If Bitcoin had been invented (concocted?) in 1962 on room-sized mainframe computers running COBOL, who would still be buying it today?
2
Please stay tuned for the ICO of TulipCoin.
4
Tim May, 25 years ago, predicted that when cryptocurrencies arrived they'd enable undetectable automated markets for contract assassination. For this and other reasons, expect governmental efforts to regulatevand deanonymize Bitcoin and its cousins.
Recently I offered 4 bitcoins to a car dealer in payment for a $28,000. car. I was turned down.
4
The ultimate value of fiat money lies in the fact that it can be used to pay taxes, and is "good for all debts, public and private". That doesn't prevent a government from inflating its value away, but it's better than bitcoin that has no assured acceptance at all.
5
Ahh, Nooo! I'd trust nearly any government over code! A government may be corrupt or ineffective, but at least you know what you are dealing with and can avoid their currency. With code you know nothing and it can be hacked, copied, whatever by someone you have no idea who.
To think Bitcoin is a real currency is pure folly at best, dangerous at worse. Real currencies, ones that people will really use, are very, very stable and predictable. This is why the US$ is the best currency to own year in and year out. Yet even a few percentage changes can freak people and especially companies as it bring unpredictability. If you don't know what it's going to be worth in a year, let along in an hour, why would anyone store value in it. They don't. Bitcoin and any other cyber-currency is just an illusion used by people who only want to make a buck (that is, REAL money) off it.
6
Any currency that fluctuates as wildly in value from day to day is USELESS for day to day uses to buy anything. Just ask people in Venezuela.
Any system that cannot be independently audited does not deserve trust. All they have managed to do is shift where the problem lies. Given what has happened to the NSA, Equifax, Anthem and a whole arms length list of companies that have been hacked, does anyone believe that their store of value is safe?
10
Mr. Wu may hold "code" in the highest regard. I know that it is as trustworthy as what ever human put it into a computer, which is to say unknowable in the vast number of circumstances. The price of our freedom remains eternal vigilance.
5
Tim Wu has succinctly explained the essence of virtual currency. After all, virtual currency is no less illusional than government issued fiat currency. Naturally, traditional nation state governments, central banks are terrified virtual currency may become more trusted than fiat currency. When this inevitably occurs, nation state governments will become largely irrelevant, without power to control business, commerce, taxation, etc. A new digital financial system that cannot be corrupted is inevitable..
2
Currencies that are trusted are ultimately guaranteed by force, the ability to compel promises made in the currency to be kept. I don’t see Bitcoin, Ethereum or any other TulipCoin being enforced this way.
10
Bitcoin is backed by the full faith and credit of whom? For that reason I'm skeptical that it could replace government issued currency. But as an investment? Why not. People purchase speculative vehicles to make money everyday.
5
The U.S. national debt has surpassed 100% of GDP. We're entering the danger zone and with the new tax cut I'd say we have the pedal to the metal. A currency crisis could be on the not so far horizon.
3
Bitcoin has been used for drug transactions and for child pornography. It's been used to disguise income to avoid tax (leaving the non-bitcoin folks to pick up the slack).
Its worst feature is yet to come. It can become part of derivative instruments with no scrutiny from the Federal Reserve. Should we worry that some form of trickery could corner the market on bitcoins? Should we worry if the quantity of short sales exceeds the quantity of bitcoins? Can we handle a half-trillion dollar crash?
10
Uuh I think you’re trying to say cash is the preferred payment method for nefarious activities. Right?
Really good article. In some way though Bitcoin hasn't really replaced trust between humans with trust in technology; it is just previously we haven't had a choice as to whether we want other people to mediate this trust for us (banks with credit/debit, governments with fiat currency, etc) - now we can take responsibility for this ourselves (if we choose to). For the first time I can send value (as decided by the community) to someone on the other side of the globe without involving either corporations or governments. For me, that is pretty empowering. Want to know more? I'd highly recommend the youtubes of Andreas M. Antonopoulos.
1
As a software developer I find the idea that people are transferring their trust from institutions to code both dangerous and sad.
Bitcoin et al may be secure by today's standards but future generations of coders and hardware will be almost certainly able to wreak havoc on a huge scale.
17
I am a fan of Tim Wu's writing but this column is a bit disappointing.
Bitcoin's original appeal was that it allowed anonymous transactions which was very useful for those carrying out illegal activities. It had nothing to do with concerns about traditional means of payment or traditional financial institutions.
As national governments became interested and moved to squelch the illegal activities Bitcoin lost its virtue as a means of exchange. It is now supported by the tin-foil hat crowd who buy Bitcoins in the hopes that someone else will pay an even higher price. This will end in collapse.
Tulip bulbs had the intrinsic value that they can produce attractive flowers. Bitcoin does not even have that.
22
governments don't print money (or only about 3%), commercial banks with fractional reserves do... that's who isn't being trusted
1
Just wait until the electricity goes out.
5
Sure, that would be a problem for Bitcoin. But it would also be nearly as large of a problem for the USD, considering how much banking and money is moved electronically each day.
Good thing we got off the gold standard huh (sarcasm...)?!
3
Bitcoin's going up because all the coverage on its rise is attracting the get-rich-quick types who haven't yet realized that cashing out is nearly impossible.
The "trustless technology" bit tends to be very overhyped. Bitcoin's technology is fairly robust, but in exchange for that, it's incredibly inconvenient to use, with harsh and cumbersome hard-coded limitations that leave it impractical for large-scale use. As a result, most traders use conventional third-party sites and tools to engage in Bitcoin transactions without using the blockchain...and the trust they place in those third-party sites and tools almost always ends in betrayal. As it turns out, most people building centralized trust-heavy systems around a decentralized trustless technology aren't very trustworthy.
8
I don't own any cryptocurrencies myself but I have friends that do, and none of them have ever had any issues selling shares when they wanted to.
2
Wait until the panic.
1
Blockchain may or may not be the wave of the future; the fact remains that individuals and groups of individuals operating outside of institutions like government and banks are at least as untrustworthy as institutions themselves, and often even harder to hold accountable under law. So I have my doubts. As to Bitcoin in particular, the bubble has inflated more quickly than anything since tulips in 17th century Holland. I'm amazed at the blasé attitude exhibited even by those who know what's going on and how it will end. A lot of people are going to get hurt, and it's hard to say how ripple effect through societies there will be. Massive bubbles occurring again and again, close in time (tech stocks in the 1990s, housing in the 2000s, crypto currencies now) are a sign of systemic decline, and not "creative destruction" in any meaningful sense. Something is very wrong with the global economy, markets, and how most societies are organized. I feel considerable dread that darker times lie ahead.
10
Bitcoin depends on public key cryptography. Quantum computers will be able to "break every single public key algorithm in a trivial amount of time" (see "Will Quantum Computers Threaten Modern Cryptography?" at tripwire.com). Quantum computation is developing rapidly. Traditional financial institutions also rely on public key cryptography. I hope that people are developing crypto algorithms that cannot be broken by quantum computers...
11
This isn't entirely true. The mining algortithm, SHA-256, is relatively quantum-proof based on our current knowledge of quantum computing. Shor's algorithm, the one used to go between public and private keys, is vulnerable, but as long as users don't re-use addresses, their public keys are not known until the coins are already spent. Someone correct me if you know better.
4
I was puzzled by Professor Wu's view that while Bitcoin probably wouldn't ever function well as a medium of exchange because of its wild fluctuations but might still be a useful store of value. The same value fluctuations that make it unsuitable as a medium of exchange make it equally unsuitable as a store of value - unless, of course, the value that is being stored is the ability to engage in aggressive financial speculation. As to the point about not trusting government institutions with the money supply, that seems less plausible as an explanation for what has made Bitcoin popular than the fact that it has a very practical use as a means of hiding profit from illegal transactions (like ransomware). Anyway, the idea that because we don't trust government we should trust "code" (and the benign computer programmers who write it) is non-sequitur. It would make as much sense just to go back to using cowrie shells as currency. After all they are made by God and as we know from the mantra on our coins, "in God we trust."
10
This article promptied me to find out what Bitcoin was and learned it was all about ant miners and data blocks, that and a cross between the black market and a casino. I have no clue as to what this world is about anymore, but hopefully the real ants do and that’s all that matters.
4
"More and more we are losing faith in humans and depending instead on machines." -- this is the wrong conclusion. Often, we are using machines in situations where machines outperform humans in performance and accuracy; using computer vision to diagnose early signs of stroke from MRI and CAT scans is one example. Augmenting human capabilities is a good use of technology by any measure.
1
Josh, augmenting human capabilities for fraud is a decidedly bad use of technology. By any measure.
2
Are you referring to cryptocurrencies or Wall Street? I'd argue the latter is more fraudulent than Bitcoin, at least over the last 12-15 years.
1
Really?
December 4th: https://www.washingtonpost.com/news/made-by-history/wp/2017/12/04/a-new-...
3
Trust the government or not....I am sure that once the bitcoin bubble bursts (as it will) all the "anti-government visionaries" who has lost their shirts will be the first ones to loudly demand the Government(s) to do something to protect innocent souls from the greedy and unscrupulous bitcoin speculators. The louder they are in denouncing governments today, the louder they will be asking for government protection tomorrow.
6
And what did the government do for those law-abiding, government believing folks who lost the value of their homes and found themselves with a devalued house and an upside down mortgage while mortgage bankers, and other irresponsible and dishonest bankers, skated off with their bonuses? And who now people the institutions set up to protect us from further financial destruction. And in the event anyone was slowly climbing out of that financial morass, the new tax plan to siphon off any potential disposable income for those earning or living within five figures. Worried about a bubble? It's surely no worse than believing we should be investing in a home only to see those numbers and neighborhoods crash. Clearly this is a buyer beware opportunity. But these investors know that going in.
6
This seems pretty naive, currency has been digital for a long time. And isn't all currency a societal agreement that the currency is worth something? Even gold could collapse if Elon Musk or somebody finds the right asteroid....
4
Talk of Bitcoin as a currency is simply invalid at this point in time, for the people who have them treat them as investments, not as currency.
Look at the media coverage and price movements. People are excited about Bitcoin because it is ridiculously volatile. That volatility is precisely why it's worthless as a currency.
As long as there is a chance for Bitcoin to appreciate or depreciate significantly in value over a very short period of time, nobody will "spend" or accept one for something of relatively stable value unless motivated by the market itself.
So it should be analyzed like an investment.
Now, equity is supported by expected future profits and dividends. Debt by contractually obligated interest and principal payments. Both are underpinned by business operations that create some kind of value. Both are further impacted by market expectations.
Bitcoin is a string of text in a database. That's it. It is underpinned by nothing that creates any value whatsoever. Its value is based purely on market expectations.
And market expectations is a fancy term for speculation.
So Bitcoin is called a currency, treated like an investment, and, as an investment, its value is purely speculative.
It's a bubble, folks.
Maybe someday the technology could work as a currency, but people would have to start treating it like a currency before that should even be discussed.
36
Yet,
Probably more trustworthy than your average Wall Street Parasite!
1
What does "Wall Street Parasite" even mean?
Owning equity in a company entitles you to a share of that company's future profits and dividends. It's not that complicated.
No parasite necessary.
2
I think the parasite comment comes about because of Wall Street's moral hazard issue. That is the risks they take that win they keep the rewards, the losses get socialised (i.e. we all have to pay them) - hence recent financial crash. I don't think many people are going into bitcoin at the moment expecting to get a refund if it all goes wrong. That is until the banks start buying it - and then they will expect it...
Sorry Mr. Wu, but having been a technologist for over thirty years, I can tell you with absolute certainty that I distrust technology far more than I distrust good government. And oh yeah, before Bitcoin, there was GOLD, another 'wealth storage mechanism' for which there is a fixed amount that countries cannot print more of.
19
Bitcoins has the colorful smell of tulips.
3
We left the gold standard behind a long time ago. If we hadn't there's no way Wall Street could have become the monster it is today. We sold our future for guaranteed gains for a few decades when we came off the standard, and that's exactly what we got. Sure, Bitcoin is purely speculative, but then again, isn't the whole US currency system essentially the same thing, just with a much larger presence and much more short term stability?
sure, you can distrust gold, crypto currencies, and the dollar. Beyond that, not sure what your point is. I don't know where crypto is headed, but I sure wouldn't put my kids college money there. Rich and single can afford that risk.
1
The popularity of bitcoin has nothing to do with mistrust of government or democratic systems. That is well understood and perpetual since the first time a human met another human. That explains the beginnings of bitcoin, at least from the people who created blockchain.
But the current popularity? Simple greed. People don't want bitcoin because it's something they can exchange for goods and services. They want it because they want to turn a pile of money into a larger pile of money with no work. If I hand out hundred dollar bills on the street for everyone who will give me a hug, it doesn't say that I'm popular, it's because I'm giving people money and offering it at a disproportionately high exchange.
Bitcoin is a get-rich-quick scheme, and it reinforces the old PC Barnum truism. The only difference is you're not having to mail a Nigerian prince your SSN#, or do anything else that seems fishy, because so many other people are falling for the scam that it *can't possibly be fake*!
69
Nonsense attitude, jealousy. People risk their money in an investment, it's not some magic, if it were without risk everyone would take the deal.
1
"They want to turn a pile of money into a larger pile with no work" -- how is that different from investing in a company? And why is it only greedy when it's an investment in bitcoin?
Your view that greed is the main driver of interest in bitcoin is completely unfounded. Bitcoin represents a tectonic shift in how humans do business and transfer value.
Do some research on it and you will soon understand what this tectonic shift means and how revolutionary it is.
3
I think you are conflating the Blockchain concept with Bitcoin which was the just the first to use it. The former is speculative, the later a new and better way of managing and tracking transactions.
With all due respect, Mr. Wu, HOGWASH. Bitcoin is being inflated by speculators looking for a fast buck, and there is no evidence that they are treating Bitcoin differently from tulips or junk bonds.
The history of banks is instructive. Banks were a risky investment, with frequent runs and collapses, until they were regulated. They collapsed again when deregulation took effect, only to survive with government bailouts and re-regulation. No one will ever bailout Bitcoin or any of its ilk. When the collapse occurs, if it becomes regulated, it will lose its appeal to the anarchists and speculators. If not, it will lose its appeal to everyone else. Either way, it will fade into obscurity.
26
I'm wondering what Professor Lu has to say about Bitcoin's massive and rapidly increasing energy consumption? See: https://digiconomist.net/bitcoin-energy-consumption
To me it's quite troubling in that it's now using more than 10% of Italy's (for example) energy consumption. Even worse since most of its supply derives from coal-fired plants in China, hence a huge carbon footprint.
15
"Knee deep in flowers we'll stray
We'll keep the showers away
And if I kiss you in the garden, in the moonlight
Will you pardon me?
And tiptoe through the tulips with me"
5
To quote @Naval: "Tulips are not durable, not scarce, not programmable, not fungible, not verifiable, not divisible, and hard to transfer. But tell me more about your analogy..."
To any extent the “Bitcoin Boom” represents a shift in trust from government to technology, it represents an abdication of responsibility - which, by definition, is a job for which only Homo Sapiens applicants need apply.
I guess irresponsible finance and irresponsible “self-driving” cars are to be celebrated. What could possibly go wrong?
2
How can you live in LA yet think that self-driving cars would be more irresponsible than the mess you live in today?!?
2
"well tested computer code" - What a hoot! You're talking to people who get daily updates from Microsoft and Apple.
3
Don't worry. This time it's different.
25
What gives Bitcoin its value is the confidence that someone will give you something of value in exchange. That is the same thing that gives a dollar bill or an old "collectable" postage stamp its value. The value is entirely created and maintained by social conventions and interpersonal trust. If everyone decides tomorrow that the Bitcoin emperor has no clothes, it will be worth nothing. But, obviously, many people have confidence that tomorrow they can get $19,000 worth of car or housing or cocaine for a Bitcoin. I can only look on in wonder. Is there always a greater fool?
19
Relying on the full faith and credit of...the Winklevoss twins? Um, no thanks.
Actually it's the other way around. The Winklevi bought their shares relying on full faith and credit that somebody would pay more for them at some point in the future. So far they've been right.
Oh, and Zuck stole the source code for FB from them. Nobody 'loses' the code that they're using their using to run a business that was interesting enough to leave Harvard for. The idea that it wasn't stolen is just preposterous. So really the twins were right about that investment too.
All in all I'd trust them with my money.
1
What gives fiat currency its value is, at least in part, the fact that it is legal tender for all debts public and private, enforceable with all the force and apparatus of the U.S. government. You will always be able to pay your taxes in dollars. Contracts are written for dollars. Wages are paid in dollars. Loans are issued in dollars. Would you sign on to work for a yearly salary for say 6 bitcoins a year when you know full well that the value can range from a few bucks to 20,000? No one would sign that contract. Hence, it is not a currency... it's an investment and it's an investment with no underlying or intrinsic value.
3
Tim: go with greed and illicit motives. Time tested, reliable, and oh so powerful. As for trusting in code -- really? Post Mt. Gox, post traitor Snowden, post Equifax, I believe the meme is that technology and government are hand and glove or, when they're not, the technology will fail you, sooner or later.
3
Could not agree more
1
Bitcoin is a Ponzi scheme that benefits criminals and drug dealers. People cashing out early will make money. When the whole thing, a so-called "currency" with nothing backing it, comes crashing down those holding this garbage at the end will be big losers, like with Madoff.
19
I think we serfs actually like having something our feudal overlords do not control.
10
With all due respect, I think you "serfs" are deluding yourselves.
2
At the urging of my two millennial sons, I purchased a small number of litecoins for no other reason than to have a "seat at their table". They had suggested it some time ago but I was not convinced that it was a sound investment. Despite their huge profits, I remain unconvinced and in fact have strongly urged them to divest of a substantial portion of their profits. These "coins" remind me, and not in a good way, of the chips that I threw down on the craps and blackjack tables in years past. Sooner or later, the house wins.
16
As I understand it, the solid foundation of cryptocurrency is dependent on human ignorance. Encryption (where the alliterative "crypto-" prefix comes from) depends on utilizing huge prime numbers, which are impossible to calculate on human timescales, and impractical to caculate on traditional electronic computer timescales.
Quantum computers pose a threat to that security-in-ignorance.
I look a decade into the future, and see Chinese quantum computers undermining the anonymity and independence within global commerce, because of libertarian short-sighted techno-utopian fantasy.
6
Might you be extrapolating a bit too much or a bit prematurely? Of the billions of people on this planet, how many own a Bitcoin? Of the hundreds of thousands of businesses in the world how many accept Bitcoin as a form of payment? I think if we have a long way to go before enough critical mass has been reached (if it ever is reached...) to pronounce that Bitcoin has made any sort of big change in the way people behave or think.
6
You may "trust" technology more than government, but technology doesn't have a judiciary, prisons, and a massive army. Trust is a mere component, but if you don't feel like "trusting" the government, you still have to deal with the authorities.
4
The two different forks of Bitcoin now, because of their bubble, are estimated to consume the same amount of power as the nation of Denmark. So yes, the drug dealers and ransomware authors who wish to avoid tracing might prefer trusting a collective financial structure without police, but I'm not convinced by this writer's arguments.
Bitcoin as a "store of value" also strikes me as being no better than gold bars under the floorboards. Both are subject to hype, boom and bust. But gold is also a useful material to work with.
3
There is no Bitcoin boom.
The number of people using Bitcoin after almost ten years is very small. And many of those people are hiding illegal transactions or speculating.
4
It was trading at $1,000 a year ago and now is almost to $20,000.
That's a boom.
But have you seen the prices for magic beans this year? They are up 5000%. I only have a few left,so contact me right away if you want to buy.
Something the writer leaves out is the environmental damage that Bitcoin is creating. To "mine" the currency, one must employ evermore powerful computers since the required code becomes more complex every day. Computers are significant energy drains--especially the high-powered ones now being deployed for this project. Even though more and more electricity comes from renewable sources, the majority still comes from burning hydrocarbons. Ultimately, Bitcoin could become as bad for the planet as gold and silver have been over the millennia.
11
This is what I call "a stretch". The enviromental damage of an airliner jet flying from NY to Paris is more than hundred times than that of a supercomputer running non-stop for a month, when it is supplied by a gas burning power plant.
3
You can rehash various episodes of history and resell it as fresh material, as long as people don't know that history, or do not constantly have it in mind so as to check. An old joke is as good as a new one if the audience has not heard it. If they have, then meh. And so it is with this piece - meh.
The "blockchain" in software is an analogy to physical gold in that it is an ultra secure (by it's structure and redundancy) record keeping device. Gold is valuable for the same reason, you know what it is without too much danger of being defrauded.
With gold in ancient times, it was the stamp on the coin ie the data, that let you know the value. For modern gold in vaults, it is the data about the gold bars, the stamps indicating serial number, purity and weight, that matter. The weight is data that can be easily checked and not easily faked. This stamping and numbering is old school data technology, but it is data technology.
People have been relying on digital technology for many decades, large mainframe computers held our important records for many years. So we've been trusting data forever, and digital data for the full lifetimes of most of the people on the planet. Had the writer here simply explained that the real change is a new awareness of technology not technology itself, I think the issue would have been better addressed.
7
The fact is that for whatever reason, if there wasn't the possibility, and current performance, to gain large profits with huge sums of investible funds by people with those funds, neither the technology, nor seeming lack of oversite by any person, organization or government would count and Botcoin would be just another piece of software floating around the internet. It's profit and invisibility that makes it popular with the people it is used by.
The convertibility of Bitcoin "funds" to goods and services seems to be problematic and the virtual wealth that may be generated by it would need to be a recognizable currency to be traded among all other currencies.
Any currency is usable because it has attributes, most of which aren't associated with Bitcoin, that make the trading of products and services for it understandable and acceptable to society.
3
Both the popularity and increasing price of Bicoin could be related to its ability to act as a currency that leaves no banking trace when one converts other currencies to it and vice versa. In other words, setting aside large fluctuations in its value, it can be viewed as the perfect financial instrument for money laundary. As such, it is not a big stretch to equate high price of Bitcoin with high level of corruption, wherever it happens.
7
Virtual money for a virtual existence. Considering that we are rapidly doing everything we can to make the plot of Matrix a reality it is reasonable to suppose that humans will look to tech for protection but what a world. Like looking at a post nuclear world, who wants to live there?
3
"It is a trend that transcends finance: In our fear of human error, we are putting an increasingly deep faith in technology."
There's definitely a trend here with humans relying more and more on technology. However, let's not forget that humans wrote the code behind bitcoin and other blockchain technology. All code, even open source code, can have bugs (do I need to remind anyone of heatbleed?).
Btw, Tim, I did just finish The Attention Merchants the last month. Great insights there!
2
Well said Mr. Wu! In our hopelessly backward and inward looking Trumpian society, it is only a matter of time before our mountain of debt causes a global financial collapse, and rampant inflation craters our currency. But crypto-currencies may be able to withstand the economic and moral corruption of our ersatz political leaders. Ironically this will require the cooperation of a global free society that can support and protect extra-governmental cooperation. Fiat money will be pushed to the periphery as informed free agents shuttle from one national currency to another to leverage the value in their crypto stores, and pick and choose their end-use translational currency , free of the corrupt influences of multi-governmental monetary policy. Bitcoin = power to the People!
1
Bitcoin - power to hackers, you mean.
1
Yes, the global free society. There's a well organized group.
3
Bitcoin is "Fiat money" by it's very nature. It has no real value, as it's extreme volatility shows.
I guess one of the main questions for me is how much value can the blockchain hold and when it is near capacity will it simply becoome more like dogs of the Dow or continue to expand as bitcoin price? In other words is the price of a bitcoin infinite?
1
The price of Bitcoin is only limited by the upper capacity of human stupidity. It's value is 0. Judging whether the capacity of human stupidity is infinite or there is a limit on the capacity will have to be figured out by someone smarter than me.
3
Or, worse yet, what will the value be when
you have all those bitcoins in your hand
and there's nobody left to sell it to?
1
Bitcoin is not blockchain. It is a manifestation of the idea of blockchain, just as the Stanley Steamer was a car. Bitcoin is an experiment that has gone off the rails, and serious financial thinkers should be concentrating on blockchain and forgetting entirely about the few kooks who are obsessing about their bitcoins.
5
This article is stunning in that its premise is entirely incorrect. Bitcoin's surging popularity isn't a response to the inherent instability of manned institutions. After all, those institutions are far more stable than Bitcoin will ever hope to be... and for the true tinfoil hat folks, gold can run circles around Bitcoin as a store of value and a medium of exchange. After all, Bitcoin has already proven that it's hackable and unlike bank accounts, there is no FDIC to compensate you for your losses.
Therefore one has to look at its primary characteristic, namely, its ridiculous and wild fluctuations as its primary feature and not its flaw. In an era of reasonably steady growth with few true consumer revolutions on the horizon, adventurous money has to flock somewhere. In the early internet age, it wasn't clear which companies would emerge as dominant, though it was reasonably clear what the potential value proposition was. Bitcoin has the opposite problem. It is abundantly clear who the prime mover is in the cryptocurrency realm, it just isn't clear what the value is.
I bet the majority of people that own Bitcoins don't think of it as a form of currency or a store of value... They generally think of it as a novel volatile asset class (think Tulip bubble) that can potentially earn them a lot of "real" money. They are just trying to time the market. Now that real money is actually at steak, people are going to get hurt when the Pyramid falls down.
48
I love "tinfoil hat folks." Never heard that one before, but I will remember it.
You are incorrect that bitcoin has been hacked. It has not. Some central exchanges holding bitcoin have been hacked.
And history has plenty of examples of gold being looted.
1
"Bitcoin has already proven that it's hackable"... what are the sources for this? (please don't send anything about hackable wallets or exchanges)
1
Great article, spot on. Bubble/craze economics aside, Bitcoin is at the ever-deepening confluence of (a) government distrust and (b) tech deification.
Though to be fair, the Indian government's demonetization is not an example of a government either "print[ing] money recklessly or seiz[ing] wealth brazenly from their citizens," though it was unpredictable and unlikely to inspire confidence.
3
This is really the essence of the Crypto Crazy. The game is right around the size of Global Gambling, Pachinko and Charitable giving. Three economic sectors where people are either paying for entertainment or giving money away to some sort of cause that they believe will make the world a better place tomorrow in the hope that they will hopefully benefit from that potentially better tomorrow. So there is a significant faith element to the phenomenon and parallels with religious fervor are much more realistic than comparisons to gold or real financial products that do not go around masquerading as new messiahs.
1
Despite the concluding paragraph this is a libertarian utopian argument that normalizes distrust in government. Technology will always be overseen by humans. Humans will always be fallible. Government - also run by humans - must be strengthened and watched over to maintain the rule of law and police bad actors.
Libertarian technologists love to explain how smart they are not needing government, that is until they need a fireman to come save them from their burning house.
Have faith in American democracy not in machines.
38
Bitcoin and its underlying blockchain technology promise to improve democracy, not replace it. I would suggest you spend a lot more time researching it and avoid pigeonholing it as "libertarian." In many ways, government can become more efficient for the benefit of all with the help of blockchain technology. So check it out and learn more about its revolutionary capabilities.
Bitcoin is a classic Ponzi scheme.
It was originally pitched as a currency, but now everyone acknowledges that it can't function as one, whether due to is volatility, the huge amount of electricity it consumes to operate, or the limited number of transactions it can accommodate per second.
So now, people pitch it as a means of storing and growing value. But it can only store and grow in value if someone else will pay you at least as much as you paid for it, if not more. And someone would only do that if he or she thought that someone else would do the same for them. At some point, there won't be any more fools left, and the last ones in will be left holding the bag. Plus, who's to say that Bitcoin will prevail over the thousands of other, open source crypto currencies out there?
Will a lot of people who already escaped have made a lot of money? Yes - they will have a lot of money, to be sure, but only because it has been redistributed from those who bought in later. No new wealth is being created - it's simply being moved.
51
The new technology here is that someone has developed a digital ponzi scheme. I don't think anyone predicted it's success and surprised even the perpetrators, whom I'm sure aren't too happy about the potential of being held liable for their actions by the protectors of real currently: the government.
4
Let's hope that we never trust code. And I say that as someone who writes code. The fundamental rule of coding is not to trust code! It's not just that you'd better test code you write, and you'd better verify your tests... It's that code always has bugs even with the best testing, and all code embodies the frailties of those who made it. It will never be better than its creators.
Don't trust people? Yes. But don't trust code. Because code is people.
29
No soylent green is people!
1
Do you drive - do you fly - have you taken an elevator - then you're trusting code.
I have yet to read an explanation of bitcoin that would convince me to buy even one at any price, let alone at the current inflated rate. I have an old bike I would not trade for a bit of the bubble. I do not understand how investing in bitcoin is not the same as a Ponzi scheme.
28
I agree. I have a good friend whose adult son living in California and a friend of his invested around a hundred bucks or so in Bitcoin and have already made $18,000 in a short period of time. Of course they are thrilled and so is she as she has frequently had to send him money. I don't think they see it in terms of distrust but as a means to get rich quick.
I told her I don't know a lot about Bitcoin but from my perspective they'd better make their stash and get out. If it seems too good to be true it probably is. (I know this saying is worn to the bone, but I couldn't think of another one that was more appropriate.)
3
Investing in Bitcoin directly is not for everyone, especially not in the United States where banking and the Dollar are well-regulated and in the hands of trustworthy actors. However, in countries with mismanaged financial systems and governments like Venezuela, it is truly the only option for them to escape their countries draconian monetary policies and save their wealth in a way that requires no human institution or money transmitter to steal their hard-earned capital. With nothing but a handful of words memorized, they can take their money and exit the system -- something impossible to do even with paper currency or bars of gold.
Bitcoin is different from a Ponzi scheme in that there is no institution or individual who can turn off the system or runaway with the money. Even if every single Bitcoin miner or currency exchange across the globe were simultaneously shutdown, the ledger containing every single transaction and Bitcoin holder would still exist on every computer with a full node Bitcoin wallet. It would remain an immutable ledger that could be resumed at any time with only a handful of computers to secure the network through consensus.
Bitcoin reminds me of the child stories of Stone Soup and The Emperor's New Clothes.
1
The idea of money is enshrined in its ability to facilitate exchange of "skills" - e.g. my ability to build furniture and yours to grow food; it is much more convenient and expedient than barter. But it depends totally on trust as a reservoir of value. While it has been backed by commodity (e.g. gold) in the past today its mostly one piece of paper (or coin) for another.
Unfortunately over time, the store of value promise has overtaken the exchange of skills quality and in doing so, it has brought out the worst in us.
And so for Bitcoins. Its backed by nothing under than the effort that went into solving the math underlying its generation.
(See "The Color of Money section at http://www.contingenciesonline.com/contingenciesonline/july_august_2017?...
While it has the appearance of solidity of code I is important to remember that it is completely dependent on its transferability and hence on electronic processing. Whoever controls the grid (i.e. the internet) will control the currency. Another huge risk is Cybersecurity.
6
This article suggests that bitcoin has become popular as people have lost faith in the way that humans have poorly managed monetary policy. Fair enough but who is behind the bitcoin technology and the algorithms behind this monetary technology? You guessed it, other humans. At least in the case of sovereign governments you know these humans. In the case of the bitcoin humans, these humans are unknown. The bitcoin humans are only beholding to themselves and market forces. There is no social policy behind what they do as a means of moderating their influence and behavior. Furthermore how many people truly understand the bitcoin phenomenon?
15
I see what you're trying to say, but I don't interpret it that way.
You're right that, at the beginning, humans (or human, singular, depending on the origin story you choose) created bitcoin on the blockchain, but the alleged beauty of the system is that (1) the technology is free to view and (2) it is no longer in the hands of humans. So, unless I misunderstand the technology, it sounds like it is fair to say that humans don't control it anymore.
Also, I think there definitely is a social policy inherent in this, whether we agree with it or not. I understand that policy to be one where people want a decentralized system that tracks and doles out money, rather than a centralized bank, that might be subject to corruption, theft, poor decision making, etc. If it works as well as its creators hope, then the policy is one of trust and predictability.
Finally, I'm not a tech expert, but I get the sense that, while many people don't understand the phenomenon (or at least where it's going), many people do understand the technology.
I don't own any bitcoin and I'm not an IT guru. But I'm glad there are people out there experimenting with this.
12
What you are effectively saying is "I only trust natural phenomena", since humans are obviously involved in anything one would consider technology, from the wheel on up.
It works via asymmetric encryption technologies and digital signatures, both of which are already the foundation of data and internet security. There is no need to 'trust' anyone in this scheme, since it is built on the above foundation and all of the data a transactions are clearly visible and shared for all to see.
The trust is based upon the fact that it is very difficult to find the 2 huge prime numbers which were multiplied by each other to yield another huge number. When the time comes that quantum computers can easily solve that problem, then this scheme will be broken, as will all existing asymmetric encryption technologies. Trust me...
3
Fascinating article and response. This is why I subscribe! I would also add that investors will seek any opportunity to make money. Just make sure you are not the last one holding the bag. Although, I do feel like a double idiot for not buying property or bitcoin during the economic downturn.