The Bitter Bite of Bitcoin

The Bitter Bite of Bitcoin
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I recently watched “The Rise and Rise of Bitcoin” and found it hysterically funny. There were many times when I laughed out loud. “The Rise and Rise of Bitcoin,” as well as the players described in the film made the latest series of “Saturday Night Live” shows look like a somber lesson on how to embalm a someone’s grandma. The upstart programmers and engineers, (trying to get rich, of course) were scared to death, and with good reason. I think they either skipped their econ classes or they never studied any economics at all. All of the programmers and “entrepreneurs” (a term to be used lightly in this instance) trying to get rich off bitcoin were only going to get rich if everyone “buys in.”  Remember, having to “buy in” is the fundamental premise of every Ponzi scheme. Ever. Keep those terms in mind. Ponzi. Buy in.


The investors believe that bitcoin is the second most important thing ever invented, just behind the internet. At one point the value of one bitcoin went from a value of $216 to $71, in just a day. Allow me to explain bitcoin as I understand it. Bitcoin is a digital currency, created by some nerds who want to get rich. Bitcoin, as a digital currency, represents something of value, as in currency. On the whole, bitcoin represents a bunch of geeks and nerds trying to get rich by convincing you that some signal over the internet has some kind of value because they say it has value.


They were made fun of on the playground, in gym class, and in the classroom as often as possible. They’re holding all kinds of resentment against everyone who made fun of them, ever. They weren’t invited to parties, they didn’t go to dances or other social functions. Now they want to make the cover page of Business Week, Forbes, The Atlantic, or The Wall Street Journal, and flout the criticism that they faced growing up, and get rich, of course. Unfortunately, they might make the cover page for the wrong reasons.


The camera doesn’t lie, and when many of them get in front of the lens, they are as bad now as they were in the school play in first grade, which was why they had as few speaking parts as possible. They should have taken public speaking along with advanced calculus, because while their algorithms are functional, they aren’t very convincing speakers. While being as they are hobbled speakers, their thinly-veiled attempts to get rich while claiming to “helping the average consumer” are as transparent as their computer screens. This is a “get rich quick” Ponzi scheme if I have ever seen one. Who is issuing the money? Well, the geeks are. I see, and because they are issuing the currency, they’re going to get rich before anyone else, or at least that’s how it seems.


Make no mistake about it, we are at a turning point in history. Before, the incompetent nerd (who you really couldn’t figure out how they even got hired on unless it was someone they knew or were related to) who designed things on that didn’t work because they had no practical experience used the phrase “it looked good on paper” when it didn’t work. We have entered a new era. The new mantra for some wacky idea generated by an overpaid under-experienced desk jockey is “it looked good on the computer screen.” We’ve traded “it looked good on paper” for “it looked good on the computer screen.” The more things change, the more they stay the same.


National currencies are manipulated by the states that issue the currency, while bitcoin, being international, doesn’t have that problem. Bitcoin will turn the entire world currencies into a single honestly-traded non-manipulated international currency. Bitcoin wants to return money to the people, and away from the state, and that sounds great, as long as the nerds who invented it get rich. But, given all of the hacking, given all of the fake news, false information, and personal agendas that one finds on the internet, the idea that we’re going to have an international currency that will be internet honest is almost as hysterically funny as a Robin Williams soliloquy.


Blinded, as they were, by the idea that they’d get rich, the bitcoin entrepreneurs who understood quite little about economics, securities or banking laws, proceeded down what they considered to be the boulevard of wealth, when it was an alley of corruption and frustration. In the meantime, governments, especially the U.S., began to notice the exchanges and issued several pronouncements regarding the digital currency. One of the bitcoin startups, BitInstant, because of lack of understanding of securities law, was closed down (by the federal authorities) and was gone in less than four years.


It turned out that bitcoin was used extensively on the Silk Road, which was an internet source for illegal substances, stolen property, and all manner of things illegal, immoral or fattening. Ross William Ulbricht, founder of the now defunct Silk Road, is serving life in prison. Bitcoin had some bad publicity because of the anonymity that bitcoin offered for the criminals using the Silk Road, and use it they did. The use of bitcoin for illegal purposes didn’t help matters. While ubernerd Ross William Ulbricht got rich off the Silk Road, he also got thrown in jail for life, not something the bitcoin nerds are trying to achieve. In the movie, a drug dealer admits to using bitcoin quite a bit as well. It seems bitcoin is already the choice of thieves worldwide; what an accomplishment. The law of unintended consequences kicks in again.


This reminds me of the time when the U.S. tried to switch to the metric system. The American people stubbornly refused to accept meters, be they centimeters, decimeters, kilometers or any others. Towards the end of the movie, one of the commentators, a professor of finance, stated that “there is a really good reason why we have central banks.” The reality is that the people are not ready for a currency of their own, despite all of the efforts of the computer nerds and geeks trying to get rich by offering the public a freedom that they neither understand nor could use to any substantial advantage over the present system. The most amusing aspect of the film, besides their inability to explain bitcoin to any degree of simple understanding, was the nerds’ unmitigated greed and belief that they had found a gold mine in a pile of circuits and wires, like so many of their fellow geeks had done; as well as the fact that they convinced each other of replacing value with circuits which, unfortunately for most of the nerds, had little value.


Like all of the defunct search engines and social websites of the early internet, we have empty offices and a bunch of disappointed geeks who cannot believe that their brilliant idea didn’t get traction. Bitcoin may only be missing a Bezos or a Zuckerberg, and maybe that leader is somewhere on the horizon, but there are entrenched interests who trade in international securities every day, as well as states that manipulate their currency on a regular basis. While the currency manipulation sounds bad, having “value” generated by computer geeks, along with the corruption and hacking that the internet has experienced, bitcoin sounds like a button few people are willing to push. The nerds would do well to invent another Amazon or some such. International currency is a tall order, and despite the fairness they claim they bring, most international currency exchanges are fairly satisfying to those who trade, and despite the nerds’ help of the smaller players in that market, the smaller players are not influential enough to give bitcoin the foothold it needs. They would have known that if they had taken some econ courses.



Leroy Added Aug 13, 2017 - 8:12am
Jeff, you make it sound like BitCoin was a complete failure.  To my knowledge, it is still going.  I've always been leery of it, especially after hearing about the search for the "owner."  No one knew who it was for a while.  Eventually, they found the Japanese "inventor."  He took his loot and turned it over to a programmer.  During that period, if anything had happened to either one of them, BitCoins would have turned into thin air.  Today, it is around its peak of $3,991.16.
I like the concept.  It seems beyond the ability of governments to manipulate--for better or worse. There is no centralized control.  The exchange is direct.    But, as you say, it is vulnerable to fraud.  As I understand it, there are 21 million BitCoins, and, according to the BitCoin website, that can never change.  Never is a long time.  There was one breach where 184 billion BitCoins were created.  It is also dependent on having the proper digital certificate to trade.  One guy claimed that his BitCoins vaporized when his hard drive crashed. The downside is that if you coins are stolen, you are SOL.
Paying fees is optional.  I can see that changing.  Not sure who gets the fees.  The more fees you pay, the higher priority you get for the exchange.
It's highly volatile.  Kim Jong-Un has increased its value as a safe haven.  Seems to be a great hedge, if you know what you are doing.
George N Romey Added Aug 13, 2017 - 10:05am
Good article.  Some like Max Keiser say Bitcoin and others will be here to stay and people like Peter Schiff compare Bitcoin to the dotcoms of 1999.  The question is will crypto currencies prevail once the Central Bank model fails.  More to the point, Bitcoin is a reaction to the belief that the global economic system is propped up on a bed of Central Bank quicksand.
Jeff Jackson Added Aug 13, 2017 - 10:38am
Leroy, thanks for pointing some of the weaknesses that the programmers didn't take into consideration. That was the point, to illustrate what the programmers didn't think of while they were thinking about trying to get rich. Imagine that someone on the internet steals your bitcoins, which were, um, also on the internet. Whoever the authority is (and with bitcoin that is hard to determine) says, "too bad, they took your bitcoins, sorry you lose." What would you do, what could you do?
Yes, Leroy, bitcoin says it is limited to 21 million. Who made that and why? Who is to say the bitcoins issued to you are authentic bitcoins and not fakes? This whole thing is a bunch of nerds trying to get rich who didn't take enough econ classes. Not to mention law classes, and several of them have gotten on the wrong side of the law, which is no surprise to me, as the legal holes in their theories are big enough to drive a truck through. That is, of course, if there were trucks on the internet. Yes, there is some bitcoin remaining, but it is more of a novelty than anything else. It's a Ponzi scheme. Don't buy in. They need your money to start their money, because their money is wires and circuit boards, while your money represents something.
Jeff Jackson Added Aug 13, 2017 - 10:45am
Thanks George. To some degree, I can understand at least the reasoning behind bitcoin. The problem is that most of the economic players will have to agree, and there are too many countries manipulating their currencies for that to happen. The other problem is that central banks can breathe life into a failing economy, where, if bitcoin is the only currency, an economic disaster will follow. Say, um, 2008, maybe?
The other thing is that the nerds think everyone on the world will have a device with which they can make transactions. I'm betting internet service deep in the Amazon forest will never be very good, but maybe not. Perhaps the natives who have populated these obscure areas will experience a "tech boom." Given the glacial pace of the technical development of these populations, I have that very low odds of occurring.
Leroy Added Aug 13, 2017 - 11:30am
"Who is to say the bitcoins issued to you are authentic bitcoins and not fakes? This whole thing is a bunch of nerds trying to get rich who didn't take enough econ classes."
You might be right, Jeff.  However, I believe they wanted to circumvent the governments' control of money.  That's the end game.  I could be wrong, but I don't see how they profit, except for the initial owners of the bits.  There seems to be controls in place, but I have confidence the US government or China's or Russia's could screw the hold thing up.  It's a lot like Uber.  Governments will find a way to screw up a good idea.
George N Romey Added Aug 13, 2017 - 12:42pm
You can bet the Treasury will soon be regulating this industry.
Jeff Jackson Added Aug 13, 2017 - 1:24pm
Leroy, I sincerely believe that they wanted to do a lot of good things for the lower-end population of the economy, and the world's economy at that. They worked very hard to get it going and keep it going. They generated money by "mining" which meant setting up your computer, letting it do the work, and collecting money. That sounds like the money-making scheme of so many IT nerd millionaires I couldn't name all of them.
I have in other essays demonstrated the difference between designing and producing something like an automobile versus designing a piece of software and reaping the rewards. Software is astronomically more profitable, as it can be reproduced with the push of a few buttons, while producing a car takes thousands of skilled people, not to mention time and investment. The biggest thing that I saw, and the common denominator of all the nerds, dweebs and geeks in the movie, was a thinly veiled determination to become a billionaire, like Gates, Zuckerburg, or Bezos.
I understand greed is a great motivator, no dispute there. None of them explained what they were going to do for humanity when they got rich off bitcoin. If they were that determined to succeed, they would have had enough securities lawyers on their payroll to bury any charges in measures that indicated an intrinsic legal philosophy. They didn't, and they moved offshore to avoid criminal prosecution by the U.S. Just because you can write code does not give you free rein in the economy, especially the securities market. More lawyers would have served them well.
Katharine Otto Added Aug 13, 2017 - 2:11pm
Good post.  I couldn't believe that anyone bought into the Bitcoin scam, but I've never believed in on-line money transfers of any kind.  I still write paper checks, but of course my bank depends on electronic money, as do all the others.
All central banks are Ponzi schemes, according to me, which is probably why George Romey predicts their collapse. Right, George?  I'm amazed that there is an international, institutionalized push to do away with cash in favor of electronics.  We all hear about cyber-hacking, and what's more attractive to hackers and trackers than on-line financial records, bank accounts, securities, and transfers?
Also, electronic technology, for all its advantages, is unreliable.  Computers crash when you need them most.  
If you look at incentives, such as--most recently--Visa's offering incentives to restaurants who refuse cash, you will see how pervasive this mind-set is. Modi in India suddenly making large notes illegal. The case in urban China of the guy whose cash was virtually worthless because everyone else used debit and charge cards.  I could go on.  Cash has become suspect, especially in large amounts, because of its connection to illegal activity.  It is virtually untrackable.
I could go on.  Enough said for now.
George N Romey Added Aug 13, 2017 - 2:16pm
Katharine the financial elite want a system in which the masses will be paid by a refillable charge card. Mind you it won't be enough to get by so you will be able to get a " cash advance" on that card. Paper money will be discouraged.
Ian Thorpe Added Aug 13, 2017 - 3:11pm
Like all banking systems Bitcoin depends on trust. Thing is would you trust a nerd with personal hygiene issues, the kind of person who wears open toe sandals with SOCKS for example? Tech billionaires are not from this planet. But then, take away the value of shares in the corporations they founded and most of the wealth evaporates.
Jeff Jackson Added Aug 13, 2017 - 3:26pm
Katherine and George, upon your insightful comments, I missed the pitch that the nerds and geeks missed as well. (Not surprising with the nerds and geeks, since when they weren't writing code, they were looking at all the stuff they'd be buying when they became billionaires.)
The governments have attempted for years to control currency because of all of the things bought with cold hard cash, such as illegal drugs, booze, and other "services" provided by the immoral, illegal and fattening service sector. What if the nerds, dweebs and geeks had pitched the bitcoin deal as being traceable for purchase of criminal tools and illegal substances? Bitcoin was used by the Silk Road almost as soon as anyone would take a bitcoin for payment.
Unfortunately, the search for riches blinded the nerds, dweebs and geeks to the ultimate selling point to the government. They had the ultimate tracking device for the purchase of illegal goods or services, and that was bitcoin. Instead of touting what all good could be done for the government by bitcoin, they tried to sell it as an alternative currency. I sincerely believe that had they pitched the deal as a benefit to the government to track and tax the underground economy, they would have been much more successful.
George N Romey Added Aug 13, 2017 - 3:35pm
Jeff remember the nerds shouldn't be trusted.  They are an extension of Wall Street.  Just look at the dot com bust. The nerds made out like bandits because they knew their companies would never be viable but they got out why the getting was good.
Jeff Jackson Added Aug 13, 2017 - 3:54pm
Yes, they're really good at hyping things and then bailing out while the bailing is good. The Winklevoss twins are a perfect example of that kind of nerds, but the Winklevoss twins are just wanna-be nerds who can't think of anything themselves, so they just pretend to invent things, take a position, and  bail out when the bailing is good.
Thomas Napers Added Aug 14, 2017 - 5:47am
“Bitcoin is a digital currency, created by some nerds who want to get rich”
You make it sound like the desire to get rich is a bad thing.  The fact of the matter is that the creators of Bitcoin will get richer if the currency is widely adopted.  For the currency to be widely adopted people need to believe/trust it will always have a similar amount of value compared to other currencies they could choose to hold.
Based on the fact governments all over the world are running deficits and are financing their deficits by printing more money, the bar has been set very low. For example, in Zimbabwe they started printing 100 trillion dollar bills and soon after the currency was abandoned.  So I would totally understand a Zimbawean choosing to receive bitcoins over their own currency.   
The fact the owners of Bitcoin are getting rich is a small price to pay for the security in knowing bitcoins could be used to pay the rent, buy loaf of bread or converted into dollars.  The creators of bitcoin deserve to get rich if they create a currency that holds its value and can be easily exchanged for whatever goods and services one desires. 
Jeff Jackson Added Aug 14, 2017 - 7:12am
Thomas-The idea of getting rich clouded their judgement, from the very beginning, as it does so many people. As I have said, they could have pitched their product as an aid to government in revealing corruption, but that never crossed their minds. They were too busy trying to get rich than to actually consider and describe their product as an aid to government. Am I to believe/trust a bunch of nerds, geeks and dweebs because they promise to be honest with me? At least the government is, to some degree, approachable. I really have no idea where the people regulating bitcoin are, and even less chance of confronting them, should they behave dishonestly. On the other hand,I have my senator and congressman's email, telephone number and address if currency goes bad.
I can totally understand the people of Zimbabwe wanting to use bitcoin, and the nerds and geeks spoke of helping those troubled people, but they never went anywhere like that to promote their product as being helpful to those citizens, (or the citizens of any other impoverished nation) probably because they weren't able to get rich off the Zimbabweans.
"The fact the owners of Bitcoin are getting rich is a small price to pay for the security in knowing bitcoins could be used to pay the rent, buy loaf of bread or converted into dollar." What security? A promise by someone on the other end of the internet? Thomas, if you believe in promises like that, I have some Nigerian bankers who have several million dollars that an uncle you never knew you had left you in their bank. Thomas, Please send me you email and I will hook you up with the bankers who, for a small fee, will send you the millions that your long-lost relative left you. If you believe in the empty promises of people on the internet, I have a lot of people who can help you get rich; just let me know.
Leroy Added Aug 14, 2017 - 9:31am
"I sincerely believe that had they pitched the deal as a benefit to the government to track and tax the underground economy, they would have been much more successful. "
I take it, Jeff, that you are in favor of a cashless society where the government can track every penny you spend and receive.
I would love to have an alternative currency; I just don't trust BitCoin.  Even if I did, then I would have to be concerned with fraud.  But, I love the idea.  I distrust the government.  I need a store of value.  I could buy gold stocks, but they can be controlled by government decree.  Someone like O could wipe out my meager savings overnight.  I could by gold.  The government has regulated the price and could do so again.  I could trade on the black market, but then I would have to take physical possession.  There are businesses popping up all over that allow you to take physical possession at a place stored near you.  I'm sure the government is well aware of them and could block your access to it.  I really don't want to hide it under my mattress.  All I am looking for it a store of value for my hard earned savings.  I don't trust the Swiss banks either.  The US government has already shown how it can lean on them.   I suspect some nerd with solve that problem.
Leroy Added Aug 14, 2017 - 9:33am
"Jeff remember the nerds shouldn't be trusted."
I have to stick up for the nerds and geeks.  Perhaps I am one myself.  I trust nerds and geeks more than I do the government.  I don't begrudge anyone for their ability.
Ian Thorpe Added Aug 14, 2017 - 10:03am
Leroy, we should trust thieves, con - men, used car salesmen and those people who cold - call peddling dodgy investment plans more than the government. Trouble is we can't choose not to do business with the government.
Jeff Jackson Added Aug 14, 2017 - 11:58am
Actually Leroy, I don't want a cashless society, and there will never be a total cashless society unless we have a totalitarian government. Guns, drugs, ammo, booze, have been and, depending where you are, currency, not to mention gold and silver. There are things I prefer the government not know I do or own.
Katharine Otto Added Aug 14, 2017 - 12:55pm
Agreed about the commodity money.  Food works, too. Donald Swenson has written a lot about bartering in countries, like Venezuela, where the money is scarce and inflated.  
The nerds are only following Wall Street's example. Stock churning, selling short, currency trading, and other gimmicks designed to extract as much value as possible for the least effort and risk, is the name of the game.  High stakes gamblers with other people's money.  The geeks are only symptoms of a widespread phenomenon.  
There are no safe havens, which is why I'm downsizing and angling for cash flow over hoarded wealth.  Any kind of on-line money transactions are fraught with risk, and Bitcoins especially so, according to me.  But I wonder if people in Zimbabwe could afford even one bitcoin.  They are so expensive, only people with money can afford them.  They are useless if there's nothing of value to buy.
Jeff Jackson Added Aug 14, 2017 - 2:25pm
Katherine, so true. The programmers are trying to skim their way to wealth, taking risks on other peoples' money. As mentioned, they know very little about securities law and economics. Many of them dream up things to make themselves rich and land in jail. Too bad there aren't many people in this society that are looking to make an honest living anymore. They want to program the computer to work for them, so that they don't have to work anymore. They want to write one piece of software and sit back on their wealth and live the life of luxury for the rest of their days. Sad, really.
Katharine Otto Added Aug 14, 2017 - 10:52pm
I think it's illusion to trust these get-rich-quick scams, but gambling is addictive, especially when you're empowered by other people's money. The house always wins, whether it's the stock market or the state lotteries.  
I believe if the government set a better fiscal example, more Americans would shape up, but the current thinking seems to be that you have to cheat to win, and you must win at all costs.
Jeff Jackson Added Aug 15, 2017 - 1:36am
Hey, come on, it worked for Bezos, Gates, Zuckerberg, and hundreds of other tech-boom billionaires. I am not sure if you are aware of the "quants" the people who develop algorithms that make huge bets on the stock market based on complex equations that they devise. The tech paper-money economy is here to stay, unless the government  intercedes and stops some of this madness.
The market was designed to provide funding for businesses, but that was long ago. As I have said, we have people making hundreds of millions of dollars who are producing nothing that can be used, not worn, watched, lived-in, enjoyed, driven, nothing. A few bucks, OK, but not hundreds of millions.
George N Romey Added Aug 15, 2017 - 8:39am
Jeff you are so right. The stock market no longer is a source of funding for companies and investing for others. Most of stocks are owned by a tiny minority, stocks are now akin to poker chips in a high tech manner and the market therefore has no connection to economic reality. Most are trying to handsomely profit before a crash or at least a sizable correction.
Leroy Added Aug 15, 2017 - 9:16am
It is not the nerds and geeks who are the problem.  It's the gambling, like the Doc said.  It's the gambling on my dime.  If the government picked up my loses, I would be a high stakes gambler too.  The elite play by one rule; people like me, another.  That's the problem in a nutshell.  We are not equal before the law. 
Ian Thorpe Added Aug 15, 2017 - 10:43am
Hi Jeff,
It seems the people who control the automated trading algorithms have read your artice ...
Bitcoin Down $500 Overnight
George N Romey Added Aug 15, 2017 - 10:56am
Leroy you hit the nail on the head.  The financial elite have gotten so powerful the risk/reward has been taken out of the equation.  Gamble away making huge short term profits and if it all goes bad there is the Treasury Department, the FDIC, the Federal Reserve and a very generous severance package to break the fall.
Jeff Jackson Added Aug 15, 2017 - 10:57am
Yes, Ian, tell me what stock you want to influence and I'll set you up, since we're pals and all. They call this ability a "market maker" where I make some suggestions (always, always offered only as an "opinion" mind you) and we'll all get rich. Leroy, Katherine and George, you're next. After all, what are friends for if we can't help each other get rich and stay rich. This is crony capitalism. We all claim to be ardent capitalists, believing in free markets. Free markets, of course, to us, mean free to use inside information to help all my pals get rich and then offer withering criticism to anyone who doesn't share our fantastic luck. Of course, it will take me a little bit longer to get all of you set up so that anything you lose will be reimbursed by the government, but just hang on, I'll talk to the regulators and make it so we can't lose under any circumstances. Don't you just love capitalism?
Eileen de Bruin Added Aug 16, 2017 - 2:54am
Wow, this is an interesting post and I shall admit to bitcoin having gone over mynehad but then, I am ensconsced in the train crash of the brexit's effects on currency at the moment!
The bartering concept, it being the first ever means of trading anyway, is very stable as it relies on the actual products, raw or with applied labour precessing. The dot com millionaires and all of that came out of nothing at all, just abstract and the convincing of the people to,use this or that. And social media provides the vehicle for tailored marketing and profiling so it is attractive to product sellers of course.
The new currency then is abstract manipulation of people to buy into concepts which trails along certain products. Scary.  But the art of delusion has been around since year dot. A bottle of salts to cure all ills or slippers with diamonds from Solomon's mines or whatever. The vehicle has changed but the fundaments are the same.
Katharine, I was surprised to read that you actually still use paper cheques! Long gone on the other side of the pond!
Leroy Added Aug 16, 2017 - 8:15am
"Katharine, I was surprised to read that you actually still use paper cheques! Long gone on the other side of the pond!"
Decades.  Every time you write a check, you expose your account number, perhaps more.
Jeff Jackson Added Aug 16, 2017 - 8:43am
Rather astute observations, Eileen. Yes, the value of the bitcoins (which is $4084.15 or thereabouts on 08/16/17) is determined by, uh, er, well, I'm not sure and neither are the dweebs, geeks, and nerds that want to get rich off of it. I see no advantage to it unless, of course, you wish for anonymity when buying drugs or illegal things, which has become bitcoin's primary purpose, without, of course, the approval of the geeks nerds and dweebs who are trying to get rich off of it. There are lots of things that I might wish I thought of, but bitcoin isn't one of them. There are things I did think of and people stole them, but that's another essay. Thanks Eileen.
Leroy Added Aug 16, 2017 - 10:27am
"I'm not sure and neither are the dweebs, geeks, and nerds that want to get rich off of it."
I just read a 4-day old article on the profitability of BitCoin miners.  It is intensely competitive.  It depends on how fast you can solve mathematical problems; i.e., it depends on how fast your computers are.  Most anyone can be a miner and how much you are paid depends on how much you (your computers) do.  An example estimated the profit (at the current BitCoin price) of one of the most prolific BitCoin miners.  For his services, it is estimated that he makes a whopping $333 a month.  We need laws to prevent these dweebs from making outrageous profits living in their parents' basement.  They will all be billionaires in only a quarter of a million years!  And all they contribute is their brains and computer.  They are a drag on society and part of the Wall Street corruption.  Soon, they will have our politicians in their pockets. 
The Rise of the Nerds must be stopped now before it is too late!
Jeff Jackson Added Aug 16, 2017 - 6:09pm
I'm glad to have piqued your interest Leroy. Now, the $333 he made, exactly what if anything, of value did he create, or did he just program the computer and sit back and watch it generate money. In order that people get paid, the need to produce something of value.
Jeff Jackson Added Aug 16, 2017 - 7:02pm
He invests the $333 in another computer, making $666 a month, and another computer after that, and on and on. Or, he leases time on a supercomputer that is 20 times faster than the one in his basement and makes $6,660 a month. Pretty soon he's making almost $80k a year doing mostly nothing, just letting his program run. Not a bad year, especially when you consider he didn't really "make" anything. The "circuit economy" where little is produced is what is dragging this economy down. We can't produce anything anymore, we just sit back and let our computers make the money for us, or at least some of us do.
Leroy Added Aug 16, 2017 - 8:32pm
So, Jeff, if someone made that kind of investment you would begrudge them?  If the BitCoin price comes back down to what it was a year ago, he would be lucky to break even.  I'd say he deserves to make a profit.
Jeff Jackson Added Aug 16, 2017 - 9:12pm
As long as the investment is producing something, something usable, I'm cool with it. I'm just not with these non-producing paper-trading sloths. If he doesn't make money on his investment, he might try another vocation where you actually work rather than setting up a computer and then just waiting for the money to roll in, like the quants and flash traders, who, after they lost a few hundred million asked the Securities and Exchange Commission to return their money.
Leroy Added Aug 17, 2017 - 7:50am
I suppose that you hate the hedge traders too.  They are speculators who produce nothing.  Yet, without the speculators, the markets wouldn't work.  They are the grease that makes it possible for a farmer to hedge against the collapse of crop prices.
Jeff Jackson Added Aug 17, 2017 - 11:38am
Key word "farmer," Leroy, they have skin in the game. The people I don't like are the Hillary Clintons who go into cattle futures (you're referring to futures and options) using the insider advice of Tyson to line their pockets. Then, if their bet goes down and they have to cover the margin, they conveniently miss all of those phone calls and violate SEC regulations by not paying the margin call with no consequences.
There is a world of difference between people who have skin in the game and are trying to protect themselves from excessive losses and people who have a computer that reads a trade one-ten-thousandth of a second before the trade reaches the trading floor (which is no longer a floor but a bunch of circuit boards) and takes that knowledge to make a trade that will make them money. The markets were never meant for that, and that is who I am talking about.
Leroy Added Aug 17, 2017 - 5:25pm
I understand what you are saying, Jeff, but the commodity markets wouldn't work without the speculators.  There would be too many farmers making the same hedge.
What Clinton did is criminal and should have been prosecuted.  There is a difference between trading on inside information and exploiting an opportunity to make a profit.
Leroy Added Aug 17, 2017 - 5:33pm
I read the other day where an Asian couple spotted a street for sale in an exclusive neighborhood.  Seems the HOA neglected to pay a $14 tax bill over a few years, eventually leading to a tax sale to collect the $900 and something owed.  They kept silent until someone discovered it a couple of years later.  Are they exploiting the situation?  Hell yeah!  More power to them.   The HOA learned to keep the billing address up to date.  Now they are trying to figure out how to screw the residents.  Everything is in court.  It's the American way.
Jeff Jackson Added Aug 17, 2017 - 5:39pm
Fewer and fewer speculators are willing to lose. Speculators like Brian Hunter are in the game only to win. As long as they are willing to lose, I'm good, but there is too much corruption in the speculation, as those like Hillary and Hunter, and those are just two that made it to the headlines. If they have an opportunity, that's fine with me. I see too few in the game willing to lose something, as well as the insider traders using their ill-gained wealth to hire expensive lawyers who are paid to split hairs and get them off. No problem with speculators, Leroy, just the corrupt ones. The speculators produce wealth for the farmers. As markets go, there aren't a lot of those players around, I think because too many get the "get rich quick" notion and go broke quickly. The speculators, for the most part, are people (since legally corporations are people) who have skin in the game, Ralston Purina, Archer Daniels Midland, those folks. Again, willing to take the loss, Ok, but don't ask for recalls.
Eileen de Bruin Added Aug 17, 2017 - 5:42pm
Jeff, you are welcome!
Actually, out of interest in terms of the historical perspectives and its contemporary equivalents, are you aware of the first ever stock market crash in history? And that the currency!
Yep. Tulips. 17th century, first ever bubble...and it crashed spectactularly.  But, the very fact that people invested in them and paid prices higher than they would for houses tells the tale of apparent inordinate delusion.  Think of that! A tale of tulips and Amsterdam, the founding fathers of New Amsterdam..or New York.
History repeats itself....
Jeff Jackson Added Aug 17, 2017 - 5:59pm
Yes indeed the Tulip fiasco, where they became worth all kinds of gold and then crashed. I teach social studies, so yes, that's one of the econ lessons. Nice to see someone actually has an historical perspective on these things, Eileen.
Leroy Added Aug 17, 2017 - 6:24pm
"No problem with speculators, Leroy, just the corrupt ones. The speculators produce wealth for the farmers."
I see.  Nerds, dweebs, and geeks are corrupt and that is why you dislike them.
Jeff Jackson Added Aug 17, 2017 - 7:47pm
As previously stated, the product, bitcoin, could have been pitched to the governments as an alternative to currency, but then, the probability of the geeks, dweebs and nerds getting rich off such a product would have been very low. They took a great risk insisting that bitcoin become and international currency with hardly any endorsement of governments. Essentially, they were attempting to print money, which is pretty much illegal everywhere. Do I appreciate people with a good idea that then, by their very existence, violate the laws of sovereign nations? No, they meet the fate of BitInstant, which was determined to be in violation of securities law.
Enter the flash traders, who, as stated, place trades in microseconds in order to make money. These are the geeks, nerds and dweebs who are not speculators, they are simply taking notice of what other people are doing and making moves in microseconds before the orders of other people are processed. This is not speculation of the part of the geeks, dweebs and nerds, it is corruption, making a move based on inside information, be it a microsecond before another market order is executed. Again, corruption, not speculation, but simply taking information and making an order a microsecond before the existing order is executed.
If I speculate in hog bellies, I bought them from someone, and I will sell them to someone. The dweebs, geeks and nerds of bitcoin want to issue money and make money by simply issuing money, creating money out of wires and circuit boards which most countries will not allow, especially the U.S. Bitcoin is not speculation, it is more of a Ponzi scheme where everyone else pitches in the money and the dweebs, nerds and geeks get rich creating nothing of value, and having no skin in the game. If bitcoin makes money, they make money with little or no investment, other than the programs that they write to benefit mostly themselves. This is not the kind of greed that is good, it lines only their pockets, and I am happy to see them shut down and arrested by the authorities who see it as it is, and that is printing money when they are not a sovereign nation and have no right to do so.
Katharine Otto Added Aug 17, 2017 - 8:22pm
Eileen and Leroy,
I mostly use cash.  Don't have a credit card or ATM since they were stolen.  Don't plan to travel soon.  Paper checks are for utility bills, phone, and the like.
I wish you would distinguish between "farmers" and "the farming industry," because their interests are diametrically opposed.  Archer Daniels Midland is on my hit list because of the ethanol mandate.  That corporate welfare scam is a pox on the planet. Commodities speculation hurts the little guy
Leroy Added Aug 17, 2017 - 8:36pm
Ok, I see now, Jeff.  You detest them because they bring efficiency to the markets.  They do it faster which inspires others to do it faster or lose out.  Everyone continually has to upgrade their equipment to keep pace.  The dweebs invented email and now people get their information faster.  They really didn't do any work, just a lot of coding.  People who continued to used regular mail lost out.  The nerds got rich by beating out the postman.  They single-handedly destroyed the US Post Office, getting rich in the process.
Jeff Jackson Added Aug 18, 2017 - 11:26am
Leroy orders 10,000 shares of Bank of America (BAC) at $24.00. Ah, but I have a device that reads that market order, and I buy 10,000 shares of BAC at $23.90 in a microsecond before because I know there is an order for 10,000 shares of BAC at $24.00, so I make $1,000 in the blink of an eye, NOT because of anything other than I can read market orders, place a buy and sell in the microseconds before Leroy's market order is filled. This is gaming the system. The markets were never meant for that kind of trading. They aren't making money because of their analysis, or their savvy at picking stocks, they are just inserting themselves into a deal that was going to happen, sort of like, gosh, insider trading, where you know someone is going to buy something at a specific price, so you buy it and profit from knowing that there is a buy order at a specific price. There is no difference, and it is unethical, because they are acting on something that they have knowledge of before the transactions take place.
Comparing quant traders to the postal service is like comparing peanuts to bulldozers.
Leroy Added Aug 18, 2017 - 1:18pm
Jeff, if it is illegal, they should be prosecuted.  If it is not illegal, it is fair game, as long as I am not precluded from doing the same thing.  If your order can't be placed before some nerd can read your order and place his own, shouldn't you find another broker?  There is something wrong when you place your order and someone can read it and their order filled before you.  And, you gave an example earlier of some dweebs asking for the SEC to nullify their orders when it went against them.  Sounds like it is not without risks.  I'm with you when they expect me to assume their risks and not share in their reward and I hope the SEC did not comply.  Don't really see what you are complaining about.  If it is fraud, sure, crack down on them, but I don't see bashing them for being better.  Sounds like you are upset because you used to pick on the nerds, dweebs, and geeks and assumed you were superior only to find they are besting you in real life.
"Comparing quant traders to the postal service is like comparing peanuts to bulldozers. "
Aren't both information?  Isn't it about the delay?  Isn't it about "nerds" coding and doing no real work, using brain power alone?  Sounds apt to me.
Jeff Jackson Added Aug 18, 2017 - 9:40pm
Leroy, I never picked on anyone. I was raised that you don't do that, even if is done to you.  I never could program very well, but I do not envy the people who do. Most of them can't write or explain things very well, as evidenced in the movie, where they were unable to simplify what they were doing and explain it in a rational function. The SEC, to no one's surprise has, for now, approved the flash traders, but as soon as they lose a few hundred million, that policy might change. Just as before, a situation that the algorithm has not seen or been programmed for will emerge and hundreds of millions of dollars will disappear.  This will be another "flash crash" and the markets will shut down, so then I will be denied the ability to trade because of people who should not be permitted to do that will be given free rein.
Jeff Jackson Added Aug 19, 2017 - 12:58pm
Speaking of futures and options, the financial geniuses at Goldman Sachs lost over $100 million on natural gas bets, so far this year, as reported by The Wall Street Journal August 19,  2017. I guess they have it to lose, huh? This could cause major hardship, like not being able to take the corporate jet to an exotic golfing trip. Gosh, life is so hard. I hope the geeks nerds and dweebs have lots of money to lose if their dream doesn't work out.
George N Romey Added Aug 19, 2017 - 3:09pm
Jeff the corporate jets will continue to fly.  GS will just hose some chump to make up the $100 mm.  These guys win even when they lose.
Eileen de Bruin Added Aug 20, 2017 - 2:38am
Jeff, George and Leroy, the guys who always win, yes. Yield at all and any cost to anyone else, mankind or the planet! Hard to regulate though especially after the deregulation decades since the eighties!
But it is a characteristic of the human condition, not just of our era.
Jeff, how could things be different, as in, in your view, regulated or fair or at least accountable?
Jeff Jackson Added Aug 20, 2017 - 8:46pm
If you play the stock market (and I do, by the way) you should not be able to buy or sell with prior knowledge of what another trader is buying or selling. The law will arrest you for trading upon knowledge of what another trader is doing, or is going to do. This is called "insider trading" and it is illegal. Because I might have a computer that is faster, detects a buy of BAC at $25 and so I buy at $24.90 and then instantly sell at $25.00 to the order I knew in advance was being placed there is little difference between that and insider trading; both trades are made with prior knowledge of a trade. I cannot take what I know another trader to be buying or selling and make trades based upon that knowledge.
From the internet: "Knight Capital sent millions of child orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes. Knight Capital took a pre-tax loss of $440 million. This caused Knight Capital's stock price to collapse, sending shares lower by over 70% from before the announcement. The nature of the Knight Capital's unusual trading activity was described as a "technology breakdown".
This is too dangerous, and, as noted can cause millions of dollars to disappear in less than a second. I'm all for high-tech trading, but there has to be some limits. The other thing is that the flash traders can cause the market to shut down, limiting whatever trades I wanted to make- the market should be free and not determined by people like that. And Knight had the stones to ask for their money back!
Eileen de Bruin Added Aug 21, 2017 - 2:41am
Jeff, Icannot see how a faster processor can be used as evidence for prosecution, I mean what is practicable and sensible here? If a racing car rushes through the amber light and goes without hindrance and an old consul ambles through and a ticket for driving error is issued, what then? 
In Terms of Knight Capital, who allowed them to get bailed out for their own shenanigans? The same system that bailed out the banks in the 2008 crash. 
What is your practical application here?
Jeff Jackson Added Aug 22, 2017 - 4:11am
Knight Capital had the stones to ask for their money back, but the SEC told them no, and Knight Capital was cut of for scrap. Ignore the speed issue. We have people making trades on what they know to be trades made by other traders, and acting on those trades before they are executed. In terms of ethical trading, these trades are made with insider knowledge of orders for trades. In my opinion, they are making trades on insider's knowledge. If they would make the trades after the ones they know to be executed, they would not make any money, because they make money based on insider information before the trades are executed.
The fast computer trades have already shut down the market once. The algorithms only need one small problem in them to set off a disaster in the markets, and the probability of that happening again is very high. We are walking into a disaster with our eyes wide open, fully aware that one small glitch will topple the market and set off a chain reaction that will cause millions of not billions of losses, let alone closing the markets for an indeterminate amount of time.
The market is playing with fire, and it is only a matter of time before a lot of (innocent) people get burned. I'm suggesting that we avoid this inevitable disaster. The practical application is that no one should be able to make a trade until known orders are executed, but again, they couldn't make money if they did it that way. When the disaster happens, there will be finger pointing, and hopefully, a lot of regulators will be fired, for allowing an impending disaster and making no provisions to stop it. This is like letting children play with guns.
Jeffry Gilbert Added Sep 1, 2017 - 4:02am
Take Bitcoin out of it.
Blockchain. That is the brilliance. Decentralized medium of exchange.
That's why the Rothschilds, owners of the world's central banking system are so vehemently against it. 
If blockchain is so inherently wrong why are the Winklevoss brothers investing so heavily in a decentralized version? Who are they fronting for? Why have the Chinese government spent so much on it? 
Leroy Added Apr 5, 2018 - 9:11pm
It's been a rollercoaster.  A lot of millennials will get burned.  I saw an article on ZH about an investor that had no idea that he owed taxes on the capital gains.  I wondered how that worked until a couple of months ago. 
The guy bought eight coins at $7,200 and sold them for $120,000.  He owes $50,000 in taxes.  The problem is that he has already blown all the money.  He's feeling the Bitter Bite of Bitcoin.