Has Bitcoin Jumped the Shark?

Bitcoin Jumps the Shark

Bitcoin has passed its peak. The invented crypto currency has been labeled property by the IRS and the price is on a steady decline. Is the end near?

Has Bitcoin Peaked?

Last Thanksgiving Bitcoin was on a roll. Recently discovered by the mainstream media and the subject of Congressional hearings, Bitcoin was declared a legitimate financial instrument by the U.S. Justice Department, hailed as a “game changer” and identified (incorrectly) as “holding promise” by Ben Bernanke the then Chairman of the Federal Reserve. The price of Bitcoin soared from around $200 at the start of November to over $1200 on Mt. Gox in early December.

Indeed, the euphoria over Bitcoin was such that at the end of 2013, fifty six percent of Bitcoiners predicted a price of $10,000 per Bitcoin in 2014, while other Bitcoin proponents predicted $100K to $1M per Bitcoin.

A lot has changed since then. For starters the most recent price of Bitcoin on Slovenia based Bitstamp (we can’t use the price from the Mt. Gox exchange, once the largest Bitcoin exchange because they recently “lost” all their Bitcoins and declared bankruptcy) is $444 per Bitcoin.

In just a few months Bitcoin has gone from being on top of the world to falling out of favor. While the Bitcoin technology holds massive promise, the price of Bitcoin does not.

It’s time to call “dotbomb” on Bitcoin.

It’s 15 minutes of fame is coming to an end.

Bitcoin has jumped the shark.

Here’s why:

High Profile Bitcoin Hacks and Thefts

Bitcoin’s rapid price rise turned heads last year and attracted plenty of main stream media attention. It also attracted speculators, hackers and thieves.

Here are just a few of the recent high profile hacks and thefts of Bitcoin:

Mt. Gox (theft from what was once the world’s largest Bitcoin exchange & subsequent bankruptcy filing- February 2014)

Flexicoin (theft of all coins from this Bitcoin bank causing its closure -March 2014)

Poloniex (theft of 12.3% of Poloniex’s Bitcoins- March 2014)

BIPS (theft of $1 million worth of Bitcoins from European payment processor BIBS – November 2013)

Vicurex (Beijing-based Bitcoin exchange hacked twice, teetering on insolvency – hacked twice in 2013)

Silk Road 2 (Silk Road 2-successor exchange to Silk Road hacked, loses all $2.7 million worth of Bitcoin – February 2014)

None of these hacks exploited any flaw in the Bitcoin code itself but for the public, explanations like “transaction malleability” are meaningless. The impression made was Bitcoin was unsafe.

It didn’t help that earlier this month Blockchain, a popular bitcoin wallet service had technical difficulties with its database (again nothing to do with any flaw in the Bitcoin protocol or even the result of hacking) causing it to be off line on and off for a couple of days.

Bitcoin price drops

Bitcoin Has Dropped 60% Since Hitting its Peak in December 2013

Bitcoin Regulation

The seemingly positive pronouncements made late last year by U.S. government officials did not give Bitcoin a pass.

Earlier this month we wrote that U.S. Bitcoin regulation was just getting started and noted that any of The U.S. Treasury Department, The United States Department of Justice (DOJ), the Securities Exchange Commission (SEC), and The Commodities Futures Trade Commission (CFTC) might apply their regulatory stamp on Bitcoin. We also warned of coming unfavorable tax treatment from the Internal Revenue Service (IRS).

Internal Revenue Service- Tax Treatment of Bitcoin

The Internal Revenue Service (IRS) recently ruled that for tax purposes Bitcoin will be treated as “property” not as a currency. In addition to the psychological blow in calling Bitcoin, a ‘crypto currency’, ‘property’ the ruling dealt a body blow to Bitcoin. The retroactive ruling requires tax to be paid on the gains realized on the sale of Bitcoin, including those realized when used in transactions. Users are now required to calculate what they paid for their Bitcoins and what they “sold” them for when they bought something and to report and pay taxes on the gain.

The IRS ruling takes much of the convenience out of Bitcoin and makes day to day use impracticable. Tracking all purchases and calculating gains and losses places an inordinate burden on those using Bitcoin every day to make purchases. Bitcoin users will also be required to pay taxes on any gains made using Bitcoin in all prior years during which they had gains, whether those gains arose from trading Bitcoin on an exchange or simply using them in transactions.

Burdensome tax record keeping will have a significant impact on slowing Bitcoin adoption. Why use Bitcoin if you are subject to reporting IRS requirements and are also subject to price fluctuation risks in holding bitcoin when you can use cash or a credit card with no reporting requirements and no risk of frequent wild daily price fluctuations?

The IRS ruling can’t be easily ignored as the government is gaining and will gain more information about the transactions and identities of those conducting transactions by scouring the public Bitcoin ledger or “blockchain”. They can ask merchants for names of people who used Bitcoin to buy merchandise from them. They can then track down the people and “request” information on the Bitcoin used, the cost basis and whether the gain was declared on their taxes. They can go back years and many Bitcoin users will probably get tax assessments.

Eventually the IRS and the U.S. government will gain plenty of insight into the Bitcoin blockchain itself – who owns what, who buys what from whom, who declares their gains and who doesn’t.

Andreas Antonopoulos, an articulate spokesman and Chief Security Officer at Blockchain cried foul and claimed that the IRS made the ruling without understanding* the technology and the impact such a ruling would have.

Because Bitcoin is a potential competitor to the U.S. dollar, the characterization of Bitcoin as property by the IRS and the onerous reporting requirements imposed by their recent ruling was probably done with full knowledge of the implications. If Bitcoin (the unit) is now deemed to be property, whose only characteristic is its suitability to use as a currency, the IRS ruling made it a burden to use it as currency and thereby also undercut the value of it as property.

Treasury Department

In a slight similar to the IRS not designating Bitcoin a currency, Treasury Department David S. Cohen, the undersecretary for terrorism and financial intelligence recently stated “Terrorists generally need ‘real’ currency, not virtual currency, to pay their expenses -– such as salaries, bribes, weapons, travel, and safe houses.” For now the Treasury Department seems to be downplaying the significance of Bitcoin as not worth bothering about because its not a “real” currency.

IF Bitcoin’s user numbers grow to the level of Egold, which grew to five million users before being shut down by the Department of Justice, we can expect the Treasury Department to take a greater disruptive interest in Bitcoin.

The Department of Justice

Shut Down of Silk Road, An Online Illegal Drug Bazaar Trading in Bitcoins

In September 2013, the Federal Bureau of Investigation, a branch of the Department of Justice (FBI) shut down Silk Road an online market place that sold a variety of merchandise, 70% of which were illegal drugs. Bitcoin was the currency used to conduct transactions on Silk Road. The U.S government confiscated nearly 30,000 Bitcoins in a sting operation that took down Silk Road. Even though the vast majority of illegal drugs are sold using U.S. dollars, the shut down of Silk Road, an online site that used Bitcoin, cemented for many an impression that Bitcoin’s primary use is for illegal purposes.

Arrest of BitInstant CEO Charlie Schrem

In late January 2014 the CEO of BitInstant, Charlie Shrem was arrested on money laundering charges. BitInstant provided a service that allowed customers to purchase Bitcoins from BitInstant for cash. The charges against Mr. Shrem were based on dealings that BitInstant had with an individual who purchased Bitcoins from BitInstant for use on the Silk Road. Mr. Shrem was also charged with buying illegal drugs on the Silk Road.

While Silk Road’s ostensible purpose was to create an online bazaar for sale of illegal merchandise, BitInstant was a legal business that allowed the exchange of cash for Bitcoin.

Mr. Shrem was also Vice Chairman and a founding member of the Bitcoin Foundation. Mr. Shrem has since resigned his position at the resigned from Bitcoin Foundation.

The Silk Road bust and the Charlie Shrem arrest send a subtle message to the public that Bitcoin is criminal.

Investigation of Mt. Gox and its CEO Mark Karpeles

Following the collapse of the Mt. Gox Bitcoin trading exchange in Japan, the U.S. Attorney subpoenaed Mt. Gox. It’s unclear at this point what jurisdiction the U.S. government may have over Mt. Gox, a Japanese Exchange or Mark Karpeles, a French citizen.

Mt. Gox and Mr. Karpeles were board members of the Bitcoin Foundation. Both have since resigned.

Securities Exchange Commission

Earlier this month the Securities Exchange Commission (SEC) announced an investigation of the sale of Satoshi Dice. The transaction consideration received by the seller was 126,315 Bitcoins.

The institutional bias at the SEC does not favor Bitcoin. While not labelling Bitcoin or any other crypto currency “Ponzi schemes”, the SEC has issued a warning on the use of crypto currencies in Ponzi schemes.

Worldwide Bitcoin Regulation

Bitcoin is already banned totally or in part in Russia, China, Malaysia, Thailand, Japan, Indonesia, Vietnam and South Korea. The Danish National Bank warned recently on Bitcoins calling them “glass beads“.

China Ban?

Last week China ordered banks to shut Bitcoin exchanges by April 15. The price of Bitcoin on Bitstamp dropped over $100 or nearly 20% and finished at $471 on the day.

Warren Buffet has called bitcoin a mirage and a joke

Bitcoin is a Mirage Wrapped Inside a Delusion

Popular Culture

Popular culture often gives clues as to when a fad has peaked and is about to finish running its course.

Joe Kennedy once noted that when “Taxi drivers tell you what to buy. The shoeshine boy can give you a summary of the day’s financial news you can tell it’s time to sell”.

The Twitter “Bitcoin” Test

Bitcoin has hit social media in a big way. There is a proliferation of twitter handles with Bitcoin in their titles. Next year such twitter handles may be viewed as bad tattoos.

Warren Buffet Calls Bitcoin a “Joke” and a “Mirage”

On a recent CNBC interview, Warren Buffet called Bitcoin a “joke” and a “mirage” and advised people to stay away from it. Pretty strong words from someone who knows a thing of two about investing.

Bitcoin on the Cover of Newsweek

Appearing on the cover of a national magazine often means the peak is closely approaching or already passed. (although in a rare instance the opposite occurred in 1975 when Newsweek and Time magazine featured relatively unknown Brue Springsteen on their covers in the same week).

In mid March Newsweek magazine claimed to have discovered the identity and whereabouts of Bitcoin’s anonymous founder Satoshi Nakamoto. Newsweek featured their “findings’ on the cover of their magazine.

Business Insider

Widely read Joe Wiesenthal of Business Insider who had been a constant and dismissive critic of Bitcoin calling it a “joke”, wrote a volte-face on December 1, 2013 at the height of the Bitcoin craze: “Why I’m changing My Mind on Bitcoin“. Clearly humbled by the massive rise in Bitcoin’s price since he began trashing it, Mr. Wiesenthal begrudgingly gave Bitcoin some credibility. Soon there after the price of Bitcoin began its steady three month descent.

Greenspan Calls Bitcoin a Bubble

Alan Greenspan the former Chairman of the Federal Reserved weighed in on Bitcoin in early December calling it a bubble and without intrinsic value. Mr. Greenspan should know a bubble when he sees one, having created the largest real estate bubble in history via his low interest rate policies during his tenure as Fed Chairman.

Reddit CEO Bashes Bitcoin Users on the Bitcoin Reddit Forum

One of the most popular place to discuss Bitcoin is Bitcoin Reddit where Bitcoiners share news and information about their favorite crypto-property. In a rare instance of a company CEO outwardly showing disdain for its customers, Yishan Wong had this to say:

“Without being too inflammatory, the user base for Bitcoin is basically crazy libertarians who are increasingly poorly-informed about currency systems and macroeconomics.” and warned:

“I would not be surprised if the NSA is actually heavily in favor of Bitcoin,” he wrote, “because by combining their other data streams, they can cross-correlate activity on the blockchain and essentially know exactly who is doing what.”

Forbes Magazine also asked recently whether Bitcoin was an investement or a cult.

Harris Poll: People Don’t Trust Bitcoin

It’s not surprising that with all the negative news, information, misinformation and massive decline in the price of bitcoin that people don’t trust Bitcoin. A recent Harris Poll showed that while there is enthusiasm for Bitcoin in the “Bitcoin Community” a good portion of the public is unfamiliar with it and those that do have an unfavorable opinion of it.

Venture Capital and Wall Street Money Arrives

Bitcoin was never meant to be a tool of Wall Street with derivatives, regulated exchanges and ETF’s. If Wall Street has its way, however, that is where it is headed.

In today’s bubble economy where companies, like Oculus, with no revenues or even commercially available products can be sold for $2 billion, Bitcoin’s soaring price has attracted Wall Street and Venture Capital interest.

There are now plans and investment dollars backing Bitcoin storage vaults, Bitcoin ATMs, Bitcoin ETF’s and regulated Bitcoin Exchanges.

As Wall Street gains greater control over Bitcoin, Marc Andreessen, a venture capitalist who has promised his firm Andreessen/Horowitz will invest hundreds of millions of dollars in Bitcoin predicts that current libertarian supporters of Bitcoin will turn on it.

Perhaps, savvy early Bitcoin adopter libertarians will sell their Bitcoins to the moneyed Wall Street and Venture Capitalist types before the bottom falls out on the price of Bitcoin.

*the IRS doesn’t need to understand Bitcoin technology any more than they need to understand how U.S. dollars are engraved.

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Further Reading:

The Case Against Bitcoin

Bitcoin a Mining Disaster Waiting to Happen

Will Greater Adoption Lead to Higher Bitcoin Prices

Here Comes Bitcoin Regulation

Apple Removes All Bitcoin Apps From Its App Store

Bitcoin Jesus on the Run

Bitcoin is Worthless

Bitcoin Trading Volume Tumbles

Royal Canadian Mint

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  • Platonicgap

    Would be good to revisit this topic in a year.

    • Smaulgld

      Agree, will do if Bitcoin is still around and trading

      • In 5 years time this will sound like that guy that said the internet is a fad.

        • Smaulgld

          or perhaps the guy that said Pets.com, webvan, pointcast and hundreds of other dotbomb companies wouldn’t make it

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  • johneger

    For me and probably everyone else who got interested before 2013 when it entered violent growth phases the value proposition didn’t change at all. Why do you think it will die?

    • Smaulgld

      The value proposition of the bitcoin technolocy is still there but that doesn’t justify the exorbitant price per bitcoin.
      The value is in the payment system not the bitcoin unit. The regulation and taxation of bitcoin will harm it as well as Bitcoin’s thin air artificial scarcity properties.
      The price of bitcoin is not tethered to anything but speculation and emotion.
      In the last three months more merchants adopted bitcoin and the price fell particially because greater merchant adoption doesn’t mean higher bitcoin prices it means more places to dump your bitcoin (and incur taxable gains)

      • johneger

        “exorbitant price/btc” Why? Take the market cap cut ~2 million coins (probably more like 3,5) and do some math I say 400 is a good entry point and i am sure you will have at least 1 chance to sell for a 50% in the next 3 months(probably end of april)
        You dont realize how small the selling pressure actually is. It’s mostly pigs and miners. Anyone with a sizeable position(10k+) who isn’t a complete retard already cashed out his investment times N (albeit not a 10k position , for me N was 10 and i still have 80% of my bitcoin and some cash on the exchanges, hopefully my 433-405 orders will be filled and I will be at 110% bitcoin)

        • Smaulgld

          there is no basis at all for the price-everyone has a different way of valuing it- sounds good when its going up . When it goes down no rationale will make a stich of sense.

          • disqus_QJcTowQaUi

            Bitcoin is like any commodity. The price fluctuates. If more people think the price will decrease, more people will sell, and the price will decrease. This continues until there are more people who think the price will increase than there are those who think it will decrease.

            If bitcoin has utility, it has value. In order to send or store a dollar of value on bitcoin, bitcoin must be able to accommodate that value. Thus the price of bitcoin seeks the value of bitcoin. The rest is speculation.

          • Smaulgld

            Good points. Unlike other commodities however bitcoin has no value for use in itself. Commodities like oil heat homes and power cars. Silver is used in electronics and solar energy. There are needs for these commodities for which people will pay a price to have them.

            There is no similar need for bitcoin.
            True Bitcoin has a use to transmit money, but so do checks and credit cards and their prices are not $400 per check. There is value in the entire bitcoin system of which bitcoin is a part, but probably not even $25 per coin.

          • disqus_QJcTowQaUi

            The difference between a check and bitcoin is that a check requires bank employees to process the check. And therefore, banking fees to pay the salaries of bank employees. Similarly, Credit Cards involve transaction fees that are passed along to the consumer. With bitcoin, those fees do not exist, and thus, those fees are placed back into the pockets of consumers. It is a sad fact of the digital age, but bank and credit card employees like the former employees of magazines, newspapers, CD’s, and countless other examples will have to find new employment.

            Regarding the value of a bitcoin. Here’s a thought experiment. Imagine if all of the bitcoins available were only worth $25. How would you send $50 to someone via bitcoin?

            Here’s another thought experiment. Lets say that you had discovered the convenience of sending money instantly to anyone in the world. For example, a loved one far away has an emergency and needs financial assistance. Instead of mailing them a check, or using your credit card, you could tap a few buttons on your cell phone (including a secure password) and instantly send them the funds. Or, perhaps you could spend them at the store and thereby avoid carrying cash and paying check or credit card fees. Now before you object to that, stick with me a second – say you did agree to the goodness and value of that convenience – would you then wait until you needed them to acquire them, or would you hold some in reserve?

            So, what is the purpose of mining? I won’t give you a long winded explanation, there are countless videos and articles available online. However, in a nutshell, the purpose of the miners is to confirm transactions and prevent double spending. They receive bitcoins as incentive in proportion to their computational efforts. Maybe the former bankers could become miners? Oh, I guess somebody beat them to it. Dinosaurs.

            Just some thoughts for this evening.

          • Smaulgld

            Thanks for the comment. My issue with bitcoin is not the technology or its usefulness, it the price!

            “would you then wait until you needed them to acquire them, or would you hold some in reserve?” If I can always get bitcoin why hold it and take the fluctuation risk. In your example say I need to send quarterly payments to a loved one of $500. Why would I not just exchange the $500 for bitcoin at the going rate when I needed to send it?

          • disqus_QJcTowQaUi

            Whichever is convenient and works best for you. On one hand this is a matter of working toward a future state of something that is better and more convenient, and on the other hand, a matter of risk tolerance. Right now, bitcoin is novel so it is subject to large fluctuations, but as adoption increases, fluctuation will decrease. Maybe your risk tolerance is such that you cannot be a part of this right now. But, if nobody ever took risks, where would we be? I mean, building a better future involves taking risks. You can’t take the heat, get out of the kitchen, but why go around like an eeyore whining that it will never work? Clearly, it’s been working for five years now.

          • Smaulgld

            Basically its a risk on nothing other than a collective delusion that I chose not to believe in.

          • disqus_QJcTowQaUi

            Would you turn down a dollar’s worth of free bitcoin? Get a Mycelium wallet from the Google Play Store (it takes like two seconds – but is NOT supported by iPhone), post your bitcoin address and I’ll send you a dollar’s worth of bitcoin. If you still think it’s nothing, you can send it back to me. I’m attaching my QR code. Or, send it to my bitcoin address; 187e1aYfV5HKxK13k4xPAGMCs1CAH6kFEY


          • Smaulgld

            Funny! Was thinking about this today. If bitcoin was worth ten cents and gold was worth ten cents an ounce and the private key was on the ground next to a bitcoin and it was next to an ounce of gold I wouldn’t bother to pick up the private key but I would scoop up the gold.

            Ditto for an ounce of silver even if it was worth only ten cents an ounce. I could use it or give it to someone. The bitcoin is nothing so I wouldn’t bother.

            I have zero interest in playing around with bitcoin-its a waste time. If I were a merchant I would accept bitcoin as I would make sales I otherwise wouldn’t make as bitcoiners look for places to dump their bitcoins before they go down further or because they feel good using them.

            Of course I would would use coinbase so I wouldn’t take any of the currency fluctuation.


          • disqus_QJcTowQaUi

            You could donate the dollar worth of bitcoin to a charity that accepts bitcoin.


          • Smaulgld

            I donate via check and credit card. Hasn’t been a problem for me.

          • disqus_QJcTowQaUi

            Of course, the IRS might bust down your door to shake you down for its 15 cents.

          • Smaulgld

            Funny I thought of that. People have tried to give me bitcoin in the past and I said no as I don’t want to have to deal with the reporting- Before the IRS ruling I knew something like that would be implemented.

          • disqus_QJcTowQaUi

            In the U.S. its taxed exactly the same as gold and silver. Or what, you don’t have to pay tax on your gains in gold and silver?

          • Smaulgld

            Yes the tax treatment of Bitcoin and gold and silver may be the same but that is where the similarity ends. People hold gold and silver in vaults outside the banking system as a store of value because they are a desired commodities.

            You can argue that people do the same with Bitcoin BUT, the supposed value of Bitcoin is in that it can be used as a currency in a way that is frictionless (if you don’t mind holding up the line for ten minutes while the miners validate your bitcoin transaction).

            The IRS ruling as I wrote in the original post “makes it a burden to use as currency and thereby also undercuts the value of it as property.”

            People don’t walk around with gold and silver to buy stuff. (egold was a great idea but the gov’t shut that down) so there is zero currency value assigned to it. Silver is $20 an ounce and gold is $1300 an ounce for reasons other than its suitability as a currency.

            Bitcoin is $400 because of its supposed inherent currency characteristics. The IRS ruling undermined the convenience and anonymity features and devalued the bitcoin “property’ in the process.

          • disqus_QJcTowQaUi

            Well, we all have to do what we have to do. As for me, I must leave this conversation for now to join Mad Bitcoins for Indian food in Roseville.

          • Smaulgld

            Thanks for the comments. Bitcoin may not be worth $400 but it seems like a lot of fun.

          • Smaulgld

            Mining for silver may take longer than bitcoin mining but no one is waiting in the checkout line for it to be finished

          • disqus_QJcTowQaUi

            What does that mean?

          • Smaulgld

            Bitcoin transactions need to be verified and that is where bitcoin mining comes in (another artificial “feature” of bitcoin). It can take ten minutes to verify a transaction and a lot of computing power and electricity to play this computer mining game called bitcoin.
            See the link and scroll down to:

            Why must I sometimes wait for my transaction to clear?


          • disqus_QJcTowQaUi

            I think that calling this “artificial” is a failure to fully understand bitcoin as a system. Mining is a decentralized system to verify transactions and prevent double spending.

            As to computing power and electricity, that is an opportunity cost. Building banks, lighting and heating buildings, hiring employees, purchasing bank resources, making loans, waiting for checks to clear – opportunity costs and expending resources. Artificial? Maybe.

          • Smaulgld

            It always comes down to the “you don’t understand” argument when someone who clearly does understand bitcoin all too well and its thin air invented artificial scarcity computer mining game features and refuses to what anything to do with it.
            I reject bitcoin because I understand it is nothing other than a system that transmits digits that you have to believe have value.

  • johneger

    Anyone who would take a step back reread the white paper think for 5 minutes how world govs work would realize why it’s so messy. It is basically the first way to exchange value from person to person, no fees, globally ,instantly(bla bla 10 mins), secure with no central point of failure. everything else is just smoke and at most will slow down adoption.

  • Smaulgld

    It’s the person to person transfer of NOTHING other than the imagination. The problem with expecting adoption is the idea that one has to read white papers and attend bitcoin conferences to understand bitcoin is what will slow adoption.
    Money should be intuitive and easily understood not something that requires cult like adoration and study.

    There are not enough people willing to put in the effort to play along with the farce that there is value in a ten digit string of numbers.

    And for day to day use most people don’t need it- the “I can send $2 to Timbuktu” (in bitcoin) may be cool but doesn’t justify the price per bitcoin

    • johneger

      I will let it slide that you put words in my mouth(and mind) and jump straight to the problem. “There are not enough people willing to put in the effort to play along
      with the farce that there is value in a ten digit string of numbers.”
      I’ve been hearing this since 2011. And i’m too bored to tell you why it’s irrelevant,

      You just underestimate how many people(and how much money they have) are willing to make a bet that has 10% chance of wining for a 10.1x payout. If you have enough money with bitcoin you can even control the odds and the payout is an order of magnitude better.

      Wales throw crumbs and the fish follow.

      • Smaulgld

        Yep I agree Bitcoin is speculation for people as you say ” willing to make a bet that has 10% chance of wining for a 10.1x payout. ”
        Good luck with that bet. My guess is the speculative froth is over and reality is setting in there is nothing backing bitcoin other than a collective delusion that is soon facing reality.

        • johneger

          Busted!(I’m so new at shilling that i had no idea i can check others post with disqus).

          I guess i can admit there is nothing wrong with your point of view. What I can say is that irrationality can be measured and as long as it doesn’t get past a certain point it will not be a problem. Even precious metals can’t function without a certain dose of commonly accepted delusion. Every monetary transaction is based on a house of cards that won’t crumble as it accomplishes a basic needed function.

          For me the Bitcoin protocol somehow is vaguely similar although on a much smaller scale and you could say that the world can work even if it btc disappears tomorrow.

          It’s a bet on its potential in stepping up the game in terms of efficiency and it’s unchangeable rules.

          • Smaulgld

            Now you are talking! “Even precious metals can’t function without a certain dose of commonly accepted delusion. Every monetary transaction is based on a house of cards that won’t crumble as it accomplishes a basic needed function.”
            That is the point.
            There are three types of potential currencies
            Fiat- issued by government, if unbacked as strong only as the nation that issues it and its willingness to back it by maintaining its social stability and its finances and the perception that it is good. We can’t under estimate this-the dollar has been unbacked since 1971 and it has through petro dollar arrangements, industrial production, military might and recently Fed abuse maintained value. It is widely held.
            Private money -Commodity based- certificates or physical or digital issued representing a share in the commodity (gold, oil, silver etc) This is as good as the trustworthiness of the issuer and the ability of the state or the free market to enforce contracts. Its also as good as the belief in the underlying commodity. Gold has the highest percentage of delusion if you will as it is worth something for industry and jewelry but the large portion of its value it for “store of wealth” and money. Silver and oil are useful in themselves. All of oil’s value is in its use value and about half of silver is in its industrial use value (solar, electronics).
            OR the commodities themselves like gold and silver coins can be used as currency.

            Invented money with no issuer-like bitcoin, based on nothing but the collective belief that there is value in a blockchain and a bunch of numbers. Unlike fiat, Bitcoin has no power behind it to force use (philosophically less attractive but more effective) and it can be abandoned at a moments notice. Then bitcoin has and is absolutely nothing.

            The same can happed to fiat if the sovereign goes bankrupt or gets taken over.

            Private money can lose its value if the issuer is untrustworthy or goes out of business, but there is some protection if the issuer is in a jurisdiction that protects segregated accounts.

            Also the consumer can hold many currencies from private issuers to hedge his bets against losing everything if one issuer goes bust.

            Gold and silver will always hold their value irrespective of what may happen to fiat, issuers and bitcoin. Of course you can have them stolen then you have nothing. But vaulting services and insurance take some of the risk out of this so they should maintain some value in the event of a disaster.

            Bitcoin can be gone quicker than any of the above-without warning confidence in bitcoin can be lost ( a few merchants drop it, China bans it to the point where maybe you could send $5 to someone there but they would be thrown in jail if they were found out). There is no recourse to the issuer, no petitioning the government for sound fiscal policies. The whole experiment goes up in digital smoke

        • First, no, not all Bitcoin users are speculator. Some people just use it for privacy for their legal and illegal needs and some just for fun or their own political or even religious views.

          So far just like any fiat, just in smaller volumes.

          Second, no, the speculative froth is not over and is just about to get further on a new level which is only comparable in size percentage to the one we had late last year, early last year, and before than the year before.

          It’s an adoption cycle that repeats itself somewhat and that slowly reduces the sizes and volatility of these cycles.

          You may have not noticed but there are similar cycles in the credit market although the actors are supposedly quite different.

          My two satoshis 😀

          • Smaulgld

            Lawrence Thanks for your comment. True many people use Bitcoin as a currency and some for speculation. It’s possible we will go through another round of speculative froth. Will be interesting to follow.

          • disqus_QJcTowQaUi

            What doesn’t kill bitcoin only makes it stronger.

      • disqus_QJcTowQaUi

        High five … You said it. Bored of that argument.

  • Wschuler

    I find it strange that some of the “proof” given is examples of people stealing Bitcoin from unsecure sites (which has nothing to do with Bitcoin). Using that logic ALL money, precious metal, cool sneakers, etc. have jumped the shark. Someone should write a new article about how cash is untrusted, untrackable, used for illegal things and that we shouldn’t use it because people have stolen it… And, besides an assumed thrill from stealing something, don’t people generally steal things that have value? I would say that stealing is proof that something HASN’T jumped the shark, but indeed validates it as valuable.

    Side note/question: what happens to the Bitcoin that gov’t entities confiscate? Do they take of screenshot of the gov’t wallet as evidence? How do they even confiscate it? I bet they are amazed at how fast they can transfer it across the world though! LOL

    • Smaulgld

      Wschuler wrote:I find it strange that some of the “proof” given is examples of people stealing Bitcoin from unsecure sites (which has nothing to do with Bitcoin).
      I agree with you -perhaps you missed “None of these hacks exploited any flaw in the Bitcoin code itself but for the public, explanations like “transaction malleability” are meaningless. The impression made was Bitcoin was unsafe. ”

      Wschuler wrote what happens to the Bitcoin that gov’t entities confiscate?
      When they confiscated the bitcoin from silk road they claim they cracked the private key code and are probably keeping them in cold storage.

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  • Done!

    Bitcoin? Fraudcoin!

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