Hello there people of reddit! I have translated this blog post which I would like to share with you all. The original blog post appeared in a rather famous hungarian financial blog and it posed some interesting questions. It would be really good if the intelligent people of reddit would start a debate on these topics. There is a big learning opportunity here. I personally disagree with many of the points made in the post while I agree with some of them. I think that it is important to listen to the negative opinions because we can grow from them and we can either strengthen our opinions by disproving the counter-arguments of others or we can formulate and fine-tune our opinions by accepting partial truths from the opposing opinion. (Maybe we can even change our opinions alltogether in some cases) I post this in the hopes of having an intelligent conversation about the topic and it would be a bit sad if this would get downvoted because then the conversation wouldn’t be able to unfold. I say let's examine the other side, let's look at their arguments, let's try to understand them and let’s try to learn from them so that we may become smarter, better, and more well informed. Also this can be a very good test if you think about investing in Bitcoin. If this discourages you then your fundamental knowledge of cryptocurrencies or Bitcoin may not be satisfactory yet or you may be thinking about investing with money what you cannot afford to loose So without further to do here is the actual blog post translated from kiszamolo.hu. RTT314 submitted by
I am writing about Bitcoin. I didn’t want to at all but since everybody is talking about it I had to. Translator's note: There was a previous blog post about Bitcoin which got a massive amount of feedback in the hungarian community.
The general feedback I received about my previous post on Bitcoin wonderfully resembled the the feedback I got when I wrote about Kairos, Emgoldex, Quaestor and Sitetalk. (these were all scams in their times)
In case you don’t have time to read the comments on my previous post I’ll summarize them for you. Its quite simple because people basically write the same thing all over again (Bitcoin or Emgoldex it doesn’t matter.) The comment categories are as follows:
- You’re stupid.
- You have no idea about the topic.
- You’re wrong.
- You’re an arrogant jealous prick, who wants to screw up people’s chance of getting rich.
- You have my respect all the time, but with this opportunity you missed the point big time.
- This is different, this is a new technology, this will work for sure. This is a huge innovation, this is something people never heard before, this technology is on the verge of exploding into the mass-media. (Oh how many times have I heard this when it came to similar topics)
It’s a good idea to look at those people who wrote these comments a few years back. The people of Kairos who came here (to his blog) taunting and showing off their earnings with Kairos. And then all of a sudden it became apparent that it was just another scam and they lost all the money in a heartbeat.
What did I cover in the previous blog post on Bitcoin?
I wrote, that you don’t know anything about Bitcoin, that you don’t know who is behind it or whether there is someone behind it or not. What gives actually Bitcoin’s value? How do we know that its better than the other cryptocurrencies? How do we know if one BTC is expensive for 1000 dollars or cheap? For a long time people bought it for 1 dollar, then for a long time for 100, then 1000 and now 16 thousand. Which price is the realistic one? Or none of it is realistic and its still cheap? How can I find it out?
I have basically nothing at all to which I could compare its price. Just like in the dotcom bubble when it came to evaluating the .com companies. The normal method of evaluation didn’t work when it came to these companies because everybody wanted to think, that these companies can conquer the whole world. And because of that basically no price was too expensive for a share. And then it became apparent, that in fact even a single dollar was too much for 95% of them. Just because something is revolutionary and new it doesn’t mean that it has value too. Especially when anybody can copy it freely.
This happened with the .com companies too. Everybody learned fast, that just because they are innovative and revolutionary they can’t make a profit and most of them didn’t even worth a penny.
And the .com companies were 100 times easier to evaluate than Bitcoin. At least they had expenses, profits, employees, products and patents. You could at least calculate with something.
Why is Bitcoin considered money? Currently it has none of the properties of money - you can’t pay with it everywhere, it’s exchange rate is not stable at all and because of that it is not suitable for accumulating wealth in it (just in the past 12 hours the price of one BTC was between $16.123 and $17.023 and today is one of the calmer days.)
Anybody can invent a newer Bitcoin and people do so too. There’s almost ten times more cryptocurrencies today than normal currencies in the world and almost every day a new one gets listed. This is because anybody can make a cryptocurrency.
You don’t have to have a whole country behind it with its total assets, government, and financial traffic. If you have good marketing you will be a millionaire from a new cryptocurrency. Currently there are 1324 cryptocurrencies and there is almost no day when no new ones are added. On the contrary there is only 180 types of traditional currencies in the world.
I also mentioned, that governments can limit the use of cryptocurrencies any time by illegalizing the exchange of cryptocurrencies to real money. And if that happens all cryptocurrencies will be worthless in a blink of an eye.
I don’t want to get into new ideological debates. I just want to place Bitcoin amongst all the hype into the world’s financial traffic. Where does Bitcoin stand compared to the current world’s financial traffic and does it look like a bubble? Will it really change the world’s financial system and will it really change the old technologies?
Bitcoin’s total market cap was 15,49 billion dollars on 2017 January the 1st and what’s at least as important is that the daily traffic volume was 92 million dollars. https://imgur.com/a/kI0Ru
Bitcoin’s current market cap (17 thousand dollars) is 289 billion dollars and the daily traffic volume is 12.135 million dollars so the daily traffic grew 131-fold since January the 1st.
One of the world’s biggest bank - the Bank of America’s - market cap is also 300 billion dollars and that is accompanied by 2,228 billion dollars worth of assets which gives one of the basis of the actual evaluation. Bitcoin has zero assets. Bank of America every four months (!!!) profits 22,3 billion dollars and one fifth of this is net profit. The profit of Bitcoin is zero and the net profit of Bitcoin is also zero.
Europe’s 16th biggest economy, Finland has a yearly GDP of 236 billion dollars. If Bitcoin’s market cap doubles again, it’s market cap will be equal to Hungary’s, Ukraine’s, Slovakia’s, Luxemburg’s, Croatia’s, Bulgaria’s and Latvia’s GDP all together.
Or at least on paper. (Of course the actual BTC's market cap and the GDP is very different, but i guess you can still feel the nonsense in this)
People make 337 thousand daily transactions with Bitcoin. Just Visa alone makes 468 million transactions per day
and this is just a tiny slice from the total world’s transactions.
The SWIFT system which is used by banks to make international transfers even 12 years ago made 5 thousand billion dollars worth of traffic. Daily.(!) The similiar Fedwire payment system which works in the USA had a daily traffic of 2,1 thousand billion dollars, the CHIPS had 1,4 thousand billion dollars. And these numbers are 12 years old so you can easily double them to get to the present numbers. And this data is only of three clearing houses out of a dozen!
All the national clearing houses in total can have multiple hundred times more traffic than these ones.
Even if we would like to use Bitcoin for just one tenth of the traffic of Visa we would soon have to store a few gigabytes then terabytes of data for each Bitcoin. The whole electricity generation and bandwidth of the world wouldn’t be enough if we would want to manage and transmit this much data constantly. (Even now the Bitcoin network uses more power than Bulgaria. The investors who mine Bitcoin spend money mostly on video cards and electricity. The biggest benefitors of Bitcoin are the chinese electricity providers and the video card companies. Even a whole bank system doesn’t use this much electricity and they execute multiple hundred thousand times more transactions than the Bitcoin’s network.)
The technology is unsuitable for microtransactions. There are cryptocurrencies which are suitable for this but what will happen with you investment in Bitcoin when everybody starts to use one of these currencies? The future of the blockchain technology is completely different from the future price of Bitcoin which currently is just one out of 1324 cryptocurrencies and for which you paid a bunch of money.
Somehow the people who kick back and leave their future on the price of Bitcoin don’t want to understand this.
Just so you understand: I don’t argue whether or not blockchain technology (which is used by Bitcoin too) will be used in the future financial system. I argue whether or not one Bitcoin values 17 thousand dollars or even one dollar as a matter of fact. Do you think there will be a single bank which will choose exactly Bitcoin when it wants to switch to this new technology when Bitcoin is a completely unsuitable candidate? Or do you think that the bank will choose another cryptocurrency?
Won’t the bank simply make its own one?
The total value of all the dollar bills in circulation is 1,59 trillion dollars or 1590 billion dollars. If we look at the M3 (unbounded money in bank accounts, bills etc.) instead of only the bills we get 11 trillion dollars. But even this is only a tiny bit compared to the total assets in the american economy which is 220 trillion dollars.
The daily size of the forex market is (!) 5.100.000.000.000 dollars.
So think again when you see numbers which suggest that Bitcoin is the future. I wrote these numbers just so you can get a sense of the big Bitcoin which is about to knock down the world’s banking system. Just so you can understand the big Bitcoin’s place in the financial food chain.
I’d also like to talk about a common misconception. Many people think that the value of Bitcoin comes from the fact that it’s very expensive to maintain. The mining is expensive. This is called an expense and it has no relation to value whatsoever.
Things don’t represent value because they are costly to maintain. This is exactly the opposite of value. The more expensive is something to maintain the less valuable it is. Companies which have small costs value more than companies which have big costs with the same profits.
There’s an old trick in the stocks market called pooling. A few scammers organize into a pool, they choose a smaller stock and they start to trade amongst each other with higher and higher prices. They just have to be careful not to catch attention. They have to increase the price gradually and slowly and the pool has to be big enough in order to stay undetected.
When the whole world goes crazy because of the huge gains on the pooled stock and when everybody wants to be a part of the miracle the pool quietly sell the whole stack of stocks and disappear.
The “investors” which are driven by greed don’t even care about the fact that the evaluation of the stock flied far above the actual value of the stock. How much simpler is this whole move when the given thing doesn’t even have a quantifiable value to which you can compare it to? Bitcoin is exactly like this.
I wonder how are Bitcoins divided amongst the wallets? Could you drive up its value by getting into pools? You can’t drive up its value because it doesn’t even have any inherent value. The value of Bitcoin only comes from the people who are willing to pay for it. Bitcoin only has a price because people want to look at it as money even if it cannot function as money. The american dollar will have value until the United States exists
and its government collects taxes in dollars from the world’s biggest economy and it pays its payouts in dollars. And if someone doesn’t want to pay the requested taxes in dollars the government has the power to imprison the person.
The expression of total financial ignorance is when the believers of Bitcoin state that the real currencies are also based on nothing. The real currencies are just paper too without any value. Every real currency is backed by real value:
the given country’s economy, assets, government, tax system give real value to the real currency. No cryptocurrency can present anything like this ever because cryptocurrencies are made out of thin air.
Real currencies can function exactly because of this: because they have value too not just a price. This is why they can be a store of value, this is why they can be accepted in trade. Because tomorrow they will be worth just as much as today. They’re not just empty ping pong balls which are moved based on the needs and wants of the buyer. Potentially 10-20% per day.
(Just for the sake of the smartpants: of course after world wars a real currency can lose value too just like how the syrian fiat lost value too when the value was essentially bombed out of it. The country’s economy collapsed and half of the taxpayers died or fled out of the country. But even this shows exactly the fact, that the price of the currency changes if the inherent value changes. And also the the price of the safety fiats (swiss franc) can be pumped up if investors are panicking. But we only know that their price is high compared to what their value is because it has a value.)
Just because I invent the Reddit coin and create a lot but finite real physical coins it won’t be a currency which has value. Not even if the coins are unfalsifiable. Not even if there will be people who are willing to pay real money for my coins. Not even if other people realize that they can make coins just like me any time (that’s why there are already 1324 types of cryptocurrencies on the market) It won’t be real money even if following the current trend I create this Reddit coin as a cryptocurrency. Money doesn’t become money because I say its money. Neither does it become money because other people believe its money.
But let's take a look at the bitcoin wallets amongst the investors: https://imgur.com/a/WN163
So basically 97,2% of the wallets doesn’t even own a single bitcoin! And 55,5% of the wallets doesn’t even contain 0,001 bitcoin!
Of course a wallet is not necessarily a person but its apparent that there are many small fish in the sea of Bitcoin. It's good to know this when you read all the comments from the people who try to defend Bitcoin no matter what. Most of them don’t even own 700 bucks worth of bitcoin but they will become rich for life from this investment.
0,01% of the investors - 1.677 people own nearly 40% of the total bitcoins available. (Or it may be that these 1.677 wallets are owned by one person or twenty. We can’t even know that) but even 85% of the total bitcoins is in less than 1% of the wallets. In stocks lingo this is called a low free float.
These people are the ones who manipulate the prices however they want it to. But of course they don’t want it to because why would they want such a thing? The prices are rising just because Bitcoin is the future.
If Bitcoin wouldn’t be the Holy Bitcoin it would be simply called a Ponzi scheme. How does a Ponzi scheme look exactly? They build up a system which is new, which is alluring and about which people can believe that it’s the future. From this you’ll become rich. If you pay enough money now then you’ll be the part of the money rain too. Until more people are buying in than out the Ponzi scheme works great. Nobody realizes that there’s nothing behind it. Just the money of the depositors gives it value.
Bitcoin is genial because it never even stated that there is some sort of value behind it so you can’t even expect it in the first place. Until more people want to put money in than out the price of Bitcoin will rise. I’ll say this again Bitcoin is alive because people want to treat it as money. “This is the money of the future, you are lagging behind if you don’t understand this. Why do you try to find the inherent value of it and the evaluation of it? You are an old prick who has no clue. This is a new world. Deal with it. You have to just believe this and don’t ask any questions.” Do you know how many times have I heard this from the faithful “investors” of the kairos, sidetalk, emgoldex ponzi schemes?
A lot of people wait a lot from the december 18th stock appearance of Bitcoin but it can bring more bad than good. If the big speculators start to go hard on it they can double the price or drag it down to 0 within days. It's rather easy for them because there is no value behind it. Just a price tag. If the British Pound was attacked what do you think what will they do with Bitcoin? Here there is no national bank which will change the interest rates or pull other tricks from its sleeves to defend its own currency from falling or from a rising. Also here the investors won’t be able to say that a bitcoin is definitely worth more than this or not because the whole english economy is not behind it so they don’t have a guide for its inherent value. If Bitcoin was volatile so far you can prepare yourself for even bigger storms.
You think whatever you want and you pay money for whatever you want. You know what? Even I’m telling you that knowing the madness, dumbness, and greed of people it is not unimaginable that Bitcoin will rise to 150 thousand dollars within the next year. But not because its value is that much but because there are too many greedy people who feel like they were left out of a great opportunity but it's not too late to jump in.
But also don’t be amazed if its price will be 1 dollar again.
I invested in Bitreserve's B-round because I bought their argument that bitcoin was never going to be adopted massively by consumers (too volatile, slow, complicated), BUT that the time had come for I.T. to disrupt finance the way it has every other industry. They were going to be iTunes to BTC's napster. So far, so good...
But then I see this coinbase blog
and volatility is falling fast (though still way too high for bitcoin to displace the more stable fiat).
That's a bit worrisome for an ardent Bitreserve cheerleader such as myself. So then I go over to check how Bitreserve is doing on their changemoney
site--I've been on vacation for a few weeks and haven't been following their progress--and something really weird is happening: they've done $70MM of transactions in the last month, huge growth since offering free forex for fiat pairs, but the value in their system is only up 75% over the same period.
$70mm in transactions is tiny compared to most financial systems but it seems big when compared to BTC/USD trade volume on the big US BTC exchanges, at least if (this Blockchain.info data)[https://blockchain.info/charts/trade-volume?timespan=30days&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=
So what's going on at Bitreserve? Three possibile explanations occur:
- There's a bunch of high frequency trading with BTC speculators taking advantage of zero-cost trades.
- Their user base has exploded and lots of people are moving small amounts of value through Bitreserve (BTC<=>stable cloud money<=>BTC) and pulling it out almost immediately (remittance and other low-value cross-border payments).
- Developers on the Bitreserve API are moving a lot of small amounts of BTC through Bitreserve, but pulling it out immediately on the other side as BTC. Bitreserve claims there are over 100 developers building stuff using their API (I know of approx ten personally so the claim doesn't seem outlandish).
1 doesn't seem very auspicious for Bitreserve since they aspire to be the hub of the new "Internet of Money", not some small fish day-trader tool.
2 or #3 would be very promising and would prove Bitreserve's thesis and value proposition (and bode well for my investment).
I contacted a Bitreserve exec I sometimes email and he responded (a bit coyly seemed to me) that all three of the above explanations were partially responsible for the explosive growth in transaction volume and the more modest growth in value in the system. He wouldn't go into details, said he'd get back to me...
Any bitcoin geniuses out there who can crunch the blockchain and Bitreserve's reservechain
and offer any insights into what's going on over at Bitreserve?
I'm seriously thinking of dropping money into a cool app built on top of Bitreserve AirTM
, but I don't want to throw good money after bad in the case that Bitreserve is just a BTC speculator's wet dream (free forex, real-time proof of solvency so you can't be Goxed) and isn't gearing up to put the banksters out of business the way iTunes did the record stores.
1 BTC tip to the most cogent analysis of WTF is going on over at Bitreserve.
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