Bitcon: what they said and when

Monday 04 April 2016

Bitcoin has long been a rich source of ridicule for the naysayers - many of whom are now starting to look like they didn’t know what they were talking about. Here are a few gems from the ‘experts’ who passed judgment too soon.

Jeffrey Robinson, the world's so-called leading author on international financial crime and author of Bit Con: The Naked Truth About Bitcoin, commented in October 2014
It’s not accepted as legal currency anywhere on the planet. There’s not a legitimate economist of any note on the planet that thinks it’s a real currency… Little by little it will just atrophy, because nobody is really using it. The big kids will get out, and the little guy sitting on one, two, or, sadly, many more bitcoins will lose it all.

How did that work out? Bitcoin still isn’t legal tender anywhere, but that’s not the point. In the past couple of years a slew of governments have established that it is a currency, or commodity. Most recently Japan proposed treating crypto like a normal currency. The BitLicense established a regulatory framework. And as for ‘nobody really using it’, well, we beg to differ

Verdict: Fail.

Pyramid

Is bitcoin a pyramid scheme? Is it backed by anything? 

Alan Greenspan, former Federal Reserve Chairman, correctly called the bitcoin bubble in December 2013 and criticised the currency, saying: 
It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of bitcoin is. I haven’t been able to do it. Maybe somebody else can… I do not understand where the backing of bitcoin is coming from. There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it’s a government or an individual.

How did that work out? Greenspan was right about the bubble, though that was pretty obvious (bitcoin had spiked around 100-fold that year). On the issue of backing, he was technically right, too - bitcoins cannot be redeemed for another commodity, like gold, and they’re not backed by a government like the US dollar is. But this fails to take into account the simple reality that money is whatever people agree is money. Its intrinsic value is that people use it as a means of payment in situations where using other forms of payment is inconvenient.

Verdict: Partial fail.

Dan McCrum, writing for the Financial Times as late as November 2015, is one is one of many to call bitcoin a Ponzi scheme, as well as mentioning other flaws
While the number of bitcoins is limited, the number of times the cryptocurrency can be replicated is not. There are a host of imitators, including Doge coin, started as a joke in 2013 at the height of alt-coin fever… The inherent flaw of pyramid schemes is that they must always suck in new converts to avoid collapse, and the exponential growth in users is impossible to sustain. Bitcoin shares some of these features. It requires constant evangelism because its value derives from its use. The limited supply of bitcoins then becomes a fatal constraint. The more people use it, the greater the price must rise, dissuading its use as a currency.

How did that work out? The Ponzi argument has been debunked too many times already, but suffice to say there is no one at the top of the ‘pyramid’ raking it in like Bernie Madoff. The criticism of early adopters benefitting at the expense of later ones 1) ignores the utility of bitcoin as a means of transaction, rather than a store of value, and 2) also applies to stocks in companies like Apple and Google. (Yes, these also pay dividends, though the same argument could be applied to gold and other commodities.) As for the copying argument, well, Dogecoin doesn’t have anything like the network effect or liquidity of bitcoin, and the market treats it and other cryptos accordingly.

Verdict: Epic fail.


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