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Bitcoins: The Losses Continue

Written by Gary North on March 6, 2014

For months now, Bitcoin soothsayers have proclaimed that the virtual currency is going to Change Everything. The mass adoption of Bitcoin, they told us, would utterly transform the way the world stores and exchanges value. Government-backed currency would become obsolete. Farmers in Kenya would use the same Bitcoin-based payment systems as cafés in the Mission. With the future of money in the hands of Satoshi Nakamoto’s brilliant protocol, inexact central planning would be replaced by algorithmic decentralization.

Of course, none of that has happened. And it’s exceedingly likely that none of it will.

You’ve probably heard about the bankruptcy of Mt. Gox, a former Magic: The Gathering card exchange that morphed into Bitcoin’s largest trading floor before being wiped out by a nearly $500 million heist. But even before that, new knocks to Bitcoin were coming fast and furious: the arrest of Bitcoin prodigy Charlie Shrem; the consolidation of Bitcoin mining operations in a way that threatened to undermine the rules of the currency itself; the successive (and utterly predictable) shutdowns of Silk Road and Utopia. Today, another nail hit the coffin courtesy of Flexcoin, a so-called “Bitcoin bank” that announced that all its users’ accounts had simply vanished.

These may seem like isolated incidents, but together, they add up to a massive, damning breach of trust. I don’t doubt, as Nobel laureate Robert Shiller put it last week, that “something good can arise from [Bitcoin’s] innovations.” But Bitcoin itself will never recover from these initial pratfalls. Partly this is because lawmakers and regulators, spooked by early hype and the Mt. Gox disaster, are never going to afford Bitcoin services the kind of autonomy they’d need in order to flourish. Partly it’s because there are conceptual problems with the Bitcoin architecture itself. And partly it’s because Bitcoin’s anarchic roots are too fringe to draw in the masses. In the mind of the average American, the currency is now synonymous with theft, drugs, and techno-wizardry. These impressions do not a global currency make.

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29 thoughts on “Bitcoins: The Losses Continue

  1. Boy, he's just determined to stay on this hobby-horse, isn't he? Shades of Y2K, Batman!

  2. Actually, it is not up to the lawmakers to decide that. Bitcoin can be (is) quite independent of it/them.
    The malfeasance that we see is nothing new, "real money" is subject the same risks. that is part of normal growing pains and going through it makes big difference as anything that is being proposed has to pass this testing phase. Bitcoin is stronger now than it has ever been.
    PS You perception of Mt Gox is wrong: the inadequate handling of that business become known much earlier and lots of users moved on much earlier.

  3. Centurian says:

    Bitcoin supporters may be loyal to their cause, but, even as a libertarian, I would not invest my money in a scheme that has a track record of $100MM to $500MM untraceable thefts.

    While I admit that I don't understand the detailed machinations of Bitcoin, the "mining" using computer algorithms doesn't pass the sniff test for me. What real stuff is mined? If a metal, a physical asset, even a chair or an essential service…something real is not uncovered as a base of value, then what confers value to the electrons (which, by the way are nearly, and can be, free) that are "mined?"

    A recent episode of "Raising Hope" (first one I've watched), while taking aim at the fiat dollar, demonstrated perfectly how this could turn out. Check out the Burt Bucks episode- http://www.hulu.com/watch/558278

    Similarly, the stellar appreciation of the "currency" is just too good to be true. The only things that can possibly have real returns like that are so fraught with risk that they are usually not worth an investment. Ponzi, Madoff and some Enron guys went to jail for more believable and understandable schemes. Some of us saw through them too.

    Of, course the Fed and IMF are the biggest crooks engaged in "currency" fraud, but there are ways to hedge their generally and naively accepted use of fiat money. It will fail eventually and a lot more than $500MM will disappear. Some friends of mine made their businesses survive the hyperinflation in Argentina. Their secret was to turn fiat money into "stuff" on the same day it was collected. If you collected $100 today, you bought an asset, like a chair, because tomorrow it might take $130 to buy the same chair. Gold and Silver are not the only repositories of value. Land, food, necessary skills, vehicles, fuel and inventory have value in the real world, regardless of the relative value of fiat currencies.

    A pile of electrons, created out of thin air is as susceptible to complete meltdown as is a paper currency representing no solid asset in reality.

    While I agree that Gary has hammered away on this issue to the annoyance of many, I share his skepticism over this latest fiat scheme. I like not having government involvement (which won't last long now) but I see no real value except that offered by those you can fool into giving you a profit (in another fiat currency or assets) for your electrons, based on a bunch of meaningless cheerleading.

  4. "Ponzi, Madoff and some Enron guys went to jail for more believable and understandable schemes."

    And, another guy that wants to comment on something he hasn't take the time to understand. Bitcoin is Open Source, which means that thousands of programmers around the world have looked at every aspect of it. If there was somebody making an illicit killing off of it, they would have detected it long ago.

    The bitcoin miners are the ones making the network work, which is why they are getting paid for adding value to the system. They are the ones confirming every transaction and making it impossible to hack, since there is more computing power in the Bitcoin network than all the supercomputers in the world combined.

  5. I should point out that Gary North is an Austrian, economics-wise, so he is no friend of the Fed or of central banking. He keeps slamming Bitcoin for what I perceive to be peripheral issues, but he has not said anything about what would be a VIABLE alternative to the Fed trash in the modern world. Presumably he wants a gold-backed system. I'd certainly love to see that, too. However, the reality is that every gold-backed system that has come along in the last 30 years, the feds have attacked, shut the company down, and jailed the participants. Simply exchanging gold and silver coins is great option if you're face-to-face, but how much of our commerce is face-to-face, today?

    Is Gary enough of a luddite that he can't see that Bitcoin is rising because it's NEEDED? We need a currency that can be sent over the internet yet has no central repository that the feds can shut down. Until he tells us of a viable option, his words are worthless.

  6. As they say, I have no dog in this fight". But from what I have been reading, there seems to be a two sided disagreement here that is turning into believers and unbelievers. Bitcoins like "Climate Change" is turning into a religion. You either believe or you don't. No further discussion required. For what little it's worth, I wish those that continue to purchase bitcoins good luck. I believe you will need it. See my blog at http://cranky-conservative.blogspot.com

  7. ncbill12 says:

    Exchanges are the problem.

    The Wall Street Journal found 18 of the 40 exchanges it could identify have shut down, usually taking all the BC on deposit with them.

    So assuming you got in early and now want to cash out 5, 6, or even 7 figures worth of BC, how do you know who to trust to exchange those BC for digital dollars/euros/yen?

  8. Liberty1 says:

    It isn't a religious argument. It is an argument between those who have a good understanding of Bitcoin and those who do not. If you read the anti-Bitcoin literature you will find almost no one with any knowledge or experience. You get comments from people like Centurion above who admit they have no working knowledge but just "believe" it can't work. Gary has toned it down a bit from just shooting falsehoods from the hip and hoping something would turn out to be at least partially true to claiming that the recent thefts will destroy all hope for Bitcoin. That, at least, is an opinion that one could argue. It, of course, is like saying that Madoff destroyed stocks or that MF Global destroyed commodity trading. Still, at least it is arguable. In a fact based argument, which we aren't seeing from the author here, Bitcoin comes off much better. Remember, Bitcoin was never designed as an investment nor as a world currency but as a nearly frictionless payments system and it has succeeded wonderfully in that role.

  9. You are absolutely correct. The smartest of the Bitcoin Bunch will steal all from those who think they are smart enough and aren't. Good luck reaching out for that golden ring.

  10. Everyone, here is what Liberty1 said on February 25th.

    "The remaining [Bitcoin] businesses, such as Coinbase and Bitstamp are run by professional money managers with plenty of oversight."

    And what do we have one week later? Flexcoin, a bitcoin business which Liberty1 assured us had "plenty of oversight", has now lost its users money.

    What this proves is that Liberty1 has no clue what he is talking about. A promise and reassurance from him, along with $5, will buy you a cup of coffee at Starbucks.

    Would you like a fork to go with your plate of crow Liberty1?

  11. Liberty1 says:

    LOL!! I can't decide if you are trying to be funny and point out the silliness of the anti-Bitcoin folks or are actually serious. I named two very solid Bitcoin companies with great management and oversight and you point to the failure of a company I never mentioned that had hideously bad security and massive amounts of money sitting in a hot wallet as proof I haven't a clue? Good grief. You are the perfect example of the point I made above. Thank you for proving my case.

  12. Liberty1 says:

    If that is a serious question then a serious reply was hinted at in my comments above. According to your quote a little fewer than half the identified exchanges have failed. A goodly number are in business still and some are excellent. A bit of due diligence will find them easily enough. If your Bitcoin hoard has a dollar exchange value in the five figure range or above, you already know who they are and have a good business relationship with a couple, at least.

  13. He's been at it for decades. Have you bothered looking at his countless articles? His position is well known. You do not have to wait.

    Gary was right all along about Bitcoin. Like it or not. The corrupt system needs to be destroyed for free market money to thrive.

    "Simply exchanging gold and silver coins is great option if you're face-to-face, but how much of our commerce is face-to-face, today? "

    Yawn.

  14. "I named two very solid Bitcoin companies with great management and oversight and you point to the failure of a company I never mentioned that had hideously bad security and massive amounts of money sitting in a hot wallet as proof I haven't a clue?"

    Everyone, notice now how Liberty1 tries to squirm his way out of his own words by subtly trying to change what he said.

    Here is his quote again…

    "The remaining [Bitcoin] businesses, such as Coinbase and Bitstamp"

    The key words here are "remaining businesses". When Liberty1 said this on Feb 25th, Flexcoin was one of those remaining businesses. And now, it is not. Liberty1's attempt to retcon that he was only talking about Coinbase and Bitstamp has failed.

    "you point to the failure of a company I never mentioned"

    Ah, but you did mention it Liberty1, right here.

    "The remaining [Bitcoin] businesses"

    You included all of them, you did not exclude Flexcoin. I called you on this back on Feb 25th, and you had a chance to clarify or exclude Flexcoin, but you failed to do so. You lose.

    "that had hideously bad security and massive amounts of money sitting in a hot wallet as proof I haven't a clue?"

    Everyone, notice how now all of the sudden Liberty1 acts as if he knew all along that Flexcoin had bad security. Funny how he forgot to mention that when he was praising the remaining Bitcoin businesses, including Flexcoin.

    "Good grief. You are the perfect example of the point I made above."

    Wrong again Liberty1, you have shown that you have no clue what you are talking about. You just show up later to give us an I told you so with your Monday morning quarterbacking. I warned you a week ago, you ignored the warning while strutting like a proud peacock, and now I proved the little emperor has no clothes.

    "Thank you for proving my case."

    There is no need to thank me for something I didn't do Liberty1.

    Smile. How does that crow taste?

  15. " A goodly number are in business still and some are excellent."

    Everyone, notice how Liberty1 now says only "some" are excellent.

    That is not what he said a week ago, on Feb 25th.

    "The remaining [Bitcoin] businesses, such as Coinbase and Bitstamp are run by professional money managers with plenty of oversight."

    Liberty1, the man who changes his words like runway model changes clothes.

  16. Liberty1 says:

    Sorry if you misunderstood my post. When I mentioned two (of the many) representative solid Bitcoin businesses, that should have given you a clue as to classes of businesses I was referring to. I doubt that anyone, other than yourself, would see that comment as endorsing 100% of the remaining Bitcoin businesses. I stand fully behind the statement as posted. Your knowledge of Bitcoin seems to be limited to nothing more than opinion and invective. Perhaps if you took the time (as millions have) to understand your subject matter you could post a cogent article against Bitcoin. Now that would be a discussion worth having!

  17. Liberty1 says:

    Maybe next post you could stay on topic. This was about finding trustworthy exchanges, not semantics.

  18. Whether or not Bitcoin (or the idea of Bitcoin, an organic popular currency) was a good idea that simply could not pass the test of value through popular USE (and not speculation), one of the lessons lies in it's very public fabrication as a "non-government-backed" form of exchange medium.

    The men and women operating as "government" do not tolerate competition much less encourage it. Bitcoin was a very public "in your face" to the monopoly of government fiat currency – and as such it was doomed from the start.

    There are alternative currencies and barter exchanges already in widespread use and operation. That I can't point you to them is precisely why they thrive. They operate under the radar, often in a very limited and local, interpersonal way.

    Real money or currency is a stable reservoir of value that facilitates exchange. Bitcoin was not stable – as evidenced by the speculative and meteoric rise (and fall) of its unit value.

    If a common non-government currency takes hold it will be quietly, below the surface – undetectable and un-traceable. It will operate in exile, and grow virally much like Christian churches in Asia and Africa. If it becomes known and seen it will be targeted by those in government either for obliteration or assimilation.

    Caesar will take what he considers his, whether or not you render up to him willingly. Like the devil, government feeds on its worshippers and those who depend on it for their daily sustenance.

    The answer now as always is to starve the beast – that when there is a choice to be made between turning to government or looking to oneself, choosing the government option is rarely the best decision (although it may for the moment be the only unavoidable one).

  19. Liberty1 says:

    You make some interesting points. You mention that Bitcoin could not pass the test of value through popular use but 10s of thousands of businesses are now accepting Bitcoin as payment and Overstock.com just booked over $1 Million dollars in sales via Bitcoin after only 2 months. It seems that it is working just fine in commercial use. You also mention a fallacy that Bitcoin was an "in your face" attempt to replace a central bank currency. It wasn't. It started out as a very quiet way to perform nearly frictionless transactions across distances. The target was never the Dollar or gold, it was Paypal. It did get swept up in a public hysteria by those who wanted a way to "get rich quick" and that, not its design, caused the run-up and subsequent fall. I might mention that Bitcoin prices now are still double what they were when the run-up began. Finally, a non-government currency will never be quiet. You don't replace trillions of dollars and go undetected. All that said, I completely agree with your final statement. You are spot-on there.

  20. bitcoiner says:

    You don't have to trust any exchange to hold your coins for you. You can send them to you own personal, local wallet that only you control. What is happening here is the same as if you bought physical gold but allowed the company from which you bought the gold to hold it for you, then they go bankrupt and your gold disappears. Why not hold it yourself?

  21. bitcoiner says:

    The "losses" continue? I'm sorry but I bought bitcoins exactly one year ago for $40 each. Today, right now, even with all the recent bad news, they trade on a true free market at $640, 1600% higher than what I paid a year ago. "Losses"? I have to laugh. And the $640 value is not subsided, boosted, stimulated, or manipulated, etc by any government or central bank policy, this is purely what people value them at.

  22. "Maybe next post you could stay on topic"

    I am quoting your reply and discussing your reply to the topic. That makes my comment on topic. Don't try to pretend it isn't.

    "This was about finding trustworthy exchanges, not semantics."

    And now Liberty1 pretends this is merely a discussion of semantics, instead of him admitting he was in error about trustworthy exchanges and my pointing his error.

  23. Liberty1 says:

    You would think that having been around the block as many times as I have that I would know when I was being trolled. Apparently not. OK, you trolled, I bit. My bad. Now that you have been "outed", crawl back under your bridge and wait for the next passerby. I have better things to do than waste my time with lonely teenagers. Troll away. I won't be responding to you.

  24. "Sorry if you misunderstood my post… I doubt that anyone, other than yourself, would see that comment as endorsing 100% of the remaining Bitcoin businesses."

    That is exactly what the plain English language meaning of your comment does, so don't pretend it doesn't. It is folly for you to pretend somehow the error is mine for misunderstanding you.

    Should you wish you can apologize for being mistaken.

    " When I mentioned two (of the many) representative solid Bitcoin businesses"

    You merely mentioned them as examples, while the key part of your statement was "The remaining [Bitcoin] businesses" without any qualifiers. That includes Flexcoin, which is now belly up.

    " I stand fully behind the statement as posted."

    Then you are still in error.

    " Your knowledge of Bitcoin seems to be limited to nothing more than opinion and invective."

    I have barely discussed Bitcoin at all, instead focusing on your statements about Bitcoin. So your inference of what I know about Bitcoin would need to be primarily based on mind reading, as opposed to my statements.

    "Perhaps if you took the time (as millions have) to understand your subject matter you could post a cogent article against Bitcoin."

    And why would I do that? Who said I was against Bitcoin? I certainly did not.

    Oh I see, you are trying to change the subject again, away from your error and back at me. That won't work.

  25. Um, yeah…I've been reading North's articles for over a decade. Which is why I remember what an idiot he was about Y2K.

    "The corrupt system needs to be destroyed for free market money to thrive."

    So, what you're saying is that until the current corrupt system implodes, we should just put our heads down and not innovate, not build, not TRY?

    Yeah, you can be pathetic like that, but I'd rather try something else.

  26. "You would think that having been around the block as many times as I have that I would know when I was being trolled. Apparently not. OK, you trolled, I bit."

    Fascinating, what I am doing with Liberty1 here, is exactly what Liberty1 does with Gary North. Gary North posts articles on Bitcoin, and Liberty1 then proceeds to write replies pointing out the (alleged) errors and mistakes in the article.

    I did the exact same thing with Liberty1's comments. He made an error, I replied pointing it out, and I held his feet to the fire.

    So now, according to Liberty1, this is "trolling". I certainly don't agree, but that means Liberty1 just admitted he is trolling North on this website. The only difference being that North doesn't bother replying.

    "Now that you have been "outed", crawl back under your bridge and wait for the next passerby."

    Haha is that what you are going to do Liberty1? Wait under the bridge until the next Bitcoin article passes by?

    " I have better things to do than waste my time with lonely teenagers."

    LOL, one thing in this sentence is true. You have been wasting your time.

    "I won't be responding to you."

    Fair enough. I will continue to respond to you for as long as it amuses me to do so.

  27. William Lee Kohler says:

    More typical negative drivel from north. Wonder what govt regulatory agency or bank he works for??????????

  28. Keep wondering…that is how you stay clueless. Or you could try doing some research…if you aren't too lazy.

  29. Now that we have placed under us the "only" leader ever predicted for anybody in "Israel" by the seed of Joseph, including Judah, only promised "Messiah"(Gen. 49:10), but never given the name "Israel" given only to Joseph's sons(Gen. 48:16) proven by Marxist in ideology(written to also be the only unforgivable sin) England(i.e., "sun never sat(has now!) on the British Empire) and brother u.s. in the Hebrew-Inspired Scriptures with brother us putting under it the only clearly identified leader over us in our 6,000 year history, or the "forbidden foreigner"(Only Non-Anglo-Saxon or Non-Jew EVER to lead Anglo-Saxons &/or Jews) of Deuteronomy 17:15! I can't make this stuff up folks! Next, one of these soon coming annual Feast of Trumpets(WAR) will come the prophetic two-witnesses of Revelation, chapter 7 & 11 to severely punish us, leaving only 72,000 of each sex equally divided among the 12 tribes of Israel with the tribe of Joseph replacing the tribe of Dan as being left alive during the soon coming of "Jacob's trouble!" That's still 100% DEATH for us folks, including Jews! Nobody in your "church" I bet ever read those scriptures to you and I seriously doubt that they even know who "we the people" really even are…p.s. Wednesday, September 24, 2014 is the NEXT annual Feast of Trumpets(WAR) which is the festival written in which "Jacob's trouble" is to begin! Again, just reading what's really written in scriptures, not what everybody says is and isn't! Could this begin our certain DEATH? Time will tell if it's this Feast of Trumpets(war), but as in Egyptian captivity, the RIGHT GOVERNMENT that has not any Anglo-Saxons or Jews over it in either in our federal government or Justice Department, EXACTLY as required for our judgment! OUCH!~