I’m not claiming to be any kind of Bitcoin expert.  I don’t know much… after all, I’ve been trapped in a block of ice all these years[1].  In particular, I have no idea how Bitcoin (or equivalent) can be considered a “currency.”

  • When you have a fixed asset where someone keeps taking a fractional transaction cost, eventually, the users end up with next to nothing and the processors end up with most of the asset. A long time ago, my father and I were sitting around the fire cooking our mammoth meat, and I described to him how poker at a casino worked.  Everyone sat at the table with a certain amount of money, and the casino would take 5% of the pot on every hand.  My contention was that since I was playing against the other players, this is a game that could be beatable.  He thought about it for a second and commented that if you have a contained game where a participant took a small percentage of every hand, that in the long run, that participant (and one “winner”) would end up with 100% of the money.  No matter how gigantic the mound of sand, taking a scoopful every time will cause the mound to disappear over time.  The number of Bitcoins are fixed and the computers take a small transactions cost (via a proof of work system) on every transaction.  Someone explain to my tiny Cro-Magnon brain how the processors don’t end up with most of the money after an infinite number of transactions.
  • The “fractional” transaction cost is not so fractional. I have seen some articles related to how running proof of work servers have become so expensive that they need to locate near hydroelectric dams to get low enough costs.  Apparently the facilities use so much energy that they can be environmentally unfriendly.  At the highs, one Bitcoin transaction cost over $20.  I suppose Bitcoin could be cheaper for larger transactions than the price-fixing 2.9% rates charged by Visa and Mastercard.  But I’m not sure I want to send my buddy the $5 I owe him via Bitcoin.  Call me a simpleton, but I believe there are many more smaller transactions on the planet than larger ones.  If a crypto currency can only be economically viable for larger transactions, that’s not much of a currency.
  • There seems to be large ($100+mm) security breaches all the time. I would prefer to have my wallet stolen for $100 in hard currency, than have the $100K in my account stolen.  You can call this “growing pains” but I’m pretty sure my bank deposits are FDIC insured, and that I am not liable for fraudulent Visa charges.
  • Bitcoin transactions can take about 10 minutes. I’m sure there are other crypto-currencies that are faster.  But when the cashier at the checkout line has to do 50 jumping jacks and then run around the parking lot (“proof of work”) before they can ring you up, the checkout line is never going to be fast.
  • Valuing the “cryto-currency” market at the same order of magnitude as gold is idiotic. The argument I seem to hear all the time is that the value of all gold is on the order of $6 trillion, so you could argue that Bitcoin should be worth about the same.  You want to compare something with little value, to something that has had monetary and cultural value for thousands (if not tens of thousands) of years?  Wat?!?  Did my brain not thaw completely?  I’m not a big believer in gold.  Jewelry is crap.  But if someone offered me $100K in gold or $100K in Bitcoin, I don’t have to think twice about taking the gold.  Gold still has value in cultural and industrial applications.  Tulips also have an intrinsic value.  Bitcoin has ZERO intrinsic value – it’s just a number on a ledger.  Just because it’s on multiple ledgers doesn’t give it value.
  • Thinking that governments won’t get their share if they want it is naïve. Remember the Silk Road guy?  I’m pretty sure they got him.  If you linked your bank account to your Bitcoin account (so that you can say… withdraw some funds), I’m pretty sure they can track you down.  You’re just not big enough for the governments to care (for now).  That could change with just one piece of legislation or one deal with an exchange.

What do I know?  I’m just a caveman that’s been frozen in a block of ice for tens of thousands of years.  I’m certain that eventually, we will have a real cryptocurrency as a way of transacting efficiently and quickly online, without getting robbed by Visa, Mastercard, AMEX, etc.  People are mistaking the utopian notion of a digital currency with Bitcoin.  The notion of a cryto-currency based on blockchain frightens and confuses me.  I may just be a caveman, but I do know this… Bitcoin is not that utopian solution.

[1] For new readers, I occasionally do a spoof of Saturday Night Live’s Unfrozen Caveman Lawyer sketch when something occurs that blatantly defies basic common sense.