OPINION: Bitcoin: A Ponzi Scheme for Redistributing Wealth From One Libertarian to Another

Thursday, January 15, 2015

If Bitcoin were a currency, it’d be the worst-performing one in the world, worse even than the Russian ruble.

But Bitcoin isn’t a currency. It’s a Ponzi scheme for redistributing wealth from one libertarian to another. At least that’s all it is right now. One day it could be more. Venture capitalists, for their part, are quick to point out that it’s really a protocol, like the early internet, and its underlying technology could still be revolutionary. What are they supposed to say, though, when they’ve bet hundreds of millions of dollars on it?

But that’s not much of a consolation to anyone who bought anywhere near Bitcoin’s $1,100 top. Or near $1,000, or $900, or $800, or, well even yesterday’s prices. That’s because Bitcoin hasn’t just fallen 76 percent the past year. It’s fallen 36 percent the past two days, as you can see below, with a 24 percent decline the past 24 hours. It’s too bad Bitcoin doesn’t have a central bank to help stabilize its value.

What in the name of Satoshi Nakamoto is going on? Well, two things. First, Bitcoin’s big bubble has been slowly deflating for over a year now. It has no inherent value, after all, because, despite companies trying to get free PR by saying they’ll accept it, almost nobody uses it to buy anything other than drugs. Second, though, is a problem that’s all too familiar to anyone who tried flipping condos in Miami ten years ago. Bitcoin miners, you see, borrowed money—and real money, as in dollars—that they could only pay back if Bitcoin prices kept rising, or at least didn’t fall this much.

Bitcoin, remember, is a digital “currency” that lets you send money online without needing a bank to confirm it. That’s because it substitutes a decentralized network of middlemen for a single middleman. And instead of paying them fees, it pays them with new Bitcoins. Think about it this way. The problem with sending money online is that you don’t know if I’m trying to scam you by sending the same money to someone else, too. So the solution has been to have a bank sit in between us: I send the money to the bank, it verifies that I haven’t sent it to anyone else, and then sends it to you, all for a 2 percent cut, of course.

Source: The Washington Post (link opens in a new window)