[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Mail] [Sign-in] [Setup] [Help] [Register]
|
Status: Not Logged In; Sign In
Opinions/Editorials Title: The Great Bitcoin Scam At the outset, let me clarify that Bitcoin itself is not a scam, but how Bitcoin is being sold is a scam. More about that below. To start out, it is important to understand what Bitcoin really is. It would be easy to bore you with a discussion of the technology, about peer-to-peer servers and sophisticated algorithms, but that is not what you need to know. What you need to know about Bitcoin is that distilled to its technological essence, each Bitcoin is simply a number. That's it: A number. It is simply a series of digits, with each number being assigned to each Bitcoin. To illustrate, I'll randomly pull a $1 bill from my wallet, which bears No. L88793293J. Assuming some minimal level of competency by the U.S. Treasury, no other bill bears that number. The face value of a $1 bill is, of course, just $1 dollar. It is simply a unit of exchange, printed on what many folks would consider to be ugly paper. But two people could privately agree that No. L88793293J is actually worth $5,000. To illustrate Fred wants to buy Joe's golf clubs, but Fred doesn't want his wife to know -- at least just yet -- that he spent $5,000 for golf clubs. So, Fred and Joe agree that No. L88793293J is worth $5,000 and Fred gives No. L88793293J to Joe. Fred then tells his wife that he bought the clubs for the $1 bill. At some later time, when Fred's wife doesn't care so much, Fred pays $5,000 to Joe for No. L88793293J, and gets the $1 bill back. The only difference between Bitcoin No. ABC123 and $1 Bill No. L88793293J is that at the end of the day, the $1 bill physically exists and has a face value that is worth something, i.e., Fred could take the $1 bill and buy something off the $1 menu at McDonalds. By contrast, Bitcoin has no intrinsic value -- it is just a number. The number may have an agreed value between two parties, but the number itself has no value. Consider a bank account number, such as Wells Fargo Account No. 456789. The depositor and Wells Fargo essentially agree that the account designated by No. 456789 has the value of what the depositor puts into it, less what the depositor takes out. But the number itself, No. 456789 has no value. The same situation occurs with credit card transactions, whereby the credit card processing company assigns are unique value to each transaction, but the number itself has no value. Here, the technological difference with cybercurrencies, or crypocurrencies if you prefer, is that they don't require a middleman such a clearing bank. Value, whatever it is, goes directly from A to B, with nobody in the middle. That has some value, but how much? The value, it would seem, would be the difference in the cost of the wire-transfer fees less transaction cost of the cybercurrency unit, which isn't that much -- and in some cases, the wire-transfer could actually be less expensive, although more cumbersome. So, if you find the idea of thinking of Bitcoin as simply a number is too simplistic, then just think of it as a money bag with a lock, the internet version of this. Money goes from transmittor to transmittee, and the transmittee gets a unique code to unlock the bag. What's that really worth? Let's now talk about uniqueness. Bitcoin does have some value because there are only a finite number of Bitcoins available, because the algorithm that is used limits Bitcoin to a particular number of units, of which there should only be somewhere in the neighborhood of 21 million that fit the algorithm. Uniqueness certainly has value. Because there is only one Hope Diamond, it is estimated to have a value in the neighborhood of $350 million. Because there are only 100 of that 24¢ stamp with the upside down airplane printed in 1918, they are estimated to be worth about $1 million each. Ditto for rare coins, original Picasso paintings, etc. But here is where the fundamental flaw in Bitcoin's value lies: It is simply a number, and numbers are infinite -- there will never be a shortage of numbers. Even if you are the world's greatest mathematician and think that you found the largest number ever, there is always that number plus one, plus two, etc. So, Bitcoin may be limited to 21 million numbers, but that doesn't mean that somebody else can't come up with a similar algorithm and thereby create their own unique set of numbers, i.e., their own cybercurrency. In the larger scheme of things, Bitcoin isn't unique. Quite the opposite, as anybody who comes up with their own currency can begin to compete with Bitcoin and any other such currency. It's very much like competing with technical cheeseburgers -- anybody with the necessary mathematical skills can cook one up. For example, let's say that somebody creates a cybercurrency that is based on known prime numbers. There are about 50 million of those, so another 50 million cybercurrency numbers could be created. Indeed, the recent boom in Bitcoin has triggered numerous companies offering their own cybercurrencies, and the amount of such numbers that they can generate is limited only by the ability of their mathematicians to create the necessary algorithms, which of course is similarly infinite. According to that tome of all knowledge known as Wikipedia, as of November 27, 2017, there were 1,324 cybercurrencies in use. Just multiple each cybercurrency by the number of units they each support, and you get a pretty big number. And that is just the presently existing cybercurrencies, recalling that all it really takes is a sharp mathematician to come up for an algorithm for a new one. And that brings us back to the main point: Cybercurrency units are simply numbers, and there is not a finite supply of numbers. Rather, the numbers available are infinite. This further means that the supply of cybercurrency units is likewise infinite. This has profound implications for pricing. The true value of any widget is determined by the aggregate street price of the item, i.e., the sum total of what all units could be purchased for today, divided by the number of additional units which are available for sale. This is where uniqueness comes into play. There is only one Hope Diamond, which means that you take its estimated value of $350 million and divide by one, yielding $350 million. Collectively, those 24¢ stamps with the upside-down airplane are worth $100 million, but there are 100 of them, so they are worth about $1 million each. Or think of it simply in common-sense terms: The more there are of something, the less valuable each one is; if the market is flooded with something, they each have little value. Consumers see this every day at the gas pump, as the price of fuel varies primarily based upon available oil supplies. Herein lies the problem with cybercurrency, which is that there are an infinite number of cybercurrency units available. Divide anything by infinity, and you get a number that is almost zero -- not quite zero -- but as close as you can get to it as possible. This is true even if we assign a current aggregate value of all the existing cybercurrency units at $500 billion. Because it is not quite zero, we can assign it a value of 1¢, not because it is necessarily worth 1¢, but simply because that is the smallest unit by which we can designate value in our currency. Actually, it is some number larger than zero, and thus 1¢, mainly because the Bitcoin folks have put in a lot of effort to keep each number unique and assignable to a given owner, and there are some merchants who will accept Bitcoin as if it were a government-issued currency. This is known as acceptability. Bitcoin has value in excess of 1¢ because it has some (albeit, pretty limited) acceptability. But how much does that really add, and how unique are those features as other cybercurrencies take hold? Suffice it to say that the answer is much closer to 1¢ than $15,000 per unit. This now brings us to the economic law of supply and demand, by which value is determined by what a willing seller will let a unit go for, and what a willing buyer will pay for that unit, at a particular moment in time. Take the 24¢ stamp with the upside-down airplane as an example. Presumably, the U.S. Postal Service would honor the stamp only for 24¢, which is its face value. Otherwise, the stamp creates no other value. But collectors of stamps and other valuables would offer $1 million or more for such a stamp, due to its rarity, and their belief that the value of the stamp will increase over time. And now for something completely different: Tulip bulbs. Tulip bulbs have no intrinsic value, other than that they can produce a pretty tulip flower. Yet, beginning in 1636, the price of tulip bulbs in Holland began to skyrocket, as buyers started believing that -- with demand driven by exports to the apparently then tulip bulb hungry French -- the price of tulip bulbs would keep appreciating. They were right. Eventually, the price of a single tulip bulb hit many multiples of the average Dutchman's average wages, and reportedly 12 valuable acres of land were traded for one particular tulip bulb. Individual tulip bulbs were traded for many times each day, with the price increasing with each trade. Then, one day in February of the following year, 1637, the price of tulip bulbs quit going up, and by May 1, the price for tulip bulbs had fallen back to their original value. Thus, was tulip mania the first recorded bubble. Many centuries later, more specifically in November, 2013, the President of the Dutch Central Bank, Nout Wellink, reflected on the tulip bulb bubble with the following: "At least then you got a tulip, now you get nothing." He was referring to Bitcoin. But Wellink wasn't exactly right, since with Bitcoin you get a unique number. What that unique number is worth, as discussed above, is something pretty close to zero, which makes Wellink's statement much closer to the truth. Poster Comment: This is only half of the article. More at Forbes. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 26.
#1. To: A K A Stone (#0)
BITCOIN Bitcoin is a 'pyramid scheme,' warns former Wells Fargo CEO Dick Kovacevich
Quoting a major bank CEO about bitcoin being a ponzi scheme is much like a democrat quoting CNN about Trump colluding with Russia.
No bank CEO here:
All your quoted sources are established financial people who have earned their positions is the present, conventional financial world by approaching finances in the standard conventional "old school" way. So of course they will be predisposed to having ill regard for cryptocurrency, as it does not fit into the financial world they have completely ingrained in their head and which has paid them all so much in dividends, putting food on their table, buying them boats, fancy cars, big mansions and so much more. They have no reason to see cryptocurrency to exist because for them, there is no financial problem to solve. The world is already on a silver platter. But a $20 trillion national debt, not to mention the unfunded mandates that run 5-10 times that, says otherwise. The ability to create US dollars, a privilege exclusively belonging to banks and government has resulted in enormous fiscal irresponsibility, and the market understands that. And it's not these well off elite that are expected to be the catalyzing force upon which crypto currency needs to prevail. It's instead the common people, yes probably even the millennials that now have smart phones as a permanent part of their attire that will be able to acquire and use cryptos as a very "natural" part of life. I'm tired of having my defenses and points made in favor of cryptocurrency go completely unchallenged, with the only responses being article postings and quotes by supposed gurus whose only credibility rests in standard financial conventions, as though simply posting such things constitutes critical thought on the subject. If you want to stay away from cryptos, fine. Stay away. Maybe I'm wrong and cryptos will crash. Or maybe bitcoin will breach $20k again. We'll see.
Cryto-currency does not have the under pinnings of being "safe" for most investors. It is speculative just as in the past month it has lost over 50% in value; I don't know anything about your financial circumstances but losing about 10,000 bucks in a month's time is significant.
I don't see it as so much as an investment as much as a technological revolution. Arguing against bitcoin is possibly much like arguing against the Wright Brothers airplane. I mean, what practical purpose could that first contraption have? None, as it could only carry one person lying down, required a railway track to take off, and only flew less than 1000 feet. And someone was actually killed flying a replica of it on the 100th anniversary. What a joke it was, right? Of course people could have invested, as speculators, in the airplane industry in the early 1900's and made or lost a lot of money on it. But even though people lost money, the industry as a whole took off, so to speak. The fact that it's volatile speaks nothing to the potential that cryptocurrency has. You don't need to buy bitcoin in whole amounts. You can convert any amount of US dollars into bitcoin you want. Only have a penny to invest? No problem: At current exchange rates, that will buy you 0.000001 bitcoin. The bitcoin system can handle that amount just fine. Bitcoin is far more divisible than US dollars are. If you only have $1000 portfolio to invest in various enterprises, fine. Just put maybe $50 into bitcoin. Even if you did that at it's $20k peak your portfolio value would be down to about $970, a 3% drop. That ain't so bad.
That is an outlandish claim. Akin to saying Hitler loved the Jews.
I hardly see how my analogy could be compared to a holocaust reference, and it's peculiar you would suggest one. I suppose if I had to guess, it's because you are taking a religious angle on this subject, and knowing you, perhaps you consider it possible that a crypto currency could be the mark of the beast. If so, then while that wouldn't fit into my view of things but I won't knock anyone who does see it that way.
No I was trying to make an outlandish statement because I thought yours was outlandish. No I don't think bitcoin is the mark of the beast. You might have picked up on my view when I said it would crash and burn, collapse or however I put it. If it crashes and burns it couldn't be the mark of the beast. I think technology will play a role in the mark of the beast. But that is progressing and nothing we can do about it. I don't know how I or anyone else could possibly stop the mark of the beast if it is supposed to happen. Isn't there stuff in the Bible about it being time for the harvest or something like that. I put it in crude words without looking it up.
Okay, fair enough.
There are no replies to Comment # 26. End Trace Mode for Comment # 26.
Top • Page Up • Full Thread • Page Down • Bottom/Latest |
|
|
[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Mail] [Sign-in] [Setup] [Help] [Register]
|