Bitcoin
Part I: How Bitcoin Works
All the "churn" we see: money wasted in wars and rumors of war, throwing money away on welfare schemes, and other social initiatives like Guaranteed Basic Income, or ridiculous subsidies on money-losing propositions, is partly to accommodate a flaw in the system: We have to have ever-higher deficits, and if that doesn't worry you, you worry me. So it is absurd when they talk about "the deficit," as though it were forever a big surprise that it is so high! So, to prepare for when that becomes unsustainable, we have to see changes in the money system.
Table of Contents
Bitcoin is meant to acclimatize the masses to "e-currency," "cryptocurrency," "cybercurrency" or "digital currency" that is being vetted for potential replacement of our current paper money system. This is tied in to a push for a world-wide fiat money system, rather than just national ones. If they're trying to get rid of our money, they're going to stage something that seems like a viable, "good" replacement. As well, infringements on the money monopoly are never tolerated, so Bitcoin would have never been allowed to become a "thing," if there weren't a plan.
Quick & Dirty SummaryPart I: How Bitcoin Works
Bitcoin explained
Bitcoin flaws
potential improvements
Bitcoin alternatives
barter: a real potential innovation
forking Bitcoin
Part II: The Bitcoin Fairy
Bitcoin split
a questionable system
Bitcoin shills
why Bitcoin is a Ponzi-style scheme
recent Bitcoin issues
summary
If (more like "when"), countries' central banks introduce digital currencies (abbreviated "CBDCs"), it should be game over for Bitcoin. Or, rather, that'll be the excuse to have it fold, taking everyone's bitcoin investment with it.
Not just Bitcoin, but everything these days we're told is valuable is just a shady con. Like the idiotic "Facebook," which is a platform that many, many programmers could implement. That is, it's nothing new, not an "invention" or "innovation," but has extraordinary perceived value (and, despite a history of these type of things falling out of fashion, is extraordinarily overvalued). It is actually a test of gullibility, besides being a spying tool, and social manipulation tool.
Oh, powers that be want a "digitalized currency," all right. The potentials to tax every monetary exchange, "shut down" or selectively "tax" anyone they don't like, implement charges on every transaction, snoop on every transaction, force negative interest rates and rampantly inflate the "currency" are just too great temptations. Plus, paper money has "handling and production costs," like transport, security, counting, printing.
So Bitcoin probably won't survive. It is just a first draft, to iron out the bugs and see how easy it is to bait the suckers in. We get the occasional story, like recently, where they're going after users in a "crackdown" (but possibly a contrived one, to validate the scam to people who see it and think Bitcoin must be "independent"), by the U.S. government against customers of a Bitcoin redeeming business. Or this headline from ZeroHedge, on Feb. 4, 2017:
Bitcoin Plunges After Chinese Exchanges Suspend Bitcoin Withdrawals
Then on the other side of the bitcoin, its valuation is dizzyingly high, up around $60,000 at one point. Nuts. But it will prove irresistible to some people who "want in on the action," as long as it can make crazy gains from time to time. Despite that Chinese crackdown, Bitcoin's price rose, as, apparently, people were using small peer-to-peer traders for their transactions, bypassing Chinese controls.
The Bitcoin Implementation
Bitcoin is an attempt to create a digital currency or "cryptocurrency" or "cybercurrency," a payment method to potentially bypass the banks' stranglehold on financial transactions. It is credited to "Nakamoto Satoshi," who is almost certainly, in reality, Nick Szabo.
To see Bitcoin is on shaky ground, you only have to look at the justification for it. It should make the world roar with laughter. Now, supposedly, what happens is that computers "mine for bitcoins" by "solving complex mathematical problems that become more complex as more bitcoins are mined."
That is the canned explanation. Trying to produce a sensible explanation took some work. What they call bitcoins are a digital entry in a Bitcoin account (note the capitalization: small "b" for bitcoin; upper-case, for the Bitcoin business). Like a fiat currency, it has faith-based value. It has users, because it has users, you might say.
Now the innovation is that each "miner" keeps a record of all the bitcoins. This is the important part of the concept. If you just had one single repository of information, it might be tampered with. But if many people have a record of all bitcoin transactions, it is very difficult to get away with gaming the system.
Conference Call Monopoly
Let's backtrack now to make the concept more accessible. Picking something most people are familiar with, suppose you wanted to play a game of Monopoly, but do it by telephone, with an arbitrarily large number of people. Call it Conference Call Monopoly. So you give all your players their $1500 starting money, as an entry in a log or database. (You can't exchange regular Monopoly money, since the players aren't all sitting together. So instead, you just keep a paper record of account — call it a "database" — for every player).
The "database" could be done simply: Elect one player the banker, and he'd have an additional duty of keeping everyone's balance. If you spent something, he'd mark it down under a column with your name on a piece of paper. Since you're playing by conference call, you'd just ask the banker what your balance was if you forgot.
Well, as you could imagine, people would get pretty upset at this arrangement if they started to lose. How do we know if Mr. Banker isn't skimming himself a few bucks extra on the sly? Or shortchanging you during transactions? Well, of course, you'd have your smarties who would keep their own tally, and compare it with what the banker said, to see if he's honest. The Bitcoin protocol works along those lines: Each miner has a record of all transactions from the start of Bitcoin. The "mining" of bitcoins (a term selected, obviously, to give bitcoins some of the gravitas of precious metals), involves people using their computers to find bitcoin transactions and update all Bitcoin records.
Now, multiple transactions are going on at any given time, so those are bundled together as blocks. The collections are found by the "miners," online, and they perform the transactions, representing the updates of peoples' Bitcoin accounts. "Miners" are rewarded with newly created bitcoins (or fractions thereof). If you've heard the term, "block chain," that just means the chain or sequence of all the blocks, over time. You can go back to the first, "Genesis" block and follow all transactions of all the bitcoins or any particular bitcoin, if you have a mind to.
Technical Difficulties
That's a proper explanation, that clarifies the concept, but you aren't going to see it publicized, because it reveals the shortcomings of Bitcoin. First off, there is a scalability problem. That is, the number of transactions could grow much larger than tech could keep up with. In fact, the system is already pretty sluggish: It can only tolerate 7 transactions per second, so about 220 million/year. That might sound like a lot, but if each user does only 100 transactions a year, that's a practical limit of only about 2 million users. It is not a viable world-wide system at that capacity. It's a bit of a joke, a toy app.
Plus, the database of all transactions is potentially vast, and growing constantly. Some proponents say, "Oh, storage capacity keeps getting cheaper every year!" That's a dumb retort. Capacity growth would not keep up if Bitcoin really caught on. Plus, what a waste of space.
And, as well, computers have to keep up, in terms of processing power, to process growing numbers of transactions, meaning high costs in computers and electricity.
Bitcon's shills equate these transactions with "intrinsic value." No, an orange has intrinsic value. A table has intrinsic value. The shills, not understanding entropy, say the electricity and computer time that went into the transaction computations are somehow representative of value. All they have to show is wasted time, and wasted electricity. Speaking of which, an organization that monitors Bitcoin (called Blockchain, after the Bitcoin block chain), says miners spend $17 million per day to mine bitcoin worth $4.4 million! That estimate may be a bit pessimistic, but nonetheless, it appears that more money is going into the mining costs than the payoff. How's that for a joke? And the cost can only go up over time, since the transactions become more difficult, by design. (That is to say, the design is flawed.)
Got to love how they try to make a liability an asset by saying, "The more bitcoins there are, the harder it is to make more," but that "harder" means it's harder to run the necessary calculations (propagate the transactions) that make the stupid system viable in the first place! Madness!
And, painfully, the electricity is real (wasted) value that could have gone into cooking your burrito.
You or I can sit around all day and watch TV or piddle around on the computer reading Tweets and watching YouTube videos of cats. That time is wasted, not transmuted into something worth paying for. It's the same for inefficient Bitcoin transactions. But because the mass man does not truly understand computers, we're going to keep seeing confusing scams like "Bitcoin" introduced. And as long as mass man doesn't understand mathematics and greedy swindles, we'll see casinos and lotteries persist.
Imagine in the Bizarro "Bitcoin" logic, Walmart bragging in advertising that it was "Making it harder for you to shop... Every day!" and hiding sparse stock on high, unreachable shelves, narrowing the aisles, not cleaning the bathrooms, then adding, "We make sure our processes are always more inefficient and costly... Always. And we pass the losses on to you!"
It doesn't end there, as there's no anonymity in this system. Every transaction is kept "forever." That means potential lack of privacy, so Bitcoin sucks as a private payment system.
And what's the point of no privacy? They say it's good to track "cheaters" in the system, without pointing out any cheaters they've actually caught.
People have already been screwed by Bitcoin. Users at Mt. Dox got robbed of some or all of their investment. Mt. Dox was the biggest Bitcoin market. It turned out to be an embezzlement scam that stole $450 million of patrons' bitcoin investments (based on the price of bitcoin at that time).
There are plenty more problems. Here's a headline from a quick Google search:
Bitcoin Exchange Bitfinex Says It Was Hacked, Roughly $60M Stolen...
And... Bitcoin transactions producing capital gains are taxable.
And... You have to be careful of your password. Lose that, or the drive you "store" your bitcoins on (bitcoins are, actually, just an alphanumeric code), and they're gone. This brings up something interesting to consider. Some guy, unwittingly, threw a computer disk drive storing "millions of dollars" of bitcoins in the trash. Presumably, those bitcoins are lost forever. Well, over time, as more people lose their bitcoins by misplacing their passwords or crashing their hard drives, the pool of bitcoins will shrink to zero, since bitcoin is limited to a count of 21 million.
And... Of course, the Bitcoin network, and your stash, are vulnerable to hackers.
And... At least 36 Bitcoin dealers have folded so far.
And... Don't forget you pay for the privilege of using Bitcoin with a transaction fee.
Of course, the Bitcoin endeavor may be to discredit all independent digital currency efforts.
All this gloom, but the concept of Bitcoin is a good start.
Room for Improvement
Yes, Bitcoin has some good ideas, but the ideas aren't fully cooked, yet. For example, why do transactions have to be propagated to every miner? There could be some streamlining via setting up zones or nodes to limit this. That they don't already do so, is another factor that indicates that this whole Bitcoin thing is likely a scam to test how practical it is to track everyone's expenditures, cradle to grave, forever, which would explain how Bitcoin got as far as it has, and all the free publicity.
Good grief, "digital currencies." It's bad enough the way we are overly dependent on computers even now. You may have seen the crisis in stores when power goes out and they can't handle manual cash transactions, using a pad of paper and pen, say. No, they'll just sit there on their southern exit port like the morons they are. And yet there are those who want to have the whole monetary system depend on computers and volatile bits and bytes?
Potential disadvantages will be overlooked, though, by the government when ramming its crypto down our throats. Then it'll be "convenience" that will win the day and people will rave about how great it is to "not have to worry about money anymore." One source was talking about how they are going to bribe people to foolishly accept this push for "digital cash," by giving benefits to early adopters of the cryptocurrencies (that China's central bank has already announced and trialed). Even without formal digital currencies, they're already almost there, since people are widely using debit cards to pay right now.
You'll have someone in line in front of you with a frickin' candy bar. "How are you paying?" "Debit." Soon the cashiers will be hesitating and looking at you funny if you say you're paying cash. It's ridiculous.
Bitcoin Alternatives
As should be expected, someone's already got the jump on improved implementations for cryptocurrencies, though. I just found this new site, Iota, a "transactional settlement and data transfer layer..." that seems address some of the complaints. It is probably something to keep tabs on.
IOTA is a revolutionary new transactional settlement and data transfer layer for the Internet of Things. It’s based on a new distributed ledger, the Tangle, which overcomes the inefficiencies of current Blockchain designs and introduces a new way of reaching consensus in a decentralized peer-to-peer system. For the first time ever, through IOTA people can transfer money without any fees. This means that even infinitesimally small "nanopayments" can be made through IOTA.
Instead of a monolithic "block chain" of all transactions, it uses a "Tangle," or a different protocol that looks to me like a sort of "transaction tree." They call it a type of "graph."
Really interesting. It, or something similar, should be "the future," if it can evade scheming government interference and destructiveness.
Of course there are others (really, there's bound to be an avalanche of competitors), like Monero digital currency. It looks good. There's also Dash, "digital cash." And then there's Ethereum. It tackles some of the issues, but it's from a consortium of banks and financiers, likely making it pointless and dangerous for use by a normal private person.
True Innovation
There is something else going on with all this. We're being lied to about the blockchain being the "big concept" behind cryptocurrencies. In saying that, they're deliberately obscuring what could be a world-changing innovation.
That is, that computerized commerce might revolutionize something we know well already — barter. But now spread out over countries. A computer program could match up wants, skills and abilities, with those of others. This would work because, everyone needs something. And almost everyone can provide something. We have the potential of evolving away from the need for money as an exploitative middleman. However, you can expect any development of this nature to be violently opposed, because there are just too many interests that profit from the use of money, and demand its continued use. That's why any system along these lines would have to be well-planned and designed to stop meddlers from wrecking it.
Yes, all the obsession with the current implementation of cryptocurrencies is another scam to part people from their money. A true breakthrough would be a reliable (but efficient) way of tracking and keeping a valid chain of transactions, so no one could rip off the system, but used in a sensible way.
The "barter/transaction-based" system is inherently more secure, too, since there will not likely be the same buildups of huge notional value, as with the cryptocurrencies, where they're going on about how Bitcoin has a cap of over $570 billion as of August, 2023, and the global market cap for cryptos is at almost $1.2 trillion!
However, there does remain a sticking point that has always existed with barter. If you get rid of the money aspect, there is no agreed-on relative valuation of things. For example, the value of bananas and the value of the skill or labor a person provides can vary greatly. And sometimes, people just want to get some money to just save it, not trade, for use later. Fortunately, local currencies have shown the value of the notion of "hours" (of work) as a representation of value. That is, one hour's worth of labor. As in Ithica, New York, where "Ithica HOURS" are produced. That is a local, printed, currency that is traded like U.S. dollars, within the town. It is pegged at 10 USD/Ithica HOUR.
I would refine the definition a little, to say, "one hour of unskilled, competent labor." Looking at the website, that is implied, anyway. This would make the "hour" unit palatable, world-wide, and so it could be used in a world-wide "hours-based" system. The system I'm thinking of would have to operate between people who had access to local currencies, or brokers who preferably engaged in gold and silver transactions. There are legal implications with using national ("reserve") currencies, so this should be avoided.
An hour of labor is fixed, unchanging, and has a steady supply and demand, but it can't be monopolized or hoarded or stolen very easily, so it is an ideal representation of transactional value. In fact, there are already people who have done lengthy analyses of this type of system and found it to be favorable.
Why, then, would you need a computer involved? Why wouldn't people just come and mow your lawn, and you'd pay them in your local paper currency? Well, of course, one reason is to link the various local currencies, world-wide, to make a more universal system for trade and exchange. That's not just it, of course. We don't exclusively use coin and paper money now — we use debit, credit, cryptocurrencies, checks, IOUs... Sometimes it's just much more convenient to use an electronic transaction, or very difficult to use paper.
On the other hand, a physical representation of the money is also desirable — and the "local paper currency" system is already implemented and being used in various cities, because, in turn, paper sometimes is more convenient and easier spending, and, importantly, is independent from computer network outages, and "hackers."
Using something like Bitcoin as a store of value encourages speculation, hoarding and theft. A system used to exchange value for value with a common denominator is more desirable. The designers seem to have forgotten that digital bits used to represent things, can represent anything. One use of Bitcoin is for money exchange. But look at the needless complication. As an example, imagine an American going to Japan, needing Japanese yen, who buys bitcoins with dollars, then buys yen with the bitcoins. Why all this nonsense? With a "hour-based system," if you're going to Tokyo, you'd buy local, physical "Tokyo Hours," from your hour account — with an exchange rate at par.
Of course, the main appeal of Bitcoin, right now, is to transfer assets. That's especially obvious, when looking at a more blatantly tyrannical state, like China. There, a lot of people want to get value — their personal assets — out and offshore. (And of course China suddenly imposed all sorts of controls and restrictions on Bitcoin, making it useless for that purpose in China, overnight.) It's a real no-brainer: reliable asset transfer at a reduced fee, and one free from government's watchful eye. The hours-based system is a solid one for that purpose.
Note also, that this type of model is not inflationary. Which is great in a practical sense — no government taxation of your "capital gains," for example, because there are none. Of course, it isn't as good in drawing interest to the model, because it doesn't play to people's greed, like where they think they can make hay and get something for nothing. That's a problem that makes a "hours-based" proposal less attractive among people who are using Bitcoin in hope of profiting by speculation on increases in bitcoin relative value.
Bitcoin Fork
The craziness never ends. There's a strategy called forking Bitcoin — that is, making a separate implementation of Bitcoin, with somewhat different rules/protocols and such. So after a fork, there's a new "type" of Bitcoin. It's not worth struggling with this nonsense, trying to figure out or explain what is going on, just avoid Bitcon, and save yourself the hassles.
All right, a quick 'splain — looks like there is dissension in the ranks at Bitcoin (related to the issues I raised above, regarding Bitcoin's lousy implementation), and some of the coders want to go with new software for Bitcoin, in hopes of improving transaction speed (lowering "latency"), by increasing block size. You, my readers, are already up to speed and already know that the transactions are bundled in "blocks," so, theoretically, if you have more transactions per block, and you can process the same number of blocks, you have more transactions per unit of time, quickening the system.
As another site points out, forking is now mainly a marketing ploy, for instant publicity, or a path to easy money for developers, who can and do simply assign themselves a substantial initial amount of the new coin, or an outright scam, say to steal users’ original Bitcoins in the process of claiming the forked coin.
Leaks
Something else to take note of: "Leaks." The economic system is artificial. Price discovery is difficult as interest rates and other factors are manipulated. Thus, we see insanity like Bitcoin that went over $60k (now calmed down considerably). It's because engineering the economy means unexpected, unplanned consequences, and fear. That fear is driving the price of Bitcoin. Weird "leaks" in the system show up in unrealistic pricing in areas where prices aren't artificially suppressed or inflated. It's like when you squeeze a bag containing a liquid, and it bulges out in the areas where your fingers aren't.
In Bitcoin's case, it's somewhat foolish for people to buy in to this now high-priced offering. Because the system is primitive. In fact, any cryptocurrency is going to be forever somewhat primitive since it will always be superseded by a more advanced implementation. Thus, before we take this stuff seriously, we should wait for a system that accounts for that fact, and has a plan for constant technology updates, just like your computer operating system.
Note that some of the other emerging cryptocurrencies may be an interesting speculative investment with chances for some gains, just be prudent and don't bet the bankroll.
Ironically, the cryptocurrencies could be a savior for us, or spell our disaster. It all depends on how we manage them.
Part II: The Bitcoin Fairy
Yippee!
Bitcoin did a split and holders/"hodlers" are twice as rich! Don't you wish you were them?
Some people have wisely observed that Bitcoin is a pyramid scheme. It is, but the reason why is not at all clear.
And so suckers are still buying in to Bitcoin (BTC), while better ideas languish. It's incredible.
Flocks of vultures, ever on the lookout for effortless get-rich schemes, all hoping for an increase, and a big one. The bigger the better!
At least people aren't talking up Bitcoin on the street and in the elevators. Not yet. Give it time.
Of course, Jim Cramer was shilling for Bitcoin, saying it may hit $1,000,000, and to "Act now!" Heh-heh: His rationale was that banks in Europe were using them to "pay off ransomware," on his idiotic show, Squawk on the Street.
Ah — that gives a clue as to a possible motivation for the recent "WannaCry" computer virus panic.
Sure, it may "hit a million," that's the nature of these scams. That is a meaningless target.
But, enough are still piling in, to keep the price up.
If lotteries are a tax on fools, BTC is money for fools.
What is it, that "investors" think? That someone with "deep pockets," is going to step up to "make good" on their inflated BTC holdings?
"I paid $1000 for my bitcoins, and they're worth $100,000 at the current price! I demand you give me $99,000, now!"
There's a BTC tracking site with an hilarious "FAQ," that explains nothing about BTC, as usual.
One of the questions of the FAQ is, "Is Bitcoin a pyramid scheme?"
"No," goes the answer, "Bitcoin makes no representation that you are going to profit off of it, like a 'real' pyramid scheme does."
It plainly is a pyramid, or Ponzi, scheme, not because of any claims or representations BTC makes, but because it was structured that way.
They could have constructed a system where you put in a dollar, get out a dollar, after fees. After all, it is useful in aiding people in transferring money across borders, and it's not unreasonable to have a fee for the service. What — you expected that for free, too, along with the benefit of all the effort that went into developing BTC, publicizing it and servicing it? Not even free, but to be paid for it?
That FAQ mentions that Bitcoin developers and early adopters deserve something for their labors and risks. Maybe sÃ, maybe no. The way it was set up was hardly sensible as a sound business model, since they took something potentially valuable, yet structured it as a gamble, instead of taking the honest route, requiring payment for services rendered. One could make a good case they don't deserve anything.
For the business-minded, this does give rise to a brilliant opportunity: "Digicoin," or "Bytecoin" or something like that, that does operate in an honest way. C'mon, lets see some IPOs, or "ICOs" (snicker), or is everyone looking only for the quick hustle?
It may be that vested interests will never allow a productive and proper use of the blockchain idea, because it would be a nuisance to try to keep it under control.
What they should do, at the BTC HQ, is to unwind the service: Pay back everyone who paid in, as nearly as possible, whatever amount they bought in for, less a service fee. That would be an honest wind-down, and people might get — who knows? Maybe 50% to nearly 100% of their buy-in back. Then, they should use the lessons learned to code up a new BTC, without the flaws.
Hah — that would set the feathers flying.
Of course, I'm just a liar and a hater. Because no one will ever suffer losses investing in Bitcoin. Any sign of problems, the Bitcoin Fairy's got your back.
There must be a Bitcoin Fairy — she just conjured up free money for all with this new Bitcoin Cash (BCC). Everyone who had BTC got "free" BCC as a result of this "split" of the blockchain. Nothing short of a miracle, really.
Blog commenters are everywhere, and they're living off the fat side of the hog:
It is pretty simple.
The other day there was a hard fork. By this morning I sold my Bitcoin cash for enough money to buy a car. Not digital cars. Not pretend cars. Not a shitty car. But a nice brand new slab of metal.
What is not tangible about that?
And...
Morons have been saying crypto like Bitcoin is worthless "tulips" since it was $3. They said it at $200 then at $1000 and now $2000+. These idiots will say crypto has no worth at $5000 straight up $10,000. Then when it's $500,000 they STILL won't understand crpyto but they will want to buy in. lol just like the idiots who never understood why people would want to use Personal Computers or use the internet.
You know, the world is filled with selfless people, heroes, and, yes, martyrs. Martyrs, indeed, because they sacrifice for the good of others. Sacrificing their own time, when they could be making money, trading in cryptos, informing we the public of the value of Bitcoin. Going that extra mile, to motivate us off our lazy behinds, to get out there, and sip from the spurting horn of plenty that BTC represents.
Like Scrooge, my faith in humanity is restored. It truly is darkest before the dawn, and these light-givers provide the inspiration to uplift mankind, to the highest heights... And beyond...
That's why they show a lot of protectiveness regarding BTC, and you can't blame them. These good people — great people, are concerned that many, many others also make a quick buck. And so, they selflessly crusade, hoping only to see the happy faces of strangers enjoying the bounty as reward for their service.
Other expert commenters weigh in, with all the technicalities you ever need to figure things out. It is wondrous how expert people become in such a short time, able to toss out buzzwords with impunity:
Why do people need $BCC? $LTC already has 4MB every 10min + SegWit discount + malleability fix, and probably also more decentralized mining
Mercenaries
Sadly, BTC is driven by mercenary intent. A few are using it for money transfers, or merely experimenting with small amounts. But most buyers are "investing," or claim "hedging" as a motivation to buy in. A way to protect against falling fiat currencies (by investing in fiat currencies, but in a "ledger")!
The hassles of setting up for Bitcoin trading, just to get something less convenient, less suitable for use as money, and with the potential of collapsing at any time are worth it? No. There are antiques, collectibles, coins, stamps, artwork and precious metals, for example, to use as a hedge.
No one inconveniences himself without expectation of gain. Players in this game are not investors or hedgers but speculators, as proven by their actions.
Exposing the Ponzi
How can we be sure about BTC being a Ponzi scheme, rather than just making harsh claims? Besides looking at the eternal, unjustified, price hikes, we can do an analysis, by considering a "small-scale model" of the system.
Some people say that Bitcoin has no real value, but it actually does, based on the pool of cash that went into buying it.
So picture that pool, which can only be as large as the accumulated buy-ins. Keeping the numbers small for ease of explanation, let's say 20 people are participating in BTC. So 20 bought in, let us say at prices of, $100, $200... in hundred dollar steps up to $2000, for a total pool of $21,000. Obviously, that is the "backing" for BTC, and at our example's current price of $2000, it's no biggie to calculate that only 10.5 coins can be sold, out of 20 purchased, before the pool is depleted.
Of course, that fact doesn't matter to the rubes buying in to take advantage of the "greater fool theory," that there'll always be another buyer, to keep the pool replenished.
A complication is that the price will of course go down if too many people sell off at once, but the purpose of the model is to make it obvious that those buying in at a higher BTC price/valuation are going to be financing those selling off at that higher valuation. Thus the "pyramidal" aspect, as the new contributors have to continually broaden the base of the pyramid to finance profit-takers. Since there is not an infinite number of potential buyers, this will have to stop at some point, and the system collapse in on itself.
This model works regardless of number of participants, the buy-in price, and size of "pool." It should be clear that at some critical point, there's going to be a sell-off, and those who bought in last, at the bottom of the pyramid, and several "levels" above them, will lose big.
There will be a sell-off because people don't want to stay in, nor buy into, a falling market, but do like to buy into a rising market. At some critical point, enough people will want to take their profits out, when they sense that BTC buyer interest is waning, to give rise to a crisis situation.
If we knew the size of the investment pool, that would be a good guide to the safety and stability of BTC. But BTC doesn't publish the quantity or size of the "pool" of money supporting the scheme, does it?
There is a posted "market cap" for BTC, based on the number of coins issued times its current daily averaged sale price, which tells us nothing, but is a misuse of the market capitalization concept, meant for productive businesses, and it also doesn't account for lost or destroyed bitcoin.
Without knowing the size of that pool, it's blind faith and trust that keeps it going. Since it's been a sustained enterprise for quite a while, things must be "all good."
So, BTC investor, I guess you aren't out of luck, you lucky cluck. You just rely on the fact that no one knows what's in the blind pool! Oh, happy day!
Unfortunately, it doesn't go down that way. First off, there are all the "thefts," in some cases, "inside jobs." Are the thieves going to hold on to their bitcoins? No! They're going to cash out ASAP. There goes some of the "pool."
And, there goes some of the faith that sustains an operation like this. People, on hearing of "issues" like thefts, are less likely to buy in to BTC.
It's comical. First came the tales of impregnability, how safe and "uncrackable," "the blockchain," is. "An innovation so advanced... that you don't understand it!" Then, the next minute we're hearing about thefts, cons, hacks and system failures.
Others, in from the beginning, will sensibly want to do a bit of profit taking, if their "investment" has ballooned up ten times, or a hundred times or more. They'd be foolish not to. That absorbs a little more of the pool.
Now, the reality. No one has to know how big the pool of cash supporting BTC is for it to crash. There doesn't have to be any giant, bitter crisis, with people running around the streets waving their arms in the air, and swan dives off tall buildings.
Anyone wanting to cash out, has to go find a dealer or purchaser. Let's say a seller goes to his friendly neighborhood BTC dealer, and flashes his "Bitcoin wallet" like a real pro. Well, the dealer — any given dealer — knows how many people have been in to buy, and to sell, and he probably has sources to keep tabs on how things are flowing at other dealers, as well.
It's funny how this works, but if the dealer sees he's paying out more than is coming in, it's suddenly time for a computer "system issue." Those crazy, buggy, virus-prone computers. Maybe it's a crash, a forced upgrade, network congestion, what have you, but he just can't redeem your bitcoin today. Maybe tomorrow, if you want to check back. Things are bound to be fixed by then...
No biggie, just visit that other guy that trades in BTC. "Say...! He's closed! Was there a holiday today I forgot about?"
No, no holiday, but nevertheless, it was foolish to worry, because the next guy is open for business. At least, other types of business, because he isn't participating in BTC anymore, no reason to speak of.
It doesn't take long for a panic to start, then the inevitable "run," but this run will be about as significant and meaningful as having the "runs," and it's all down the toilet from there.
The system is currently stable, for few are selling in a rising market. But hype needs to be maintained.
When things start to level out, the "plunge-protection team" can get in there and start fluffing with tales of bitcoin fortunes made. Also, supposing BTC is, for example, something like a CIA-run "operation," it can "pump up" the pool with phony "created out of thin air" dollars. They know the psychological profile of the members of the greedy public, and know when and how to "prime the pump" to sucker them in. They will believe they "deserve their fair share of the pie," after hearing about all those irresistible juicy profits.
In a falling market, the worry is whether the dealers are redeeming. With a faulty system, no one has to buy your bitcoin. That's a difference between bitcoin and something with intrinsic value, like a commodity, where someone, somewhere, will buy it if they see "a good deal." And it's a difference with fiat currency that, as legal tender, has government-enforced purchasing power.
The promotion efforts mean ever-increasing comments about BTC on websites, news articles, remarks on the TV news, and endorsements, like the one by Jim Cramer, exactly as you'd expect, if you were seeing a Ponzi scheme in it's exuberant growth stage. All calculated to make BTC look like a bonanza.
Taunting the naysayers, there can be anomalous behavior. "It's unpredictable." "What's keeping it afloat?" "It should have crashed by now!"
Bitcoin rolls on, despite being astoundingly unstable, and all the screw-ups, "quirks," mysterious behavior, breaches and thefts. And with a straight face, they talk about its security, using "hard cryptography," and all that crock.
Nothing to See Here...
"Issues" with BTC aren't hard to find.
Mysterious Trader With "Nearly Unlimited Bankroll" Said To Manipulate, Dominate Price Of Bitcoin
How Bots Manipulated The Price Of Bitcoin Through "Massive Fraudulent Trading Activity" At MtGox"
Silk Road 3.1 "Got Hacked," Owner Claims Bankruptcy
Bitcoin's Impending Accounting Disaster
Bitcoin exchange Coinbase crashes after Asian buying frenzy
There are already restrictions on what you can withdraw from BTC at the various exchanges. It didn't take long. They've already "hardened" their operations in anticipation of the crash.
It's funny how, despite each report, exposing more about this farce, the price flies in the face of negative news.
Bitcoin acceptance is virtually zero and shrinking: According to Morgan Stanley bank, last year Bitcoin was accepted at five of the top 500 online merchants, while today, only three of the top 500 merchants accept bitcoin as a form of payment.
Red Herring
"They can't steal bitcoin in your wallet," say BTC defenders.
Perhaps, at least, not easily. Unless you have it stored with a company that "holds" your BTC for you.
Theft is built in to BTC, a form of inflation, created by everyone who cashes out at a profit.
Stock Market
Trillions of dollars in "quantitative easing" were created over the past several years. Where does all that fresh-minted money go, but into scams like cryptocurrencies? And, into pumping up the stock market. In fact, both Bitcoin and the overstuffed stock market are indicative of a worthless currency, not prosperity.
Though BTC will collapse to nothing, stocks don't completely collapse in a depression, reflecting the value of the underlying asset. Both collapses represent a tidy harvest for the manipulators, though.
Summary
I'm soaring recklessly into this flight of fancy to make a point: It seems to be uncommon knowledge that a cryptocurrency can be whatever you want it to be, but it has to be grounded in sensibility. Bitcoin itself is nothing at all, except whimsy. Even worse than fiat paper. As bad as fiat currencies like dollars are, they have a physical representation and widespread acceptance based on many years of usage. U.S. dollars, for instance, can be used, that is, exchanged, at any time, almost anywhere in the world, and are unlikely to sink to zero value overnight. Fiat currencies go to zero value over a period of decades. Even if people see for themselves the value of their cash going to hell, it still retains a power over men's minds, like The Shadow.
Point being, the cryptocurrency experiment will be successful if it gets people to thinking about what a currency is, and what it can be. E-gold was very successful, (note that it actually had a physical gold backing, of gold stored in a repository), and though it did collect its share of fraudsters it wasn't tainted like Bitcoin by a bunch of thieving criminals like at Mt. Gox. So the government stepped in and shut e-gold down with, basically, trumped-up charges, using ex post facto laws (that are supposed to be illegal). That is a clue that e-gold was on to something.
Since the principles are undeniable, (it's just the current implementations are bad), what may happen is that legitimate private (non-governmental) digital currency implementations will crop up, and will improve with every iteration, until finally evolving into something valuable. Developers specializing in this area could start by integrating the proposed improvements described above. (And hopefully, people will wise up, and stop government's heavy hand from meddling and destroying truly useful and independent ventures.)
True Believers
The striking thing about this is the way it exposes that, no matter how rational the counter-argument, the chumps and saps will believe what they want to believe. Otherwise, things like Bitcoin would never get off the ground.
ZeroHedge sez: Bulgaria to be one of richest countries (due to Bitcoin ownership)
"Detective Miller" replies:
When the 3-eyed Ipgores from Cygntzxq land and declare BTC the official "Coin of the Galaxy" it will be worth $87 Gorillion Quatloos per. And the Bulgarians can purchase Alpha Centauri for their new empire.
Bitcoin, like the "science" industry, exploits the fact that people, just like scientists, have a cap on their understanding. We see that with the scientists that calculate and speculate themselves into a pit of confusion, then instead of stepping back to reassess their positions, engage in higher and higher flights of fancy like Black Holes and Quantum Computing. Science is perhaps worse because it can paper over and mislead with a lot of mathematics. At least Bitcoin has relatively few suckers participating. It's an inefficient database, tracking expenditures in fiat money, (you buy and cash in bitcoin with paper money, it has no existence of its own), that has only gained any interest because of lies, obfuscation and hype.
It's not that it "looks like" a pyramid scheme, BTC, is a pyramid scheme. That is an inevitable, but not necessary, consequence of its implementation. The administrators have also proven themselves to be not above furthering the scam with absurd kludges to "fix" flaws in the original BTC code, as with the recent "split" into BTC and BCC, the split "gifting" BTC holders with value, "out of nowhere" — after the developers bending all over themselves to assert how the quantity of bitcoin is permanently limited.
At this stage, there is no "benefit of the doubt," for Bitcoin, and that is impetus to examine all the cryptocurrencies for shady tactics.
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