Whenever i see articles with titles like this I'm reminded that a common practice in the financial world is to encourage the general investing public to buy something we wish to have hyped, to create the next level of buyers to buy us OUT of a product we wish to divest from, as we see a peak and trough in the near future...
> Asset bubbles run on the bigger fool principle, and they end when you run out of bigger fools to sell to. If folks have really started cleaning out their bank accounts and borrowing money to buy bitcoins [...] then it seems to me that the world is about to run out of bigger fools.
The fatal mistake is underestimating how many fools the world is capable of providing.
Paraphrasing Robert Anton Wilson: "You know how dumb average American is. Well, mathematically speaking, half of them are even dumber than that!" I would argue that current bitcoin speculators are not fools. It seems to be pure greed. How can you withstand the temptation?
And to quote Warren Buffett: "Be fearful when others are greedy, and be greedy when others are fearful"
I read this article thinking it was written today and slowly realized it was written back in 2011. If I read it in 2011 I would have laughed at his reasoning. I still laugh at it but he happens to have made a shit ton of money.
And this is a great lesson in why not to short stuff.
Fiat has an intrinsic value, in that it can extinguish your tax liabilities. Come April 15th, it doesn't matter whether your income is in bitcoins or onions or beanie babies, you will have to acquire USD somehow to pay the IRS their share.
Could it be argued that crypto has intrinsic value in it's ability to hide from these tax liabilities? I've seen Bitcoin, and other crypto-currencies, compared to the off-shore tax evasion market, as it seems to be able to fulfil much the same purpose.
Of course, Bitcoin as a vehicle for tax evasion isn't a good brand, unless you're very libertarian.
Everyone needs to pay taxes if they don't want to have the police kick in their door and drag them off to prison. Most people don't have an unavoidable need to evade taxes.
Using bitcoin to move around assets and evade taxes presuposes that it has a value. It cannot be an explanation for the value of bitcoin. As we've seen from all the altcoins and bitcoin forks, crypto-"currency" tokens are not exactly a scarce resource. You can create an infinite variants of them, or an infinite copies(forks) of the same blockchain. There is no fundamental reason(i.e. you can't tell just by looking at the properties of the token) why Coin A exchanges for more USD than Coin B.
Some of these tokens can have some intrinsic value, when the coin is set up in such a way that you can "redeem" them for computation time, data storage, content etc. Then it functions in a way similar to an accounting or point system. But beyond this, the price of cryptocurrency tokens is propped up by nothing more than speculation.
Back in 2011, there were much lesser threats to Bitcoin than what we have now. Most people did not take Bitcoin seriously until now. Most people did not want to buy it because they were scared/skeptical about it (a perfect time to invest). Recently many novices who don't understand cryptocurrencies have invested in it - And very likely that fueled the recent rally upto 10k and well beyond that. Its not a good time to invest or buy bitcoins now. Plus the transaction costs have become significant large to ignore.
As of now (near 2018), comparing these bureaucratic threats to that of just a p2p networks is just not correct and may be naive. (It was different in 2011 when this was not well recognized).
What if governments disallow converting Bitcoin to real currency? Why would a govt not use points like - Taxes, Money laundering and terrorism - to prevent bitcoin? Or may be they allow it with some kind of significant bitcoin-conversion-tax?
> What if governments disallow converting Bitcoin to real currency?
The real threat is that the security guarantees for the distributed consensus on the blockchain history make economic assumptions which don't apply to sovereign actors. If the US decides to assemble enough ASICs to construct bitcoin double spends, it can just do it. If China decides to expropriate the mining hardware in its jurisdiction and use it to construct double spends, it can just do it.
Investing in cryptocurrency is like trading the national currency of a very promising but poorly defended young nation. There's a lot of money to be made, but the bottom will fall out if they're invaded.
They're a huge nuisance to nation states, which derive great power from the fact that most economic activity under their jurisdictions is denominated in a token they can generate as much of as they wish, and for which they can generate as much demand as they wish through taxation.
It doesn't seem out of realm of possibility that KYC/AML/whatever will be enhanced for cryptocurrency to/from fiat exchanges, and I don't think cross border nature will exempt to (i.e. exchanging fiat to crypto on a foreign exchange) - look at non-EU companies charging VAT for EU customers for example.
Take Monero for example, the potential privacy coin, some people think that it will be next Coinbase currrency (I think this is a pump though as they grasp onto any hints like it's solid) and that they will fully satisfy regulator requirement by Monero Coinbase users withdrawing to their own Monero wallet and providing Coinbase the viewing key so Coinbase can say to regulator it went from JohnB to JohnB. I have a hard time believing this will last long and I doubt Coinbase do to, regulations are a moving target and loopholes will get closed fast or at least eventually.
Drop fiat at the edge though and then it's a different game, but what do people start from? mining? mechnical turk tasks? some global airdrop for every human on the planet - is this was even remotely possible that would be interesting.
I am in India and am surprised how big btc here. Ex: I know 50 year old people have no connection to the tech scene who have 1000 dollars in btc, yet have no idea how it works. They think it's digital gold that will give them free money.
It makes me kind if sad. If/when btc crashes it's people like this who are going to get hurt.
> What if governments disallow converting Bitcoin to real currency? Why would a govt not use points like - Taxes, Money laundering and terrorism - to prevent bitcoin? Or may be they allow it with some kind of significant bitcoin-conversion-tax?
A big tax for converting Bitcoin to real currency could cause that bitcoin would be used as a currency. If it's too expensive to convert my BTC, I would just use them to pay/buy things. I agree, that playing the "Money Laundering" or "Terrorism" card would be an effective option for the govt.
Good luck using your deflationary "currency" with ridiculous transaction fees and glacial transaction rate that isn't accepted anywhere to actually live your day-to-day life.
This was meant as an utopian near future result, which of course is only possible with some optimizations to the bitcoin software. I don't believe in the current version Bitcoin.
> Short version of what bitcoin is: it is a currency, but an entirely new kind of currency that can’t be seized or frozen by governments, one which is integrated with its transaction system where transaction fees are optional, and where you can transfer any amount anywhere instantly without any authority knowing or interfering.
Ha, of course a government can seize any assets these days. We've seen this a couple of times already.
> Use case: the key advantage for bitcoin is that it does away with all bureaucracy, all transaction fees, and perhaps foremost, all transaction delays and gatekeepers in the financial system.
Why do you think it would be stolen? Is this because many wallets were generated with weak security in 2011?
I've heard many anecdotes about weak Bitcoin wallet security in the earlier years but haven't really seen many definitive information about just how much Bitcoin was hacked from brainwallets, etc.
