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article imageOp-Ed: Critiquing Bitcoin

By Alexander Baron     Nov 9, 2013 in Business
Bitcoin has been hailed as the greatest innovation since sliced bread. Whether or not that is indeed the case, caveat emptor! Yesterday, the BBC reported a major theft of bitcoins from a man who runs — or perhaps that should be ran — a bitcoin wallet.
Whether or not this is true, whether or not it was an inside job, anyone thinking of flogging the family silver and investing entirely in bitcoin should think twice, thrice and thrice again. Leaving aside the foolishness of putting all your eggs in one basket — which often results in no basket and no eggs — think e-gold, the self-styled better money since 1996. Here is the current position according to the company itself.
There have been some thoughtful short videos made about bitcoin. First, a warning from an individual or group who may or may not be Anonymous.
Here is the first of a short series of videos — or one video split into three segments. Although his style is a bit stilted, this guy certainly knows what he is talking about.
Here is a two and a half minute rant from a man who clearly doesn't like the concept. Hopefully in 10 years time he will be viewed as a clown rather than a prophet, but don't bet on either.
Here is a recent 15 minute video which likewise contains some dire warnings. You don't have to share the narrator's low opinion of Max Keiser, but he makes some very good points. Yes, bitcoin is beyond the control of governments, but that also makes it beyond accountability. Its anonymity and untraceability means that if your account is hacked, you will lose your money, and there is nothing the police or anyone else can do.
Bear in mind too that because it is a virtual currency it is precisely that, virtual. Yes, we all know now that most money exists only as figures in a book or blips in a computer. Yes, we all know what the banks have done over the past few years, but there is now emerging some semblance of both control and accountability. With bitcoin, there is none of that.
Here is a recent article from a financial website. If that graph is accurate, somebody made a lot of money out of bitcoin, and because this kind of trading is a zero-sum game, somebody lost a lot too.
Here is another article, from the South China Morning Post. This financial pundit points out the attraction of bitcoin for especially Libertarians, like gold it is deflationary. Libertarians are obsessed with both hard money and fighting inflation; the problem is they — or most of them — fail to distinguish between inflation and increasing the money supply. If more goods and services are to be produced, more money is required. The problem from which most people suffer is not too much money but too little. That is why the poor are poor! When the government issues money in sufficient quantity including and especially to the poor, they have the power to purchase the goods and services on offer. This is not the same as inflating the currency, which simply pushes up prices, and in extreme cases can turn a formerly sound currency into "toilet paper", like this 20,000 rial note from Iran, a result of Western sanctions against a nation that must trade with the world in order to survive.
One more contribution will suffice, here is a warning from history, Memoirs Of Extraordinary Popular Delusions And The Madness Of Crowds, a book that is as relevant today as it was more than a century and a half ago when it was first published.
In conclusion, do all these warnings mean you should not buy bitcoin? Buy them by all means, but don't "invest" in them. The above criticisms all have some merit, as do others. If people decide to use bitcoin the same way the banks and the big funds use the current financial system — to gamble — then a lot of them are going to get burned. True, a few will make big money, some people always do, or rather some "other" people always do.
If two or three years from now bitcoin has not gone the same way as e-gold, and if ordinary people worldwide take it up big time, and perhaps more importantly if the price stabilises, then may be the time to invest.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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