Six things that normal people (and Bitcoiners) get dead wrong about Bitcoin

Frequently, Bitcoin enthusiasts complain that the uninitiated masses make false claims about Bitcoin. This is unequivocally valid. The author has rarely seen such a dismissive and lazy attitude towards something so consequential. For the most part, this post will ignore many of the outlandish claims that are just blatantly uninformed (“What if Satoshi Nakamoto decides to print more Bitcoin?”), and address misconceptions that come from both sides of the fence, including Bitcoin users.

1) Bitcoin will fail because it doesn’t have intrinsic value.
Who says this?: Hard money advocates.
Why is it false?: From a philosophical perspective I get surprised from time to time from where the dissidence originates. Lately, there has been a slew of pro-hard money libertarians who have rejected Bitcoin for one reason: that it is inferior to gold and silver because it does not have intrinsic value. What always struck me about this comment was that they would tack on “intrinsic value” to the long list of other values such as divisibility, fungibility, recognizability, scarcity (etc. you know that drill). However, it has been clear to me that the laundry list of features is the intrinsic value. I can think of a modern day analogy in which somebody says that cell phones are good because you can call your friends, receive important messages, check the weather, and they are useful.
2) Bitcoin will fail if people don’t use it to purchase goods and services.
Who says this?: Bitcoin advocates, normal people.
Why is it false?: This is incorrect by counter-example. Gold is an $8 trillion market and nobody uses it to buy anything. Merchant adoption may be sufficient to increase the utility of Bitcoin, but it is not necessary.
3) Bitcoin is in a bubble NOW.
Who says this?: Most people.
Why it may be false?: If you say that eventually it’s going to rain, you’ll be right. It doesn’t make you a meteorologist. A bubble caller doesn’t need to call the top, nor the bottom. But at the very least, a bubble caller has the onus to say that “at this level, Bitcoin’s price is a result of irrational exuberance.” Then, after the correction, if the price is lower than what you claimed it would be, you were correct. Sorry, but if Bitcoin goes from $250 straight to $1,000 then back down to $500, you didn’t call the bubble.
4) Bitcoin manipulation is rampant.
Who says this?: Some Bitcoin advocates.
Why is it false?: On the Bitcoin subreddit, there is a lot of talk of market “manipulation” for financial gain. I spent about half a day corresponding with those who make this claim, to try and understand the mechanics of this manipulation. According to them, at its essence, the playbook is to wait until there is a large spread between bid and ask prices, and then begin selling oneself small amounts of Bitcoin, progressively in the direction you would like to scare the market. If you want to cause a short panic, you start selling down; if you want to cause a rally, you buy up.
This tactic is extremely risky for two reasons. The first is that a large bid/ask spread is typically the result of recent, large-scale market activity, such as a 2,000 Bitcoin sell or a $500,000 buy. In the aftermath of either of these events will follow sharp short-term volatility, which will indiscriminately consume attempted manipulations whether up or down. The second is that manipulators must assume that there are people who are actively trading without looking at the market depth charts. This is a tenuous claim at best, and downright foolish at worst. Even the redditors who complain about the manipulation do so while looking at the depth charts. If it’s obvious to them that somebody is trying to influence the market up or down, then it’s obvious to other people as well. Despite the perception of Bitcoiner financial ignorance, most of them really aren’t that unsophisticated.
5) Bitcoin is a Ponzi scheme
Who says this?: People who have recently been introduced to Bitcoin.
Why is it false?: I wouldn’t include this misperception if I didn’t continue to hear it on a daily basis. In a Ponzi scheme, people are enticed to invest and promised incredible returns on their investments. Old investors are paid with new investor money. The scheme involves an enormous amount of deliberate deception, and is unsustainable without exception. Bitcoin promises no such returns. There aren’t even any people who could make such a claim since there is no Bitcoin company in the first place. On the contrary, most people are firmly warned against investing more than they can bear to lose by the Bitcoin community at large. Any Bitcoiner who benefits from rising prices is no different, ethically, than an early investor in Google or Apple.
6) Bitcoin will fail because it’s digital.
Who says this?: Regular people.
Why is it false?: Look around you! For the first time ever in the history of humanity we have unbacked fiat currencies in essentially every single country on earth. Do you use a debit or credit card? Do you use a bank? Do you think that the bank keeps your money in paper dollar stacks in the vault behind the wall? Of course not. Your money at the bank is just a digital entry on a bank’s ledger. Well over 90% of all US dollars are digital. You already use and, potentially, trust keeping your hard-won earnings in a digital format. Besides, Bitcoin can be held in physical format too. There are qualitatively no differences between Bitcoins and US dollars from a digital perspective.
So what do you think? Were you nodding along the whole time or do you have a different opinion? I encourage you to add your comments if there is a point you would like to emphasize or debate.
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18 comments on “Six things that normal people (and Bitcoiners) get dead wrong about Bitcoin

  1. [...] Six things that normal people (and Bitcoiners) get dead wrong about Bitcoin « Real Virtual Currency. [...]

  2. dan says:

    Pretty spot on most of this. I dont try to argue that bitcoin has intrinsic value because it doesnt have intrinsic value but it doesnt need it either for money simply allows for the exchange of value. And it is unfortunate that with all the debate over money in the past years understanding value is still misunderstood. When you understand value you immediately see why bitcoin works. For value within the economy is all derived from the time and energy of people. Therefore all it takes for a bitcoin to “have value” (although this is not strictly true) is that people chose to accept it as payment for their time and energy expressed within the economy as goods and services.

    The more people that do this the more added value to bitcoin, this is also why fiat currency’s although corrupts and manipulated have worked for many decade’s now, even though they have no intrinsic value.

    If you are stuck on the idea of intrinsic value and dont believe what is written here then answer to yourself why fiat currency’s have value.Then when you think you have an answer ask where the value of that comes from also and so on.

  3. Bitcoins have intrinsic value. They can be sent anywhere in the world and transfer economic value in a matter of minutes for the cost of an email transmission. Try doing that with an international wire transfer, or even PayPal. Think of it as FreePal.

  4. canna says:

    Last paragraph just said it all. There are quantitatively no differences between bit coins and US dollars from a digital perspective. People are trusting the bitcoin to survive the US dollar collapse. That won’t happen if the bitcoin is valued and traded in US dollars and a vulnerable digital infrastructure. When the US dollar collapses, so will the infrastructure and bitcoin will be just another a lost file.

  5. bitcoinsurf says:

    great article for bitcoin newbies

  6. himselfv says:

    > This is incorrect by counter-example. Gold is an $8 trillion market and nobody uses it to buy anything.

    That’s not how you do counter-examples. The only counter-example to “Bitcoin will fail if people don’t use it to purchase goods and services” would be “But it didn’t”.

    > Sorry, but if Bitcoin goes from $250 straight to $1,000 then back down to $500, you didn’t call the bubble.

    And if it goes down to $30-$60, we did. You’re not actually proving that the claim is false by your “explanation”, you just say that it might be false. Look at what you wrote:

    > Claim: Titanic will sink.
    > Why it’s false: Every ship will eventually sink. But we are interested in whether it’ll sink on it’s maiden voyage, right? What will you say if it doesn’t? Therefore the claim is false.

    Therefore… what? Logic, not even once.

    • Garrison says:

      Well, the important thing is you found a way to feel superior to everybody.

      I don’t see how it adds to the conversation though.

  7. Hugo says:

    I completely agree, except on one point. Its not even important for what you want to say but I feel its important to point out. Nothing has intrinsic value, nor Bitcoin, nor gold, nor food, nothing. Value is always subjective. This has been stablished by economists for a couple of centuries and has not been even challenged, so its well stablished.

  8. Redbeard says:

    I will add one more point to the ‘Bitcoin has intrinsic value’ argument. Bitcoin solves, quite elegantly, the Byzantine Generals problem. It has enormous value across many different systems where coordination and trust cannot or should not be controled by a central authority. Bitcoin the currency may or may not survive. bitcoin, the protocol, is going to change the world.

    • Mike says:

      a better way to think of intrisic value would be to call it intrinsic utility, because the value of any raw material or manufactured good is derived from its utility. rarity also plays a big role, and this is why gold and silver have such high value per weight.
      silver has an enormous number of uses in technological applications, medical applications, as well as jewelry and fine dinnerware. gold is extremely rare and is prized for its

    • Mike says:

      a better way to think of intrisic value would be to call it intrinsic utility, because the value of any raw material or manufactured good is derived from its utility. rarity also plays a big role, and this is why gold and silver have such high value per weight. they have high utility and extreme rarity. bitcoin has no intrinsic value, because it has no utility, or real function in the real world. what can you do with it? can you make me something with bitcoin? if I buy some bitcoins, will it make my computer faster? really. I want a good answer. no one has been able to give me a decent reply. bitcoin will probably never become a truly viable currency, and may never reflate. gold and silver store value extremely well, and they have utility, which is why their respective values will remain high, and most likely, continue to gain value, and may in fact be remonetized. this will most likely start in the far east (china or russia) or perhaps Switzerland, which has had recent talks about returning to the standard, and was in fact, the last country to remove the gold backing from their currency, though, I’m really just speculating here. no one knows if it will be remonetized and only time will tell.

      silver has an enormous number of uses in technological applications, medical applications, as well as jewelry and fine dinnerware. gold is extremely rare and is prized for its beauty. if needed, these metals can be used in minute amounts in high tech equipment, such as the moon lander built by NASA, or the flat screen you’re viewing right now. they can be spread so thin you could make a wire as thin as a strand of human hair, so they’re quite divisible. and dont think people wont accept it as money. people will accept gold as payment. look at Iran. the US put sanctions on their country, so they can’t export their oil (since oil is only traded, under international law, in US dollars) in violation of international agreements, they have thumbed their nosed at the western powers, and are accepting gold for oil. and people know it when they see it. gold and silver are hard to fake. they have real value. real utility. what can you do with bitcoin? nothing, as far as I can tell.

      • tuply says:

        What can you build with Bitcoin? You can build a decentralized, deflationary currency that can transport billions of dollars in value across the globe in a fraction of a second with minimal transaction costs. If you won’t accept that as intrinsic value, then there is no point for you to learn about or use Bitcoin.

  9. Aaron says:

    Well said!

  10. Matt says:

    I started investing in BitCoin about a month ago when it was around $40, and I can say I am a pretty happy fellow, but one question that still remains….If no government agency backs bitcoin, who do I turn to if my money is stolen? If a thief stills my physical wallet, or if a bank or brokerage firm makes an error, I have a legal right to pursue my losses in court. One of the reasons I trust my USD is becaue it is backed by a democratic government, which aims to protect it’s citizens best interest. Who, other than myself, is out to protect my BItCoin?

    • Redbeard says:

      Stealing is stealing. If someone steals your BTC you report them to the police. The difference between cash and bitcoin is that Bitcoins are very very difficult to steal. The reports you have heard of it happening are people being incredibly negligent with their wallets.

  11. Leon says:

    Gold has many uses, you could argue any commodity is buying/trading for other goods/money. Though you are right, bitcoin is no different. The implication that bitcoin is going to become an 8 trillion dollar market (I’m assuming volume bc “market cap” is meaningless due to speculation).

    Also the reason why there are ponzi scheme comparisons is due to the insistence on the bitcoin community to encourage buying. Frankly having new money come in is the only way to support the price, we will see if old ‘investors’ end up getting away with all of the new investors money or not.

    But at the end of the day, if it is a bubble, only people that were able to find some smuck to buy their bitcoins will make any money.

  12. Anthony says:

    You’re somewhat off on your reasoning for #2. Precious medals such as gold are seeped directly into commerce, i.e., jewelry. It may not be used much as a currency, but it’s more than just a metal collecting dust. People use/wear gold and it’s not just a novelty. Not so with bitcoins. If no one uses their bitcoins, then over time they just sit there and collect virtual dust. At that point, the only value they have is if someone is willing to buy it, for whatever reason. Mass adoption by merchants will be the key to bitcoin becoming a long-term currency.

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