BITCOIN PYRAMID SCAM DESTROYING CRYPTOCURRENCIES POSSIBLY FOREVER
I am going to cover BITCOIN and Cryptocurrencies in a few simple paragraphs. What are Bitcoin and Cryptocurrencies? They are basically traveler’s checks and nothing more. For example, if you send money to your worthless nephew you can do so by wire, PayPal, Western Union or some other means whereby money is converted for exchange and reconstituted for delivery. What if you could merely send a transaction from your Bitcoin wallet to your nephew’s bitcoin wallet. The exchange would be instant, confidential and very cheap. That is all this cryptocurrency is about. So why do people hoard these acting like they have special value? Supply and demand. Bitcoin is limited in supply and for some inexplicable reason, people are bidding up the price. BITCOIN PYRAMID SCAM DESTROYING CRYPTOCURRENCIES POSSIBLY FOREVER.
There are big flaws with BITCOIN.
The biggest flaw with Bitcoin is that the originators gave themselves lots of Bitcoins. That essentially makes it a pyramid scam in which the Bitcoin originators gave themselves huge numbers of bitcoins for free. Now that BITCOIN mania is here they can sell their free Bitcoins to suckers for $19,000 each. How much are bitcoins worth? They are worth nothing because the only way to tell their value is what they can buy, not what some idoit will pay for them.
But to be able to buy things a currency must be stable. The Bitcoin is too volatile to be a currency. For example, you bought a car three weeks ago with Bitcoin. The car cost $28,000. You shelled out four bitcoins. This week you wanted to buy another car exactly the same. You shelled out roughly 1.5 Bitcoins. How much is the car worth in Bitcoins? Hard to tell. A merchant seller could not possibly know how much to sell a car for in bitcoins. The prince might chance in minutes.
Worse, a Bitcoin could go back to $300 or zero overnght. Essentially it is impossible to know the value of your cars in Bitcoins.
The US Dollar is no prize to be sure:
It has lost 99% of its buying power in the last hundred years and if Yellen and the new flunky Chairman get their way it will lose 3% a year. Thus it is accelerating toward less value but its fluctuated value is fairly slow compared to a bitcoin. Dollars represent short-term stored value. They were never intended to be hoarded but to be spent.
The way speculators invest in dollars is by comparison.
For example, if the Brazil Real is inflating at 60% a year, you don’t want it in your pocket but you might want to buy dollars today in Real knowing that in a year the dollars will be much more valuable than the Real. This is not to say the dollars are more valuable but IN RELATIONSHIP to the Real, they are more valuable.
Would you pay $19,000 for a Travelers check?
Let’s hope not. You would want it pegged to a currency like the dollar and you would pay a small premium in case the traveler’s checks got stolen. The safety is the value of the Traveler’s check and portability. Bitcoin is portable but also offers privacy. Buy a hooker with Bitcoin and nobody will ever know. Privacy could be worth a great deal to some people but it still has to be used in transactions or it is worthless and value cannot be determined.
Bitcoin doesn’t have enough circulation to be a currency.
It is just like gold in that way. Only 1% of the population of the world buys gold. Worse, the way to create more bitcoins is to “mine them.” That basically means lending your home or business computer to verify transactions made in Bitcoin. In essence, Bitcoin pays for your computer usage. When your computer does this, it is called a Block and joins with other computers of the world over the internet to form a “Blockchain.”
Blockchain merely means that the computational requirements of ledger transactions are distributed and performed by many distant computers rather than one centralized mainframe.
All Cryptocurrencies except for one of them use “Blockchain” to verify transactions. The Currency algorithm pays in Bitcoin for the use of your computer. The big trouble with Bitcoin is that nobody knows what it is worth because of the speculators. So it cannot be used in exchange for goods and services.
Because the Bitcoin is a pyramid scheme, those who bought in early got free Bitcoins for cheap Bitcoins and the bubble has made them appear instantly wealthy. But many are just riding the bubble. Like all bubbles, if you ride them and get out you make a fortune. Most people, however, get greedy and lose everything. They stay in too long and start to think irrationally.
In the housing bubble, one guy told me it would never end because there was a groundswell of young people and they would all want to buy homes. Of Course, they didn’t do anything of the kind. Now we have the lowest home ownership in America in 70 years.
Shock of the Century. Hedge fund operative Bill Miller has half his hedge fund assets in Bitcoin.
This guy even looks like one of the Hunt Brothers that tried to corner the silver market a few years back. They fell to ruin. Miller is one of these guys that tells the world he like boring investments. By that, he means equities with a high safety profile. That is what he tells everyone. But his behavior is quite the opposite.
This revelation is borderline nuts.
He bought most of his bitcoins when they were $6000 a pop. They are $19000 each today. This is pure gambling. The Bitcoin to any good programmer is flawed. Here is a guy going against every discipline he has preached for the last 30 years. In simple terms, he has the fever.
I have seen people with gambling fever before. I saw them in the housing bubble. There was a male nurse that bought 4 million dollars worth of McMansions just a week before the whole housing market collapsed. His last words to me before he went belly up were, “I’m going for it!”
For others that watch the bubbles form and burst, we lament we did not get on the train before it left the station even knowing the train is doomed. Investors always think they will jump to safety before the train heads down the ravine.
Bill Miller has already made his fortune so my guess is that he is out of Bitcoin even though he publically claims to have half his assets in the virtual tulips. Unfortunately, his public statements are so irresponsible that many will foolishly follow him into this nutty train ride even if Miller is no longer on the train. But that is the way hedge fund operative act. What they say is vastly different from what they actually do.
The only Crypto Currency that doesn’t use Blockchain is IOTA.
This Crypto used a math algorithm called “Tangle” which basically is a self-transaction verifier in which the user of IOTA, a business would verify two other transactions during its transaction. Without blockchain, it eliminates the necessity for massive computing power and eliminates “Mining” which is good. Unfortunately, MIT found a flaw in the math algorithm and IOTA recently made a patch. But it is too early to see how many flaws this will ultimately contain.
At present, there is a raft of Crypto Currencies. Click here for a list.
The Death Knell of the Crypto Currencies.
First and foremost they will gain a reputation as Ponzi schemes in which creators have inside doors to latch onto some coins for themselves the easy way. Secondly, if a government ever gets involved in making a cryptocurrency it will likely be set up as a tracking currency with lots of built-in manipulation controls.
Anything involving government is instantly dishonest. The US Dollar is a putrid currency having lost 99% of its buying power in the last 100 year while under the watchful eye of the Federal Reserve Bank that is stripping you blind.