Bitcoins are officially donkdown

[Dan Druff]

Sounds like hacking bitcoins is not even an illegal activity since most govt dont even consider it anything right?

felony computer trespass, damage over 5k.

interstate wire fraud.

conspiracy.

money laundering.

so on, so forth.

That pirateat40 guy who stole millions of dollars in bitcoin through a Ponzi scheme was criminally charged.

So, yes, stealing bitcoin is illegal.

[sonatine]

The Daily Dot is a notoriously shitty fringe news aggregation site with nothing new to say to anyone, but for them to come out swinging at Bitcoin like this represents a significant shift in hack media land...:

Why Bitcoin is a Ponzi scheme
By Gary North on January 11th, 2015

I hereby make a prediction: Bitcoins will go down in history as the most spectacular private Ponzi scheme in history. It will dwarf anything dreamed of by Bernard Madoff. (It will never rival Social Security, however.)

To explain my position, I must do two things. First, I will describe the economics of every Ponzi scheme. Second, I will explain the Austrian school of economics’ theory of the origin of money. My analysis is strictly economic. As far as I know, it is a legal scheme—and should be.

Ponzi economics
First, someone who no one has ever heard of before announces that he has discovered a way to make money. In the case of Bitcoin, the claim is literal. The creator literally made what he says is money, or will be money. He made this money out of digits. He made it out of nothing. Think “Federal Reserve wanna-be.”

Second, the individual claims that a particular market provides unexploited arbitrage opportunities. Something is selling too low. If you buy into the program now, the person running the scheme will be able to sell it high on your behalf. So, you will take advantage of the arbitrage opportunity.

Today, with high-speed trading, arbitrage opportunities last only for a few milliseconds seconds in widely traded markets. Arbitrage opportunities in the commodity futures market last for very short periods. But in the most leveraged and sophisticated of all the futures markets, namely, the currency futures markets, arbitrage opportunities last for so brief a period of time that only high-speed computer programs can take advantage of them.

The individual who sells the Ponzi scheme makes money by siphoning off a large share of the money coming in. In other words, he does not make the investment. But bitcoins are unique. The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits. Then, by telling his story, this individual created demand for all of the digits. The dollar-value of his share of the bitcoins appreciates with the other digits.

This strategy was described a generation ago by George Goodman, who wrote under the pseudonym of Adam Smith. You can find it in his book, Supermoney. This is done with financial corporations when individuals create a new business, retain a large share of the shares, and then sell the stock to the public. In this sense, Bitcoin is not a Ponzi scheme. It is simply a supermoney scheme.

The coins will never be the money of the future.
The Ponzi aspect of it comes when we look at the justification for bitcoins. They were sold on the basis that bitcoins will be an alternative currency. In other words, this will be the money of the future.

The coins will never be the money of the future.

The Austrian school’s theory of money’s origins
The best definition of money was first offered by Austrian economist Carl Menger in 1892. He said that money is the most marketable commodity. This definition was picked up by his disciple, Ludwig von Mises, who presented it in his book, The Theory of Money and Credit, published in 1912.

In that book, Mises argued, as Menger had before him, that money arises out of market transactions. That which did not function as money before, now functions as money. Something that was valuable for its own sake, most likely gold or silver, becomes valuable for another purpose, namely, the facilitation of exchange. People move from barter to a monetary economy. This increases the division of labor. As more and more people use the money commodity in order to facilitate exchanges, the division of labor extends, and as a result, people’s productivity increases. They can specialize. This specialization produces increased output per person, and therefore increased income per person.

In this scenario, something that had independent value becomes the focus of traders, who find that their ability to buy and sell increases as a result of the use of this commodity. Money develops out of market exchanges. Money was not used for its own sake initially, but it becomes widely used as money as a result of innumerable transactions within the economy. (I discuss this in my chapter in Theory of Money and Fiduciary Media, published by the Mises Institute in 2012.)

Here is the central fact of money. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production, because it increases the size of the market for all goods and services. No one says, “I think I’ll invent a new form of money.”

Note: any time you see a proposal of a new form of money, hold on to your old form of money.

The central benefit of money is its predictable purchasing power. A monetary commodity is not easy to produce. The cost of mining is high. Money is slowly adopted by a large number of participants. These participants use money as a means of exchange. Why? Because it was valuable the day before. They therefore expect it to be valuable the next day. Money has continuity of value. This is not intrinsic value. It is historic value. So, a person can buy money by the sale of goods or services, set this money aside, and re-enter the markets in a different location or in a different time, in the confidence that he will probably be able to buy a similar quantity of goods and services.

The money was siphoned off from the beginning.
Money is not accumulated for its own sake. It is accumulated to buy future goods and services. It is useful in the facilitation of exchange precisely because its market value varies little over time. It is the predictability of money’s market exchange rate that makes it money.

Bitcoins are not money
Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. This commodity is not being bought for its services as money. It is unpredictable to a fault.

Admittedly, those who got in early on this Ponzi scheme are doing very well. They will probably continue to do well for a time. As more people hear about this investment, which is justified in terms of its future potential as money, more people will buy it. Late-comers are not buying it because they understand its potential as future money, any more than the late investors in Charles Ponzi’s scheme thought they were buying into the arbitrage potential of foreign postage stamps. They are buying bitcoins because we are in the midst of a Ponzi scheme mania. They will continue to buy because they think this time it’s different.

This digital so-called money will not be used to facilitate exchange. Nobody is going to be getting rid of an asset that has moved from $2 to $1,000 in one year in order to buy pizzas. People want to hang onto it, refusing to sell, in the hopes that it will go to $2,000. This is the classic mark of Ponzi scheme psychology. People do not buy the investment for the benefits that the investment provides as an investment, in other words, because it is a capital asset. They buy it only because it has gone up in price. They expect this to continue.

Here is the Austrian school’s theory of money. People buy money because it has not fallen in price. But it has also not gone up in price much, either. It is predictable. Why? Because it is held in reserve by a large number of people over a large geographical area. It has become money through tradition, through experience, and through endless numbers of exchanges on a voluntary basis. It has proven itself in the marketplace as a means of facilitating exchange, and thereby as a means of preserving value over time. This is not the characteristic feature of a Bitcoin. People are not buying it to serve as money; they are buying it because they are in the midst of a mania, and they are gambling that the number of buyers will continue upward forever.

Here is an economic fact: The number of fools is limited. They are a scarce economic resource. As the price of bitcoins rises, more fools will be lured into the market. But this is a finite market.

In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Bitcoins are not an alternative currency. They are something you buy in the midst of a mania, and you will sell at some point in order to get back your money. You are thinking of buying bitcoins, not because bitcoins will serve as a means of exchange, as originally argued, but because you want to get back lots more money than you paid for them. In other words, bitcoins are not money; dollars are money. There has been no challenge from bitcoins to the reign of the dollar.

Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time.
Just say no
When you see an offer of an investment which inherently cannot possibly exist on its own merit, and yet lots of people are coming into the market to buy the item, you know, without any question, that this is a Ponzi scheme. People are buying into the program, not because of an arbitrage opportunity, and not because of a capital breakthrough in terms of technology, but because somebody else bought it cheaper yesterday. You buy it today, not because you think it is going to offer a stable value, but because you think you’re going to make a bundle of money when more people come into the market. Again, this is the classic mark of a Ponzi scheme.

In order for bitcoins to become an alternative currency, there will have to be millions of users of the currency. There will have to be tens of millions of users of the currency. They will have to develop in a market on their merit as money, not as an investment of dollars in order to get more dollars back. It would have to develop through exchange, not bought as an investment. In other words, the free market will have to adopt bitcoins as a means of increasing the division of labor.

Bitcoins are not increasing the division of labor. They are bought on the basis that somebody can get into a game of musical chairs. Instead of running out of chairs, leaving one person the great winter, the promoters started with a given number of chairs, and then they hoped that lots would come and bid on the chairs. “If we issue it, they will come.” This took place. The promoters creators are now very rich, as measured in dollars.

The fact of the matter is this: Bitcoins will not increase the division of labor by serving as an alternative currency. Inherently, bitcoins have made their mark, not on the basis of their stable value in exchange, that is, their value in increasing the division of labor in alternative markets that do not use the dollar. On the contrary, bitcoins are being purchased for one reason only: to get in on the deal. Buy low; sell high. Buy with what? Dollars. Sell for what? Dollars.

The mania has destroyed bitcoins’ use as money. Bitcoins are too volatile in price ever to serve as a currency.

Which is money: dollars or bitcoins? The answer is obvious: dollars.

This is a Ponzi scheme.

What goes up comes down
This will lead to the ruination of more people than any private Ponzi scheme in history. There will be the poor schnooks to get in at the end, paying perhaps thousands of dollars per bitcoin. Then the market will unravel. It will unravel for the same reason that all Ponzi schemes have unraveled: not enough new buyers. When the new buyers do not show up in great numbers, the holders will start to dump them. What went up in price, as measured in dollars, the real money, will come down in price.

This mania is going to be the stuff of best-selling books. This is going to be this stuff of Ph.D. dissertations in economics and psychology. This is going to be the equivalent of Mackay’s book, Extraordinary Popular Delusions and the Madness of Crowds.

Here is an economic fact: The number of fools is limited.
The interesting thing is the mania started among the most technologically sophisticated people on earth: computer techies. The techies who got in early are going to be fabulously wealthy… if they sell. But the poor schnooks who come in at the and are going to lose money. Collectively, this will be the greatest single scheme for lots of people losing money that we have ever seen. This Ponzi scheme is not illegal… yet. It will spread. It has gone viral.

Any time you buy an investment, you had better have an exit strategy. There is no exit strategy for bitcoins.

You must get out at the top, or you lose your shirt.

Conclusion
Anytime that anybody tries to sell you an investment, you have to look at it on this basis: “What are the future benefits that this investment will give final consumers?” In other words, how does it serve the final consumer? If it does not serve the final consumer, then it is a Ponzi scheme.

Bitcoins cannot serve the consumer. There is nothing to consume. The only way that bitcoins can work to the advantage of the consumer is that they provides the consumer with increased opportunities, based on bitcoins’ function as money. But the fundamental characteristic of money is its relatively stable purchasing power.

Bitcoins will never achieve this. It is a mania going up. It will be a mania coming down. It will not increase the division of labor, because people will recognize it as having been a Ponzi scheme, and they will not again buy it. They will not use it in exchange. Companies will not sell goods and services based on bitcoins. Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power.

Whenever somebody tries to sell you an investment that is based on the economic analysis of a market—an analysis that cannot possibly be true—do not buy the investment. This is a simple rule. I adhere to this rule.

There has to be an economic justification for a capital investment, and there is no economic justification of buying bitcoins as an alternative currency. That was how bitcoins were initially sold, and it was impossible as an economic concept from the beginning. The Austrian theory of money shows why.

I do not invest in capital that has no economic justification other than the greater fool theory. There are too few fools to keep the scheme going.

Bitcoins are not illegal. They should not be made illegal. They should merely be avoided.

Gary North is an American economic historian. You can follow his writing on current economic affairs and investment markets on his site. This article was republished with permission. You can read his followup article here.

Photo by Keith Yahl/Flickr (CC BY 2.0) | Remix by Jason Reed

- See more at: http://kernelmag.dailydot.com/issue-....6Q8irEGN.dpuf

[lol wow]

i had drinks with a columbian chick named monzie last night if that helps at all

[sonatine]

WOW SHE SOUNDS LEGIT YOU SHOULD PUT HER IN IST

[BetCheckBet]

That article is over a year old. I think I may have even linked to it earlier in the thread.

[sonatine]

That article is over a year old. I think I may have even linked to it earlier in the thread.

ok wait


By Gary North on January 11th, 2015


caveat: for dailydot.com to simply rebrand an old article with a new publication date would be totally in form for them

[lol wow]

sonatine are your eyes too fat to read also bro YEAR OLD ARTICLES BREH

[lol wow]

dont make me retract his fat eyes line betcheck you better have your ducks in a row on this

[Dan Druff]

Fallen under 250.

If it falls to 220, it will have completely negated all of the gains from the second Bitcoin boom.

[Dan Druff]

If it drops below 200, it might trigger a panic sell. Will be interesting to watch.

[zealanddonk]

If you realy want o hurt Micon, wait till it drops to 200, and then buy big.
That'll guarantee it'll rock down to 100 in a week.

[sonatine]

I was deffo stacking up at 220 but lol I fucking cant because USA.

[Dan Druff]

WE HAVE BREACHED 220!!!

Well, it briefly breached 220.

Now it's 221-222.

I am not sure how many people are paying attention to 220, as that was the ceiling of the first bitcoin boom, which then saw it crash back to the high 100s, and then a second boom took it as high as 1200.

It is thought that the 1200 was perhaps reached due to MtGox manipulating the market, perhaps by Mark Karpeles himself. (Evidence exists pointing to this, but that's another discussion for another time.)

Anyway, perhaps people remember this and are getting in at 220, feeling that bitcoin's "real" value has returned.

But I don't think that's the case. I think the real psychological barrier will be 200. If it breaches 200, I think we will either see a run-up back to 250 or so, or a massive crash. I actually think a massive crash is more likely, as seeing bitcoin back in the "1s" will send a lot of people into panic-sell mode, fearing that soon their bitcoins will be back to $17 or whatever.

Some guy at NASDAQ claimed that a bitcoin's "real" value is around $140, but I don't understand that. A bitcoin's real value is $0. The rest is perceived value, which can literally be anything from 0 to tens of thousands per coin. It's all about what the public THINKS they are worth and what they are likely to be worth.

I actually believe that bitcoin will ultimately become worthless or near-worthless, and people years from now will laugh at the 2010s bitcoin frenzy.

Cryptocurrency may have a future, but I don't think bitcoin is it.

I have about 1.5 coins right now, which I stupidly bought for way too much (though I limited it to 2 coins for exactly this reason). I think I am going to sell them shortly and be done with it.

[sonatine]

shit is beanie babies.

[Dan Druff]

I actually look forward to seeing the arrogant Winklevoss twins with egg all over their faces.

[Dan Druff]

A lot of miners are pulling out, too. They have determined that it's not worth mining given the return versus electricity costs.

[JUSTIFIEDhomicide]

I'm in when they're back at 5$ a piece where they belong with pogs and beanie babies


GTFO

[WillieMcFML]

the women of tinder talk bitcoin

http://imgur.com/a/33Qpw

[Dan Druff]

So it finally did it. 200 was quickly breached, and then it fell as far as $159, before inexplicably rebounding to the mid-180s.

Currently sitting at 185-187.

Would not be surprised to see 100 by 8am PST.

[Dan Druff]

Just unloaded my 1.04 BTC at 186 per coin. Had been sitting there for awhile so I said fuck it and sold.

Turned out I jumped the gun a bit. The "under 200 bounce" just occurred, and it's currently at 210.

Don't expect it to last.