Bitcoin proponents are fond of claiming that Bitcoin is THE alternative financial system humanity needs to combat the tyranny and incompetence of central banks, and they will trot out all kinds of dire scenarios and statistics to prove this.
The Bitcoin proponents I’ve met have also (not coincidentally) made money on it, and therefore come off somewhat like Pavlovs’ dogs in lightweight thinking caps.
Everyone who doesn’t get it, by the way, is an “idiot”- take 5 minutes to wade through crypto twitter 2018 if you don’t believe that that is the epithet of choice applied to the non-believing.
How Bitcoin got so dressed up is anyone’s guess, but the numbers indicate that it’s a grifter in robot’s clothing, Finlabo SIM CEO Alessandro Guzzini suggests in an article he published in Italian general-interest newspaper Republica Saturday.
“The discussion around Bitcoin has always been very heated and has divided the world between fans of cryptocurrencies who see Bitcoin as an alternative to traditional currencies, and critics who argue that Bitcoin is a huge speculative bubble with characteristics very similar to a pyramid scheme,” Guzzini begins.
The latter camp won a temporary victory in early 2018 when the Bitcoin bubble burst and the coin lost 80% of its value within a few months.
But the recent announcement of Facebook’s Libra coin project appears to have pumped, by proxy, new breath into the Bitcoin soap bubble, and the price has lately been getting back off the ground.
But Guzzini notes that it is important to distinguish between Libra and Bitcoin:
“(T)here is a big difference between Libra, the stablecoin announced by the giant of American social networks and most of the existing crypto currencies…Behind each unit of Libra, in fact, there should be a basket of traditional currencies and the consortium that will guarantee Libra(‘s) …convertibility, thus also ensuring a stable exchange rate.”
Bitcoin, on the other hand, is backed mainly by hype, writes Guzzini (proponents argue that ‘uncensorable payments’ are of inestimable value, you should know, especially if you need drugs or a prostitute only available online):
“(B)itcoin, on the other hand, like…ethereum and most of the existing crypto currencies, does not have any underlying asset or guarantee. Whoever buys a bitcoin essentially goes to remunerate exclusively the seller. And therefore the increase in value of the currency derives exclusively from the continuous presence of a flow of buyers able to support the price…the operation of the Bitcoin is much more similar to that of a pyramid scheme than to that of a currency system.”
The practical-minded have indeed seen a use case for the Dark Net’s favourite digital dollar. Unfortunately, however, the puppet masters at the top have the means to churn the milk and perpetually skim the cream.
Guzzini provides evidence that, like participants in a Ponzi, the first in have profited, and will continue to profit the most off of Bitcoin:
“The analysis of the Bitcoin distribution confirms this thesis. According to the site bitinfocharts.com that analyzes the addresses of the portfolios that own the Bitcoins, the vast majority of virtual coins belong to a few individuals who were probably among the creators of the scheme. Less than 2,000 subjects in fact own alone about 42% of the Bitcoins for a countervalue at “market” prices of about 75 billion dollars. These individuals on average have earned just under 40 million dollars each thanks to the Bitcoin! (emphasis added)”
That’s just the highest tier. There’s a second high net-worth tier:
“Below the tops of the pyramid there is a second band made up of about 150,000 individuals who own about 45% of the Bitcoins. Also in this case we speak of subjects that to the present values possess an average ‘fortune’ of approximately 500 thousand dollars.”
At the base, the 25 million little guys holding maybe a fraction of a Bitcoin, waiting breathlessly for the new wave of guys to come in an blow some air into the bubble maker (but payments!):
“At the base of the pyramid there are finally about 25 million subjects who own from a few dollars to a few thousand dollars in Bitcoin. These are probably people who have entered the Bitcoin business in the last 2 years attracted by the many advertisements and the promise of easy earnings and who have generated the earnings of subjects belonging to the upper ‘bands’ of the pyramid. Their earning possibilities depend on whether others are attracted by the scheme.”
According to Brazilian Professor Jorge Stolfi, Bitcoin is a negative-sum system in which miners “tax” the network about a million dollars a day for processing fees.
For his efforts in determining this, Stolfi was dismissed and labeled an ‘idiot’ by a prominent Bitcoiner who makes his living lecturing on the phenomenon.
Guzzini provides figures and conclusions that compliment Stolfi’s, however:
“According to an estimate by digiconomist.net, the so-called miners consume over 3 billion dollars of electricity every year. Obviously, to sustain this cost, the miners have to sell the ‘earned’ Bitcoins and therefore need a continuous flow of new subjects willing to buy them. Like all pyramid schemes, therefore, also the Bitcoin is destined to collapse when the interest in cryptocurrency begins to decline. And it is very likely that those who will be among the last will find themselves with the classic (candle) in hand!”
There is one consolation that Guzzini does not include, but I will put it here: chances are, if you read the fine print, most other cryptocurrencies are much worse.