Get this: The real value of Bitcoin is ZERO

Friends, I don’t really have the time to write this piece… But the hype and the speculation and the ICO hysteria and all of the mystification and nurturing of utterly unsustainable ideas and belief-based systems for moronic monetary management is now too annoying for me to ignore. I’m not about to slash block chain as a technology, but Bitcoin as a currency or token of real, sustainable value. Surely, the paper bill in your pocket or the digital money in your bank account are not really carrying that full par value either (basically all modern economies are inflated), but it is not worth zero. And as long as it is worth something real, you and others will fight for it.

The defenders of Bitcoin are focusing on how the decentralised crypto currency is superior to any “normal” central bank controlled currency, and I will not argue against (nor for) that. It is an argument that doesn’t change the fact that other aspects of Bitcoin, built in to its genius mathematical scheme, are fundamentally flawed from an economical perspective. The most important of these aspects are the concepts of sunken cost; versus real, or liquid, value; versus speculative, or believed, value.

Any traditional currency will have a base of real, liquid value. To understand this, think about how money is created in a modern society and within any country or region. There used to be a gold standard, i.e. real gold backing the bills and coins in the economy. To some extent it still exists, but the precious metals held in the vaults of banks are far too little to back all the money in the system. So what else is there? When a bank gives you a loan on your house, new money is created, and your house is taken as collateral by the bank. The bank “holds” the real value to back the money that was just issued. This is the simplest example of how the creation of traditional money works, and there is really no need to go in to more complex scenarios to make my point. Of course, there is a lot of money created based on speculative value, especially when we get in to more advanced derivatives, and the traditional monetary policy systems can be exploited and misused (especially by the government) and is far from perfect.

But, in no sustainable monetary system anywhere is new money created based on sunken cost. Sunken cost are such incurred costs that can never be retrieved for any future generation of real value, such as electricity bills. (Are you now starting to get a feel for where this is going?) Banks never (rightfully) consider sunken cost when traditional money is created, because it is neither liquid (e.g. you can’t re-sell used electricity) nor speculative (e.g. used electricity is not magically going to bring future value, while stored electricity could).

Bitcoin’s value is based on two pillars: 1. The sunken cost of electricity used to mine and verify transactions, and 2. The speculative value that people will believe so much in the intrinsic technical qualities of the currency (for good or bad reasons, whichever is irrelevant) that demand for it will keep its value high. If you still don’t get why this is really very bad, consider what we are left with in a scenario where the monetary systems crash and we go back to barter trade. In the case of traditional money: Huge losses of speculative value for sure, but also a house, a car, a business with capabilities and assets, etc. In the case of Bitcoin: Huge losses of speculative value, but also a big pile of electricity bills that still needs to be paid. Umh, yeah, also lines of numbers of course, i.e. Bitcoins. Try to barter with those when shit goes down…

Warren Buffet famously wrote: “derivatives are financial weapons of mass destruction”, referring to the dangers of mistaking speculative value for real value (in his case valuation difficulties with derivatives). I would argue that ICOs are potentially far worse, because they undermine the very foundation of the concept of money, which is real value, and replace it with a soon widespread belief that sunken cost is a good thing. The idea that democratisation and decentralisation of monetary policy and minting is a good idea is also very dangerous, na?ve and totally without historic insight. In fact, one of the most notable losses of societal value and evolution in the history of mankind unravelled much due to a very decentralised and fragmented monetary policy and a move towards fully belief based currencies (in plural). The following closing quotes [with my comments in brackets] are from the book “Money and Man. A Survey of Monetary Experience” by Elgin Groseclose (University of Oklahoma Press):

The Mint Commissioners [e.g. ICOs] quickly assumed autocratic powers and after the last Punic War they began to stamp on the coins their own monograms rather than the insignia of the Republic. [Oh, monograms like, say, the Bitcoin B and the Ethereum crystal?] The authority they exercised was not easily to be surrendered, and because of their organization into a powerful guild, they were able to defy the emperors. [Check]

It is not an exaggeration to say that in the last half of the third century there existed no longer in the Roman Empire any money having an intrinsic value corresponding to its nominal value, not even a piece of brass or billon. [Zero real value + zero believed value = zero value of money as a system = total monetary/societal crash.]

No more fittingly can we close this chapter on the failure of the Romans to cope with money than by quoting the words of Antoninus Augustus, cited by Del Mar, "Money had more to do with the distemper of the Roman Empire than the Huns or the Vandals."

So, please please please! Get this: The real value of Bitcoin is ZERO!

Thank you and good night.