3 Great Myths About Bitcoin
And lots of other great stuff in Issue No. 1 !
Welcome to the inaugural issue of The Bitcoin Files weekly newsletter! Each week I’ll bring you the great stories, news and features to keep you up to date and inform you about everything in the world of Bitcoin. We’ll have a little fun, too. Congratulations for subscribing and showing your commitment to the Bitcoin community. Please share with your Bitcoiner friends, and future-coiners!
Bitcoin Myth No.1: Bitcoin is a Ponzi Scheme
Bernie Madoff, considered the biggest Ponzi schemer in history, passed away just three weeks ago, in federal prison. Madoff was convicted of running a scheme that defrauded investors out of billions. Charles Ponzi, for whom these capers are named, scammed investors in the Boston area out of $20 million in the 1920’s. These plots shared many important characteristics, many that are included in the SEC’s official definition of a Ponzi. Bitcoin, however, doesn’t share these traits.
Part of the SEC’s definition of a Ponzi Scheme: “an investment fraud that pays existing investors with funds collected from new investors. Organizers promise to invest money and generate high returns with little risk.” Organizers “may keep some for themselves.” “Red flags: overly consistent returns, secretive and complex strategies, issues with paperwork, guaranteed returns, account statement errors.”
How does this definition stack up when applied to Bitcoin? Let’s examine:
1. Secrecy – Nope, Bitcoin is open source, public, transparent, distributed around the world, and can be audited by anyone. Polar opposite of a Ponzi. Every line of Bitcoin code is known, and no one can change it. Bitcoin relies on verification from the network, and as such, trust in a central authority is not needed. A big part of its appeal.
2. Investment returns – high, guaranteed, and consistent? None of these is promised with Bitcoin. No returns or dividends were promised by Satoshi Nakamoto, the pseudonymous creator of the Bitcoin code. Further, its price has been volatile, not consistent. Satoshi rarely mentioned financial gains with Bitcoin, focusing more on freedom and transparency.
3. Organizers skimming funds – There is no central authority over Bitcoin, as it is totally distributed and peer-to-peer. Bitcoin exchanges involve central authority, but not the Bitcoin ledger itself. Satoshi granted himself no unique advantage in mining Bitcoins more easily than anyone else, in stark contrast to the many so-called “alt coins” out there. Satoshi mined nearly one million Bitcoins, which could have been cashed out for billions of dollars in profit. However, to this day, the bulk of his coins have not moved.
When you hear someone say that “Bitcoin is just a Ponzi scheme,” remember, there is no Charles Ponzi of Bitcoin, no returns were ever promised, and no central authority figure “Madoff” with anybody’s investment. Pun totally intended.
Bitcoin Myth No.2: Bitcoin is the Currency of Criminals
“Oh, Bitcoin, that’s money that drug dealers use, right?”
I wish I had a satoshi for every time I’ve heard that one. Seriously, this one is such a false narrative. One need only look to the numbers. And take the word of experts.
According to a 2019 Chainalysis report, criminal activity represented only 2.1% of all cryptocurrency transaction volume. It 2020, illicit activities had dropped to only .34%. A microscopic fraction of all crypto activity.
Criminal actions conducted through the traditional banking system amounted to 2-4% of global GDP, significantly more than with crypto.
Concern over the illicit use of Bitcoin is “significantly overstated,” per Michael Morrell, former acting CIA Director.
“Cases of laundering through cryptocurrencies remain relatively small compared to volumes of cash laundered through traditional methods,” said a 2020 report from Society for Worldwide Interbank Telecommunication.
Even US Treasury Secretary Janet Yellen thinks that crypto is used “mainly for illicit financing.” She is off base and uninformed. You can tell her I said that. The infamous dark web marketplace “Silk Road” was busted many years ago. Crypto, and Bitcoin in particular, shouldn’t still carry that reputation as a currency for criminals.
Bitcoin Myth No. 3: Bitcoin is Subject to Fraud and Hacking
Bitcoin has never been hacked.
Your bank has been hacked. Brokerage firms have been hacked. Crypto exchanges have been hacked. The blockchain ledger on which Bitcoin lives has never been hacked. Twelve years now. It was designed that way.
The Bitcoin blockchain ledger is public, transparent, auditable, and is considered immutable. Since it is entirely a peer-to-peer system, it is described as being “decentralized.” There is no central point of control. And as such, there is no central point of failure. Blockchain ledgers are constantly reviewed by the users, and all transactions added to the block must be verified. That’s what Bitcoin mining software is constantly doing.
Famously, the Mt. Gox crypto exchange was hacked in 2014, resulting in the loss of 850,000 Bitcoins. (Mt Gox had gotten that moniker from “Magic The Gathering Online eXchange.”) The Bitcoin ledger, however, was not hacked. Additionally, the exchanges themselves are now much larger, much more stable, and much more highly regulated than exchanges in the early days of Bitcoin. Most are also highly insured against fraud.
Podcast Review of the Week:
“What Bitcoin Did” with Peter McCormack
What Bitcoin Did is one of the most popular finance and investing podcasts out there. Peter McCormack, speaking from Bedford in the UK, interviews some of the greatest names in Bitcoin. Recent episodes have featured Robert Breedlove, Willy Woo, Dan Held, Lyn Alden and Preston Pysh, to name a few. Rock stars in the Bitcoin space. Top-notch guests with amazing info to share. The show debuted in 2017, and over 200 episodes have aired to date.
Peter’s show is always entertaining, as he has shared his tales of the COVID lockdowns in the UK, of having his bank account closed for being involved in crypto, and many more. (He’s not too fond of Lloyd’s Bank.) Expect some discussions on personal freedoms, the virus and vaccines, and some good-natured trolling of gold proponent Peter Schiff.
I just had a chance to listen to Peter’s podcast episode with Dan Held from Kraken, and it’s one of the best he’s put out. Dan and Peter get into a great discussion about a possible Bitcoin “Super Cycle.” Don’t miss it, well worth your time. Peter will also be dishing out material from his swing through the US, culminating with his appearance at Bitcoin 2021 in Miami. That takes place June 3 - 5. Warning: Pete’s not shy about dissing American culture.
The show recorded 1 million downloads in the month of April and scores a 4.9/5 rating on Apple Podcasts. Unusually, McCormack shares his income and expense figures for his business, and he also encourages differences of opinion from guests. Likes to mix it up.
Come for the Bitcoin knowledge, stay for the entertainment.
https://www.whatbitcoindid.com/
This Week in Bitcoin History:
May 5, 2018 - Warren Buffett, legendary stock market investor, famously declares, in an interview with Fox Business’ Liz Claman, that Bitcoin is “probably Rat Poison Squared.” Buffett’s associate Charlie Munger had previously termed Bitcoin to be “Rat Poison.” Bitcoin’s price on that day was $9,858. It’s grown almost six-fold since.
Bitcoin Fact of the Week:
On this day in 2016, one whole Bitcoin could be bought for just $237. Woulda, coulda, shoulda.
Bitcoin Tweet of the Week:
Issue No. 1 May 7, 2021
Rick Mulvey is a CPA, forensic accountant and crypto consultant. He writes about all things Bitcoin, runs marathons, yells at the Yankees and Giants, and tries to make homemade wine.
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