Earlier this month Joshua Gans wrote a very detailed and informative piece about Bitcoins (a digital currency): "Is Bitcoin money? Absolutely, and so are chocolate Hannukah coins, casino chips, monopoly money and your frequent flyer miles". Gans also mentions some potential uses for bitcoins:
- Bitcoins can offer a safer haven for wealth.
- You can potentially deal in Bitcoins without going through a financial institution or holding cash.
- Bitcoins can be potentially useful for operating outside the watch of governments.
- Many people claim that Bitcoins can be used anonymously.
In a fascinating article called Bits and Barbarism by Paul Krugman, he describes the bitcoins as a strange money pit:
"The Bitcoin mine is in Reykjanesbaer, Iceland. Bitcoin is a digital currency that has value because ... well, it’s hard to say exactly why, but for the time being at least people are willing to buy it because they believe other people will be willing to buy it. It is, by design, a kind of virtual gold. And like gold, it can be mined: you can create new bitcoins, but only by solving very complex mathematical problems that require both a lot of computing power and a lot of electricity to run the computers. Hence the location in Iceland, which has cheap electricity from hydropower and an abundance of cold air to cool those furiously churning machines. Even so, a lot of real resources are being used to create virtual objects with no clear use."
Paul Krugman wrote another article on the subject called Bitcoin Is Evil, and directs us to an article by Charlie Stross which says:
"BitCoin looks like it was designed as a weapon intended to damage central banking and money-issuing banks, with a Libertarian political agenda in mind to damage states' ability to collect taxes and monitor their citizens financial transactions."
New York Times: Bitcoin just crashed 50% today, on news that the Chinese government has banned local exchanges from accepting deposits in Yuan. BtC [a crypto-currency exchange based in Bulgaria] was trading over $1000 yesterday; now it's down to $500 and still falling."
Yesterday John Stossel was on Fox News with a guest named Jerry Brito from the Mercatus Center promoting Bitcoins. My immediate thought was, if a wealthy Libertarian like John Stossel is promoting this, it must be bad for everybody else who isn't rich.
The pundits on Fox News are always advocating for "smaller government", which in truth, is really an euphemism for "no taxes" --- and Bitcoins seem (at least, theoretically) to offer them the best tax havens of all --- as opposed to offshore bank accounts.
John Stossel: "Government prints so much money that I fear I may have to pay for my retirement with bills like this --- a billion dollar bill from Zimbabwe. Our dollar hasn't been devalued that much. But how can we hedge against inflation and other government manipulation? Jerry Brito says one option is to invest in Bitcoins." (The Zimbabwean dollar was effectively abandoned as an official currency on April 12, 2009.)
Do American multi-millionaires like John Stossel really expect average "thinking people" to believe that wealthy people like himself fear living in poverty during their retirements? If Stossel feels "fear", then the vast majority of us --- with pensions being reduced, or outright stolen --- should feel absolute "terror".
Maybe Stossel is fearful, which begs the question: Why is it that so many people with the most, are always so afraid of losing anything at all, and are adamantly opposed to paying their fair share of taxes to operate a modern, safe and civilized society? It's almost like a sociopathic obsession for these people (just like hoarding).
Arthur Schopenhauer is attributed to the quote, "Wealth is like seawater; the more we drink, the thirstier we become; and the same is true of fame." And we can clearly see that people like John Stossel, besides just being insatiably thirsty, also loves to bask in his Fox News fame.
Before you listen to John Stossel and Fox News for bitcoin advice, I'd suggest you read this posts first.
BackedCoin vs UnbackedCoin - "The two currencies are identical in every respect, except one is backed by assets and the other isn't. Which one would win the competition to become the preferred medium of exchange?"
Selling out of the Bitcoin ledger -- "Anyone who's been reading my bitcoin posts knows that I consider the fundamental value of bitcoin to be around zero."
How and why Bitcoin will plummet in price - "We are still in a situation where supply-side arbitrage has not worked its way through the value of Bitcoin. And that is one reason — among others — why I expect the value of Bitcoin to fall — a lot."
And unlike a U.S. dollar bill, I don't believe "In God We Trust" will be on any Bitcoins.
* Read through all the links in this post to get a (somewhat) better understanding of this Bitcoin phenomena. Check out Wiki's link as well. (Also: Is it "BitCoin" -- or "Bitcoin" -- or "bitcoin" -- and why a capital letter? Is there a Mister Bitcoin?)
Update --- Paul Krugman's old college roommate sent him a note about Bitcoin that confirms some of his own suspicions:
ReplyDelete"My current guess is that the Bitcoin bubble will collapse when there is some bad news, e.g., a regulator demands registration of Bitcoin wallets, people try and cash out, and find that that while it’s easy to buy bitcoins, it’s much harder to find people willing to buy back nontrivial amounts, very hard to collect the sales proceeds, and completely impossible without revealing exactly who you are."
http://krugman.blogs.nytimes.com/2013/12/29/an-ubernerd-weighs-in/?_r=0
More from Krugman on Bitcoins:
ReplyDeleteOne thing that happens when you try to have a rational discussion of Bitcoin, gold, and/or other libertarian causes is that you get a lot of cynical remarks about government (which is one of the clues that this is, to an important extent, about politics.) You say that there’s nothing putting a floor under Bitcoin’s value? Well, how do you know that the government won’t debase the dollar to nothing? Huh? Huh? Well, there’s an answer to that: governments care about their reputations, and even, to some extent, about the welfare of their citizens...
..The notion that governments can’t be trusted with the printing press sounds cynical and realistic, but it’s actually a fantasy, probably brought on by reading Ayn Rand instead of Tolkien...
...The popularity of the notion that [governments] are inevitably or even usually run by looters and moochers says more about what some people want to believe than about the lessons of history."
http://krugman.blogs.nytimes.com/2013/12/31/cynical-fantasies/
UPDATE FEB 25, 2014 --- A lot of people lost a lot of $$$
ReplyDeleteA major bitcoin exchange has gone bust after secretly racking up catastrophic losses. 740,000 Bitcoins are missing from Mt. Gox, which roughly translates to hundreds of millions of dollars' worth of losses.
http://www.huffingtonpost.com/2014/02/25/bitcoin-exchange-offline_n_4851344.html