Bitcoin-Beware

Haadi Husain

Turn on any financial news network and you might see the effects that crypto-mania has had on society. After the rise (and fall) of Bitcoin, millions of investors have argued day-in and day-out about the value of blockchain technology and its place in our world. It was only in 2010 when Bitcoin was first used commercially when Laszlo Hanyecz purchased two Papa Johns’ pizzas for 10,000 Bitcoin, which was worth about $41 at the time. Well that must have been the most expensive pizza ever because 10,000 BTC is worth over $100 million dollars today. He could have bought 20,000 pizzas today with the exact same amount of Bitcoin. How does this kind of value discrepancy happen in only a few short years?

Firstly, I want to define what separates fiat currencies from cryptocurrencies. Fiat just means that the paper being printed has a stamp of approval from the licensing government. For the sake of simplicity, I am going to refer to money as paper. I know it as made out of cotton and linen but regardless it is still paper money right? Anyways, many countries used to back their currencies up with commodities such as gold and silver, but that strategy shifted when governments wanted more flexibility with how they could manipulate the economic system to avoid recessions and economic downturn. If you look into your wallet and (hopefully) see a dollar bill, that is still just a piece of paper at the end of the day. If the apocalypse began tomorrow, a bunch of green cotton and paper with George Washington’s face on it isn’t going to do anything for you. There is no intrinsic value to the actual paper itself. You can’t even eat it. The actual value comes from purchasing real things of value, such as soft drinks, a laptop, or a car. So then why does society seemingly loathe at people who have more green bills in their possession? After all, if you sold your entire house and everything you own, you would end up sitting in a stack of dollar bills with nothing of real value (unless you want to build a house made out of literal money lol). The only value the dollar bill holds is the exchange of value. It is a medium of exchange that evolved from the bartering system used hundreds of thousands of years ago. Yes, the value of the dollar does translate to the real world through purchasing power but that is only because modern society accepts it as one. If I created HaadiCoin right now, nobody would care because Walmart doesn’t accept HaadiCoin, Target doesn’t accept HaadiCoin, Tom Thumb doesn't accept HaadiCoin. The value of the US dollar is whatever you, your neighbour, your grandparents and the market says it should be. And the market can never lie. Fiat currency is essentially a massive groupthink – everyone believes a soda is worth… two US dollars, or 215 Yen, or 40 pesos, therefore it is such. Is fiat currency a facade? No, because the ease of use of X → Money → Y translates into I can trade a million lollipops (X) into a car (Y). If I go to a car dealership and offer them a million lollipops for a $50K car, and let’s assume the values are even, they would reject my offer. But if I came back with $50K in USD then I can purchase the car, even though the value of the lollipops and the value of the USD were completely equal. The ease of use through which dollars bills can be exchanged for skills and services are what gives it value. Why use paper instead of lollipops? Who knows? In theory, we could all be using lollipops or poker chips or whatever else you can think of as a means of exchange, but paper and coins won out in the end probably because they are easy to be produced and easy to transport.

If the US government collapsed though, we would all be left holding pieces of paper so the ulterior value we have assigned to the US dollar is all just in our heads – it is a massive psychological groupthink. Believing paper in it of itself has more value than its intrinsic value is as much of a facade as any, right? Therefore, is fiat currency worth anything? It just depends on how much people believe in it. Without a doubt though, we can confirm that the true intrinsic value of money is its ease of transfer with which we can use it to buy the things… though how much is that worth?

Getting even deeper into this, we can see that there are various currencies represented by various governments that assign the value of the currency itself. Remember, the actual paper has no intrinsic value, so currencies are essentially just ratings of their respective governments. For example, you need 5 pieces of paper of Turkish Lira to trade for 1 piece of paper of a US dollar. How does 1 green piece of paper trump 5 red pieces of paper? Because people believe that the US dollar is more trustworthy because of the US economy whereas the Turkish Lira is less valued because the Turkish economy is not as strong and therefore the currency may lose value in the future. In terms of people’s trust in certain currencies, I believe that is a facade. The perception is completely malleable therefore the value of the currency when compared to another currency is completely subjective and is just based on what everyone else thinks it should be. It’s just people saying, “My piece of paper is better than yours because our GDP grew 20%, our growth rate is very high, etc. etc. therefore you should give me 5 of your papers for 1 of mine.” I believe currency manipulation is kind of a charade because they are still just pieces of paper, but the market cannot lie so it makes their argument and the result (5 Liras = 1 dollar) as true as it can be. That’s why people trade currencies and make money off of Forex. Remember, even the concept of money itself is just based on it being a medium of exchange rather than its intrinsic value – the paper - so we are just building one idea on top of another. The facade and the truth are as real as any of us want it to be. Applying these hypotheses to the real market is where one can see how the currencies truly relate to one another based on their country, their government and their economy among other factors.

So, with Bitcoin, how can one assign a value to it? There is obviously ease of transfer. With blockchain you can send, receive and record transactions instantaneously. If you haven’t figured it out by now, the value of Bitcoin is whatever people want it to be. If everyone wants to pay $3 for a Bitcoin, then it will be $3. If people think its value is above $15K, so be it. Sounds like fiat currency, right? We, the market, are defining the value based on how it can be used now or how it can be used in the future. I personally believe that Bitcoin doesn’t offer anything that the US dollar doesn’t. You can track the US dollar as well through serial number and bank statements. You can go into a convenience store and buy your groceries with dollar bills. In fact, the medium of exchange aspect has already been established. Bitcoin doesn’t offer that. If I tried paying in Bitcoin at Walmart, they wouldn’t let me. Bitcoin is essentially someone trying to turn lollipops into a medium of exchange, but nobody is going to use it unless it brings something the US dollar doesn’t offer. The Darknet? Oh wow, I didn’t even think of that. Bitcoin has thrived on illegal marketplaces where one couldn’t use their bank information (aka the US dollar) to complete transactions. Besides the Darknet, Bitcoin isn’t very useful in my opinion. Yes, you can book on Expedia with Bitcoin. Cool. You can even buy a bike at a bike store that offers Bitcoin. Even cooler. Guess what? You can also book a flight and buy a bike using the US dollar. Bitcoin offers literally nothing the US dollar doesn’t already have. Sure, the anonymity is extremely useful when purchasing stuff on the back page of the Internet but how often does the general population even go there? If you want to use Bitcoin at any retailer you have to google if they even accept Bitcoin in the first place. My point is that Bitcoin is as useful as the dollar in the medium of exchange category, but the US dollar already has the system in place therefore Bitcoin is just fighting a losing battle. Like I said, it’s like trying to use lollipops at a car dealership. They’re going to look at you funny and then ask, “Do you have US dollars?”.

The tons of copycat cryptos – XRP, Ethereum, Litecoin – just prove my point that there is no unique idea being presented here. Like I said above, HaadiCoin doesn’t have any value. If I cut up a bunch of yellow circles from printer paper and say “Here is a new currency guys! Use it!” it’s not going to go anywhere. The same can be said for these cryptocurrencies except they are being done online so it seems as if there is a new and never seen before idea being implemented in all these technologies when in reality, it is just my neighbor cutting up purple pieces of paper and calling it DanCoin. Trying to make your currency be the victor out of all these cryptos is just people trying to profit off other for buying into their XYZ currency and guessing when the price will peak. Nothing wrong with making money, but the concept behind it is risky and there is no real tangible value. The massive number of cryptos on the market is just people throwing in their hat to try and see how many pennies they can get if X number of people decide to buy in and say “Yeah, sure people will use GeorgeCoin in the future.” In the end, it’s all arbitrary and I believe they are facades.

As for blockchain, which apparently is a revolutionary idea, I don’t see the appeal. For one, you can be just as accountable with money. Banks keep ledgers for a reason. If financial statements don’t add up, then it is reflected in the numbers. Sure, people will cheat the system, but in this era of accountability, cheaters generally get caught or the company suffers as a result. Regardless, barring hypotheticals, setting up a US dollar-based system with blockchain is another viable solution. If we could track every US dollar into a wallet, and then transfer money based on a decentralized system like Bitcoin, it could theoretically improve transparency within an economy. Regardless, as of now, I don’t see the appeal of blockchain when you can track money already. Perhaps I’m missing the real point of blockchain but if I am already calling out Bitcoin on being a bluff, blockchain falls underneath that accusation as well, even if the technology could be used in other areas of finance besides Bitcoin and cryptocurrency. Not impressed.

In case you haven’t gotten the hint on which side I’m on in the cryptocurrency arena, I am anti-crypto. As of today, 1 BTC is worth $10,615. We’ll see which way the price goes as more people investigate it and decide whether they think crypto-blockchain technology is worth this high of a price. As for me, I’m keeping my money out of it because I don’t believe in the “science” behind why it will revolutionize our society, change our financial system, and create a more open and honest banking system. I believe fiat currency already has all the benefits of cryptocurrency and the current price of Bitcoin is just a bubble just waiting to burst. I might even short Bitcoin myself. I should also mention that just because the idea is fundamentally wrong doesn’t mean more bozos won’t buy into it. If everyone jumps off a cliff, that doesn’t mean you should too, even if they have tons of anecdotes about buying low and selling high. I’d rather focus on safe investments that have a real tangible value behind them such as shares of a company. Regardless, the future is unpredictable, so we will see what financial system and currency the world decides to use. Until then, make some dinero and short BTC.