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Five Objections to Using Bitcoin We Should Finally Put to Rest

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POST WRITTEN BY
Michael Terpin
This article is more than 9 years old.

Is that all there is?  Is that all there is?  If that’s all there is, my friends, then keep on dancing.”     - Peggy Lee

This week, we received yet another in what seems to be an endless parade of warnings, from yet another central bank or government body, about the alleged dangers of “virtual currency” – the preferred term used by such groups for digital currencies such as bitcoin (perhaps because the term “virtual” makes them seem even less real, a cross between a videogame and a rewards program gone bad).  Remarkably, the report also called out cute little Dogecoin and bent-on-compliance XRP (aka Ripple).

The list of horrors put out by these mildly esteemed bodies is a virtual cut-and-paste effort, looking for the most damaging words without revealing any true issues.  Where were these same bodies to warn us about the dangers of toxic subprime mortgages and collateralized debt obligations a mere decade ago, of former NASDAQ regulator Bernie Madoff’s true Ponzi scheme, or of investing in Fannie Mae after the government decided they would never be able to pay off their loan to the Feds because they’re just too profitable now?

The latest body to get all bent out of shape over the prospect of bitcoin fraud (not that there’s been much reported, so they dredged up an old chestnut from 2011) is the Consumer Fraud Protection Bureau (CFPB), which this week issued a lengthy warning, complete with illustrative stories of anonymous people (the names were changed to protect the facts) getting ripped off based on allegedly real examples (of course, we have no idea if the bitcoin exchange that ripped off the mysterious “Nicole” was Mt. Gox several days before it went bust, when the writing was already on the wall and warnings were numerous and loud, or some obscure exchange in the third world – the report doesn’t cite many real examples, so it plays to the convenient fairy tale).

Here are the leading characters in the “Bitcoin may be evil” play that gets repeated every few weeks by governments and banks throughout the world, typically accompanied by some form of panic selling (although, like warnings about how much China hates bitcoin, less and less each time they say the same thing again and again):

1) Bitcoins are not backed by any government.  Hello, isn’t that the point?  Gold and silver aren’t backed by any government either (although they used to be used to back the now truly “virtual” currencies that are only backed by armies and constitutions, which history shows have been known to fail).

2) Bitcoins are highly volatile.  The latest report notes the two days the price fell the sharpest; it makes no mention of the three times it rose exponentially, nor the end result that the price of bitcoin today, despite dropping significantly from its December 2013 peak, is nonetheless more than 50x what it was 24 months ago.  I don’t recall the CFPB warning us not to buy Amazon stock at $106 before it then crashed down to under $7 (it’s more than $300 today).  In other words, bitcoin is not unique in its fluctuation for a game-changing commodity or security.

3) You can lose your bitcoins or someone can steal them.  You can also lose your dollar bills or have them stolen from you on any street corner.

4) There is no federal insurance on bitcoin accounts.  Remember that what that FDIC insurance is guarding you against is rogue bankers making off with your money, which has obviously happened enough (google “savings and loan crisis 1980s” – this is when nearly half the nation’s savings and loan associations went bankrupt and the FSLIC became insolvent and required a government bailout) that it’s been a necessary component of banking.  With bitcoin, one can be perfectly safe with common security measures such as cold storage and encrypted paper wallets, and there are services that will insure the value of holding those pieces of paper in a vault.

5) Bitcoin has been used in crimes.  The CFPB didn’t mention Silk Road or the potential for money laundering, probably because they’re both outside its jurisdiction, but they toted out a 2011 scheme where a Texas man bought 700,000 bitcoins at $6 apiece and then spent much of the money in a Ponzi scheme.  Had he simply held onto the coins, they’d be worth nearly 100x what they were when he bought them. It goes without saying that one can use anything from pork bellies to potato chips in a Ponzi scheme, but that doesn’t make them risky by that fact alone.

As Congressman Jared Polis noted earlier this year in his satirical call for banning the dollar bill, in response to Senator Joe Manchin’s banning of bitcoin, the U.S. dollar is not exactly clean on the criteria summoned up in most of these damnations:

Dollar bills are present in nearly all major drug busts in the United States and many abroad. According to the U.S. Department of Justice study, “Crime in the United States,” more than $1 billion in cash was stolen in 2012, of which less than 3% was recovered. The United States’ Dollar was present by the truck load in Saddam Hussein’s compound, by the carload when Noriega was arrested for drug trafficking, and by the suitcase full in the Watergate case.

We’ve moved past early attempts to radically censor the Internet.  We’ve moved past having state officials looking for pedophiles in every MySpace user profile.  Let’s accept the fact that bitcoin and digital currency is here to stay and spend our time keeping as much of the innovation for this potential trillion-dollar innovation in the U.S. as we can, instead of ceding our community’s advancements to friendlier jurisdictions from London to Singapore, from Andorra to the Isle of Man.