Cryptocurrency explained.

 

If Cryptocurrency Was Honest | Honest Ads

This is a humourous take on why crypto is a scam. 

And Robert Reich giving a more serious take on this issue.

We Went to a Crypto Conference: We Left Terrified

You can't trust banks or financial institutions, but you trust something which is based on computers?

What type of stupid are you?

CRYPTO CRASH: THE REAL REASON FTX COLLAPSED

OK, I've been saying that cryptocurrencies are a bad investment and generally not a good idea. But this is really interesting since he's saying that the Chinese have cornered the crypto market, caused a "run on the bank", and don't allow for cryptocurrencies in their country.

To quote Mr. Spock: "Interesting."

Wanna buy some tulips? How about an NFT of the Brooklyn Bridge?

Pew Charitable Trust on Cryptocurrencies

46% of Americans who have invested in cryptocurrency say it’s done worse than expected

Among the 16% of U.S. adults who say they have ever invested in, traded or used a cryptocurrency such as bitcoin or ether, 46% report their investments have done worse than they expected. By comparison, 15% of these Americans say their investments have done better than they expected; 31% say they’ve worked out about the same as they expected. The overall share of U.S. crypto users is unchanged since September 2021. 

• About half of Americans have heard about NFTs, but few have ever bought one

 

Is Crypto Really Going To Crash? (Yes) | Robert Reich

I'm not sure what to think about Robert Reich these days. OK, I have always liked him.

On the other hand, he is pretty much saying the same thing I have. Not sure if I would call this a Ponzi Scheme. I would go more with "pump and dump".

But Bob is usually pretty good in his analyses.

Please give this a squiz since it is worth it.

He surprises me that he aligns himself with the Democrats: especially post-Bernie.

The Crypto Crisis

Cryptocurrencies and Non-fungible tokens (NFTs) remind me of the stereotypical scam of buying the Brooklyn Bridge. NFTs could actuallty put that scam into practise since they are a digital asset that represents real-world objects like art, music, in-game items and videos.

I've got an NFT of the Brooklyn Bridge: you want to buy it?

Something about fools and money anyone?

Anyway, there has been a Cryptocurrency crash which has become public with Bitcoin, the largest cryptocurrency by market value, having a recent fall of more than 72 percent since its November high.

There is a great article on this by Trevor Jackson in Dissent, The Crypto Crisis. This pretty much sums up the problems with Crypto Currencies:

[At one time,] there were about 19,000 cryptocurrencies in existence. By the time you read these words, many of them will have failed. If you have heard of only one cryptocurrency, it is almost certainly Bitcoin. Bitcoin is a decentralized peer-to-peer network with no single clearinghouse and no equivalent to a central bank or money-issuing authority. Bitcoin the platform issues currency units called “bitcoins,” whose value is determined by supply and demand on several different exchanges. There is no single price of bitcoin. Demand is driven by its use in transactions. Supply is determined through “mining”: using computer processing power to solve increasingly complicated math problems. The inventors of Bitcoin have consistently maintained that there will be a finite supply of bitcoins, alleviating the danger of inflation and creating instead an intentionally deflationary system. All transactions are anonymous, and bitcoins are held in a digital “wallet.” A bitcoin spent in a transaction is really a unique code and a series of past transactions of that code in a kind of digital ledger, known as the blockchain. Imagine if every dollar you spend came with a list of every past transaction that dollar had been used in, thereby proving that you obtained it legally. It’s a way to verify transactions while preserving anonymity. Once a transaction happens, notice of it is sent to the entire Bitcoin network, and all the “miners” in the system race to verify the ledger of past transactions. If you win the verification race, you are awarded with new bitcoins.

He then gets into how problematic the crypto currency system happens to be, which is very.

As I said, if you don't like Fiat Currencies, you should avoid crypto like the plague. Fiat currencies at least have something backing them up. Crypto isn't even a commodity based currency, which also have their problems.

Crypto is the commidity.

And it's one that only exists in cyberspace.

You know I'm not a fan of bitcoin or cryptocurrencies: here is the best argument about why you shouldn't be as well.

I just finished watching Russell Brand discuss bitcoin, which he didn't understand. The concept intrigued him for the obvious reasons--cryptocurrency poses as something which is outside the banking and economic system.

That's not really true. I know enough about these things to know that they are not what they pretend to be. Which is why I suggest this e-book on the subject:

https://www.mybloggertricks.com/2018/06/bitcoin-is-scam.html

The person who wrote this knows a whole lot more about the subject than I do, which is why I recommend it. You don't really need to know a lot about the topic to sense that it is not what it purports to be.

On the other hand, knowing what exactly it is makes it far more scary than fiat currencies.

Bottom line is that commodity based currencies are volatile. Fiat based currencies values are determined by central banks. But cryptocurrencies aren't really either. If anything they combine the worst of both worlds.

But, hey, it's your money: not mine.

Barely do I do a post about Bitcoin when...

 The BBC does a piece on whether the blockchain is unsustainable.

It seems that the price of Bitcoin cannot stop increasing, but how sustainable is Bitcoin itself? With such huge energy demands to keep Bitcoin mined, are some countries risking the stability of their electricity supplies to take advantage of the Bitcoin boom? Financial economist and founder of the blog “Digiconomist”, Alex de Vries is on the show to answer these questions. He says, in his paper published in the journal Joule, that the entire Bitcoin blockchain network consumes as much energy per year as all data centres across the world.

If you don't like Fiat Currency, you should avoid Bitcoin like a shitcovered plague

 One of my hobbies is collecting hyperinflated currencies, I have old German Marks, Yugoslavian Dinars, and Zimbabwe dollars. I bought some "fake" bitcoins. Those things that get pictured when people talk about the Bitcoin since Bitcoins have no real physical form. I tossed in mention of the Euro as well since it had no real physical form until 2002, but there's a difference between the Euro and bitcoin.

Doggone has been asking me to write something about Bitcoins and why they are dangerous. I have been procrastinating about this in my usual style until the Wire article "Bitcoin’s Greatest Feature Is Also Its Existential Threat" popped up on my radar. There are three types of currency: one is currency backed up by a commodity which is usually gold or silver, Fiat currency which is where a government prints money and gives it value, and now cryptocurrency which isn't issued by a government. Cryptocurrencies are probably closer to commodity based currencies in that they get their value from the market. 

Yet Cryptocurrencies' market value isn't based upon a commodity. It's based upon something called a block chain, which makes it somewhat similar to Fiat currency in that there isn't some form of actual value to either one. Fiat currency at least has a government backing it up. The blockchain is far more fragile and dangerous.

"See footnote for Hitchhiker's Guide Quote"

But let's get down to a really basic history of what "hard cash" money is. Basically, an economy is based upon trade. I have grain and you have bricks, or some such. Maybe bricks aren't available where I live and I can't trade directly with you. So, a commodity was chosen to make trade easier. The commodity was made into coins. Currency came about when banks wrote promissory notes to pay the value of the note.

Cryptocurrency gets its value from something called a blackchain and isn't really backed up by anything other than that. Blockchains are fairly complex topics. I'm not going to get into what exactly the blockchain is, but it is actually quite fragile. It's based upon a key, and woe upon you if you lose that key. I was trying to find the story about the person who died taking his bitcoin key with him. A story titled "$66,500,000,000 in Bitcoin Is Lost and Will Never Be Recovered, Says Crypto Intelligence Firm Chainalysis" was one of many that showed up.

That gets me back to the Wired story which led to this being written:

It’s best to avoid explaining the mathematics of Bitcoin's blockchain, but to understand the colossal implications here, you need to understand one concept. Blockchains are a type of “distributed ledger”: a record of all transactions since the beginning, and everyone using the blockchain needs to have access to—and reference—a copy of it. What if someone puts illegal material in the blockchain? Either everyone has a copy of it, or the blockchain’s security fails.

In other words, anything which can corrupt the blockchain will result in bitcoin literally being nothing. Those fake bitcoins I have will be worth more than a "real" one. Toss in that cryptocurrencies require a lot of computer power, or eat up a lot of electricity, to store those blockchains. This comes from a very cryptocurrency friendly article:

Cryptocurrency mining, by its very nature, requires a lot of electricity and sophisticated computers. In a paper published this week in the journal Joule, data scientist Alex de Vries — correctly — argues bitcoin mining is likely to exceed an annual consumption of 101 terawatt-hours (TWh) of electricity as the price fluctuates.

The Wired Article is much better about the fragility of cryptocurrencies. The best way to remind someone of the danger of bitcoin is to point to things like Tulip mania. In other words, commodities, whether physical or not, can be subject to DRASTIC fluctuations in price. People who advocate for commodity based currency based upon their stability are ignorant of economic history. There were severe depressions when commodity based currencies existed. 

Bitcoin isn't even commodity based. it is based upon the integrity of the blockchain. And if you don't trust a government, You really shouldn't trust a blockchain. Bitcoin’s self-positioning in opposition to fiat monetary systems is misguided, because the established system relies less on fiat than Bitcoin itself.

See also:

• The Fragility of Bitcoin.
• Beat Weber: Bitcoin and the legitimacy crisis of money
  

 Footnote:

"The Triganic Pu is a unit of galactic currency, with an exchange rate of eight Ningis to one Pu. This is simple enough, but, since a Ningi is a triangular rubber coin six thousand eight hundred miles along each side, no one has ever collected enough to own one Pu. Ningis are not negotiable currency, because the Galactibanks refuse to deal in fiddling small change."