Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Monday, October 9, 2017

The Bitcoin Mirage

Let's be honest with each other here, Bitcoin is more of a home science experiment gone amok than a legitimate form of currency. In fact, Bitcoin far more resembles a classic Ponzi scheme than it does a currency, or a monetary system. It was created by a phantom figure known as Satoshi Nakamoto, whose identity has never been confirmed. The Japanese translation of his name roughly equates to "Central Source Wisdom (or Reason) in Japanese.

The basics of Bitcoin resemble a version of a video game you might play from your PlayStation. To enter you must get a "wallet". To create wealth you must "mine" Bitcoin. The mining process was easier at the beginning of the Bitcoin system - known as the "Genesis Block". However, the Bitcoin program was designed to make mining more and more difficult as more and more people joined the process. It has become so difficult that many groups of Bitcoin 'miners" have joined together in pools to share rewards, rather than strike out on their own and have nothing to show for it after months of work. Hence, the Ponzi scheme nature of Bitcoin. Easy money early, but as the pyramid grows the easy money gets to be less and less. Imagine yourself playing a simple video game that has you set up mines here and there, and transporting the "product" back to your fort. As your product grows you can cash it in for stronger fort walls, better soldiers, etc. You get the idea. Essentially, this rather basic concept is the Bitcoin concept.

Beyond the video gaming and Ponzi nature of Bitcoin, there are numerous, serious fundamental flaws in the concept. Firstly, and most importantly, Bitcoin is a decentralized currency. In other words, it is not regulated by anything other than a computer program - essentially. There is no governmental control. There is no central authority like a central bank. In this sense, Bitcoin is almost an anarchy currency - with the important exception that every single transaction of Bitcoin is recorded. Fundamentally any currency, whether gold, salt or paper currency, has as its primary objective to regulate the consumption of resources by people. Given that currency regulates consumption by citizens, and citizens belong to nations, and nations control territory, and territory produces resources, it has always been the case that nations have there own currency - or in the case of the European Union a supra-national currency. The one constant feature is these nations, and even the EU, have governments responsible to their citizens for policy, including the regulation of resource consumption. What Bitcoin attempts to do is take away the regulation of consumption from the state, including the responsibility for that regulation, and hand it over to a computer program that is not responsible for its decisions to anyone. A truly bizarre state of affairs for the human race - one which you might have seen in a sci-fi movie from time to time.

The most dangerous concept of Bitcoin is that it is not rooted in value, but rather transactions. In the Bitcoin world, transactions create value. Essentially, it has no intrinsic value. By contrast, gold is a commodity that is very limited in quantity, is physical, and is almost indestructible. What Bitcoin does is actually emphasize the basic fundamentals of our current financial state. The world now runs on debt rather than value. In this way it regulates how much each person consumes. For example, if you want to purchase a boat, but do not have the necessary cash to do so, you must have enough debt room to borrow to purchase that boat. More often than not, in todays world, you have very little physical wealth to back that loan. However, allowing you to buy that boat now, as opposed to when you have enough dollars to do so, allows companies to keep selling, growing, and so on. Bitcoin takes that a step further. Instead of having debt that is measured in dollars, which have now lost most of their value due to unsupported borrowing, a new Bitcoin system will not require any physical constraint to consumption.

Bitcoin represents a new generation of irresponsible economics, designed primarily to serve the individual rather than the collective society. Its inevitable result is the stripping of social constraints on consumption. For instance, medicare may be paid by taxes in one country, but another country may require private payment for the same services. In a Bitcoin world the transactions for such services would be between the doctor and the patient, leaving no room for societal values. In this sense, Bitcoin represents an extreme Libertarian view of the world. After all, if you take Bitcoin at face value, and take it to its logical conclusion, a Bitcoin world would be dominated solely by Bitcoin transactions - the world currency. If this isn't the case why does Bitcoin exist? It's the old "half-pregnant" argument. There is either a recognized crypto currency in the world or there isn't. If there is such an instrument, then the world recognizes that this currency based on a computer program is legitimate. If that is legitimate, then the current currency model must no longer be legitimate. There cannot be two simultaneous currencies in the world - one which is controlled by central banks and one which is not.

Our financial system is, at the moment, is unsupported and unsustainable. It is based on nothing other than debt. China, Russia and a few other countries are trying to reign in consumption of resources by tying the value of currencies to something meaningful and measurable - gold. China has basically banned Bitcoin operations in its country, and that is a wise move from one of the wisest societies on earth. Instead, it is implementing discipline by implementing a gold standard to measure its currency by. Russia is moving in the same direction. Personally, I see the Bitcoin movement as an attempt to circumvent the direction China and Russia have been moving in. It's simply a very poorly veiled attempt to convert the American dollar as the world's main reserve currency to Bitcoin. By doing so the Americans hope to halt the reestablishment of the gold standard which, if implemented on a world-wide basis, would render the US dollar almost worthless and see the Chinese currency become the world's leading reserve currency. No doubt the Chinese see this themselves as they banned Bitcoin.

The current price for a single bitcoin is $6,025.06 or about four times the price of an ounce of gold. All the gold mined in the world, since recorded history at least, could fill three Olympic sized swimming pools. So what makes Bitcoin so much more valuable than one of the least available commodities in the world? The answer is nothing. It's sheer speculation by the same folks that normally run up the stock market. In fact, they are attempting to create a market where one isn't needed. The reason: greed. It's like a new gold rush. Except it isn't gold. It isn't anything but a play on a simple video game that rewards those in early, and leaves the last arrivals holding the bag. Do yourself a big favour, see Bitcoin for what it is - a mirage.

1 comment:

  1. Well said! I've been following this Bitcoin issue for awhile now and the implications are horrendous! People are very gullible!


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