Sunday, November 17, 2013

My Take on Bitcoin

In the comments, Lysader writes:
Bob, we love your blog, we appreciate your understanding of Austrian economics, we rejoice at your opposition to foreign wars of aggression.

But I have to ask: in this battle between the state and bitcoin, which do you want to win? Not which do you THINK will win---you've made that opinion clear and time will tell---but which do you WANT to win? Do you think that a crypto-currency that can (at least partially) evade state surveillance and is (at least partially) resistant to easy seizure, is a good thing if it can succeed?

Full diclosure: I have never bought or sold a single bitcoin and own zero of them. But I would LOVE to see bitcoin prosper. I would LOVE to see all the greatest fears of the government about bitcoin come true in spades.

And if bitcoin fails, at least it fails while daring greatly. At least it forces the mask covering the true nature of the state to slip off a little more.
First, it is not about whether I want Bitcoin to "win." I want Lew Rockwell to be elected president (and Walter Block named Fed chairman). That is not going to happen, so it is absurd to plan my life on such happening. In fact, it makes sense to plan as though serious interventionists will be in charge, since that is likely to happen.

It is the same with Bitcoin, it is not going to win any battle. It is absolutely insane to think that Bitcoin users will be able to escape goverment surveillance. Bitcoin is easier to track than dollars or gold. And don't tell me that bitcoins can be anonymized.  How do you know the anonymity tumblers aren't already being tracked the way  Silk Road was? Or worse yet, how do you know the government isn't behind one of the anonymity tumblers? Eventually, anonymity tumblers will be declared money laundering instruments, then what are Bitcoin holders going to do, use such tumblers anyway and face prosecution?

Bitcoin is a flawed instrument. As one can see from the comments, I am regularly attacked for my warnings on Bitcoin, but, aside from calling me a Bitcoin hater, none of the commenters have addressed my charges that Bitcoin is a very trackable instrument and that Bitcoin anonymity is a myth. It is really amazing, I repeat, not one of the commenters that attack my view on Bitcoin has addressed my concerns. It's because they can't.

As for the current increase in the price of Bitcoin, I consider it a very sophisticated pump and dump scheme, run by very professional operators. Hopefully, my warnings about Bitcoin will save some from chasing fool's gold.  I don't know how high Bitcoin will climb, I do know, however, that many will lose a lot when the jig is over.

Current Bitcoin price: $507.00.


  1. The real question is there a way to short bitcoin?

    1. Yes, sell them to me.

    2. Bitfinex have margin trade.

    3. Here is some information on shorting BC:

  2. If one knows what one is doing, anonymous Bitcoin use is possible. Using Coinbase and other services that require tying your ID to a Bitcoin address is a sure sign that one might need further education in Bitcoin before using it. I'd add that Coinbase is a Goldman Sachs operation being run by a GS trader named Fred Ehrsam. I have little doubt that Coinbase is setup to provide GS with access to Bitcoin and to provide three letter agencies with names and Bitcoin addresses of customers. None of this is the fault of Bitcoin anymore than its the fault of gold that many gold exchanges require ID.

    > Bitcoin is a flawed instrument.

    In the realm of software, worse is better.

    "The lesson to be learned from this is that it is often undesirable to go for the right thing first. It is better to get half of the right thing available so that it spreads like a virus. Once people are hooked on it, take the time to improve it to 90% of the right thing."

    > From "Worse Is Better"


    > many will lose a lot when the jig is over.

    The Bitcoin jig is over when the internet shuts down. There are more markets than the US.

  3. RW and a "Anonymous" above:

    I certainly appreciate the warnings concerning BitCoin and Privacy Rights (Of which there are probably, within a few percentage points, *ZERO*).

    Nonetheless, I repeat what I stated some time ago on this site:

    "BitCoin is a form of Digital, Friedmanite Monetarism". As such, parlays and Multiplier Effects should be interesting to examine but the Key Characteristic, above all others, is simply, "Is the supply of BitCoin expanding at a Constant, Pre-Determined Rate as was promised?

    If it is, then its purpose in reflecting overall VALUE will have been served. If BitCoin preserves this feature of Constant Expansion through time, this should be the starting point for analysis.


  4. Bitcoin has technical and political flaws. Think of it as the Model T of crypto-banking. What is remarkable is that bitcoin has come as far as it has. It is a sort of digital hawala. There will always be a market for privacy, especially in the transfer of money. The more thieves there are, the more need there is for private money transfers. The more governments steal, the more value in the market for private money transfers.

    Bitcoin is just the latest in a long line of arrangements for secure money transfer. I don't think it will be the last. What is needed is a service that can take cash from one person and transfer it to another privately. It would be better to create an intermediate form of currency that only lasted until the transfer was complete and expired after a set time period. That would be harder for governments to attack, and leave them with less to seize.

  5. New technology is coming out in 2014 that will allow for trustless mixing of coins and will allow for completely anonymous transactions to be made.

    Since bitcoin wallet addresses are not registered with any authority, and since bitcoin wallet addresses are not tied to any names, it is already MOSTLY anonymous. It is virtually impossible to prove who owns what wallet. The state can make educated guesses, or it can track transactions and subpoena shipping records to try and determine who owns a wallet, but it's still all circumstantial evidence.

    They still haven't gotten into DPR's personal bitcoin stash. Supposedly they confiscated a copy of a wallet file, but they haven't moved the coins out because they can't get past the encryption. They only got the coins that were left unencrypted on the SR server.

    Imagine if that was a normal bank account. The fact that they can't get the coins means it is worthless for them to try and confiscate the money. They can't use the money like they can when they pirate dollars through civil asset forfeiture. That means they aren't going to try as hard to go after bitcoin crimes. The police are pirates, and if they can't get any booty, they don't work nearly as hard. They always go for the low hanging fruit first.

  6. hey you heard of the dark wallet wallet

  7. Bitcoin has a good shot at going to $1300 by Chinese new year (February?) Mining btc isn't profitable until $1300 in February. It's simple math with the tech that will be available in late Feb. Why do you sell as a miner if there is no profit? Supply is short, the 700 btc sell walls on Mt.Gox are gone, they are 200, 300 unit sell walls now, which is what sell walls on Canada's exchange alone were 6 months ago. And you want annonymity, go buy a netbook on craigslist (tape over the camera if there is one) then go to a few different meet ups to buy BTC and put them in cold storage, and scrap the netbook. I can't get thousands and thousands of dollars of gold past customs at the airport, but with BTC it's not even an issue. Yellen just committed to quadruple the Fed balance sheet again when she said they were committed to %2 inflation last week. I'm holding and considering buying even more BTC. flirted with $600 before their lunch time today. That's far from a wilting violet, that's $100 move in 5 hours!

  8. Back in the mid-late 1990s when the internet became mainstream I didn't enter the .com bubble because having been using the internet since 1989 I knew these companies were mostly a server in a closet someplace and it was bubble. I should have gotten in early and cashed out before everyone else caught on. The eventual crash did happen, but I missed the chance to make a ton of money along the way. Looks like the same is happening with bitcoin and I missed getting on the ride.

    I know ultimately that bitcoin is nothing but imagination and faith. Sorry the 'mining' of computers solving puzzles doesn't make it any less so. It's vapor. It's no more real than creating money in online game or Ben Bernake adding dollars from his computer keyboard. Eventually security breaches, theft, manipulation of flaws in the code or algorithm, governments, etc and so forth will destroy the faith and it will come crashing down. All I can say is enjoy the ride while it lasts. Will it be the prototype for something else? Something better? Perhaps. But the US Dollar will probably still be around after bitcoin is gone.

    1. Let me put another way: there was a dotcom bubble and bust. A handful made a killing by getting out at the right time. Most got hurt pretty bad. All true, but not relevant to the discussion. The internet continued after the bust. The alternative media spread. Mass information became readily available. What once took hours of research in a library is now instantly discoverable in your own home. The government's ability to dictate the narrative of world events is greatly diminished. Millions can go to youtube and watch WTC 7 collapse. Before, there might be a videotape that you could order and a handful of people would actually see it. Who made money and who lost it in the NASDAQ is not relevant to this.

      You probably did not predict all that would happen in 1989, and neither did anyone else. Even by 1999 it really wasn't clear what the internet would do.

      So think of bitcoin as the internet circa 1989-2000. What it will do no one can be sure. Some will make a lot of money, some will loose, as in all markets. Bitcoin can go to a thousand then crash down to 100. That would be painful for those who buy at the top, but it wouldn't mean that bitcoin is gone. Not anymore than jumping in the NASDAQ in 2000 and subsequently loosing your shirt spelled the end of the internet.


      history tells otherwise.

      I am sad to see so many misinformed opinions.

      The computers don't just solve puzzles, they validate the blockchain. They make bitcoin the only thing which cannot be counterfeited.

      Don't rely on the popular media to explain bitcoin to you. they don't have any clue. Educate yourself instead.

  9. Bob, thanks for addressing my comment. I will assume you want bitcoin to succeed in challenging the state but you are certain it cannot. Fine. You want your readers to avoid financial calamity. That is good. Bitcoin can loose you a lot of money even if it does do great things against the state. Everybody has to do their own due diligence and decide what price point to buy bitcoin, if any.

    Regarding anonymity, it seems that others have addressed that point better than I can. It seems as anonymous as gold and cash and far more portable. And if the state had an easy means to destroy it, they would have done so by now. But I agree they will keep on trying.

    BTW, There are indeed a few things the government can do to destroy bitcoin:

    1) End the income tax
    2) End the stupid drug war
    3) Allow total freedom for the movement of capital. People can put their money wherever they want.

    If the government announced all those measures tomorrow, Bitcoin would crash to almost zero. Since they will never do any of that, BTC is likely to continue to have value.

  10. Nobody but the idiots in mainstream media claimed that bitcoin provides anonymity.

    While it's possible to reach it but it requires planning and it's not part of the bitcoin protocol and never was..

    Same as many of bitcoin's critics, they fail to recognize that it's a peer to peer payment system with a distributed "accounting" ledger.

    I think this author is again focused on some aspects of bitcoin without seeing the whole picture.

  11. I watched a video the other day on bitcoin by Stephan Molyneaux.

    I think the most interesting comment Molyeaux made on the video was that Bitcoin is unique in that it is a "frictionless currency", which the human race hasn't had before.

    The flaw I see in that logic is that a question is not raised in that observation:

    Why has no "frictionless" currency popped up before?

    But the most pressing question surrounding this "frictionless" in my mind about this frictionlessness is how people are imputing the value of a bitcoin as a result.

    It is in this question that we may have some answers and certainly more questions. I do have my doubt on the staying power of a currency that has an imputed value with some basis on "work" done that really has no substantial value. For instance, if I dig holes where no one cares/wants them, what is the value of those holes?

    That's how I see solving equations with no purpose and/or goal(short of uncovering a block). The value of the fundamental work is in question, so you must naturally question the thing this "work" is supporting.

    All that being said, people want an escape hatch from government. They want anonymity, the ability to evade taxes and move their money freely. Bitcoin is the hope for that, so in that regard there is some imputed value without "work". That to me is the main appeal of Bitcoin.

    However, if it is too difficult to maintain anonymity to accomplish the above-and getting more difficult as government tries to squeeze more every day and the risks become very high to hold it, (audits, investigations, or even jail time) than it really will become a ponzi scheme(if it isn't already).

    I'm quite sure the original founders of Amway and various other ponzi scheme's were very happy to see their models take off. The sad fact today is that the people late to the game, even still to this day, for the most part lose some money and come away a little smarter.

    You may enjoy the wealth of being an "early adopter" is such a scheme, but ultimately your profits end up coming at the expense of others, not because you actually offer or produce a great "value" to humanity.

    It is quite easy in this world to make money if you simply throw values out the window.

  12. RW, you're focusing on the wrong aspects of bitcoin. The anonymous thing were promoted by the silk road crowd and while that's interesting it's not what makes bitcoin interesting.

    Bitcoin is interesting because it is:
    A) Not controlled.
    B) Explicitly finite.
    C) reduced transactions cost available from that of digital dollars (costs banks charge when you use your debit/credit card)
    D) The first currency built on thermodynamic value (When bitcoin is mined, electricity is destroyed.)
    E) making avoiding sanctions and currency controls much more accessible to everyday people.

    It doesn't have to be anonymous to be valuable.

    1. "D) The first currency built on thermodynamic value (When bitcoin is mined, electricity is destroyed.)"

      Why would this make it "valuable"? Isn't this a variation on the "broken window" theory?

      Why if the imputed value of bitcoins dropped to zero? What would be the value of "destroyed electricity" at that point?

      "A) Not controlled."

      I don't think this point is accurate. Isn't there a body of people that can go back and make alterations to the block chain "as needed"? Even further, we know that government has successfully controlled organizations using bitcoin in terms of their entry point in the dollar market.

      I guess we could debate where the line of "control" is established, but if you only answer 1 of my two points, I'm most interested on the 1st/Broken window analogy.

    2. Let's put this "intrinsic value" baloney to rest everybody. Google "Subjective Theory of Value" please.