Mt. Gox is gone. Bankrupt. It took $473 million with it. About a million investors listened to the hype about the “untraceable money of the future,” and they turned real money over to some 25-year-old French kid — a programmer who lived in Japan. They gave him real money. He gave them a dream.
Mt. Gox’s founders were going to get rich — “Rich, I tell you! Rich! Hahahaha!” They had a plan. You can read it here.
My mind drifts back to the 1960’s.
Where have all the bitcoins gone, long time passing?
Where have all the bitcoins gone, long time ago?
Where have all the bitcoins gone?
Bad code swallowed every one.
Oh, when will they ever learn?
Oh, when will they . . . ever learn?
Pete Seeger, where are you, now that we need you?
Here is the #1 fact about bitcoins: there are no bitcoins independent of unknown, underfunded “exchanges.” Mt. Gox was such an exchange. It was the biggest one, the most trusted one, the one Americans used.
No one can buy bitcoins that exist as separate entities, the way that a $20 bill does. People who thought they were buying bitcoins from Mt. Gox were not buying bitcoins at all. They were buying Goxcoins.
Never forget this: a chain of payments can be broken at any point along the chain. The payments chain is no stronger than its weakest link.
Think “Mt. Gox.”
First, I now refuse to capitalize bitcoins. That which de-capitalizes its users should not be capitalized. Then there is this: for as long as its defenders do capitalize it, it is not currency. We do not capitalize dollar, yen, or euro, because they are money. We capitalize proprietary brands. We capitalize Charmin. We capitalize Drano. But that which is universally used, we no not capitalize. We capitalize Krugerrand. We do not capitalize gold.
Second, economists do not defend bitcoins as a future worldwide currency. There is no worldwide currency today. Gold once served this purpose. So did silver in the form of Spanish pieces of eight. But nothing else has.
Third, libertarian programmers think bitcoins will become the world’s first digital international currency, a stand-alone monetary system that is separate from commercial banking and central banking, a system where people will be able to buy and sell whatever they want, but without ever accessing a government-regulated bank account. Programmers do not understand either monetary theory or markets. Bitcoins are a dream come true for them, and they have adopted bitcoins as a representative dream.
(For the rest of my article, clink the link.)