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The Establishment’s Case for Bitcoins

Written by Gary North on December 12, 2013

The headline caught my attention: EY: ‘Bitcoin has the potential to be a game-changer’. So did the subhead: Big Four accountant EY shares insights into the digital currency its says could be a ‘game changer’ EY is a British accounting firm.

How, I thought, can Bitcoin become a winner? It‘s a loser from the point of view of privacy. Paper money is much better. But Americans don’t use paper money. They don’t care about privacy. So, why buy Bitcoins as currency?

So, I kept reading.

Colin Pickard said Bitcoin could bring substantial benefits to the financial services industry by cutting down the costs of cross-border transactions.

Cross-border transactions are rare for individuals. The people who are big fans of Bitcoins – computer programmers and libertarians – don’t have much money. They are not big businesses. They do not export or import anything.

Then he added this:

He added, though, that unless governments start regulating it, the currency may never “take off”, as it still faces serious hurdles.

I see. Bitcoins need government regulation to work. This is intriguing. Surely, if Bitcoins ever are used for anything except as a huge digital tulip mania, they will get plenty of regulation.

This is not the case for Bitcoins made my libertarian programmers. In fact, it is the opposite of their case.

Bitcoins have high volatility. The market looks like a bubble.

Its dramatic swings in valuation and associations with criminal activity have seen it characterised as a bubble commodity unworthy of serious consideration.

Correct on both counts.

Then what is the case for Bitcoins as a currency? How about privacy?

Many illicit online traders favour Bitcoin as it the buyer’s identity is more difficult to trace than with card payments.

But this is a myth, we are told. “It is more transparent and traceable than real cash,” said Roger Willis of EY’s fraud team. He’s got that right!

How about price stability?

Bitcoin’s potential as a currency has also been questioned since there is an upper limit on how many can be generated, meaning that in contrast to real-world money, it has a deflationary bias. But Mr Pickard said he did not believe this was a barrier to wider adoption, since each Bitcoin can be divided an infinite number of times.

“It’s a complete change in concept. You have a cap [in the number of Bitcoins] but you can increase the number of subdivisions. Instead of, for example, getting rid of the penny farthing, you divide the unit.”

So, volatility is irrelevant, he says. You can have a currency that appreciates 100-to-one in a year. No problem! Then it can fall 30% in two days. No problem!

Has any currency in history done this? No.

Is there really privacy? No.

Nor would Bitcoin elude a fraud investigation, according to EY’s Matt Rees, who said that while a probe involving Bitcoin would be “very different” from one where traditional currency was used, that it would be technically possible.

Then the article ended.

The writer did not pursue any of this. She did not think this was relevant. She filed her article. That was that. On to the next story!

So, why is Bitcoins a game-changer? We are not told. What we are told is that Bitcoins are useful as cross-border exchanges, which the average person does not care about. Furthermore, Bitcoins are not very private, can be traced, are wildly volatile, and must be regulated by the government in order to be acceptable as currency.

If this is the case for Bitcoins, my criticisms of this digital tulip mania are still intact.

Continue Reading on www.telegraph.co.uk

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14 thoughts on “The Establishment’s Case for Bitcoins

  1. Charles Bullen says:

    Cross-border transactions are rare for individuals. The people who are big fans of Bitcoins – computer progrsammers and libertarians – don’t have much money. They are not big businesses. They do not export or import anything.

    This is the face of the Ugly American rearing his head once again.

    Cross border transactions (as performed by Western Union and many smaller players) are a fantastically huge and very profitable business, and they cater for many millions of people around the world. Of course, if you are a parochial American, who doesn't believe that people outside of New Jersey even exist, the concept of cross border remittances is an odd one.

    Even if it was the case that Libertarians and Programmers do not import or export anything, which is demonstrably false, many businesses do, and instead of using letters of credit to make remittances, Bitcoin can perform that function through the use of signed transactions. I could type out a description of how it works, but I fear that it would go right over the head of Mr. North. Suffice to say, Bitcoin makes letters of credit obsolete, and vastly reduces the cost of contract based payments by eliminating banks from the process.

    I simply cannot believe the utter nonsense that is being written here about Bitcoin. Its anti-innovation, anti-liberty and absolutely pure Luddite. You have proven once again, that not only do you not understand Bitcoin, but that your field of vision is very narrow. You do not even understand the market for international remittances, how huge it is, how encumbered and restricted it is by the State and how ripe it is for disruption.

    Thankfully, there are entrepreneurs out there who understand all of this, and who are changing the world for the better, and for Liberty.

  2. BitHappens says:

    Gary we get it.

    You really really really really really really really

    hate bitcoins.

    Find some other dead horse to flog, huh? Maybe something about how we need to flog adulterers or something?

  3. Phillip the Bruce says:

    No, I fear it is Dr. North's analysis that has gone over your head.
    OK, so Western Union and others do "millions" of cross-border transactions. How many of their customers have even heard of Bitcoin, let alone are able to get access to it? Many of them do not have computer access. How do you pay for a money order? Credit/debit card or cash. Go to the nearest location yourself if you must. If you are concerned about privacy, cash wins – not Bitcoin.

  4. One simple fact, since bitcoin transactions are outside of scrutiny and control, they cannot be trusted. But I agree, enough on this subject. Let's move on. How about, "Is Santa an honest arbiter of good and bad"? of some other equally moving topic. See my blog at http://cranky-conservative.blogspot.com

  5. redmeatstate says:

    Why is this author defending the corrupt Federal Reserve, their diminishing garbage currency, and the power of the United States Government??
    If bitcoins allow tremendous freedom and value from the exchanger, consumer, owner, then it will not be stopped by the Federal Reserve or the US Government. Indeed, since the US Government is fully DEPENDENT upon the Federal Reserve then they will both completely collapse, and the American public will be free from their tyranny.
    So far it appears that Bitcoins are a very big deal internationally and could very well replace all reserve currencies currently in place!!
    Bubble?? the US Dollar is in a bubble! And it's about to pop!

  6. GoldHoarder says:

    Could you write an article explaining the Bitcoin protocol? I still don't understand it very well, but it seems like you know enough about it to know it is bad. Maybe we can learn from its mistakes?

  7. matticusrex says:

    "One simple fact, since bitcoin transactions are outside of scrutiny and control"

    I suppose one might think that's a fact if all you knew about Bitcoin was what you read in Gary North's badly-researched articles. If done correctly, they're outside of *state* control, but that's a pro rather than a con.

  8. matticusrex says:

    Considering Bitcoin is being used on cell phones in Africa for remittances (and a growing majority of third-worlders do have cell phone access), I think you're at the very least underestimating things immensely.

    If you're concerned about privacy, Bitcoin can beat cash even in person-to-person transactions (which can take place instantly without the need to make change, but it especially beats cash in any transaction that is not person-to-person… if you know how to do it (which is getting easier every day). Of course, you wouldn't learn this from Gary's articles, because Gary hasn't done anywhere close to enough research to know what he's talking about.

  9. I don't object to the idea that some people may not think Bitcoin is a good idea, or may not trust it, or whatever. You may have good reasons.

    But the reasons Gary North offers aren't good reasons. To put it bluntly, on virtually every aspect of Bitcoin that he addresses in the various articles he's written, North proves quickly and beyond a shadow of doubt that he doesn't have the slightest idea what the hell he's talking about.

    If you're looking for good scoop on Bitcoin, look elsewhere.

  10. Emilio Guernsey says:

    Your arguments are just as poorly constructed as Dr. North’s.

    Just because people have not heard of Bitcoin, it does not immediately follow that it is not useful, or that it cannot be used for any purpose.

    Lack of access to Bitcoin is also a Straw Man argument, because universal access can happen in the future; that is what capitalists and entrepreneurs do.

    You say many of them do not have computer access. You do not understand how Bitcoin works; most of the people in Africa have mobiles phones, all of which can send and receive Bitcoin. MPESA in Kenya is a good example of the explosion of mobile money in an African country. If you or Dr. North have never heard of MPESA, I suggest you look into it; its very informative of how these services work.

    How do you pay for your Bitcoin? You do so with cash. It is more anonymous than using Western Union, that insists on taking your ID to move your money anywhere.

    You simply do not have enough information to make a proper judgement.

  11. Roger Clemencio says:

    I’ve read a lot interesting articles about Bitcoins both pro and against.
    it all sounds too good to be true. I personally feel its like a Monster Ponzi Scheme. People are going to make a lot of money from Bitcoins but most aren’t

  12. Please show ANY evidence that YOU have a clue what you are talking about. Bitcoins are the ONE topic on which Gary North actually demonstrates in depth understanding of reality.

  13. Steven,

    If you're interested in what I know and don't know about Bitcoin (I try to be very clear in my writing about what I know and don't know), just type my name and the word "Bitcoin" into Google. I don't claim to be an expert, but I'm capable of differentiating, and do differentiate,between what I know and what I don't know. North apparently isn't, and definitely doesn't, as his writings on Bitcoin are chock full of factual errors (I've only written one article on North and Bitcoin; that article carefully dissects the errors in one of his own offerings; other writers have similarly fisked his other Bitcoin writings).

  14. this is a didgital currancy. this so called money is in cyberspace. with the genius's in computer hacking , why would you risk having a currancy in cyberspace. one guy hacked a 100millon from some peoples wallet account. it may ahve worked for edison, in real coins, but that went south with the rise of gold and the dollar . no privacy either. if the goverment can hack our money in a finaciall collaspes then they also can take your bitcoins. i personally think this is a fad. this could also just be anew way to purchase goods from out of the country. i'll stick with metals.