happyponyland.net / Bitcoin is a scam

Bitcoin is a scam and its advocates don't understand economy.

I got into a discussion with some coworkers about Bitcoin. One argued that it was the best investment you could possibly make at the moment and posed the profound, nearly prophetical question:

"When the next recession comes, will people invest in Bitcoin instead of gold?"

The next guy argued it had a crucial application with its transaction model and provided some anecdote of banks being unable to clear transactions to China quickly enough, leading to industry-hampering turnarounds.

IRC has been buzzing about this for years (so has Reddit and other circlejerk sites I don't bother to follow) with no one getting any wiser. Even my mother, who is in her seventies, called me at some point to ask what Bitcoin was.

Hate to break it to you, but Bitcoin is, at this point, a pyramid scheme.

Remember the daytrading craze in the 90s? A lot of people without experience thought they could Make Money Fast, but ended up only making other people richer and themselves very disillusioned. Likewise, when people in the 00s thought they could become professional online poker players they quickly found there were a lot bigger sharks out there, or, for the few that found some degree of success, that they were still just grinding away at a computer for 8+ hours a day just to skin some suckers. You might also have heard of the 17th century Dutch tulip mania, the first recorded economic bubble in history.

Now, I can't really fault the individual for wanting to Make Money Fast, ideally without effort; having a job sucks (even if having no income at all sucks even more). The problem is that cryptocurrency advocates are not really "letting you in" on their scheme; to them, you are the scheme.

Here's a basic rule for telling if something is a scam: people telling you to invest your own money, without any guarantees of return, in something they already have a stake in themselves, are trying to con you.

At the very least, they are trying to con themselves into thinking their sunk cost was justified and the best they can do now is try to sustain the hype. If they truly believed it was a good investment they wouldn't need to drag other people into it; they would be asking you for a loan to invest for themselves (and offer you a decent cut for your trouble). Besides, if they really were some financial genius, why are they still stuck with their 9-5 jobs?

It's not very surprising that most people simply don't grok what Bitcoin is (even I don't fully understand how it works and I am literally a tech genius with my 1990s-style homepage) and assume it's some abstract financial asset (with a pinch of lottery ticket thrown in, making it irresistable to the online casino generation), also erroneously attributing it with some combination of {untraceable, untaxable, utopian}. It's a mass psychosis.

Bitcoin was the original cryptocurrency, described by the pseudonym "Satoshi Nakamoto" in a white paper, which is what the tech industry calls marketing material that mimics an academic thesis but lacks the scrutiny of peer review (I assume very few Bitcoin evangelists have even bothered to read it). It is believed "Nakamoto" owns over a million Bitcoin from the early mining.

This is not necessarily malicious, but curious: anyone with any experience of academic research knows that publications are the lifeblood of academia and academics are super touchy about being credited for their work, so we can probably assume "Nakamoto" did not do it for the research cred.

Basically, they invented a stock trading game, but stripped out the things that gives shareholding purpose (influence over the company, dividends, offerings to raise cash for investments, etc). Apparently this concept appealed enough to people who didn't understand the stock market, but still wanted to make easy money, for it to snowball into the pretend-economy it is today.

Bitcoins value lies entirely in people believing it is valuable. This holds for any currency, of course; money only functions because we collectively agree it's worth performing work for money, that we can in turn use to buy other things.

Yet with state-issued currency, the state guarantees it will remain viable and its value somewhat stable for the foreseeable future. If the state fails in this promise, the currency collapses and people find something else to trade with (this often ends up being US dollars, which is coincidentally also the currency of choice in the international arms trade, which plays a big part in why states collapse in the first place).

Some dudes with questionable agendas like to spin the narrative that counterfeiting, coups and hyperinflation happens a lot more often than they actually do in western democracies and that your money might be at risk, fabricating the need for individuals to secure their middle-class lifestyle by putting their savings into something less volatile (while completely disregarding that having enough money to even worry about investments already puts them well ahead of most people).

The current fad is that cryptocurrency can fill this purpose and help grow your capital. So instead of currency regulated (or manipulated, if you insist) by government, which is Evil by definition, you're left entirely at the whims of the Free Market, which has a proven record of long-time commitment, mature decisions, taking the blame when it is due and generally wanting the best for everyone. Never mind the Free Market typically manifests like a 5-year old screaming its lungs out in the toy store aisle and then collapses on the floor sobbing when it doesn't get everything it wants.

The current situation is that Bitcoin has no practical application besides making anonymous drug-related transactions and ransomware attacks.

Outside these somewhat niche markets, you're not really going to find anyone that accepts Bitcoin as payment. Maybe companies with some degree of financial accountability do not want to entrust their money to an automatic system without safeguards or rollback, that is frequently also the target of fraud and security breaches. Or maybe they sometimes need to do actual company stuff like paying wages or filing taxes and find the extra exchange step too inconvenient and risky just to get a slice of the online opium trade.

Just to clear this up: Bitcoin itself does not care about its own value, 1 BTC is always 1 BTC. It's the exchange rate to "fiat currency" that is nuts. Ironically enough the role of Bitcoin has shifted in recent years to being only a transitional step between old-school cash and literally thousands of emerging copycats. Note that I'm using "cryptocurrency" and "Bitcoin" almost interchangeably here; for the purpose of this discussion there is barely any distinction between specific coins. It doesn't matter if you call it manure or dung; it's still shit.

The blockchain might be fascinating to crypto nerds who will go on forever about its supposed benefits like decentralization, tamper-proof ledgers and preventing double-spending. Normal people do not have these problems. Even banks barely have these problems any more. Ultimately it comes down to having trustworthy people in the right places (which is where cryptocurrency, with its anonymous creator(s), fails hilariously) and have them monitor each other (which is what cryptocurrency tries to automate through algorithms).

(I was told that old ATMs would go offline for a couple minutes every night and knowing the exact time would let you withdraw unlimited cash - from multiple machines - since the machine couldn't reach the backend to verify the transaction. This story being public knowledge today is a pretty sure indication that they already fixed that flaw.)

Bitcoin is still a solution in search of a problem. This isn't necessarily bad; a lot of mathematics and computer science started out as experiments and then later evolved into tools that proved to be useful for real purposes. The irresponsible thing is that they're pushing cryptocurrency as a serious investment opportunity; baiting people to get on board before the last ship is leaving.

Cryptocurrency is not a good investment. It can be lucrative speculation if you happen to time your transactions just right (which is what everyone is trying to do), but it's not something you should plan your retirement around. Once the next Great Depression hits, no one will give a shit about your monopoly money.

Another big problem with cryptocurrency is that while it has no tangible value, neither does it produce anything of value; if anything, it's costly to own since it requires continuous mining to keep the blockchain running. Some flavours of cryptocurrency try to make themselves useful by proposing things like "smart contracts", which are some kind of distributed microservices, but it's still unclear if these will find any real usage.

Cryptocurrency is ridiculously inefficient in its energy usage. In the real world, electricity costs money, so mining these days is mostly about finding a country with cheap enough energy to give a profitable Watt-to-BTC ratio, then factor in the starting cost of specialized hardware for your data center. It's contributing to nuclear and electronic waste and shortening the already frighteningly tight timespan we have to curb carbon emissions. It's a dead end.

Sure, a few people that got into the game early really did Make Money Fast from it, but where did that money come from? From the late adopters, that realized the gold rush of mining on a spare Pentium in their closet was already long gone, and the next best thing was to buy Bitcoin for cash and hope yet some bigger loser would come along to buy them at a premium later.

Some lament "not buying IBM shares in the 1960s" (or Microsoft in the 1980s, Amazon in the 1990s, and so on), but it's a weak reasoning. Stock, or cryptocurrency, or just currency in general (to whatever degree the three are even comparable) do not accumulate value just by sitting around; they need to be circulated. If everyone that was mining Bitcoin in 2010 had just kept hoarding them it would never have gained traction at all; there simply wouldn't be any newcomers to the scene to profit from.

The fallacy here is that everyone is trying to make money off each other from the same thing, which simply doesn't work, unlike an actual economy where we still make money off each other, but doing different things.

So here lies the challenge: if your payment method requires a steady flow of real world cash to lubricate the system, it's not sustainable. People need to eat, and as long as you can't actually live off Bitcoin by paying your everyday expenses with it, it's not viable as currency.

Even if Bitcoin is faster in some regards (by having fewer scruples than law-regulated transactions), it still has extremely long confirmation delays that makes it completely unsuitable for the split-second transactions necessary when you go grocery shopping. And if you even think about involving a third party to guarantee the payment in the interim, you have already invalidated the purpose of self-regulating currency!

Basically, the key to getting rich from Bitcoin is having a shitload of money to start with. The return is proportional to your investment, so if you can drop a million of some real world currency into it and pull out in time ("heh heh"), you might be set for life. However, if you're broke and start out small your profits will not accumulate fast enough to let you grow the operation. Sorry, but the rules of life haven't changed; The House always wins in the long run. You haven't invented a revenge-of-the-nerds money printing machine, no matter what Joe Random libertarian techbro will tell you over lunch.

Another option is to be The House and start an exchange service where you leech some % off every transaction. While this is indeed necessary infrastructure to make Bitcoin feasible for the real world, you're not actually making money from Bitcoin itself but from people gullible enough to trade in Bitcoin, which just reinforces my point.

That brings me to another issue: to do anything with cryptocurrency you need to deal with a myriad of these shady broker agencies. Curiously enough some people hold an almost compulsive distrust for goverments and banks, yet willingly leave their money in the hands of some neckbeard posing as a "financial institute" that promises to double their deposit monthly (often backed by testimonials from various C-list has-beens that already were filthy rich and wouldn't need to make such investments). It's so obviously fraud on every level that it's not even worth poking fun at.

It's either that or you can set up your own ecosystem of various utilities that need to be monitored and updated, dedicate hundreds of gigabytes to store your copy of the blockchain, keep track of a bunch of passphrases, etc. The biggest risk here isn't really losing your money to speculation or cybercrime, but simply losing the passphrase to your wallet. Hell, I can barely remember the four digit PIN for my bank card.

So, to summarize: Bitcoin is extremely speculative and offers no short nor long-term guarantees. No one really knows what to do with it except buy drugs and rip other people off. It's economically and environmentally irresponsible. With enough backing capital you can make money from it, but it's really just at someone elses expense. You risk losing your money to fraud, hardware failures or it simply crashing in value. It's a technological mess that few people fully understand. I could even argue it has failed to solve the problem it set out to, since it requires a lot of middlemen of varying credibility to allow anyone but the most hardcore geeks to use it.

Bitcoin fanboys are the kind of obnoxious people that believe in all sorts of other made-up Internet bullshit like not masturbating for a month as some form of Zen exercise, or that squatting in a decomissioned WWII-era naval fort grants you diplomatic immunity due to some loophole in state relations. They're not credible sources for life advice and you shouldn't listen to them. I don't even give a shit if they prove me wrong and actually get rich from their trading, since they will still be losers beyond redemption.

Put your money into Steam trading cards, for all I care. It's still better than being a small-time scammer and fueling the Bitcoin craze.