Seven Lies Bitcoin Fans Will Tell Themselves. A Rebuttal, You Just Can't Make This Stuff Up!

I came across an article on Forbes the other day that looked like it might be interesting. Seven Lies Bitcoin Fans Tell Themselves (And Anyone Else Who Will Listen). I am a big fan of cryptocurrency so I was interested to see the other side of the issue. I believe that it is very important that we always check our opinions and try to poke holes in our own thinking so that we don't allow ourselves to get in a mental rut where we no longer can think rationally about a subject. I thought this would be a good opportunity to do so.

What I read was almost unbelievable. The author must be either trying to mislead people or he is really uninformed about not only bitcoin but economics in general! I decided that I would have a little fun today by looking at each of his 7 points and explaining the problems with his reasoning. Enjoy!

Introduction

For good or ill, Bitcoin is now a topic of interest to the mainstream press, as Bitcoin newbies near and far take notice.

Okay, so far so good...

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.

Okay, I can see his point but there are plenty of "experts" on both sides of the issue.

Just one problem: many of these fans are spouting misinformation – and worse, they believe their own nonsense.

Good point, most people are spouting misinformation all the time about the things they believe in.

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.

This seems interesting, maybe I'll get a new perspective on something I'm overlooking. Or at least a better way to explain bitcoin to people...

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.

What!? Is he really saying that we cannot try to find similarities between different things!!?? I can kind of see where he is coming from, we can't say "Bitcoin is exactly like other money, therefore it is legitimate" or other such claims, but it is perfectly acceptable to say that Bitcoin being used for illicit transactions is the same as USD being used for illicit transactions because it is the same!! That is a similarity between the two technologies.

This would be like this
Person 1 (Idiot): "Windows computers are being used for illegal activities so they are bad"
Person 2: "But Apple computers are being used for illegal activities too."
Person 1: "You are using the false equivalence fallacy because apple computers are not the same as windows computers"
Person 2: *Speechless, thinking "Can a person really be this stupid?"

Okay, lets move on. I don't think you need further proof that this point is ridiculous.

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.

Not so fast! crypto actually means secret or hidden. Also, "appallingly easy?" I just don't know what to say? It's just plain not true... He has to be referring to people hacking exchanges and stealing from the exchanges but that has nothing to do with bitcoin's security, it is the exchanges' security that is the problem. If you have bitcoin in a paper wallet, the only way to steal it is for someone to read your mind! 'Crypto' in 'cryptocurrency' is referring to 'Cryptography' which is the art or theory of writing codes. Bitcoin is a cryptocurrency because you use the bitcoin 'code' by having a public key (like a username) that people can use to send you money, and a private key (like a password) that is used to send money. The only way for someone to steal your bitcoin is to know your private key. You can keep it as secure or insecure as you choose but that does not mean that bitcoin is "appallingly easy to steal"

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.

There has been one vulnerability in bitcoin's code that was discovered and fixed back in 2009 when bitcoin was worth pennies (if I remember right) There has not been a single vulnerability since then!! Again, he must be confusing exchanges with bitcoin... a common mistake, but one that an "expert" should not make.

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.

Completely true and logical. Lets hope it stays that way.

Not so with Bitcoin. It’s more of a commodity that acts as a speculative vehicle, while exhibiting few of the properties of money.

I guess not... It is so with bitcoin. If you have 1 Bitcoin, in ten years what will it be worth? 1 Bitcoin. Sure deflation will likely increased it's value a lot, but 1 Bitcoin will always be 1 Bitcoin. Such is the nature of EVERYTHING!!

Oh, this is hurting my head!! The point he is trying to make is that bitcoin will not always have the same value compared the the USD. This is true, but does that mean that it is not money!! What about the Euro? It isn't always the same as the dollar so I guess it's not money either. Also, bitcoin exhibits ALL of the properties of money see this post for more about what the properties of money are.

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.

What!!? I am really trying to understand his point of view on this one but I am struggling.
So, he is saying that even though people are accepting it as money because it isn't exactly the same as the USD we can't say that it is money because that is a false equivalency?!

I hope you can see how ridiculous this is. Refer to Lie #1 if you need a refresher on his poor reasoning.

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.

I suffered through this article as well and I could write another post about all of his bad reasoning in that article if I wanted to. Here is an excerpt to show where he is coming from "The reason Bitcoin’s utility as a cryptocurrency is an unsatisfying explanation of its intrinsic value is because for all other types of assets, intrinsic value goes beyond the asset’s use as a medium of exchange."

This simply isn't the case! Most currencies get there value because they are mediums of exchange! Again, refer to my article if you want to know how currencies get their value. Gold, for example, gets its value as a good store of wealth, ability to spend, fungibility, usefulness in jewelry, art, electronics, dentistry, etc. While bitcoin gets its value as a store of wealth, a secure way to send funds to anyone, anywhere in the world, fungibility, ease of transacting and ability to spend.

He is basically saying that anything that gives something a use as "money" does not add value and therefore doesn't count towards it's intrinsic value. Well then by that reasoning, gold's value only comes from what it can be used for in jewelry, art, electronics, dentistry, etc. which is definitely not the case. Gold is way overpriced for only those uses.

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.

He must not have looked very hard because there were plenty of people that were shooting holes in his reasoning. But I guess he figured that no one would fact check him on that. He wasn't prepared for me!! 😈

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.

This is all basically true, it is based on the 'cost-of-production theory of value' which basically means that the value of something is based on how much it costs to produce it. While I believe that you can often calculate the value of something based on how much it costs to produce, I don't think that the value is derived from it's production.

I know it's a little confusing so you can skip this part if you don't care but basically, if this were true, If I spent $100 to make a widget, it means that the widget is worth $100. Is it? No! It's worth what people are willing to pay for it. Now if I made my living making widgets for $100 and selling them, you could reasonable assume that the value is around $100 dollars otherwise I would go out of business. But that is not how it got it's value. It got it's value by how useful it is for people.

So finding out how much miners are willing to spend to mine bitcoin would be a way to find out how much the miners think people will be willing to buy bitcoin in the near future but doesn't have some magical way to find out the "true 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.

Oh no! Not Lie #1 again! Please stop! You're embarrassing yourself!

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.

This is too much! So everytime it goes up it means it's a bubble everytime it goes down it means it's a bubble. So then is every market in the world a bubble, cuz last I checked, they all go up and down all the time.

A bubble is when people are paying more for something than it is really worth. From his reasoning (which I talked about in the last section) bitcoin is only worth $1000 so it would be in a bubble. I don't know what the intrinsic value of bitcoin really is but my guess is that we still have a ways to go. (Though I think something might replace bitcoin soon but that's a different subject) The hard part is, as our friend has been pointing out with Lie #1, there isn't anything that can completely compare to bitcoin, so we don't really know how to value cryptocurrencies yet. We can look at the network effect and the supply/demand but the truth is, this is all new. We'll have to figure it out before we know if it is in a bubble or not.

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 real money in order to realize a profit.

This is actually true for any investments, or any form of money for that matter. You could always lose it. You have to spend it to "lock in" your profits. Just like the longer you hold USD the more money you are losing (because of inflation)

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.

Refer to Lie #3 in case you're unclear on this point. Any time you spend bitcoin, you are "locking in" your gains. The nice part is, we don't have to sell it to USD. We can spend it on ANYTHING now. No need to use USD if you don't want to.

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.

Yeah... Moving on, I've already talked about this.

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.’

This is actually a great point. It wouldn't do me or you any good if this article simply said, "He's an idiot, therefore everything he says is false" As I pointed out, he actually was correct in a few places and we shouldn't throw out the baby with the bathwater. We have to look at the arguments and reasoning and discuss those, not the person who said them.

Whew! Made it to the end!

I have read many articles where the author has a few misunderstandings, especially about bitcoin or cryptocurrencies, but I don't think I've ever come across one that has been so wrong on so many points. I was just left speechless that this was actually posted on forbes let alone written or thought of in the first place. It would be funny if it weren't so sad...

I hope you were at least able to learn from his mistakes so that you don't make yourself look like such an idiot in your future posts. I will certainly be careful in what I post.

Bitcoin has it's problems, but this article discussed none of them.

I can't believe I spent so much time and energy because of this terrible article...

Well I hope you enjoy it at least. Let me know what you think, am I not being fair? Did I miss something? Tell me in the comments so that we can all learn together.

Thanks!