Bitcoin is Fool's Gold
Bitcoin has some rare and interesting properties. Like gold, Bitcoin is easily divisible. But what about scarcity?
Proponents claim Bitcoin is scarce. Alleged proof of the claim is that only a certain number of them will be mined.
The claim is on shaky ground. Nothing stops a majority of miners from agreeing to double, triple, or quintuple the number of Bitcoins.
That will "never" happen claim the proponents as it would kill the price.
But it already has happened. Twice.
Bitcoin has taken two hard forks already. At the first fork, holders of Bitcoin received an equal number of Bitcoin Cash. Then Bitcoin Cash forked into Bitcoin SV. As a result of these forks, there are already three times as many Bitcoin lookalikes as promised.
That's just the beginning of it.
Top Twenty Cryptocurrencies
Note that Ethereum, created to fix a scaling flaw in Bitcoin, has itself hard forked.
There are double the number of Ethereum coins as originally promised.
Cryptos Are Like Fiat
Despite mining claims comparing cryptos to gold, cryptocurrecies are like fiat. They can be conjured out of thin air like nothing.
Proof is irrefutable: There are over 2,500 cryptocurrencies all claiming to be scarce like gold, each claiming to have added value.
I asked William Entriken, the lead author of the "token standard" for tracking physical assets using blockchain (ERC-721) for a synopsis of the leading competitors to Bitcoin.
The following bullet points are from Entriken.
- XRP (the company) clears cross-border treasury transfers for international banks. This works on the normal underlying fiat currencies. But the XRP token you can buy actually has nothing to do with that.
- ETHEREUM lets you run applications on a blockchain. It is one global computer that everyone can use and, we assume, nobody can hack. Ethereum is a public-access computer but actually it inspired many other similar projects, some of which are not public-facing. One big limit of Ethereum is it costs about $0.02 for each transfer or program run and takes about 20 seconds each time.
- BITCOIN CASH is the same thing as Bitcoin except that the number of allowed transactions is higher. Bitcoin and Bitcoin cash only allow a certain number of transactions every ten minutes. So if you really want your transaction to settle now then you must pay a higher fee. Otherwise your transaction settles later. The Bitcoin Cash fork was motivated because Bitcoin consistently has more people wanting to clear transactions than
- EOS is also a global computer. We usually judge global computers (blockchain that can run applications) against Ethereum because Ethereum is best known. Comparatively, EOS made some very different design decisions that make the system able to run faster but also require it to rely on a small number of central operators.
- STELLAR is one specific payment system application. They are a non-profit that is focused on customers which do not have access to traditional banking services.
- BITCOIN SV is one more fork on BITCOIN CASH. There are a lot of technical details that are changed with no visible end-user impact.
- TETHER is a blockchain application where somebody with a business address of "incorporated in Hong Kong" and no phone number hold $3B in US Dollars on your behalf. You hope that these funds will be available if you want to cash out. But you won't sign any contract with anybody that actually entitles you to take out your share of the $3B.
- LITECOIN is an early copy of BITCOIN except it works 4 times faster.
- CARDANO is nothing. Maybe it will be something later, like a competitor to Ethereum.
- MONERO is a single blockchain application for payment processing. But it promises to be more resistant to forensic analysis of payments than Bitcoin.
- TRON wants to copy the Ethereum idea but allow more transactions.
- IOTA is nothing. Maybe it will become a competitor to Ethereum.
- DASH is a payment system which promises to run instantaneously, in contrast to longer times for Bitcoin.
- In summary 90% of these applications are focused on somebody printing their own currency, then getting other people to use it for business transactions, and hoping regulators won't stop them.
- All of these other projects are deriving their value only in comparison to Bitcoin.
Illusion of Scarcity
What real scarcity can there possibly be in a model that allows infinite numbers of lookalikes all with similar properties, each proposing to fix some sort of problem in Bitcoin?
The logical, as well as correct answer, is none.
No Gold Lookalikes
In contrast to cryptocurrency madness, there are no gold lookalikes. There are no silver lookalikes.
There is gold and there is silver.
Gold and silver have unique properties that cannot be conjured out of thin air by a computer algorithm.
Is Gold Money? Bitcoin?
The SEC ruled Bitcoin is a "commodity".
But what is money?
In What Has Government Done to Our Money, a free download on Mises.Org, Murray Rothbard writes ...
"Money is a commodity. Learning this simple lesson is one of the world’s most important tasks. So often have people talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity—and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc. Like all commodities, its “price”—in terms of other goods—is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. (People “buy” money by selling their goods and services for it, just as they “sell” money when they buy goods and services.)"
Bitcoin vs Gold vs Tulips
Historically speaking, gold has always been valued as money. When gold and silver have not been available other commodities have functioned as money. Beaver pelts, salt, copper, cigarettes have all served as money.
That aside, Bitcoin has one major role speculation. It is logically the equivalent of tulip bulbs, another commodity.
That said, I am willing to accept both Bitcoin and Gold as money. Both can be used as money to buy things.
Some places will accept Bitcoin as money. For the sake of argument, let's accept that as sufficient.
What about gold? Via a Bitgold debit card, gold is accepted as payment at millions more places than Bitcoin.
Bitgold is not a cryptocurrency, it is a genuine 100% gold-backed deposit. Via a Bitgold debit card, any place that accepts a debit card accepts gold as payment.
Bitcoin proponents may object because gold is converted to a local currency at transaction time.
However, all but a relative handful of companies do not hold Bitcoin. Rather, they immediately convert Bitcoin into local currency after the transaction.
It makes no difference whether currency conversion happens just prior to the transaction or immediately after.
Hype vs Reality
- Gold has thousands of years of history as money. Bitcoin has hype.
- Central banks hold gold. They do not hold Bitcoin.
- Via Bitgold, many millions of places accept gold as payment than Bitcoin.
- Gold is scarce. Cryptos offer fake scarcity.
Like it or not, those are the facts. Granted, Bitcoin has first mover advantage, but that is it.
Where to From Here?
I don't know the coming price of Bitcoin or gold, nor does anyone else.
People pretend they know. Gold proponents speculate at $20,000 an ounce.
Bitcoin proponents are truly crazy, speculating on $1,000,000 per bitcoin.
That is how absurd the hype is.
Fool's Gold Substitute
Bitcoin is a fool's gold substitute with unlimited supply in actual practice.
The above statement does not imply no use for blockchain.
I expect blockchain will eventually be a major success at low volume, high value transactions such as recording of deeds and titles.
I also expect a wave of digital currencies sponsored, then required by central banks.
If Bitcoin stands up to that, I expect it to be outlawed, timing uncertain.
Bitcoin Is Not Gold
Bitcoin is not peer-to-peer gold because it is not gold at all.
There is no limit to the number of coins running the exact same algorithm as Bitcoin. Scarcity is a mirage.
Let's not get caught up with arguments about mining or what is or isn't money.
Instead, pay attention to irrefutable facts.
JP Morgan famously stated “Money is Gold, and Nothing Else”.
I propose this simple refinement:
Bitcoin is not now nor ever will be peer-to-peer gold because Gold is Gold, and Nothing Else
Pater Tenebrarum at the Acting Man blog passed on this note:
"There are many more BTC forks already, not just three. There is BTC Gold, BTC Diamond, Z-Cash and its forks (Horizen and ZCoin), BTC Dark, Decred and more. I have actually stopped counting them. "
Mike "Mish" Shedlock