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.