Blog author: jcarter
Wednesday, March 5, 2014
By

bitcoin-deadLast year I wrote a series of blog posts about what Christians should know about Bitcoin. In response, one astute reader pointed out an odd juxtaposition: my conclusion seemed to imply that Christians should avoid Bitcoin “at all cost” and yet the Acton Institute accepts donations in Bitcoin. “I really want to know the rationale behind this,” he said.

Well, the rationale is easy enough to explain: Not everyone at Acton agrees with me. Like other nerds who have an interest in the intersection of economics, liberty, and technology, many of us at Acton disagree about the merits of Bitcoin. (I’d offer to place a gentleman’s wager on the future of the crypto-currency, but they’d want to bet using Bitcoin. Either way – whether it increased in value or went defunct – I’d end up the loser.)

Opinions are still divided, but the evidence that Bitcoin is doomed to failure piles up almost every day. Over the 8 month span from October 2010 to June 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29. Later, when I wrote my series last April, a single Bitcoin was worth less than $100. Today, it is worth $660, and that’s after falling from a high of $1,100 in November 2013. A currency that can fluctuate from $0.06 to $1,110 in a three-year period is not a currency – it’s a speculative bubble.

Of course, we Bitcoin doomsayers have been waiting for the bubble to pop for some time now. We also tend to think that every new drop is a sign of it’s impending doom. Fellow naysayer Jonathan Last is sure, this time, that the end of Bitcoin is near:

As of last week, bitcoin is probably functionally finished as a serious hope of ever achieving mass acceptance as a currency.

Because last week, someone stole half a billion dollars worth of bitcoins from Mt. Gox, the world’s oldest bitcoin exchange.

Last says the Mt. Gox implosion (the exchange went bankrupt after the theft) blows the lid off of the idea of bitcoin security:

If the mass audience of consumers can’t believe that their bitcoins are secure, then they won’t buy them. And if the mass audience doesn’t buy bitcoins, then mainstream businesses won’t move to accept them.

. . . Banks are robbed every day. But people don’t think twice about bank theft because whatever money of theirs is sitting in the bank is insured by the federal government. If a guy sticks up the Wells Fargo and steals the $1,000 you just deposited, the FDIC makes everyone whole—and then armed agents of the state attempt to track down the robber and bring him to justice.

But there ain’t no law in Deadwood. Which is to say, the Mt. Gox heist makes it plain that there’s no FDIC for bitcoin. If your bitcoins get stolen, you’re out of luck. What’s more, if your bitcoins get stolen, the cops aren’t going to go after the bad guys. In fact, it’s not even clear that, if the bad guys confessed to the theft the next day that it would be possible to prosecute them.

And here’s the thing: These downside risks aren’t just a quirk of bitcoin being in its infancy—they’re design features that will always be with the currency.

Indeed, that is the catch-22 I pointed out last year: For Bitcoin to succeed it has to adopt mainstream monetary policies—which would negate the very reason for Bitcoin’s existence.

Right now only a fool would actually spend their Bitcoins. Currency is supposed to be a rule that measures the value of a good or service. But the value (or at least price) of a Bitcoin can change rapidly, much more rapidly than the burger you could buy at lunch with your crypto-currency. Of course, only an even greater fool would save their money in Bitcoins. Even those bullish on the fad are smart enough (at least most of them are) not to convert their life savings into a currency that can rise and fall so rapidly. Their actions show, even if they refuse to admit, that Bitcoins act more like a hot tech stock than a legitimate currency.

So what happens next? Who, besides speculators trying to drive the price higher, is still willing to argue that Bitcoin can survive as an unregulated, anonymity friendly, alternative currency for the masses?

Anyone still willing to bet a Bitcoin on the future of Bitcoin?

Banking, Justice, and the Common Good

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Banking, like any other lawful commercial activity, involves people forming relationships. These relationships are normally with different objectives in mind, but nonetheless they are the fruit of lasting associations formed between one or more individuals.

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  • Dylan Pahman

    This is a decent case here. I’m not so convinced one way or the other, however. As a counterpoint, the value of Bitcoin has actually increased since last week. While I agree that it currently operates more like a stock and that it has security issues, so long as there is still significant demand for Bitcoin, there will still be Bitcoin. And increased price indicates increased demand, despite a major security breach at one exchange. My guess is that while there is less insurance against damages from theft, people are not convinced that the currency therefore is impossible to secure nor that the alternatives (e.g. national fiat currencies) are better, despite agencies such as the FDIC. In calculating the costs and benefits, people still seem to find the scales tipped in favor of the benefits.

    • http://Culture11.com Joe Carter

      The title of my post was intentionally hyperbolic. You’re right that Bitcoin can continue to survive — probably for quite a few years — as a speculative commodity. But that is yet another thing that prevents it from ever becoming a currency. The main problem I see is that Bitcoin is currency that people treat as a tech stock. It’s as if in the early 2000′s people thought it’d be a good idea to buy sandwiches with Google stock.

      A lot of people are jumping on the Bitcoin bandwagon because of the potential to make a huge profit. If the price of Bitcoin ever got to point where it could be used as a currency, many of the current fans would dump it. That might be necessary for Bitcoin to survive as a currency. But then it would merely be one among dozens of other potential crypto-currencies.

      • GoodNPlenty333

        > If the price of Bitcoin ever got to point where it could be used as a currency, many of the current fans would dump it.

        No, you’re missing the point. Bitcoin *is* the exit strategy. If the price ever gets incredibly high, there will be no need to dump it, because that will mean that you can buy anything you want with it. I can already buy *most* of the things I want with Bitcoin, and the things I can buy increase every day.

  • bill royland

    What do you think about the native tribes looking to start using the mazacoin for their purchases. The problem with bitcion was you couldn’t print or create them, unless I’m mistaken. Natives on sovereign land are free to do as they please.

    • http://Culture11.com Joe Carter

      That seems like an interesting experiment. I suspect a currency in that type of situation would be easier to implement since it’s used among a group where their is a greater level of connection and trust.

    • GoodNPlenty333

      Bitcoin is nothing but a number. You can write it down on a piece of paper, engrave it on a coin, do whatever you want with it so long as you keep that number secret. The scarcity of Bitcoin is guaranteed by mathematics, cryptography, and the limited resource of computing power. Its scarcity is more sure and consistent than Gold because its supply is already predetermined until the year 2140.

  • http://www.thejimanderson.com/ Jim Anderson

    Mt. Gox is not Bitcoin and Bitcoin is not Mt. Gox. Mt. Gox is an exchange that undermined the security of Bitcoin with their management of their company and how they handled the currency. Bitcoin didn’t fail, one company failed in its procedures of handling it. Bitcoin is not dead. When people see this, they will begin to see the potential with Bitcoin. There are issues that need to be addressed to improve the security of it within exchanges and wallets, but the currency itself has not failed. The problems are similar to the problems that already exist in our current banking and financial system. Here is a good video that goes into detail. http://www.youtube.com/watch?v=wzwWIDIVSTo&feature=share

    • http://Culture11.com Joe Carter

      You’re certainly right that Bitcoin is not Mt. Gox. But Mt. Gox was one of the largest and most respected of the exchanges. Do you think that the other exchanges are likely to be more reliable and more secure than Mt. Gox? Possibly, but not likely.

      But the problem wasn’t just Mt. Gox. It was the security flaw inherent in Bitcoin. Who in their right mind would put their money into a currency that is exploitable by hackers?

      I’m not saying that Bitcoin can’t be fixed. It likely could. But to “fix” Bitcoin and make it more secure would require changing many of the reasons people support it (e.g., anonymity).

      • GoodNPlenty333

        MtGox was not respected. They’ve been slowly failing for a year now, and smart people abandoned them for better exchanges (which is why it quickly went from the top exchange to the third exchange). MtGox was single handedly responsible for dozens of Bitcoin price crashes due to their poor services. The fact that they are gone is a Godsend to Bitcoin in the long term. They are already being replaced with better services.

    • Mark B.

      Ah a link to Andreas Antonopoulos, the king of the bitcoin pumpers. Could your self-serving agenda be any more transparent? Why not just say, “Hey I own bitcoins and I will say anything if that may contribute to the price increasing.”

  • Patrick

    My biggest issue with any digital currency is it’s not backed by anything. Yes, there is high demand but Bitcoin for example has no intrinsic value. Now in the near future, there comes a digital currency backed by gold or silver, I would seriously consider buying it.

    • Steve Kellmeyer

      Goldcoin is tied to gold. You can buy some on cryptsy.com if you have bitcoins.

      Many crypto-currency fans don’t like Goldcoin precisely because they see gold as having no intrinsic value.

  • http://Culture11.com Joe Carter

    I completely agree that no new currency can emerge mature. My contention is merely that for an alternative currency to catch on, it must provide the same sense of stability and security that fiat currencies currently provide. I think a new currency that was open to regulation and had extensive security precautions in place could catch on. But that type of currency would be very different from Bitcoin (at least in it’s current incarnation).

    • Steve Kellmeyer

      “The same sense of stability and security that fiat currencies currently provide…” Seriously?

      Bloomberg just announced that global debt exceeds $100 trillion. Since 2007, governments have increased their debt by $30 trillion dollar.

      The “first-world” countries with the biggest economies, the fiat currencies upon which the world relies, are all based on governments that have debt to income ratios approaching 50-100% of GDP. THOSE fiat currencies are the ones providing a sense of stability and security, eh?

      And you want the jokers who created the current financial mess to regulate Bitcoin? Seriously?

      Bitcoin security is as tight as anything I do with any electronic billpay or bank fund manipulation. But that’s apparently not good enough?

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  • Patrick

    I don’t trust the US dollar or any fiat currency. I’m all for a competition in a currency but only time will tell if Bitcoin or any other digital currency has staying power. For that reason ,I trust Gold and Silver.

    • GoodNPlenty333

      I have always found your line of thinking humorous. Value is nothing more than agreement. There is no such thing as “intrinsic value”. Gold and Silver currently have value because society has agreed that they do, and for no other reason. Dollar bills have value, not because the paper they are printed on is valuable, not because the numbers on them is valuable, but because society has agreed that they are valuable. Value is agreement. The only advantage gold and silver have is that this agreement of value has a long long history, which is indeed an advantage, but there is nothing fundamental to Gold and Silver that prevents it from being worthless tomorrow if society suddenly decides it so.

      • NicholasMassey

        There is nothing fundamental to Gold and Silver that prevents it from being worthless tomorrow?

        I disagree with your reasoning. Out of 118 elements of the periodic table Gold was chosen ,many years ago, as ‘THE’ currency to have because it is chemically unreactive when compared to other precious metals, which is why it is used and will always be used and held in high esteem. Gold doesn’t weather with age. A gold bar will still look the same in 1000 years as it does now.

        I can understand people wanting to support Bitcoin, but berating Gold in the process to make Bitcoin seem more favourable is just retarded. Gold isn’t going anywhere anytime soon, if ever… It is perfection, which is why it has been used for over 6000 years already as something with value.

        Bitcoin could pop tomorrow if another exchange was to be hacked or if a big western economy was to take a tough stance against it. |

        • GoodNPlenty333

          Bitcoin is a protocol, like email. It is an idea, and a solution to a general problem, like the quadratic formula. It cannot go away. It cannot be uninvented. It’s price can go down significantly, and has many times, but Bitcoin is here to stay regardless. Governments can slow it down, ban it, make it illegal, but none of that can kill Bitcoin because governments cannot enforce such laws for the same reason they cannot stop file sharing due to distributed protocols like BitTorrent.

          Gold has value for no other reason than the fact that people have agreed that it has value. All value is nothing more than agreement. People can agree that sea shells have value and boom they have value for as long as people agree to it. Society currently agree’s that small pieces of green paper called “dollars” have value despite the fact that they are just paper with numbers printed on them. Their value comes from agreement.

          My point isn’t to bash Gold, or Silver or other commodities. As you mentioned, gold has value because people have agreed that it has special properties that most other elements do not have, making it unique. It is rare, fungible, easily identifiable, and durable. Bitcoin also has these properties, and an additional property which is that it can be transported anywhere in the world at almost no cost, almost instantaneously. Payments cannot be stopped, and accounts cannot be frozen. It is like Digital Gold. What Bitcoin does not have, is time tested value, which obviously requires time, but this is no fault of Bitcoin. It’s only been around for 5 years, and it will take a generation or so before it can prove itself fully.

  • http://www.vilepickle.com David

    I’d argue that anyone that still had money in Mt. Gox after July was downright insane. They turned off BTC to USD withdrawals via normal channels months ago and later on even international wires were disabled. If these weren’t red flags, I’m not sure what is. That said, I personally don’t think one exchange failing / stealing people’s money is going to end all of Bitcoin. Cryptocurrences are much bigger than Mt. Gox now, and innovations will continue to come with newer alt-coins. Within the last year there have been 125+ alternative coins introduced. Much of this is the gold rush mentality, but many coins have legitimate improvements and innovations over Bitcoin. There are also interesting ideas like Auroracoin, for instance, which is going to be airdropped on Iceland this month ( http://auroracoin.org/ ). The Bitcoin cat is out of the bag and altcoins are finding even more speculative markets than Bitcoin. It will be interesting to see which coin is “fittest” in the next few years as Bitcoin’s appeal of being first out of the gate fades away.

    As for regulation? It needs to happen. How it happens is the big debate. As you say, it’s too easy to have money stolen forever with no guarantee that it will be found or returned. As long as the regulation doesn’t stop the relentless innovations happening in the cryptocoin space I think most people will be fine with it.

  • Steve Kellmeyer

    This is a silly article. Nearly all transactions in first world countries are cryptocurrency transactions. My credit card purchase at McDonalds, my bank account, my bill paying… all of these are cryptographic storage and transactions. My dollars exist only as cryptographically stored magnetic twists on a hard drive somewhere. Same with my debts.

    All cryptocurrency does is move the cryptography envelope. Instead of surrounding the transaction, it is built into the currency itself. That’s the only technical difference between Bitcoin, Visa and Wells-Fargo.

    Cryptocurrency is currently extremely popular in a techno-geek world where all the inhabitants either speak or understand math and cryptography. They know the security strengths and weaknesses of the currencies far better than any economist. Economists who blast cryptocurrencies based on security concerns
    are rightly a laughingstock. Because the crypto is built right into the coin, Bitcoin is a LOT more physically secure than any other investment you can name.

    Security concerns are a red herring. If someone can break Bitcoin or its brethren, then no currency, no electronic transaction in the world is safe. If Bitcoin breaks, every currency transaction in the world breaks.

    Now, will the economics of Bitcoin eventually work out? THAT’S a separate question. Economists should really restrict themselves to THAT conversation.

    It is absolutely being treated more like a stock than like a fiat currency. But, stocks have their value or the economy wouldn’t support them.

    Is it a good idea to have the crypto built into a currency instead of just into the transaction surrounding the currency? You can have a debate about that.

    Certainly there are teething problems, as MtGox demonstrates. They used a non-standard protocol to store Bitcoins. The only difference between MtGox and the Too-Big-To-Fail banks is that with cryptocurrency, you actually have a REAL free market. No one can bail out a bank with a stupid currency transaction or the people who co-travel with that bank. Unlike the government backed markets, ignorance and bad luck have real prices in this system.

    How many people like having to pay for those kinds of problems?
    We will find out.

  • GoodNPlenty333

    I’ll add your article to my list of “Bitcoin is dead”, “Bitcoin is dying”, “Bitcoin will die soon”, “Bitcoin will die eventually”, “Some day Bitcoin might die”, “I wish Bitcoin would die”, “Why didn’t Bitcoin die?” Articles.

    • Mark B.

      You forgot to disclose how many bitcoin you own… pumper.

  • GoodNPlenty333

    Crypto-currencies cannot die anymore than e-mail can die, or the Pythagorean theorem can die. It is an idea, and a protocol. It cannot be un-invented. It will always be around. I’ll bet you cold hard cash.

    • Mark B.

      Another Pumper.

  • GoodNPlenty333

    Bitcoin being tied to gold would defeat the entire purpose. There is no need for such a thing. Not being tied to a physical asset is what makes Bitcoin transactions so seamless and effortless, not to mention trustless. As soon as you introduce Gold, you have to intregrate Bitcoin with some trusted third party, and integrate Bitcoin with the current financial system. The entire point of Bitcoin is that there are no trusted third parties. The system is self sufficient and maintains itself.

  • Preston

    Joe: you premise that BTC is a bubble is built upon the Keynesian propaganda that currencies should be stable. As a medium, they are supposed to hold value and that does not always mean that they will be stable. Currencies are relative. They are expressed in value with respect to each other. Like anything, there are supply and demand forces working on BTC and the market is in a place of finding a running equilibrium. The fact that BTC will become fixed in supply (unlike USD or central bank currencies) means that in the long-run, they will hold more value. Compare the track-record of BTC to the historical performance of the USD since 1913. While BTC has risen and fallen, a comparative analysis between the USD would show a strict disparity since 1 BTC is > 1 USD

  • heckubiss

    I think you misunderstand what bitcoin actually is.

    The fact that there has been price fluctuations of bitcoin against fiat currency such as the US dollar in no way shape or form has anything to bitcoin being” doomed to failure”. I assume by this statement you mean that eventually less and less people will be converting their fiat currency into bitcoin and continue to use their fiat currency for transactions.

    on the top of my head I can think of two reasons why this is highly unlikely

    1. Bitcoin is simply a more efficient, safer, and transparent transaction system then the fiat currency we currently use. Just as the fiat currency we used was a better system then using gold and silver coins.

    2. Bitcoin is in its very early stages. Facebook is older than bitcoin! As more consumers and business adopt it, they will use it for transactions. Whey would people do adopt it? see 1.

    Its like trying to go back to standard definition TV sets after watching in HD. Yes there are some people who havent switched to HD but its here to stay..

  • buttcracks

    lololololololol. ”what my christian buddies need to know about bitcoin” foolish skeptic

  • TestifyTruth

    Wow, can’t disagreement be done peacefully?