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PoliticsBeware of This Insidious New Currency Scam
It’s time to put some ice on a hot investing topic. Some ice cube, that is.
In his 1993 hip hop anthem, O’Shea Jackson, better known as Ice Cube, raps…
“You better check yo’ self before you wreck yo’ self. Cus’ I’m bad for your health, I come real stealth.”
And that’s exactly the warning speculators in the new(ish) and wildly popular digital currency, Bitcoin, need to hear.
Otherwise, they might find their dreams dashed – or worse, their portfolios “stealthily” ruined.
Let me explain…
Desperate for An Alternative to the U.S. Dollar
Ever since the Federal Reserve embarked on its easy money campaign, everyone and their mother has been on a crusade for an alternative reserve currency.
The battle cry? Stop devaluing our money!
I hear you. But what are we going to do about it?
Several years ago, the euro was the top answer to the currency woes. Then the eurozone imploded. Game over.
China’s yuan entered as the next great contender. But let’s be real. We have a better chance of seeing Jesus tomorrow than we do of seeing the world embrace the currency of a communist government as the new reserve.
Even if the Chinese government finally decides to allow its currency to freely float – rather than controlling its value within predetermined ranges – it’s still not going to happen.
Of course, during the world’s desperate search, the Federal Reserve has just continued printing more money. And that has only intensified the desire for an alternative.
Enter, Bitcoin.
Bitcoin was envisioned in a 2008 paper by the pseudonymous developer, Satoshi Nakamoto, and launched in 2010.
It’s essentially a peer-to-peer electronic cash system that can be transferred through a computer or smartphone without an intermediate financial institution.
That sounds incredibly interesting. Or, as Jeb Terry of Aberdeen Investment Management says, “Bitcoin is a curiosity.”
Let me assure you, though – it’s nothing beyond that.
So any talk about Bitcoin being a potential alternative currency is a function of desperation, not rational thinking.
Even if it keeps garnering more and more notable support.
You Don’t Impress Me Much
Last week, BitPay – an Atlanta-based startup involved in processing payments that merchants receive in Bitcoins – secured $2 million. Founders Fund, a venture capital firm backed by the co-founders of PayPal, led the round of funding.
A few weeks before that, Coinbase, an 11-month-old startup that also facilitates Bitcoin transactions, secured $5 million in capital from another Silicon Valley heavy-hitter, Union Square Ventures.
Despite such strong votes of confidence, though, Bitcoin stands zero chance of being a legitimate, widely adopted currency. And here are three key reasons why…
~Bitcoin Pitfall #1: In God Nobody We Trust
No doubt, the atheists who cringe over the fact that U.S. paper money says “In God We Trust” love the fact that Bitcoins pledge no such allegiance.
In fact, many supporters of the digital currency tout the lack of any centralization or regulation over Bitcoin as a key selling point. Combine that with a finite supply of Bitcoins (21 million), and it seems like no government can inflate the currency.
I’ll concede that a world without inflation would be wonderful. And Bitcoin is set up to make that a possibility.
But without regulation, and the guidelines and legal protections that come with it, consumers have no reason to trust the currency.
And if we can’t put our trust in a currency, we won’t use it. Simple as that.
Besides, if you think governments around the world are going to sit on the sidelines and allow an unregulated, digital currency to gain momentum, you’re crazy.
The Department of Homeland Security has already dropped the hammer on Mt. Gox, the world’s largest Bitcoin exchange, for operating a money-transmitting business without a license. And that’s only a preview of what’s to come.
So this whole notion of an unregulated currency is really just a pipe dream. While citizens might want it, world governments won’t allow it.
Whether or not that’s fair doesn’t matter. It’s reality.
~Bitcoin Pitfall #2: No Guarantees
In addition to lacking trust, we have no guarantee that Bitcoin won’t be replaced. I mean, what’s going to stop a better Bitcoin from coming onto the scene?
And if the limited supply drives up prices to untenable levels, there’s nothing to stop the creators from simply creating more Bitcoins.
They say they won’t. But do you actually trust them?
Put another way, would you be willing to accept your next paycheck in Bitcoins?
Yeah, I didn’t think so.
~Bitcoin Pitfall #3: No Inherent Value
Haters continually deride the U.S. dollar because it’s not backed by anything of value.
What’s the difference with Bitcoin?
Just like there’s no inherent value in paper, there’s no inherent value in a bunch of ones and zeros in cyberspace.
That means there’s no way to figure out what a fair price is for a Bitcoin. And that’s ultimately the digital currency’s undoing. It’s nothing more than a (wild) speculation.
When Bitcoin first hit the market, it had little to no value. But the price of each coin quickly soared above $25. Then it collapsed back to $5 again.
After a slow and steady recovery, prices zoomed above $250 in the wake of the asset seizure in Cyprus. And sure enough, they cratered back down to Earth again.
Notice a pattern?
I’m sorry. But people want a currency with a stable value. And that’s something Bitcoin simply can’t offer.
Bottom line: The only reason people won’t stop talking about Bitcoin is because of the chart above. Forget its “sound theoretical underpinnings,” as Henry Blodget of Business Insider notes. Greed is what’s driving interest right now.
Investors see an opportunity to make a quick buck on a far-fetched “asset,” just like they’ve been doing for centuries. Tulip bulbs, anyone?
And the fringe set of retailers that accept Bitcoins are no different. They like the currency because it allows them to avoid interchange fees. And it also immunizes them to the risk of chargebacks. (Like cash transactions, Bitcoin payments can’t be reversed.)
In other words, it lines retailers’ pockets with more money.
Ultimately, it’s greed – not a genuine interest in a fundamentally stronger alternative to the status quo – that’s driving Bitcoin prices.
So forget Bitcoin being a contender as an alternative currency. At best, it’s a speculative investment. And a very speculative one at that.
Ahead of the tape,
Louis Basenese
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“China’s yuan entered as the next great contender. But let’s be real. We have a better chance of seeing Jesus tomorrow than we do of seeing the world embrace the currency of a communist government as the new reserve.”
An opinion, my friend, just as valid as any other, or not. The truth of the matter is that the BRICS have the balls and the gold and the reserves to produce a new basket reserve currency to replace the existing basket-case. And they will.
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And another point…the existing reserve currency is issued in the currency of a wannabe-communist country. Or had you not yet noticed?
BTW : the existing reserve currency is issued by a Central Bank system which China just bought a 20% stake in. Chances are they will buy a whole lot more.
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“So this whole notion of an unregulated currency is really just a pipe dream.”…
Not true, the currencies can be unregulated and flow wildly around the globe without any oversight, HOWEVER, the point at which any currency converts into dollars (or any other national government controlled currency) will always be regulated. If I create Bitcoin II tomorrow, everyone in the world can begin using it as a currency and one billion users could get away with it, however, when that currency breaks out of it’s network and is converted into dollars somewhere in that network… those points will be subject to attack and regulation. Reference e-gold.com Bitcoin COULD flow endlessly around the globe without issue, but anyone needing to “get their money out” would have to disclose and be regulated.
Carl
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Louis Basenese: Bitcoin Pitfall #3: No Inherent Value
Jct: Right you are. Time your computer wasted mining for imaginary gold isn’t worth a whit compared to an Hour of neighbor’s labor owed in a timebank. And we can trade our Hours online too so there’s no reason to opt for a negative time value currency when there are already plenty of LETS positive-time value currencies in the world today.
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– An anti-BitCoin article from – The Wall Street Daily. Note how the writer, a ‘Chief Investment Strategist’, picks apart BitCoin and crypto currency piece by piece while completely overlooking some key facts:
1.) That the foundation of BitCoin was created on trust. Trust among peers, community and excluding regulation. Which, we all know…the distribution of enforcement of regulations related to money almost always sides with the ‘Banks and Bankers’. There’s no trust there that’s for sure.
BitCoin and crypto-currency actually allows people to create it and even manage it. To become their own Bank and to deal with people at the person level. And not, the robotic teller level which fiat currencies exhibit.
2.) What the moronic ‘Chief Investment Strategist’ in this section forgot to consider, is that crypto currencies are divisible to 8 decimal places. 1 BTC can be worth a Billion USD each, however, it can never ever be artificially inflated like today’s fiat paper currencies. And the 21 million BTC limit is something which can never ever be changed as it is coded in the overall BTC protocol to be limited. Further, sure…there’re are already better better versions of BTC, Ripple comes to mind. However…whatever has or will come along will follow the same decentralized p2p cryptography. LiteCoin does, Ripple as well…PPcoin, FeatherCoin, etc.
3.) No inherent value? Billions of people use their computers/devices all day and night working, communicating and transferring 0s and 1s all over the World. This would be like saying web sites have no value.
Once again…naysayers of BitCoin and p2p crypto currencies are either, anti-free markets, bought and paid for by the fiat currency establishment or just plain ignorant. Sometimes a combination of the aforementioned.
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“there’s nothing to stop the creators from simply creating more Bitcoins.”
Sorry, your technical understanding of bitcoin is lacking. The reason you cannot increase the number of bitcoins in circulation is because all the millions of miners, who verify the legitimacy of blocks of transactions, will refuse to accept any blocks that attempt to mint more coins past the 21 million limit. In other words, in order to increase the 21 million limit, the majority of the bitcoin mining power in the world would have to agree to increase that limit; so this would be a major consensus that would have to take place. No single entity could ever increase this limit. Bitcoin is not dependent on a “creator” or even on a single piece of software. Any miner on the internet can run any software they want to mine bitcoin. It is the consensus that is achieved between all these decentralized nodes that speak the same protocol that determine the outcome of bitcoin. The miners keep each other honest. If any miner tries to be dishonest, his blocks are rejected by the other miners, and his mining efforts are wasted.
Another technical understanding which you are missing is that bitcoins are potentially infinitely divisible. Presently, miners do not accept transactions for bitcoins below an 8th of a decimal place, because such small transactions are not worth anybody’s effort, but if the value of bitcoins go up, that could quickly change. Practically speaking, transactions that are too small to contribute profitable amounts of transaction fees to the miner will not be worth anyone’s while.
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It is ironic that you used the “In God we Trust” example in your argument. The government originally put this phrase on its currency in order to gain people’s trust in it. People did not trust the government as much as they trusted god, at least, at the time. The fact is, it is easier for people to trust the bitcoin network, than it is to trust some paper, that can be counterfeited, and for which, most people do not fully understand the source. The rigorous technical aspects of the bitcoin network have solved the problem of counterfeiting. The bitcoin network maintains its trust through the understanding of all its users, that it can be used as an honest and reliable ledger for wealth transference; which is the foundational purpose for which all currencies were created in the first place; bitcoin just does the most reliable job of it. Trying to argue that nobody can trust bitcoin is rather futile, since it has already been proven false by the number of people who already trust it.
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Harry Truman Reply:
May 22nd, 2015 at 5:38 pm
I’m sorry, but a worthless digital currency not backed by anything, and a currency created by someone who no one even knows who he or she is, YET THEY TRUST IT, can hardly be anything good.
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“what’s going to stop a better Bitcoin from coming onto the scene?”
One could argue that there are already better crypto-currencies than Bitcoin on the scene. That is not a big issue though. You can simply trade your Bitcoins for those other crypto-currencies, ripples, namecoins, novacoins, etc. Really, you can think of all these currencies as just one big network of currencies. You can literally calculate the value of any mined crypto-currency in dollars, by first finding out the going rate for Bitcoin, and then calculating the computing power that it would take to create the equivalent number of alternate currency… in other worlds, the market is valuing all these alternative crypto-currencies to be roughly equivalent to the value of Bitcoins… or roughly equivalent to value in computing power it takes to create them.
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Bitcoins are a desperate hope to get out from under crooked, thievish, oppressive Governments.
If this currency is killed, then their is no legal way of hope. – Protecting yourself.
Desperate people become ingenious. Remember the moonshiners. The drug Cartel, both on a small and large scale. Manufactures that employ Monopolies. etc, etc. Small manufactures that manufacture knock-offs, that now a-days are even found in Aircraft.
The Economy is built for the bottom up not top down. The bottom is too poor to carry the Economy – bye bye
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People have to be getting insane to even consider Bitcoin. Year ago in the South American countries, when the government wanted to grabe your money, they just simply changed the currency completely and only gave you so much back in “funny money”. One country even issued plastic money coins. Then a few months later, they changed it again and gave everyone a fraction of what their true worth was. Is that next?
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The only one you can trust is thyself. Never knock an endeavor or idea until you try it or it’s proven not to work for you. Honestly, I have not completely grasped the whole currency thing and inflation etc, etc but I’m extremely drawn to it. When I read the comments to this article, I realize that even though I don’t completely understand the markets, my gut and instincts help lead me. World governments govern, they don’t think. Paypal backing Bitcoin says alot. Paypal has great credentials. Although I’m not ready to jump on the bandwagon just yet, I hope this new currency proves to be a success for the founders. I also pray that tyranny doesn’t prevail. There are many people in the world who need to be governed for their lack of knowledge, their lack of comprehending, their lack of prudence. But there are just as many people who have the ability to do business, create currencies, manage their lives without the interference of regulation, laws, and red tape. Even though I don’t agree with your view of the Bitcoin, I always look forward to your insight. Thanks for the time and preparation you put into this article.
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That means that the new reserve currency from the IMF (Spedri) is coming sooner than we think. The are already issuing Spedri Bonds which is just the beginning.
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Wrong side of history with that article.
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Shame on you. What a moronic uninformed article. There is clearly no hope for some people – but no surprise there. You really need to grasp the economic motivations of the miners as they are the ones that determine what happens. It they don’t like what the core developers change then it won’t happen.
Noone is in a position to comment unless you have an understanding of the c++ (qt) version together with the boost/leveldb libs and such, an insight into the main java version(this is the multibit ext of bitcoinj) is of course essential as well. It is crucial to have studied the various python versions the miners are using – and perhaps also followed the draft phase extensions in the form of zerocoin and coloredcoins, you might then be able to grasp what HD wallets are and weather something like Trezor could indeed provide a secure storage solution. Do not forget to look into the recent minimalistic implementation in the new computer language go while you are at it.
If you are not in a position to write an informed article. Don’t.
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The Bitcoin is fairy dust. Sounds nice but is not part of reality. The US dollar is here to stay and has been the rock of recovery. With the energy surge here in the US the dollar is turning from a rock into a mountain. The dollar will outlast the lifetime of anyone living today.
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Thanks! I have felt very uneasy about Bitcoin. There is nothing backing it but Trust. Trust but verify! How can I trust a money that multiplies so fast? That scares me. You helped me with your article.
Jack
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Anyone knows which crypto currency Wall Street Daily is trying to convince investor to take advantage of? I thought they were anti crypto investment few years back.
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