WHEN IT COMES TO BITCOIN, WHAT YOU SEE IS NOT WHAT YOU GET

?Every time the price of bitcoin drops, as it regularly does - because the price is driven by snakeoil salesmen and grifters in a constant pump-and-dump scam to bilk in the greedy and gullible – the Faithful tell you, price doesn’t matter.

As soon as it starts heading back up again – as its doing at the moment – the Faithful say, see, bitcoin is the future.

The facts suggest otherwise.

When the mysterious Satoshi Nakamoto first wrote about his blockchain almost a dozen years ago, he explained how a crypto coin called bitcoin would drive it. And, yes, at the time, there was serious interest.

Since, bitcoin as a blockchain engine has been abandoned. Late model blockchains either use more stable coins or, where parties inherently trust each other – as, say, two banks would – proof of work is not necessary and so there is no coin at all.

What’s left for the Faithful is a failed experiment, and a Noise Machine which broadcasts to the world that bitcoin really is relevant. Honestly, it is. Seriously, it’s an algorithm and you can always trust algorithms. Anyway, who wants dollars and inflation? Bitcoin is much better. Trust me.

The problem is, you can’t believe what the Noise Machine broadcasts because when it comes to bitcoin, what you see is not what you get.

The die was cast in May 2010 when a story went viral that someone had just bought two pizzas for bitcoins.A Florida programmer named Laszlo Hanvecz wanted to buy a couple of pies and, as the story goes, managed it with 10,000 bitcoins, then worth approximately $25.

The Faithful went wild, and still sing this song because for them, this was bitcoin conquering Everest.

Except... it didn’t happen that way.

No one at Hanvecz’s local pizza joint knew what bitcoins were. Or, for that matter was willing to accept them. The pizza guys wanted real money. Unfazed, and according to Hanvecz’s own recounting of the tale, he sent his bitcoins to a friend in the UK who then bought the pizzas for him over the phone with a credit card in dollars.

Ever since, the Noise Machine has been programmed never to let the truth get in the way of a good story.

For instance, this headline in several American newspapers: “Bitcoin Couple Travels the World Using Virtual Cash.”

Austin and Beccy Craig, recently married, had decided to go around the world only with bitcoins. Over a period of 101 days, from late July 2013 to the end of October, driving across the US from Provo, Utah, then traveling in Europe and in Asia, they claimed they paid for everything with bitcoin.

They told reporters it wasn’t impossible – and swore they never cheated – but admitted it was, “consistently inconvenient and occasionally frustrating.”

For instance, they said, whenever they found a supermarket where they could pay with bitcoins, they loaded up their car in case they didn’t find another one for several days. Even the simple act of buying gasoline took planning, and required driving miles out of their way, only to wind up paying with value added cards in dollars that they’d bought with bitcoins.

Which is not, strictly, the same thing as living on bitcoins.

Regrettably, because they were striving to be bitcoin only, they didn’t hang out at a lot of the famous attractions in Europe and Asia. Instead, they went to places where bitcoins were accepted. But, they said they had no trouble buying a pizza in New York with bitcoins. And while they went hungry the first night in Sweden, Mrs. Craig apparently managed to spend bitcoins in Singapore on a henna tattoo.

Next, writing in Forbes, journalist Kashmir Hill described “Living On Bitcoin For A Week” by telling her amusing story day-by-day. Among the things she learned were: 1) “It is possible to live on bitcoin in San Francisco for a week.” 2) “Bitcoin is hard to explain to people.” 3) “Bitcoiners are the new vegans.” 4) And, “Living on bitcoin is a great way to lose weight.”

Finally, journalist Hal Hodson wrote about a bitcoin-only day for New Scientist.

Driving from Somerville, Massachusetts to New York’s Wall Street, he stocked up on value added cards in dollars paid for with bitcoins, but used actual bitcoins to buy himself a Russian sauna in New Jersey and groceries in Brooklyn.

What surprised him was that in a city as big as New York, there are incredibly few places that wanted bitcoins. (That’s still true today.) “Throughout my trip the question ‘Do you take bitcoin?’ is generally met with puzzled looks.... When you can’t do much more than buy pizza in New York City, you know bitcoin still has a long way to go.”

How far is a long way?

With bitcoins you can buy a beer in Scotland; a burger in Australia; a rented hotel room from a travel agent in Rumania; a drink at a cocktail at a bar in Brazil; newly manicured nails in California; facial hair removal in Arkansas; a Russian language course in England; a website for your wedding pictures in France; a sailboat ride in Spain; liposuction in Florida; and yes, a henna tattoo in Singapore.

For what it’s worth, my dentist has a sign at his reception that says, “We Accept Bitcoin.” It’s been there for years. How many patients pay in bitcoins? The receptionist shrugs, “None.”

In 2014, the Noise Machine proclaimed that bitcoin could buy you a college education. “Major university now accepts bitcoins,”

Major meaning... Columbia? Harvard? Yale? The U? THE Ohio State? ‘Bama? Oxford? Cambridge? Nope. It was the University of Nicosia in Cyprus, student population 5000.

Please understand that I am not disparaging this school’s having become the first institution of higher education to welcome students bearing bitcoins. If nothing else, it earned them more publicity than they’ve ever had before, and helped them highlight several courses on offer, including a masters program in digital currencies.

But in an email exchange with Dr. Christos Vlachos, the University’s chief financial officer, he was honest enough to admit, “The number of students paying in bitcoin is small.”

“How small?”

“Small.”

I took that to mean one more than my dentist.

Next, if bitcoin headlines were to be taken at face value - “Lamborghini Dealership Starts Accepting Bitcoin” – you could have added a really fancy car to the list of possible purchases.

Newport Lamborghini in Costa Mesa, California sold a Tesla S roadster for $106,000 worth of bitcoins, and let the world know: “Sale Of An Electric Car With An Electric Currency.”

Close, but no cigar.

According to two managers I reached at the dealership, when a fellow from Florida rang to ask if he could buy a Tesla S with bitcoins, he was told, “No. We are not in the business of speculating on currency fluctuations. It’s the same answer anyone would get from us if he asked to pay for the car in Euros.”

It seems the buyer had been turned down a few times by other dealers who didn’t want to accept bitcoins, but Newport Lamborghini was savvy enough to understand they didn’t have to. They directed him to BitPay. The buyer gave BitPay bitcoins, and the car was paid for by BitPay in dollars.

Thanks to the publicity generated by that first sale, two weeks later, another bitcoin fan bought a yellow 2014 Lamborghini Gallardo for a few pennies shy of $210,000. Most of the press reported the sale as 216.8433 bitcoins, leaving out the BitPay and dollars part.

It was the same with another recent headline: “Bitcoin Breaks Out, You Can Now Pay the IRS in Crypto-currency.”

Except... you can’t.

The IRS does not accept crypto-currencies, any more than it accepts Albanian lek. The one and only thing the United States government accepts for payment of taxes is United States is legal tender and the one and only legal tender in the United States is US dollars.

What happens here is exactly what you’d expect to happen. A middleman takes your bitcoins, exchanges them and then pays the IRS on your behalf, in dollars. Which is, categorically, not the same thing as saying, “You Can Now Pay the IRS in Crypto-currency.”

Such distortions make people believe that bitcoin is more important than it really is.

Some years ago, The Wall Street Journal headlined a story, “Lake Tahoe Property Sells for $1.6 Million in Bitcoins.”

It seems an unnamed Silicon Valley entrepreneur had broken the “bought with bitcoin” record of 2739 btc for the 1.4-acre home. The estate agents who’d listed it – not surprisingly, in dollars - explained that using bitcoins for the transaction was the buyer’s idea. Only after they researched it, and realized they could put BitPay in the middle, did they agree. At no point was the seller or his broker ever actually exposed to bitcoins.

How is this is any different from someone offering to pay for a $1.6 million California home with Haitian gourde or Korean won that he’s turned into dollars?

I’m not even sure why this was a news story. Except that’s what the Noise Machine pumps out. Would it have been a story had the buyer actually plunked down Mexican pesos?

In downtown Las Vegas, two casinos made headlines saying they would “accept” bitcoins. The D and the Golden Gate decided to take bitcoins for goods and services, but not for playing at the tables. The small print added that all bitcoin transactions would go through BitPay.

A month later, the Noise Machine announced that California was about to make bitcoin “lawful money.” A bill, known as AB 129, was winding its way through various California Senate committees, after having been unanimously passed by the State Assembly.

To highlight this event, a widely circulated YouTube video from one of The Faithful detailed the new law by saying, with great authority, that California was awarding bitcoin the status of “legal tender.”

Again, not true. Declaring a currency to be “legal tender” is Constitutionally reserved for the federal government. But small facts never seem to bother the Noise Machine.

They applauded the news with: “These currencies had been banned in the state for some time, but this prohibition was overturned by those that believed a ban on digital currencies was outdated. The growing popularity of mobile commerce played a role in attracting support to the legislation, highlighting the fact that the way people are shopping for and purchasing products is beginning to change significantly.”

Not quite.

The new law merely reversed an out of date and almost forgotten 1870s statute that had, mistakenly, made “alternative payment methods” illegal.

Remember, we’re talking vintage 19th century alternative payment methods.

It had gone, basically, unnoticed for 140 years, the ban was never enforced and there doesn’t seem ever to have been a prosecution under the old law. Put simply, no one cared that alternative payment methods weren’t supposed to be used.

Which is why, for the state’s politicians, voting yes on this was a no-brainer. After all, California’s Silicon Valley is where so much work is being done on today’s alternative payment methods and many venture capitalists happen to make heavy-weight political contributions.

Signed into law by the governor, the bill officially redefines alternative payment methods as, “Digital currency, points, coupons or other objects of monetary value.”

In other words, by statute in California, bitcoin is akin to frequent flyer miles, supermarket loyalty cards, and credit card points.

Then there’s the story of my pal Patrick Byrne, former CEO and Chairman of Overstock.Com. 

Somebody convinced him there were pockets of bitcoin all over the place that couldn’t be spent anywhere. So he said, let’s sell them garden furniture. This was a marketing ploy. He announced, “Overstock will accept bitcoins.” The press loved it. But Overstock wasn’t “accepting” bitcoins because every sale had to through the middleman, Coinbase. What’s more, Patrick was smart enough to have negotiated with Coinbase that he wouldn’t have to pay a commission on the currency conversion. So “accepting” bitcoin didn’t cost him anything.

The very first day he racked up $133,000 worth of bitcoin driven sales from American customers. It looked like he was supporting the bitcoin community, so the bitcoin community supported him. Within three months, however, his bitcoin-driven sales were down to $7000 a day. Why? Because all those people who had pockets of bitcoin and no place to spend them, had now spent them. Next, he announced he’d accept bitcoin worldwide. His sales shot up to $8000 a day. But when they quickly fell, he said publicly, there is no international interest in bitcoin.

Before long, he filed a report with the SEC which received no media reporting whatsoever. He announced Overstock would hold 10% of all bitcoin sales in bitcoin. That was $700 a day. He said he would use that to pay his staff bonuses. In response, the staff apparently insisted he put a bitcoin ATM in the lobby of the building in Utah so they could cash out right away.

Byrne told me, on that $7000 a day of bitcoin-driven sales, he was saving his 3% Visa and Mastercard fees. That’s $210. Okay, $210 a day times 365 adds up. Except, he told the SEC that, in order to integrate $700 a day onto his books for tax purposes, it would cost him $400,000. Eventually, Patrick added, he’d probably have to spend another $400,000 to make his bookkeeping fully compatible. So, for $800,000 he could save $210 a day.

(I add that Byrne has since sold out of Overstock and, fearing an investigation into some of his business practices - but not necessarily related to bitcoin - he has since moved to a jurisdiction in the Pacific that does not have an extradition treaty with the US.)

Then there was the story that the New York Stock Exchange was now accepting bitcoin. Which was news to everyone at the NYSE. The Noise Machine had, as it tended to do, gotten it slightly wrong. The company Coinbase had taken a small stake in the company that owned the exchange’s Wall Street real estate.

When I wrote that even if I wanted to spend bitcoins, no one on my block accepted them, and that I happen to live on a very big block, one of The Faithful took issue with that. Calling himself “a serious bitcoiner,” he advised me to “wise up to the truth” which, he promised, I would find in the bitcoin entry on Wikipedia. He assured me it was the result of “thousands of people” adding information that I really needed to know.

So I checked. Instead of thousands, it turned out to be a few dozen and, doubting them, Wikipedia had stopped publishing outside entries to the bitcoin listing. Why? Unsubstantiated entries and unreliable information. 

In the wake of the Wiki-fan, another bitcoin stalwart challenged me, “You don’t have an Arby’s or Baskin Robbins or Burger King or McDonalds near you? They take bitcoin. You didn’t do your homework.”

Surprised, I picked up the phone and called the nearest outlets for all four – none of which are near me – and asked if they accepted bitcoins. No one answering the phone at any of the four knew what I was talking about.

Undeterred, I rang the four companies’ headquarters. I was told, no, Arby’s, B&R, BK and Mickey D’s were not accepting bitcoins.

It turned out that the fellow who’d challenged me was mistakenly referring to a cellphone app called Gyft.com that will sell you a bitcoin dominated value-added card. At the time, the only one of the four that accepted Gyft.com payments was Burger King.

So, yes, with Gyft.com you can fool yourself into thinking that you’re paying for a flame-broiled Double Whopper sandwich meal, which includes fries and a Coke, with bitcoins. But all you’re doing is paying for your lunch with dollars – because Burger King charges you in dollars – then putting bitcoins in the middle of the transaction, which is otherwise totally unnecessary.

Why would anyone want to do that? There is no monetary benefit, certainly not when you realize you’re adding conversion fees into the equation, going from a fiat currency to bitcoins then back to fiat. Nor is there any benefit of convenience.

One answer might be, some people who own bitcoins are trying to get rid of them anyway they can, paying for stuff with bitcoins that they would, otherwise, buy without bitcoins.

Do those same people then replenish their bitcoin stash, buying bitcoins with fiat, just to spend them for stuff priced in fiat?

The more I meet The Faithful, the more I get the impression that much of bitcoin spending is about making the statement, “Just because I can.”

That’s fine.

But... then what?

                            *****

Excerpted from BitCon: The Naked Truth About Bitcoin,

? Jeffrey Robinson 2015, 2020

?https://bitly.com/1u1cVBt

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