Debunking the Alarmist Rhetoric Around Bitcoin
Far from being a threat to civilization, bitcoin stands to make the world a better place
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Now, my good friend Oren Dobronsky wrote a lengthy Facebook post about the perils of bitcoin, and since he’s a good friend and the purveyor of all the hummus I eat outside of Israel, I thought it deserved a serious response.
Oren’s main criticisms were that:
1. Bitcoin might cause the U.S. to lose its throne.
2. Bitcoin enables money laundering
3. Bitcoin is immoral
By the way, I do not believe in that prediction. It will be much harder for bitcoin to upend the dollar than Oren suggests. It is much better positioned to replace gold than the dollar.Claim 2: Bitcoin = Money Laundering Many believe that bitcoin is the ultimate tool for money laundering. That, unfortunately, is just plain wrong and a result of bad publicity and misinformation. As I wrote four years ago here, bitcoin is a really poor tool for money laundering. All transactions are public and are registered forever. All bitcoin-Fiat transactions are regulated and identified. Four years ago, I speculated that at some point in the future, the NSA will develop the technique to identify who’s who on the network, and then will be able to go back and trace every transaction ever made. This is nothing more than an advanced exercise in graph theory and correlations. In the meantime, few companies emerged that are already working on this problem, and frankly, only stupid or misinformed criminals (or nation-states that do not care) will use bitcoins as their store of value. But, would you care to guess what other currency is just great for money laundering? (Hint, hint, it’s green). In fact, can you guess the names of top money laundering and tax haven countries in the world? Not Panama, no. Nor the island of Jersey. Our benevolent U.S. of A. ranks third. Try opening a company in the Cayman Islands, and then try doing the same in Delaware. So, no, the money laundering claim doesn’t hold water. Claim 3: Bitcoin is immoral Here’s the gist of the claim. Let’s prevent all of those poor misguided people from funneling their life savings into bitcoin and lose it all when it crashes. So, first, I want to say outright that I do not condone people investing in bitcoin more money than they’d be absolutely willing to lose. It’s a high volatility asset and will continue to be so for another order of magnitude or more. It’s just a mass thing — it’s young and small, so it’s easier to move it up and down, especially as so little of it is up for sale. In 2013, I bought as much bitcoin as I was willing to buy without feeling uncomfortable divulging it to my wife. I highly recommend you use a similar metric. That said, the growth of bitcoin will likely create one of the most interesting social mobility experiments ever created, and as such, it has the potential of creating a lot of moral good. You see, social mobility in modern society is in the tatters. If your ancestors haven’t accumulated wealth, your chance is virtually zero. Yes, there are a few Cinderella stories in Silicon Valley, Tel Aviv, etc. But these are opium for the masses. And typically, these stories are happening to people who are already well educated, and possess some other unfair advantages (e.g. like being able to live in Silicon Valley, Tel Aviv, etc.) With bitcoin, there’s a group that managed to sneak in without notice into a pole position. Yes, many of them are the same well-educated peeps with well to do parents, but many are poor migrant workers who started using bitcoin to send money cheaply and securely to their families in their home countries. Others were deemed too crazy. Some are still considered crazy. Imagine how beautiful it would be if bitcoin actually succeeds. Just imagine JPMorgan Chase CEO Jamie Dimon’s face. To quote West Wing character CJ Cregg, “it’ll be a sight to see, I mean a sight to see” Besides, there’s a notion that the price of bitcoin is exploding due to high demand because of “the greater fool” phenomena. People believe it will go up even more and they’ll have someone else to sell to. I think that a much more important force is the lack of supply. The people that own bitcoin believed in it when no one would and held on to it almost religiously through the desert years. Now, their belief just became stronger, and they have zero interest in selling any. That’s the underlying force behind the rise in price. The thing that people don’t fully grasp in their day-to-day life is that gold and money are just stories. Stories we tell ourselves. There’s nothing more real in a green piece of paper than in a hash sequence. Yuval Noah Harari wrote a book about it, but Douglas Adams summarized it best in a single sentence: “Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because, on the whole, it wasn’t the small green pieces of paper that were unhappy.” (See: The Hitchhiker's Guide to the Galaxy) The thing about stories is that some of them are extremely viral if they emerge with the right timing. Once such a story emerges and becomes viral, it is the most powerful thing in the world. It might be a story related to a piece of paper with 95 theses written on it, nailed to a church door. It can start with a philosophy book written by a German Jew with a name that may fit a London department store. And yes, it can also start with a listserv email, inviting a few people to check out this cool new idea. To my dear friend Oren, I’ll just say — yes, bitcoin may usher a new world order. No, it won’t happen so fast, if at all. But hey, there’s a chance that new world just might be a lot better on the whole, even if not for Jamie Dimon. Eran Shir is the founder of Nexar, a startup company developing deep-learning and artificial intelligence-based technologies and data products for municipalities, as well as the automotive and insurance industries.