The trouble with Bitcoin
(A first version of this page was written in 2015)
In the 19th century and until the 1930's there were big monetary
instabilities. Economists found ways to stabilize the money by
central banks. However the Bitcoin community still never heard about
that problem and solution, and keeps blindly believing that the
instability of the value of the bitcoin is just due to the fact it
is not popular enough and it will naturally become stable by the
magic of being popular, just because, as usual currencies are now
relatively stable since a few decades, the very existence of the
problem remains completely ignored by people who specialize in
cryptography and have no clue about finance.
So, what is their belief ? That there would exist a stable amount of
needed currency in circulation.
This is ridiculously false : whenever someone has a piece of
currency, there is no reason to keep it, since, at best if we
assumed its value to be stable, it would just follow the world's
economic growth, which is lower than the average real interest rate
one can get by investing this money somewhere, thus having in hand
no more that piece of currency but something else : some stocks, an
amount in a bank account which reflects a loan being done to a
productive company... so, some convention of asset that is not
itself the object of ownership like a piece of gold would be, but
that is the ownership of something else, a share of real productive
thing or company. These more productive forms of value ownership
have the property that the expected total sum in circulation is
zero, as positive amounts are the counterpart of some negative
amounts, usually debts that companies will have to pay to the owners
of positive amounts.
Now the expected virtue of a digital economy is that it will provide
people more fluid means for anyone to immediately exchange any
unproductive currency they would hold (with low expected real
interest rates), into productive values (following the market-stable
real interest rate). In these conditions, the limit of ideally
needed amount of total value of unproductive currencies in
circulation, such as bitcoins, is... Zero !
So, the ideal stable value of a bitcoin, as defined by the ratio of
the total needed value of currency (ideally zero) by the number of
units in circulation (some total number more or less determined by
the bitcoin system), is, logically, zero too. In such conditions,
expectations of stabilization of value in % per period of time, are
Not only this, but also, consider the question : what do you think
should happen every time someone creates a new online currency
working a bit better than the previous one, in a way or another ?
Some Bitcoin 2.0, working independently of the current Bitcoin. How
can all the people now owning Bicoins, exchange them all into
Bitcoins 2.0 ? Of course, the answers is that if all bitcoin owners
try to exchange their coins into a new currency, they cannot do it
but will just lose all the value they owned, because, with whom will
they do that exchange ? nobody will buy them ! You can contrast this
with the case of central banks which, no matter how ugly it looks to
think that our money is controlled by central institutions, still
have the remarkable advantage that, every time we need an update in
the currency (such as switching from former national currencies into
euros) they politely accept to collect all the old stuff and provide
the new one in exchange. Something that won't happen with bitcoin
since it is so wonderfully decentralized that nobody will be there
to guarantee that its value does not fall to zero. Apart from this,
well, experts in computer security are confident, they can guarantee
to you : Bitcoin is absolutely secure. If you have bitcoins and you
keep them carefully in your smartphone, if you do not accidentally
break it nor put it into your bath, you do not forget it in a cloth
that you put into the washing machine, no pickpocket takes it and it
is not infected by any virus, then you can be sure, your bitcoins
will remain yours. Oh yeah.
Now, just think about it : is it really serious to expect the world
to adopt a system with the remarkable feature that, once widely
adopted, it will require the whole world economy to collapse every
time it will need a little update ?
Not that I like the idea of central control of anything ; actually
I have my own solution of a decentralized
online currency (uh, quite decentralized but still some centralized aspect is
still needed for stability).
But the point is that it needs completely different foundations than
Bitcoin in order to avoid that trouble. Bitcoin is worthless. It is
not a step in the right direction. It is a step 1 century backwards.
We cannot build any serious online currency if trying to keep any
concept in common with that shit, just like the light bulb was not
invented by improving the candle.
On the hype about its rise of value
A rise of the market value of bitcoins is no sign of quality. The more
it rises, the harder it will fall. I strongly suspect that a large part of the
reasons that made it rise, is that a large number of the coins have actually
been lost, their owner having lost their private keys and/or whatever data
they needed to save to be able to use their coins. Some of the owners may
even be dead, while no heritage system has been considered. This means
the amount of bitcoins effectively in circulation may be much lower than
official figures. The value of those lost, is the sum of all amounts which, individually each
owner might have win if only he didn't lose his data.... but if all of these coins still
really existed they would have been probably sold already, dividing by a
larger nominal amount (number of units) the total value
of actually circulating bitcoins (something relatively more modest),
which may more or less be defined by a certain global demand.
Reply to an answer I got about the update problem
When you say that a simple update will
collapse the system and will be impossible to replace old coins for new coins,
that’s false. As seen with Bitcoin Cash, they fork the chain and give every user a
duplicate of the numbers of coins they have on the new chain.
My reply :
"they fork the chain"
The Good Lord Above ?
Maybe all this people are deluded and not smart but they are lots, and they all think
bitcoin is the future. Even if bitcoin is flawed (the current system also is) I don’t think
it’s going away unless some new awesome technology appears from nowhere and
that doesn’t seem to be happening soon. Bitcoin is slowly replacing the current system.
Remember : Bitcoin is designed in such a way that NOBODY is responsible for it.
One time things may happen to be cared for by some people motivated to
maintain the collective illusion that the principles are good.
But the wind may switch away from this just as well.
They have names, Roger Ver, Craig Wright, a chinese guy called
Jihad… they are responsible for Bitcoin Cash, there are other guys on the other side,
on the 5,5k coin… both groups have their own subreddit and stuff. Both grups are at “war”
for who’s chain is better, and a 3rd group is going to fork again in november, I think.
My reply: Indeed, lots of guys are coming forward, each responsible to make his
own coin succeed at the expense of all others.... until new guys will
be coming forward, responsible in the same way to make their own brand
new coin succeed at the expense of all previous ones.... Actually they only don't
want it to fail as long as they did not sell theirs. Oh yeah.
Same thing if you buy stocks and that company fails… no one is gonna pay you back.
The dilemma is to choose the right coin, but I think both coins BTC and BCH will work
simultaneously. This guys are investing a lot of money to create mining rings, wallets,
and other softwares.. I’m not an expert but the subject is way deeper than just saying
“it’s not gonna work” because it’s working, lots of this guys are coming forward as
kind of responsible for the success of each coin.
Bitcoin lovers who are responsible to make Bitcoin better.
It's working only as long as no competitor appears that would no more
be a Bitcoin lover... there are already tens of cryptocurrencies whose
value is independent of bitcoin...
You seem to have completely forgotten that a basic meaning of money is
that of a convenient tool of reference to make payments and measure
the value of OTHER THINGS. Most people using money neither think nor
intend to be speculating on the value of a particular currency itself.
Finding all right to encourage them to use a tool and then no more
feel responsible for them if doing so they turn out to loose all what
they have just because you choose to suppose them to agree with a game
that nobody was supposed to know what sense it might be making and
why, since, while the value of a stock is at least supposed to refer
to the real value of a particular business, the heck knows what the
value of bitcoin is supposed to reflect....
It reminds me, in my text
the phrase "a game where the true conditions of victory has nothing to
do with what it is officially claimed to be".
So that is your Brave New World ?
Bitcoin dictates to waste the Earth's ressources
Long ago when I pointed Bitcoin's instability, people replied that it
was only because of immaturity and limited adoption, so it would
become more stable as time passes, it becomes mature and more widely
Now that it is supposedly more mature and more widely adopted, see it falling :
from sept.1 to sept. 15;
from nov 8 to nov 12.
Any better stability than before ? I don't think so.
My facebook post of December 8, 2017
Trying to extrapolate the recent rise of value of Bitcoin into future trends, it
seems to be on a divergent curve about to reach infinity in finite time, which may
be as early as the next couple of weeks. But the next value after +infinity is
logically -infinity, which in logarithmic scale means zero. So, be careful !
Seriously, some time ago I explained some troubles I see with Bitcoin here
and I did not change my mind since then. (Link to here)
Mining Bitcoins : a proof of
What a crazy idea, from an economic viewpoint, that possibility to create coins from nothing,
imitating the activity of gold mining in the cyberspace... mining gold might be seen as a
productive activity insofar as gold might have some real value; however if the monetary role
is its only "value" then there is a big nonsense here... I understand most people don't naturally
grasp the depth of this nonsense as they have no natural sense of perfect logic and what it
means for a concept to make sense, logically, so they can't see the problem...
nevertheless the fact is that this whole idea of consuming energy to create cash is a huge
nonsense. Its main role, in fact, is ideological : it just feels cool, popular, democratic,
to proclaim that the right to mine coins is granted to anyone.
The result ? Lots of money is spent mining bitcoins, thus converting a real value (energy) into
an imaginary one that is going to vanish sooner or later anyway. A conversion far from perfect,
as it is a matter of chance whether this work provides nothing (in most cases) or one bitcoin
(with very small probabilities). Like if the only way to convert euros into dollars was to buy
lottery tickets for 1 euro each, with each one chance over a million to win a million dollars.
Already not as fair and democratic as it initially seemed.
work waste hack
But the ultimate result is even worse: it is no more worth spending one's own (or mutualized)
energy to mine bitcoins, because of the unfair competition with those who undertake mining
bitcoins not with an energy they pay themselves but with the energy of others: by creating viruses
that will infect millions of machines to mine bitcoins for them. Thanks Bitcoin for financially
promoting the creation of nasty, cpu-consuming viruses !
This was written as part of a long exposition on the topic : On humanity's failures to steer itself properly
See also: The cult of
cryptography (incomplete draft)
Founders of hacked crypto-mining site apologize over Facebook livestream
Steam ends support for bitcoin
Bitcoin mining consumes more energy than 159 countries
A British man says he accidentally threw away over $80 million worth of bitcoin.