Paulo Santos'  Instablog

By now everyone has heard about bitcoin, the digital money anyone can create. Bitcoin prices have been on a tear lately in a surge of speculation. This surge began even before the Cyprus crisis but got much more media attention because of it.

But this article is not really on how expensive the bitcoin has gotten, or how they might be some kind of alternative money or something like that. Instead, it's on something much more amazing. It's about how bitcoin showcases the incredible strength of Capitalism.

Mining bitcoin

To produce bitcoin, a user must solve a complex algorithm. Also, this algorithm gets increasingly difficult to solve.

To solve this algorithm, programs were first conceived which ran on a computer's CPU (Central Processing Unit).

Then, as people sought ever more efficient and faster ways to mine, miners started using the massively parallel power of GPUs (Graphical Processing Units) typically used for gaming to solve the bitcoin algorithm. This allowed for an order of magnitude improvement in speed and efficiency in mining bitcoin.

Afterwards, the more enterprising miners turned to using FPGA-based (Field-Programmable Gate Array) systems. These are systems which use ICs (Integrated Circuits) which can be configured after manufacture for a given application. They turned out to be an order of magnitude faster than GPUs.

However, it didn't stop there. A few even more enterprising companies went even further. They designed and produced systems based on ASIC (application-specific integrated circuits) chips. That is, these companies went as far as using chips designed specifically to handle part of the bitcoin algorithm! Why? Again to get more speed and efficiency. ASICs turned out to be as much as an order of magnitude faster than FPGA systems.

The power of competition

Given a task which was already being handled by fast computers and a money incentive, the bitcoin community, through sheer ingenuity and the clever use of technology, accelerated the process of generating bitcoin at least 1000 times.

Such is the power of Capitalism and competition. It's this power that's at work every day in every sector that's open to competition.

Conclusion

More than being an alternative form of money or a safe asset, bitcoin is a display of the power of competition and the fruits it can bear when there's a decent monetary incentive.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This might constitute some kind of insight for those not in Portugal. In a few hours, Portugal's Constitutional Court will announce its decision regarding Portugal's 2013 Budget. In this decision, it's likely that the Court will find several measures as being against the Constitution.

This decision by Portugal's Constitutional Court might lead Portugal's Government to call it quits. The Court's decision will mean that the Government would have to drop several measures affecting the country's best-paid pensioners. This in turn would mean that other cost-cutting measures or tax increases would have to be found.

This development has had little media exposure outside Portugal. Tomorrow, the Government will convene after the decision is known today. So it's possible that the government could fall during the weekend, possibly prompting elections.

This, in turn, could have a negative impact on the Euro (FXE) and maybe on the equity markets as well. I must say, however, that I'm broadly positive on the Euro, and regarding the equity markets after a session like today's -- which opened with a gap down - the odds are 2/3rds favorable for a gap up on Monday.

Conclusion

In a little-known development for those outside Portugal, Portugal's Constitutional Court will announce its decision regarding the constitutionality of Portugal's 2013 Budget in a few hours' time. This might lead to Portugal's Government calling it quits over the weekend.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Here's why I say that today's rally seems like it was pre-planned on Friday:

(click to enlarge)

Weird, isn't it?