traveling the open road, I’m sure they’ll be more than willing to plop down some money on highway bonds. It’s a good investment!

Sales Tax is Antiquated and Stifles Economic Growth

I’m sure some liberal is going to say that I’m an tax-cut loving Republican without even reading this blog in its entirety or weighing my argument against his/her already set way of thinking about taxes…

Without getting to abstract… I really have been asking myself: What is the purpose of taxation on consumption?

To answer that, I first need to examine some existing taxes:

Taxes on the sale of gasoline make sense. We have public roads. The tax (in theory) should help cover the development and maintenance of those public roads. This seems like a logical. Short of making all the roads toll roads (which is riddled with all sorts of other problems that I’m not going to dive into on this blog), taxation on the consumption of gasoline for the purposes of paying for public roads makes sense.

Property taxes make sense as well. You own property and reap the many rewards of utilities, police, etc. You might be saying, “Wait! I also pay for my utilities.” That may be true, but those utilities are utilizing government property (e.g. land) to transport those utilities. The real issue at hand here is that as a property owner you are using government property that it could otherwise utilize. Hence, property taxes. This tax makes sense.

Sales Taxes… In the two examples above, you are utilizing government property to your benefit. However, in the case of sales tax on a car, tv, laptop, or any other product that a company produces with its own resources, sales tax doesn’t make sense. One can argue that the companies produce products using government property, but that argument is abundantly weak at best. The reality is that sales tax has no purpose other than that the governments found them to be a simple way to tax (and easily increase taxes).

I’m not going to argue that sales tax revenue isn’t used for government services that may be useful. What I’m arguing is that sales taxes have no solid foundation and, more importantly, greatly stifle economic development. In many counties in California, the sales tax is at or above 10% This means that all taxable sales are 10% higher than they really need to be. This means that we as consumers must pay an additional 10% over what the product actual costs us.

We aren’t talking about pennies here! Purchase a $20,000 automobile and it very quickly becomes $22,000. That’s an additional 10% that you have to pay for what? What are you getting for that 10%??? More importantly, what would you do if you didn’t have to pay that additional 10%? Certainly, not everything that we purchase has sales tax on it, but try holding onto your receipts for a year. Add up all the sales tax… That’s a lot of money! What could you have done with that money?

What if you took that extra 10% and put it into a savings account? What if you used the 10% to payoff your mortgage faster? What if you could put that 10% into a college tuition fund for your children? What if you could put that 10% into a fund for your health care later on in life? What if you could put that 10% into a retirement fund? That 10% is going to add up to be quite a bit of money very quickly.

Every sales tax you pay prevents you from spending or saving that much more money. The banks have less money in their reserves (theoretically leading to lower lending abilities) because the government is taxing you 10% Companies have less revenue because the government is taxing you 10% The only entity with more from the 10% taxation is the government.

To be fair, governments do provide jobs to people. However, governments are largely inefficient, and it’s hardly a good idea to count on the government to create jobs with that 10% when there are plenty of private companies that will do much better with creating jobs, innovative new products, and technological breakthroughs with that 10% Governments would be far better off not taking the 10% from their constituents and visitors and coming up with another method to gain tax revenue. I’ll save that topic for another blog.

In short, a sales tax is nothing more than punishing consumers and businesses for doing business.

Progressive Taxation is Capitalism

My friend Jim brings up an excellent point about the redistribution of wealth and communism in his reply to my post about Flat Tax being communism. First, I’ll cover his question of why governments levy taxes. Then I’ll get back onto the topic of the flat tax and communism.

Jim is suggesting that income tax is communism but property tax is possibly justifiable if the purpose of government is the protect and to serve. There are a few problems with this, the most important being that the federal government should have absolutely nothing to do with property taxes. Second, the majority of Americans (and this hold true for most of the world) don’t own real property. Now, perhaps Jim is saying that you should pay taxes on all property you own so that you are paying your fair burden of the police and fire services in your area. Again, does this then mean that people who do not own a house are not deserving of police protection? They may be productive members of society that generate income, purchase cars, gasoline, clothing, rent an apartment from a property owner. They too are deserving of protection under the law.

Now, let’s get back to the purpose of government. There are several levels of government, but the purpose of all governments (at least in America) is the protection of life, liberty, and property. Jim is probably thinking to himself that I just proved his point about the property tax. However, life and liberty still come before property. The protection of these three equalities of all Americans takes place in several different ways via several different government agencies: Military, Police, Fire Departments, Department of Homeland Security, Commerce Department, Transportation Authority, FDA, EPA, FBI, CIA, etc.

All American’s are deserving of the services of all of the above, and all Americans should pay into those services. Now, there may be programs that an individual doesn’t support, but I’m not going to tackle that topic in this blog. Instead, I’m going to ask the next logical questions: Who stands to lose the most if our country in invaded, attacked, or bombed? Who stands to lose the most if there is a fire, earthquake, or other natural disaster? Who stands to lose the most if there is a severe disruption in the availability of natural resources, energy, or foreign services and labor? Not the guy making minimum wage, and not the guy paying 15% taxes (unless you implement a flat tax – communism).

The people who stand to lose the most in any of the above events are the business owners, investors, and wealthy Americans who utilize a great deal more of the protective and political power of or governments. Those who make more money stand to lose more money if something disastrous happens in this country. Therefore, they should pay a greater portion of the taxes. Some (like Jim) might say that wreaks of communism as it is a clear redistribution of wealth. Well, while there are certain programs that do redistribute wealth, most of them do not. Also, one need only look at history to know that a growing and increasingly upset lower-class is the demise of any ruling party.

Take any of the above departments and you will find a disproportionate amount of services being provided to those with greater wealth and income. Sure, there is some money redistributed to lower-income citizens, but again… History.

So this brings us back to the flat tax, which is ultimately the greatest form and supporter of capitalism. Yes, you read that right. A progressive taxation system is capitalism at its finest. How many of our Founding Fathers were in what we’d call the lower class? Was Washington? I think not. Jefferson? HA! Hamilton? Perhaps the closest. Franklin? You’ve got to be kidding me!

How many patent, copyright, and trademark lawsuits are there for the little guy? Barely any, but the giants are in the courtroom all the time. The wealthy utilize our legal system far more than the poor. The law, our government is supported and swayed by the wealthy far more than the the poor. Our governments have been created for the protection of all, but those who are wealthy have far more at stake and are easily responsible for a greater tax burden. In fact, it would be foolish to think otherwise because it would put at risk so much of what business owners and investors have works so hard to gain.

Walmart Bailout?

I’m sure some will say I’m an alarmist. A grand conspiracy theorist. However, bailouts are all the rage for large companies these days. If we look at the reasoning given to us about bailing out the failed, antiquated, and obsolete GM and Chrysler, a Walmart bailout doesn’t seem that far fetched. GM and Chrysler were too large to let fail. That’s what we were told. Yet, they failed anyway, after taking billions of dollars. Let the economic meltdown begin!

Walmart is posting solid earnings you say? Walmart certainly has many things going for it. However, international economics are not working in favor of Walmart. The vast majority of Walmart products come from China. There is incredible pressure on the US dollar against the RMB. In fact, the USD buys a whole lot less in China today than it did a year ago, let alone a couple of years ago.

China has also changed their employment law. While many view it as good for Chinese workers, it has put additional pressure on the ability to get Chinese made goods. The long term effects of this policy are yet to be determined. However, it is highly unlikely that the new Chinese employment law is going to make Chinese made products more affordable.

China isn’t the only place where Walmart gets products. However, Walmart can’t just start sourcing products in another country where the dollar may be stronger and employment laws aren’t changing. First, international patents will likely prevent most of that from happening. That’s a topic for an entirely separate blog (that I’ll probably never get around to writing). As the USD falls, so will Walmart’s profits.

If Walmart executives choose to cash in on the scare tactics used by GM and Chrysler, they could easily squeeze billions of dollars in a bailout. After all, the total number of employees for GM was estimated at a quarter million. Walmart employs more than two million. That’s eight times as many people losing their jobs if Walmart fails. We can’t let that happen, right? Just think of the children!

If you’ve made it this far and think this has anything to do with Walmart, I’ll spell it out right now. I think GM and Chrysler sucker punched America! I think there is a special place in hell right next to people who talk during movies for the executives and politicians who sucked money out of our pockets for that ridiculous automobile bailout.

Magento Enterprise… You Are Kidding, Right?

Before I get started on my rant about Magento, I need to make it clear that I LOVE open source software and I absolutely LOVE this particular open source ecommerce platform. I think that Magento has tremendous promise and is an excellent choice for a company’s ecommerce platform. Now that I’m done with my praise, I’ll get to my rant…

Honestly, they have to be kidding! I know that the whole point of open source is to get the programmers work where they get paid. Hey, WordPress is open source. It’s not like these guys are independently wealthy and just make cool software out of the kindness of their hearts. However, Magento is far from an enterprise level platform. Even with the additional features, Magento is not at that level. Case and point… They can’t even process sales tax correctly.

The latest release of Magento ( didn’t fix a bug that was created when they released 1.3.1. This bug is a rather serious bug that makes Magento practically useless for ecommerce. Since ecommerce is what this platform is supposed to be used for, Magento 1.3.1 and beyond are worthless until they fix this bug. The bug is that no matter how you setup your tax groups, there is no way to enter an order into the Admin interface that doesn’t get charged taxes if you have a tax setup for that postal code.

Now, a careful ecommerce guy will read that last sentence and find another flaw with Magento. Yes, Magento does their taxes based upon zip codes. There is no state in America that allows you to base your taxes on a postal code. Postal codes are setup by the US Post Office (which is NOT a government agency). Our local and state governments recognize cities and municipalities ONLY, not zip codes.

In my opinion, Enterprise level software should be able to handle sales taxes properly. Magento doesn’t. There is plenty of work left for the folks over there before they have an Enterprise level application. How about the fix the community edition tax problems before releasing “Enterprise” software.

Why this Recession is Going to be Worse than it Should Have Been

It’s going to be 6-9 months before things start moving into recovery, and they are going to get much worse over the next 3 months. And that is a best case scenario. Why is this recession going to be so long and so severe? Simple, we denied it was happening for almost an entire year!

Remember, according to our government our economy was fundamentally strong just 3 months ago. That wasn’t the case then. That wasn’t even the case a year ago.

Recessions are fairly simple to recover from if they are dealt with responsibly. Ignoring it for 12 months just dug us a deeper hole. It would be like ignoring a broken leg for 12 months. Your leg would take longer to heal and would probably heal incorrectly (i.e. via $700 billion government bailout = $15 billion automobile industry bailout).

California Proposition 9

Proposition 9: Requires notification to victim and opportunity for input during phases of criminal justice process, including bail, pleas, sentencing and parole. Establishes victim safety as consideration in determining bail or release on parole. Increases the number of people permitted to attend and testify on behalf of victims at parole hearings. Reduces the number of parole hearings to which prisoners are entitled. Requires that victims receive written notification of their constitutional rights. Establishes timelines and procedures concerning parole revocation hearings.

My Take

The purpose of government is to provide protection to people to adhere to the laws. Notifications to victims of the status of their perpetrators is a great way to protect the people.

California Proposition 4


Proposition 4: Amends California Constitution to prohibit abortion for unemancipated minor until 48 hours after physician notifies minor’s parent, legal guardian or, if parental abuse reported, an adult family member. Provides exceptions for medical emergency or parental waiver. Permits courts to waive notice based on clear and convincing evidence of minor’s maturity or best interests. Mandates reporting requirements, including reports from physicians regarding abortions on minors. Authorizes monetary damages against physicians for violation. Requires minor’s consent to abortion, with exceptions. Permits judicial relief if minor’s consent is coerced.

What is particularly funny about the support for this bill is that Yes on 4 and Yes on 8 are in cahoots! They want the government telling us who can an cannot get married. They also want a judge to decide whether a minor can get an abortion or not. We do not need to amend our constitution to give the government more control over us at a younger age.

Testing Obama, Kinda Like That Bush Guy

There’s a lot of crap that Biden has been getting for his comment about terrorists testing America if Obama is elected. Was he referring to the Cuban Missile Crisis? Or was he referring to the attacks of September 11?

Let’s put things in perspective here, my friends (as John McCain would say). Bush, a politician with next to zero experience, gets elected and America is attacked. Were they planning the attacks before Bush was elected? Hell if I know. Would they have attacked if Gore was in office? Who knows.

Having a noob President who also happens to be a cowboy in office certainly would give the terrorists an additional incentive to attack us. It has been well documented that the terrorists are interested in bankrupting America. This is precisely the direction that Cowboy Bush and Congress have been taking us.

However, I’m willing to bet that a McCain presidency is far more likely to result in a terrorist attack on America than an Obama presidency. Why? Because John McCain has shown that he is willing to fight a “war on terror” by invading another country that had nothing to do with the terrorist attacks of September 11. McCain is willing to turn America into a communist country (ala voting for the communist bailout of failing banks in America) and send our soldiers into harms way with misguided and fabricated military intelligence.

Just think about it for a minute. Where was his 30 years of experience when he was sounding the war on Iraq trumpet? Where was all his wisdom when he cast his votes in Congress that put us into the situation we are in now? A lot of good that experience did for us over the last 8 years, right?