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The recent extraordinary runup and commensurate volatility in the price of Bitcoin has intensified global attention on the cybercurrency. For good or ill, Bitcoin is now a topic of interest to the mainstream press, as Bitcoin newbies near and far take notice.
Such newbies and reporters alike have nowhere to turn for information on Bitcoin than the established cadre of Bitcoin fans (some would say fanatics) who helped to drive its price to the stratosphere in the first place.
Just one problem: many of these fans are spouting misinformation – and worse, they believe their own nonsense.
For you fanatics (you know who you are) as well as the broader newbie audience suddenly interested in Bitcoin, here are some of the lies Bitcoin fans tell themselves – and how to avoid getting snookered yourself.
Lie #1: Bitcoin is Like Something Else
This fallacy is so prevalent, frankly, because Bitcoin really isn’t much like anything else. There are some similarities between Bitcoin and, say, the US dollar or gold or even tulips, but the differences far outweigh the similarities.
Drawing a false comparison between dissimilar things is an example of the false analogy, false comparison, or false equivalence fallacy, and there’s even a Wikipedia page that explains it.
Here is a common example: when I say that criminals use Bitcoin for illicit transactions, a common response is ‘well, criminals use US currency for illicit transactions as well, so you shouldn’t single out Bitcoin.’ This line of reasoning is fallacious, because Bitcoin and US currency are too dissimilar to draw such a conclusion.
Lie #2: Bitcoin is Secure
Bitcoin is a cryptocurrency and ‘crypto’ means secure, right? Not so fast. Bitcoin has proven appallingly easy to steal, and even easier to lose.
Security, after all, is like a game of whack-a-mole. Hit one vulnerability on the head and another pops up. There are still far too many moles all too happy to stick their heads through holes in the Bitcoin threat surface for my liking.
Lie #3: Bitcoin is Money
Take a $20 bill and put it under your mattress. Wait ten years and retrieve it. What is it worth? $20, of course. Sure, inflation will have likely reduced its value somewhat, but $20 will always be $20. Such is the nature of money.
Not so with Bitcoin. It’s more of a commodity that acts as a speculative vehicle, while exhibiting few of the properties of money.
At this point, Bitcoin fans are likely to point to the handful of merchants around the globe who accept Bitcoin as though it were money. My response: refer to Lie #1. The differences between Bitcoin and money far outweigh the similarities, so any equivalence is a false one.
Lie #4: Bitcoin has Intrinsic Value Outside of its Minability
I analyzed the question of Bitcoin’s intrinsic value in a previous article, concluding that its only intrinsic value (that is, value outside of its market value) is due to the fact that people have to mine it.
From the crickets I heard in response to that article, I surmised that people either didn’t understand my argument or didn’t want to believe it. So here’s a simple way of explaining this point.
Figures vary widely due to shifting hardware and electricity costs as well as economies of scale, but the cost of mining one Bitcoin is somewhere in the neighborhood of $800 to $1,500. Furthermore, all the Bitcoins now or in the future exist because someone mined them.
So when you buy a Bitcoin from a miner, you are essentially paying them to mine it – and it’s only worth the trouble for them if you’ll pay them more than it cost them.
Now, let’s say you want to sell that Bitcoin. Your asking price is what someone is willing to pay, which is what we call the market value. But even if no one wanted to buy your Bitcoin, it would still cost the original miner so much to mine it. That’s its intrinsic value.
Note that mining Bitcoin is very different from mining gold, say. Gold’s intrinsic value goes well beyond its minability, as it is desirable for many other reasons outside of its market value. Comparing Bitcoin mining to gold mining is, you guessed it, an example of Lie #1.
Lie #5: Bitcoin is Not in a Bubble
A Bitcoin’s intrinsic value is around $1,000 while its market value bounces around between $15,000 and $20,000 (or some other crazy number depending on when you’re reading this). The difference is pure speculation – one fool’s bet that a greater fool will be willing to buy that Bitcoin for more than the first fool paid for it.
Every move to the upside is more evidence of the bubble. Every profit-taking dip to the downside is yet more evidence there’s a bubble. Comparing the Bitcoin bubble to the dot-com bubble or the tulip bubble to draw conclusions about the behavior of bubbles is – once more – an example of Lie #1.
Lie #6: You’ve Made Money on the Bitcoin You’re Holding
Never lose sight of the difference between ‘paper profits’ and real profits. You have to sell your Bitcoin to get realmoney in order to realize a profit.
If Bitcoin were money itself then perhaps this wouldn’t be the case. Refer to Lie #3 in case you’re unclear on this point.
The more people decide to take their profits, the lower the price will drop. Since Bitcoin is in a bubble, it’s only a matter of time until its market value resets to a number closer to its intrinsic value. Unless, of course, you believe Lie #5.
Lie #7: I’m Full of Crap.
Not just me, of course, but any Bitcoin naysayer. Rest assured, whenever I poke my stick at Bitcoin, I get my share of flamers – people with no better argument than a personal attack on myself.
Such reasoning is itself fallacious, of course. It’s known as an ad hominem attack, and this fallacy also has its own Wikipedia page.
You might think I’d be upset with such ad hominem attacks. In reality, I welcome them, so bring them on.
The reason is simple: people mount ad hominem attacks because they have no better argument. Every time I get a flame, I say to myself, ‘here’s someone who cares deeply about their own point of view, but could not come up with a single non-fallacious argument to justify their perspective.’
In other words, they’re lying to themselves. Are you?
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