Bitcoin is a Scam

February 27, 2014

The Emperor’s New Nuts

Recent news stories about the fictional collapse of the fictional bitcoin currency have me wondering who’s the bigger dupe: the trustifarian nerds who buy bitcoins or the journalists who write about them.

Take this recent story from the Associated Press, via the Seattle Times:

Emperor’s Old Clothes Getting New Look for Spring

The is absolutely typical of the bitcoin media hype. Reporters will talk about someone “seizing” a stash of bitcoins [read: the FBI took someone’s hard drive]. Or they’ll quote some financial “expert” who doesn’t know jack-shit about computers and the Internet but is happy to wing it in order to get his name in the papers.

It’s obvious that the Establishment has been hoaxed on bitcoin. But here’s the beauty of it . . . In order to convince themselves that they’re not actually a bunch of suckers, the hoax-ees all have to keep the hoax going and get more people buying into it. That means they have to keep yammering on about it in such a way that leads you to believe that they are taking bitcoin seriously – even if they’re trashing it at the moment – and that therefore, so should you.

Here’s a quote from the Times print edition in which some banker is talking about the latest bitcoin “crash” :

“This is extremely destructive,” said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. “What we’re seeing is a lot of the flaws. [Bitcoin] is not only fragile, it’s fragile as eggshells.”

Oh yeah? Eggshells, huh? Try fairy dust! That would’ve been a better metaphor, because compared to what bitcoin is made of, eggshells are like reinforced concrete.

* * * * *

Want more evidence of media shilling for bitcoin? Do an Internet search on the terms “bitcoin” + “wild ride.” [Or click Here.] There’s nearly a million hits on that combo, several of them in the Seattle Times coverage alone. And those hits are spanning several months’ worth of coverage; it’s not like they’re all for one story.

So what does that prove? Just that no one’s doing any original research or writing on bitcoin. Instead, one source (probably someone who is in league with the bitcoin hoaxters) planted a  story trying to bump the price up. The rest of the media (including the AP) then picked up the term “wild ride” and parroted it endlessly:

Bitcoin – wild ride – Bitcoin – wild ride

Eventually even the shilliest of media shills has to fess up and admit that bitcoin is nothing but smoke and mirrors. They usually do this between the lines, though, maybe in one of those “What the hell is bitcoin anyway?” pop-ups they have to stick in there for the yokels. In the piece I linked above, the AP admits that the value of bitcoin isn’t pegged to anything. In fact it seems that nobody even knows who started it:

Q: Who’s behind the currency?

A: It’s a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto and then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as bitcoin began to attract widespread attention, but proponents say that doesn’t matter; the currency obeys its own, internal logic.

–Got that folks? Bitcoin is a mystery! [Insert spooky sounds here.]

Let’s give bitcoin a little grounding in reality, shall we? Because that’s something the media isn’t very good at . . . reality. They tend to speak of bitcoin as if it were its own thing out there in cyberspace. But is that really true? Could bitcoin stand alone as a currency, without another, non-fictive currency (like, say, the dollar) to sustain it?

Here’s a scenario that involves bitcoin and at least one non-credulous person . . . Say you’re trying to sell your old Chevy Impala through Craigslist, and within minutes of your ad appearing online, a nerdy teenager shows up at your doorstep saying he wants to buy the car immediately without even kicking the tires. You quickly agree on a price, but when it’s time to pay, the kids pulls a walnut out his pocket and hands it to you. You stifle a giggle at first, but suddenly you’re worried. What else might junior have in that pocket . . .

“Um, look, I’m sorry kid, but I only take cash,” you say, backing slowly into the safety of your house.

“Oh no, mister. This is Nut-Coin,” the kid says. “It’s better than cash. Nut-Coin is accepted everywhere on the Internet, and there’s no middleman. Plus,” he adds, beaming, “it’s totally untraceable.”

The kid looks dead serious, so you decide to humor him, just to see if he’s part of some new Mormon ploy to get into people’s houses.

“Where did you get that er . . . Nut-Coin, kid?”

“Off the Inter-nut, naturally. (Duh!)”

“I see. And how much is that thing worth, exactly?”

“It depends,” he replies. “Yesterday Nut-Coin was worth five cents, but today it’s worth a million dollars. Who knows how much it’ll be worth tomorrow? Right now, as of this second, I’m sure it’s worth several times more than your car.”

(You see your chance.)

“But I’m only selling this jalopy for six large. I can’t make change for your million-dollar Nut-Coin.”

“Oh, that’s all right Mister,” he says. “You can keep the change. I’ve got plenty more Nut-Coins in my account.”

“Uh-huh. Well, look. I think I’ve decided to keep the car after all. But tell me something, sonny. Who’s guaranteeing this Nut-Coin of yours?”

“Huh? Guaranteeing?”

“I mean . . . who do I see if want to change a Nut-Coin into dollars. Or into yen. Or into pickled herring? You can do that with a currency that’s based on something real; you can exchange it for another currency or for a more-or-less static amount of goods or services.”

“I’m still not following, mister.”

“OK, look. The value of the dollar is based on the ability of U.S. government to tax its citizens and businesses, which is in turn based on the ability of those citizens to produce something that they and other people want. So . . . what is the value of this Nut-Coin thingie based on? Hm?”

“Gosh!” he says. “I never thought about it like that. I guess I don’t rightly know who’s behind Nut-Coin. Some squirrels probably. Squirrels are amazing critters aren’t they? They sure know their nuts.”

“They sure do, kid. They sure do. I’m feeling rather squirrely myself right now as a matter of fact. But yeah, look . . . I’m sorry, but like I said, I’ve decided not to sell the car after all. Did you want to talk to me about something else? The Book of Mormon maybe?”

“The Book of Who?”

“Never mind, kid. Never mind.”

To be continued.

* Take your pick.

Share with:

This entry was posted in Essays and tagged , , , , , . Bookmark the permalink.

9 Responses to Bitcoin is a Scam

  1. Jiggers says:

    Bitcoin CEO was found dead today..

  2. Rats In A Cage says:

    Fuckin’ dogs huh? What was his bottom line? I’m not sure I can listen at 6..

  3. DBP says:

    Is this a good place to remind people that there are some places on the Internet where talking about aggressive dogs is strictly verboten?

    Not naming any names here, but . . .

  4. Rats In A Cage says:

    Thanks guys. Speaking of sex offenders .. check out this loozah!

  5. Rats In A Cage says:

    And speaking of the worst seattle blog, dobro is so annoying. I wouldn’t piss on him if he was on fire.

  6. DBP says:

    >>And speaking of the worst seattle blog, dobro is so annoying. I wouldn’t piss on him if he was on fire.

    Ah yes! What’s ole dilbro up to these days, I wonder? Still smoking dope at gay weddings?

    (He claimed that his life was complete now that he could do those two things in one place.)

    But that reminds me of yet another topic that was verboten on the Worst Seattle Blog: Mary Jane.

    Can you believe it? Here? In Seattle? No talking about marijuana?!

    (Smoking? -Yes. Talking? -No.)

    We had a lively dope-related discussion going there once, with people chiming in from all sides. Then, all of a sudden, WSB editor Tracy Record gets a bug up her butt because someone made a joke about marijuana being like food or something. And then, SHAZAM! The dope discussion drops off the radar screen at 5000 feet.

    I would link my readers to that thread on WSB . . . But I can’t, of course, because it’s been CENSORED.

    I’m sure glad we have the Worst Seattle Blog to protect us from improper thoughts. Aren’t you?

  7. Rats In A Cage says:

    Oh yeah, my bad, we used to call him dildo because he was/is such a tool.

    I’ve thought about trying to inform all of the kool aid drinkers over there that they don’t know the real west seattle buttblog.

  8. Anon Environ says:

    Having just run across your blog and being a Seattlite, I appreciate many of your entries, but this is….really not your finest work. It really detracts from the otherwise thoughtful and investigative journalism that I see in other posts. It’s been about two years since you wrote this and I’d just like to clear up some misconceptions for anyone who reads the comments and is still wondering… so basically no one except you. If you don’t care about this, well, I have a present for you. It’s more free content.

    I am simply a millennial age casual observer with a basic understanding mathematics and cursory understanding of computer systems. And it took me a couple read-throughs to get to the idea of bitcoin too. But I promise if you put your mind to it you can understand!

    Your pretense about bitcoin being a “scam” aka not a valid currency is based on a few flimsy grasps at defining legitimacy:

    1. If it’s not taxed, it’s not enforced by a state. So you’re saying it’s not property as defined by law or anything “tangible”–so it can’t be a currency.

    2. It’s just based on speculation, therefore it has no “value.”

    and 3. No body uses it.

    1. It’s regulated: see NYC’s Bitcoin license. It’s even outlawed in many countries. It’s taxed: as whaddya know, as income. But like any property, the government is happy to take any and all taxes one is scared enough to pay for it. And about the whole grandpa-can’t-understand-these-dagnabit-compooters bit: would you be mad if I cleared your hard drive of your fairy dust–I music or photos, or if I released it’s fairy dust from your icloud and sold it on the internet-I-mean-fairy world? Or will it take the record labels, film production studios to enforce their DRMs on your fairy dust trail and come after your fairy dust hoarding BECU account for you to finally admit that computers and all the scary grains of fairy dust inside their little fairy pockets are pretty real, however fragile?

    2. Literally nothing has any inherrent “value”, especially currency. Gold standard gone. Cows used to be currency–differening in value depending on the society. These are probably not foreign concepts to you. And now a concept, Relativity: All real things that are agreed upon are agreed upon by a scale, context, or system of measurement based on other things. Our own currency is only as valuable as it is, not because the American people and our economy are so great and inherently more valuable, but because people bet with whatever they have on our currency every single day. Oil money, investment schemes, even accrued international debt goes into the “decision” which is, at the end of the day, only enforced by guns pointed at you should you not agree. Even with your rubberiest definition of “real” you couldn’t describe the better part of quarter of the capital currently in our banking systems as “real”– it will literally never materialize: not as paper, not as payment, not even really as debt, just power. It’s like playing a poker game and adding a ghost layer of imaginary poker chips that change at variable randomized interest rates based on the dealer’s mood. Or as you would say “fairy dust.”

    3. Obviously people use it. They use it to speculate, yes. They also use it for lotsa real things in a real markets, the largest of which is the Black one which accounts 1/5 of the global economy. The worldwide Black Market is still mostly in the realm of King USD, and yes, Bitcoin encroaching on that turf will lessen the “value” of the USD.

    I believe your problem is not understanding how and what bitcoin is. Here’s my shot at explaining it. Nobody prints Bitcoin, like a large amount of “money” in our economy is never printed Instead of it being generated by banks, government mandates, and bets, it’s generated by an algorithm. As the algorithm gets “solved”, the amount of bitcoin in existence goes up and it generates new algorithm. You could solve the algorithm, but it’s easier with computers. All bitcoin is verified through its solution aka hash– like the serial number on a dollar bill. Something that can’t happen to bitcoin because of math: you can’t “forge” a bitcoin.

    Hope that helps. And sorry if I’m bursting any bubbles here, but it is actually real. It is math, and it is measured, and it’s certainly a hell of a lot more easily understandable that the generation of US currency. Now, value… does Bitcoin defer judgement to S&P 500? Not yet.. Visa exchange rates even? No, but neither did cows.

  9. DBP says:

    Thanks for your thoughtful comments “Anon.” I’ve modified my thinking someone since writing this piece. I now realize that the U.S. dollar is even more of a scam than bitcoin. It’s worse in some ways, because while bitcoin is a voluntary currency, the dollar is not. The dollar is a fiat currency, based on nothing more than the government’s assertion that you have to accept it if someone wants to pay you in dollars.

    Beyond that, the dollar is even more sketchy since, as you point out, it can be created out of nothing. Dollars are brought into existence when the Fed sells debt to commercial banks and other big lenders. Printed currency doesn’t exist for most of this debt; it exists only as digital records on computer hard-drives. In other words, it’s just like Bitcoin.

    Nevertheless, I believe that the dollar is still a more stable currency because if Bitcoin ever does reach the point that it becomes a threat to the dollar, that would trigger a crisis response from the U.S. government, which would remind everyone that the dollar is legal tender, while Bitcoin is not. The government could then freeze Bitcoin assets, block Bitcoin transactions, and punish people who continued using it. The move to shut down Silk Road was a foretaste of what that would look like . . . only on a much smaller scale.

    Thanks again for your comments. Keep it up.

Leave a Reply

Your email address will not be published. Required fields are marked *