DRIGGS, IDAHO – On Friday, I suggested bitcoin is a fatally flawed concept and history will show it isn’t worth anything.

Today, I continue examining this… (More below.)

Coldest, Snowiest Part of America

Greetings from one of the coldest, snowiest places in America…

My family and I are a traveling family. For the past two-and-a-half years, we’ve lived out of a suitcase, traveled around the world, and homeschooled our three children from hotel rooms and Airbnb apartments…

We’re currently back in America, our home country.

This month, we decided to take a six-month break from our travels. We’d gotten a little tired of life on the road. And besides, here in the northwestern part of America, where we find ourselves, winter is coming and it’s starting to get cold.

As a family from Florida, we’re fascinated with snow. So a couple of months ago, I asked Google to find us the snowiest, coldest place in America where we could spend the winter. It suggested the mountains on the Wyoming-Idaho state line, where they get 500 inches of snow a year.

I rented an Airbnb and we moved in last week. We’re going to stay here all winter, getting dumped on with snow…

So far, the sun’s out and it’s still fairly warm here. (It did snow a little on Saturday night, but it has melted already.)

“There’ll be snow on the ground by Halloween,” said the barber when I got my hair cut this weekend. “So make sure you buy large Halloween costumes for your kids because they’ll want to wear lots of warm clothes underneath their costumes.”

At the Root of Bitcoin’s Flaws

Back to bitcoin…

To demonstrate bitcoin’s flaws, we’ve been developing a very simple barter economy.

In Friday’s postcard, we introduced indirect exchange into our little barter economy.

In an indirect exchange, an individual accepts something he or she doesn’t intend to use… but which will help him or her get something they want. We used an example with eggs, bread, and milk.

We said indirect exchange was the origin of money.

Today, let’s develop indirect exchange a little more. We’ll see how money emerges…

How Money Emerges

One day, a nail maker called Smith walks into the store of Jones, a furniture maker.

“I need a new workbench,” says Smith. “I’ll give you 2,000 nails to make one for me.”

“Sorry, I still have several thousand nails left over from the last time we traded,” says Jones. “Come back and see me in six months.”

“Wait… you’re bound to want more nails eventually. And in the meantime, you can probably trade them to other craftsmen for things you want. I’m always getting trade offers from people looking for nails. Nails are a lot easier to trade with than furniture.”

“You have a point,” says Jones. “I’m always struggling to trade furniture for food and the other little everyday things I need. Okay… I’ll give your nails a try instead.”

Jones accepts Smith’s nails and builds the workbench for him. Then, Jones goes to the market with the nails and finds them much easier to trade with than the furniture he was trying to trade with before.

If he gets any resistance from a shopkeeper he’s hoping to trade with, all he has to do is make the same argument Smith made to him.

“Nails are easier to trade with in the market than the thing you make. And besides, you can’t lose, because either you’ll need these nails eventually or one of our neighbors will. Someone’s always looking for nails around here…”

In the months that follow, individuals, one by one, come to realize that – in addition to their value for construction – nails are useful for trading with. People start accepting them in trade and carrying them around in their pockets as Jones did.

In other words, nails have become a medium of exchange, in addition to being a construction material.

Smith sees a steady increase in demand for his nails as people begin to adopt them for other indirect exchanges.

When there are enough nails in circulation for indirect trading purposes, Smith’s production volume will go back to where it was before, when people only used nails for construction.

In other words, like any other commodity in the marketplace, the supply and demand of nails will seek out its natural equilibrium and price.

What’s more, in our little island economy, using nails as a medium of exchange also opens up all sorts of new possibilities… like employing labor and lending.

Golden Rule of Economics

The bottom line is, Smith’s little insight – that nails work better in the marketplace than furniture – was the seed of an explosion in indirect exchange and trade in our little island economy.

And throughout all this, the golden rule always applied: Individuals only produced or traded when it led to them getting something they wanted.

Can you see the first fatal flaw in bitcoin yet?

It’s not a useful material in its own right. And in a pure barter economy, it wouldn’t have a role. It’s just a money substitute.

Now, there are smart people out there who will disagree with me on this. But I don’t think the marketplace will ever accept bitcoin widely.

That’s because it doesn’t come with the guarantee of being useful as a basic material – as Smith’s nails did in the example above…

Bitcoin is not a valuable material. It’s just a clump of electrons. How could Jones be sure accepting bitcoin will lead him to get what he wants in the marketplace?

The answer is, he couldn’t be sure.

More tomorrow…

– Tom Dyson

P.S. In my opinion, there’s never been a more important time to study money and how it really works (once you cut through all the layers of modern finance we’ve layered on top of money.)

The best book I know to learn about money is Harry Browne’s Money Book: 99% of Everything You Need to Know About Money & Its Effect Upon the Economy. The kindle version costs $5.99 on Amazon. (I extracted the conversation between Smith and Jones, above, from it.)

Like what you’re reading? Send your thoughts to [email protected].


Readers chime in on the great skiing opportunities in Driggs, Idaho… the small-town tension Tom wrote about last week… and Tom losing his hat in Glacier National Park

Reader comment: It’s great to hear you landed in Driggs for the winter. I’ve skied there many times and have a friend who moved to Driggs about 15 years ago. It was still a small town back then and had all the adventure. With all of the new faces coming in, you’ll be in good company. It used to be that if you weren’t a member of the Mormon Church, Driggs would not be a place of open arms. I’m hoping that’s changed. As for skiing, there is no better place for a family to enjoy the great outdoors. Some of the best snow I’ve ever skied on was right there at Targhee.

Reader comment: Just read last week’s postcard, “Tension in Driggs.” And I recalled your comment about previously wondering what you will write about now that you are not traveling. As I read about Driggs and the slice of America’s economy you are observing there, it reminded me of one of Agatha Christie’s famous characters, Miss Marple. People always spoke of how she was such an expert on human behavior due to living in her small town of St. Mary Mead.

Maybe you’ll have the same experience living in Driggs. I’m sure there is much to observe about people managing and juggling their finances and investments. It could be a fun exercise of observation. Good luck with the skiing!

Reader comment: Regarding you losing your hat, you could look at it two ways: One being that your hat helped you recover from a dark place and time, and that it continues to play that role. The other could be that you don’t need it anymore because it’s taken all the bad stuff with it. Time for a new hat to match your new life, I think.

Tom, get a cowboy hat for this next chapter of your life! Worn by men of grit and self-determination, and certainly not in vogue in today’s world. It would be a great symbol for your next adventure. Go rogue!

Reader comment: Wishing the best to the Dyson family. What a wonderful experience you and your family are having… Enjoy the fabulous bubble.

Meanwhile, another reader gives his take on real estate, one gives Tom a suggestion for getting plugged into his new community… and another one is jealous of the Dysons’ winter plans…

Reader comment: Yes, the housing market is crazy, but it’s crazy in the cities as well. Bidding wars in LA. I think you are correct with the easy money, low rates, etc., but as a demographics guy, the millennials represent a bigger population bulge than the baby boomers. They are at prime home buying age and have been told they can work from anywhere.

Watch whatever the millennials do, that will be hot. My son was told he can work anywhere. He is headed to Colombia! Your adventure sounds like a great way to live a life.

Reader comment: Kudos to you and the troops, both for the physical and mental transformation. I read a few financial newsletters, including your colleagues Bill, Dan, Teeka, and Jeff… plus a few others. Enjoy your winter extravaganza. Just a thought: Maybe you can give back to the local community with some free economics and investment discussions/courses at the local town hall or library… including, of course, your gold thoughts. It just may endear you to the locals and leave better feelings towards you Airbnb rapscallions!

Reader comment: Thanks for the interesting travelogue, I and am interested in your adventures in your new Driggs digs. I lived in a small farming town north of Driggs, Ashton, Idaho, and commuted to my California office once a month for about 10 years.

Don’t forget to check out Cave Falls, Mesa Falls, and Big Springs while you are in the area. By the way, you are no longer in the Rockies… The Tetons are where the real beauty is as you will see.

Finally, there is no place like Targhee with a season pass in hand. You will want to ski until your legs are jello. Thanks for sharing your experiences, and God bless you and your family. P.S. My wife and I are currently doing something similar.

Reader comment: It’s so nice to see you guys all nesting after your nomadic months/years. I’m sure you’re going to have a fantastic winter in Driggs. Now I wish we’d have fit that town into our recent road trip (which I’ve mentioned to you previously).

I just have a wee issue with your comment that the U.S. is the most beautiful country in the world. As a very proud New Zealander, I have to say, that my tiny country easily rivals the U.S. for beauty (and I believe in many cases, surpasses it).

Reader comment: I must admit I’m a bit jealous. I currently reside in Northern Florida and dearly miss the Sierra Nevadas! Nothing beats a good cigar, stiff drink, and a warm mountain fire after a good meal (and day from playing outside in the snow with the family). An electric fireplace is not the same…

Tom’s note: Thanks for all the kind comments! Please keep writing us at [email protected].