When you own a digital currency, what do you own? You own a digital certificate, no different than a piece of paper. There is nothing preventing there from being more made. Yes, I know that the largest of the digital currencies- Bitcoin- has a limit of 21 million units.
With that being said, here are the reasons why digital currency is a bad idea:
- It has no intrinsic value. You can’t eat it, wear it, or heat your house with it. Unlike gold — which at least feels nice and looks shiny on your spouse’s ring finger — you can’t even see Bitcoin.
- It is not a productive asset. It’s not a factory that produces an item. It’s not a field that produces cucumbers. It’s not a firm that offers a service. It contributes nothing to society.
- It has zero underlying value. None. It’s not backed by land or commodities or — as with national currencies like USD or GBP — the threat of violence
- It has minimal utility. Because the price fluctuates so wildly (what healthy currency doubles in a month?), it’s virtually ineffective as a safe representation of value or means of trade.
- Its value is solely derived from the trust that the price will continue to rise indefinitely. That there will always be new investors to buy out the old ones.
This makes it no better than owning paper gold. It’s mathematically impossible for Bitcoin to grow forever, this can only have one final outcome: A Black Swan event causes its demise as an investment. Perhaps a superior cryptocurrency makes Bitcoin as irrelevant as the Model T versus a Tesla. Perhaps nations or groups of nations make a concerted effort to destroy Bitcoin, or more likely, Bitcoin owners. Or maybe Bitcoin simply levels out when it reaches max coinage, shedding its identity as an investment and becoming a stable trust-based currency. In doing so, it will drive away all the exuberant speculators who are currently propping up its inflated price. No matter how it happens, at some point, millions of Bitcoin investors are going to lose billions of dollars.
15 Comments
it's just Boris · March 15, 2021 at 10:58 pm
Perhaps a superior cryptocurrency makes Bitcoin as irrelevant as the Model T versus a Tesla.
Except that a Model T is easier for the owner to fix, doesn’t spy on said owner, is immune to EMP and has better range to boot. 🙂
Seriously, in a serious disruption of national infrastructure, I’d rather the T than the Tesla. For the exact same reasons Bitcoin would be having issues, come to think of it.
it's just Boris · March 15, 2021 at 10:59 pm
Okay, html tags don’t work in these comments. I learned something today. Yay.
Divemedic · March 16, 2021 at 9:00 am
Which one did you try?
it's just Boris · March 16, 2021 at 8:24 pm
Italics : less than sign, I, greater than sign, and a bracketed slash I at the end
My first reply appeared with no italics and no line breaks; I replied to that reply that italics didn’t work; and then both posts disappeared but the reply count was reading 1.
I was a bit afraid I broke your site….
SiG · March 16, 2021 at 8:31 am
I think you’re exactly right. It’s hard to compete with the historical record of gold. Over virtually all of human history it has been valued and respected. I’m sure you’ve seen the oft-cited line that from King Nebuchadnezzar of Babylon to today, an ounce of gold buys around 350 loaves of bread, a good suit or a good handgun.
Not that I don’t wish I had put about $100 into Bitcoin a few years ago.
I think we’re in the final stages of this run of fiat paper money. The federal reserve is considering Fedcoin. It looks like Modern Monetary Theory is going to cause the next collapse.
Divemedic · March 16, 2021 at 9:02 am
Yeah. $4 trillion deficit last FY. Already looking like at least another $4T this year.
Bear Claw Chris Lapp · March 16, 2021 at 9:08 am
If the webz is down or electricity is out you no longer have it.
ps Who or how did they limit it to 21 million units. I know I know Satoshi what is that an edible side dish.
Probably was fed gov. trial run for what ever they had planned. Looking forward to see outcome.
it's just Boris · March 16, 2021 at 8:28 pm
The 21M limit comes out of the mathematical manipulations one runs through as part of the block chain verification and bitcoin “mining” process.
After those 21M have been “minted” the only way to get bitcoins as a “miner” is as a small cut of the transactions you clear.
Or at least that’s my understanding.
Jonathan · March 16, 2021 at 12:38 pm
Just think of Bitcoin as a Digital Tulip…
If you don’t have it in hand OR can’t use it without long distance communication, it is only usable in “good times”… cash, precious metals, other tangible/ usable items in hand. With the connectedness of banking these days, I don’t think cash in a local bank is good enough
billrla · March 16, 2021 at 2:34 pm
Divemedic: I had to overcome all the same objections that you listed before I decided to open a few online crypto accounts and see what all the fuss is about. Of course, being married to someone more open-minded than I had something to do with it. I’m just as stubborn, cynical and risk averse (when it comes to what’s important) as the next guy.
I’m still not entirely comfortable with crypto, but, bringing myself up to speed was worth the price of admission. I’ve learned a lot and updated my knowledge. At minimum, I have a much better understanding, now, of what’s going on in the financial world (which directly affects stocks that I own and other investment decisions that I may make), and this helps me be a better informed investor. There is no question that crypto is having a market-moving affect on many publicly traded companies, with long term, strategic implications for how companies do business.
The unfamiliarity, uncertainty and initially off-putting novelty of crypto still makes it unappealing and possibly imprudent for many (most?) investors; rightly so. However, this does not mean that crypto is inherently a bad investment. Nor does it mean that crypto is not a viable and potentially sustainable means of exchange. Time will tell.
it's just Boris · March 16, 2021 at 8:29 pm
Indeed.
Divemedic · March 16, 2021 at 8:50 pm
Except digital currency isn’t an investment, and it can’t be. Digital currency doesn’t produce anything. It is no more an investment than exchanging dollars for Marks, Yen, or Francs. Even worse, because foreign currency is at least backed by an economy.
Digital currency is only climbing in value because new “investors” are buying out the earlier investors at highly inflated prices. The profits of “investors” is therefore dependent upon more and more people buying in. It is a pyramid scheme- and like all such schemes there are only so many people that you can swindle. Eventually, the entire deck of cards falls down.
Yes, I bought some BTC when it was at $20K. I sold when it hit $45K, and made a bit of cash. It was less than $1,000 worth, just so I could be familiar with the process. I am convinced that it is not a long term investment, and it cannot be.
simmerjet · March 16, 2021 at 10:30 pm
Divemedic: You are comparing apples and oranges with respect to crypto versus tangibles.. Crypto should be viewed more like intellectual property. It’s value comes from faith that it cannot be manipulated. before fractional banking,money was printed based on the amount of gold the king kept. Faith is what keeps society using fiat money, and Governments controlled how much, and how often it is manipulated…Crypto takes the control of the fiat away from government.. thats all it does. its the perfect form of currency.
Think about this: If every purchase in your life is made with a fiat currency. Why do you need a tangible? Answer: because outside forces manipulate fiats, thus making tangibles in any form hold value… Take that part out of the equation, and any fiat, no matter what form will suffice as currency. The investment today in crypto is just exchanging a manipulated fiat for one that is not.
joe · March 16, 2021 at 6:28 pm
it’s the beanie baby of tech…eventually you have a room full of worthless stuffed animals…
simmerjet · March 16, 2021 at 10:12 pm
The only reason why Bitcoin would fail is because it cannot be manipulated by Governments.. Other than that, It’s the perfect currency to buy and sell goods and services with because of the fact that it cannot be forged, deflated, inflated, printed or otherwise duplicated beyond that 21 million limit. The meat goat in Georgia is worth the same coin in Mexico.It indeed does have value. one currency used worldwide, The Value comes in the form of faith that it cannot and will not be manipulated. It’s the perfect unit of measure when you cant buy that goat in person.. The only thing Governments can do is tax it. They are powerless to control it’s value. This is it’s strength.
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