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Bitcoin is a Bitcon by Karl Denninger

A large article, but worth reading if you are considering Bitcoin and are interested in an alternative perspective.
BitCon: Don't
by Karl Denninger - Posted: 2013-03-30 17:44

Ok, I've been asked enough times, here it is -- my view and analysis of "Bitcoin", which I have taken to calling "Bitcon." That probably deserves an explanation....

Let's first define what an ideal currency would be. Currency serves two purposes; it allows me to express a preference for one good or service over another, and it allows me to express time preference (that is, when I acquire or consume a good or service.)
Unfortunately Bitcoin, as I will explain in detail, also does a*****-poor job of satisfying either of these requirements.

But before I get to that, I want to first demolish the argument for using it that is going around in various circles and media these days -- the idea that it is stateless (that is, without a State Sponsor) and this is somehow good, in that it allows the user to evade the tentacles of the State.

This is utterly false and, if you're foolish enough to believe it and are big enough to be worth making an example of you will eventually wind up in prison -- with certainty.
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Another question for the

Another question for the pro-Bitcoiner's.
What about taxes? How will the IRS deal with Bitcoin? Do you believe it to be out of the realm of taxation and if so, how long do you think that will last? I just wonder what the IRS would say during an audit about your investment in Bitcoin.

SteveMT's picture

As Denninger said, any profit made on Bitcoin is taxable.

Just like selling gold, silver, stocks, or gambling winnings, if a profit is made from the selling price, better declare the amount made and pay the taxes. There are no exceptions.

I would rather have

a Rai Stone at least I could plant flowers around my money. lol


Plus, it would be hard to steal or counterfeit. The down side would be putting it in my wallet. IMO

"We can see with our eyes, hear with our ears and feel with our touch, but we understand with our hearts."

I don't want

I don't want anyone using bitcoins, if they do not completely understand how it works, how current banking works, or how cryptography works. But I'll gladly take them off your hands if you have any, and don't want them. :D

Bitcoin success relies on people having such knowledge?

Talk about guaranteed failure.

Or is it that you're doing the rooster strut, claiming to have a superior knowledge of bitcoin that will allow you to clean up once those who don't wish to learn go ahead and buy bitcoin anyway?

Is that you, Madoff?


Seriously, though. What are the chances of such a faux-money going mainstream when almost no one will ever volunteer to learn about its particulars?


hear, hear.

From the 'Myths' list: "It's

From the 'Myths' list:

"It's a giant ponzi scheme

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose. Bitcoin has an expected win-win outcome. Early and present adopters profit from the rise in value as Bitcoins become better understood and in turn demanded by the public at large. All adopters benefit from the usefulness of a reliable and widely-accepted decentralized peer-to-peer currency."


All myths:

Bitcoin is a great idea. Gold

Bitcoin is a great idea. Gold and silver are like any other currency and can be manipulated too. If a meteor, filled with a super amount of gold crashed to earth it would make gold worthless. Another example: The US goes on a gold standard. China could buy tons on gold, then release it on the market to drive the price of gold down along with the gold backed US currency. Then China buys gold back cheap. Gold only has the advantage in being a currency because it has been recognized as a currency for thousands of years.

Watch The Money Masters on Youtube.

A currency based on population would be good, along with other competing currencies, gold, sliver, and bitcoin.

The US goes on a gold

The US goes on a gold standard. China could buy tons on gold, then release it on the market to drive the price of gold down along with the gold backed US currency. Then China buys gold back cheap.

This argument is widely spread under mainstream economists, but it is wrong to the core. It assumes static prices.
If China sold a large amount of his gold, the price wouldn't be the same for the whole transaction. After they sold half of it, the price already would have been dropped by a large amount. The same would happen in the different direction when they tried to buy it back.

At best, this would be a zero sum game for them.

SteveMT's picture

Gold is 19.3 times heavier than water.

If an asteroid "with a super amount of gold crashed to earth" think extinction level event. There would be no tomorrow. Bitcoin has already experienced two flash crashes, one less than one month ago when it dropped 23%. Were these crashes manipulation or just computer glitches? Either way, Bitcoin seems to be subject to the same market forces as anything else.

SteveMT's picture

O.K. Downvote facts.

These are just the facts.

Jefferson's picture


you the actual "son" of LibBerte? (member of the DP) I've heard him refer to his son/s living in Texas etc. I was just curious.

I am

...my father's son :) Hi, Jefferson.

There are some serious

There are some serious issues with Bitcoin and those who are willing to lie in order to hopefully make a quick buck. One of them is that every time a Bitcoin solicitor here is pegged down, they attempt to compare it to gold or silver.

Bitcoin is not gold. It is not a coin. It is not silver. It is not a gold coin which they use to represent it. Its not even paper. It is a series of invisible ones and zeros. It flys in the face of what a sound currency is. It is nothing.

great post

also, like your tagline.

Ad hominem right off the bat

Ad hominem right off the bat is a very poor start to an argument. I almost stopped reading.
"Hi, Bias. Nice to meet you."
Anyway, aren't libertarians supposed to be in favor of competing currencies? There aren't supposed to be any monopolies in a truly free (market, enterprise) society. Not one on force, or leadership, or money, or food, or labor, or energy... or degrees in underwater basket-weaving. So, why is this guy hating? Because he knew about Bitcoin WAY before most of us, back when it was valued in pennies. He's not very smart, otherwise he'd have made a major haul, like the rest of the first-comers who took an afternoon to try and understand the thing.

This writer fails to grasp that Bitcoin is MUCH more than just a currency, but let's stick with just that for a moment. Reading this gave me flashbacks to high school Econ class when pompous know-it-alls with B averages would get on a soapbox. His currency definition is infantile, and his anecdotal evidence supports the OPPOSITE of his argument, as he would hopefully realize upon gaining a proper understanding of Bitcoin.

I said earlier, it's more than a currency. Hold that thought.

What's a currency? Aristotle said it was a 'common measure of everything', and makes things more easily exchangeable by providing a reference for the exact comparability of any things. Just for review, for all our benefit as we have all surely encountered this knowledge already, the Four Characteristics of "good money," according to him, 1) Durability (bitcoin YES), 2) Portability (um, carry a veritable empire-sized fortune in your memory if you want to!), 3) Fungibility (how about EXACT divisibility to 1/100000000th), and 4) Intrinsic Value (how valuable would a thing be that never required you to have to trust any other party ever again for any transaction, and kept your transaction totally anonymous).

So it's obviously, quite possibly, the single greatest currency ever devised to this date in the history of civilization, but what else can it do?! It's a protocol, a payment system. A medium AND a means of exchange. It's the incredible mathematics and computer science that has no secrets, but perfect anonymity for all its users (so long as they so choose). Think about that... like a single bankless bank ledger, wide open for public view, denoting the perfectly exact quantities of the total supply, circulation, and transactions displayed at all times...

I mean, when I think about the implications, the more I learn about this thing... what it can do, what one can do with it... it's free living NOW.

Bottom Line: It has value NOW. It's working NOW. It's growing NOW. And if Europe is any indication ('merika too, but who's paying attn), the sky (100000BTC!?!) is the limit. Academia says that Psychology is the study of human behavior. LIE. Economics is, and this Easter Cyprus had their CometoJesus, and the rest of the West took notice. Where will people turn? The writing's on the wall.

SteveMT's picture

Is Bitcoin a fiat currency? What backs it up?

Is Bitcoin a value-backed currency? Can it stand on its own? Ad hominem attacks of just another fiat currency? If a country started printing its own fiat currency, what would everyone say? Answer: It's trash until proven otherwise. Then they would go on to say why. Isn't that what Denninger did?

These are the definitions of money:

Acceptability: In terms of a form of currency being accepted within society, money must be accepted by everyone in the economy. This acceptance is for the purpose of the exchange of money for goods and different types of services.

[Is Bitcoin accepted everywhere by everyone?]

Divisibility: This relates to money being easily divided into smaller denominations for transactional purposes. People will only need as much money as is necessary for their purchases, therefore it is necessary for money to be easily broken down for different types of transactions.

[Understand that with digital money there is no limit, but people have to accept it first before you can give them 0.0001 Bitcoins.]

Durability: This simply refers to the physical wear and use of money over a period of time. If some money is easily destroyed or damaged it is likely that it is fraudulent and therefore cannot be trusted.

[Gold is perfectly stable for hundreds of years under the ocean. Is Bitcoin durable like this? Your definition of durable means nothing when compared to the durability of gold.]

Limited supply: In order for money to retain its worth, there must be a type of limited supply. The more money that is in circulation the less it is valued by the economy.

[21 million maximum Bitcoins is an arbitrary number. That number can again be changed arbitrarily. There are specific tests to determine real from fake gold. Can Bitcoin be digitally counterfeited. I don't know, but could someone come up with fake Bitcoins?]

Portability: Quite simply it is necessary for money to be easily transported so that people can carry it around with them on a daily basis. This also allows for the ease of transaction so that money can be transferred from one place to another.

[With Bitcoin, you need a working computer, access to the web, and electricity. How portable really is Bitcoin? With gold you need transportation only. Going into the Amazon to trade with the natives, what would you take with you Bitcoin or gold?]

Uniformity: Depending on the different types of currency that are available, money within that specific currency must look the same. This also allows for money to be counted and measured accurately.

[Everyone know what an ounce of gold looks like. Bitcoin or 0.5 Bitcoin is not known.]

My additional definitions:

Recognizability: Anywhere in the world, people know gold. The same cannot be said for Bitcoin.

Stand-alone-ability: Gold is value based. It needs nothing else to work. The value is in the coin itself. Gold is the value. With Bitcoin, it cannot stand alone?


You have more to learn before you make such erroneous assertions. Either you didn't read my entire comment, or you haven't read enough about Bitcoin. Gold isn't all you (and many others) have cracked it up to be. It's not very portable, it's subject to manipulation (i.e. 'coin-clipping', speculation, etc), and it's being hoarded by various nation-states' treasuries and effectively taken out of circulation. What happens to its price when those massive hoards get circulated again, like say if the whole world (or large swaths) went to a gold-backing? I used be huge on gold, but as I saw the hands it was flooding into over the past 5 years and the pump and dump stains on those hands, I grew wary. I'm not against metals by any stretch, but why aren't competing currencies with near limitless applicability and availability getting more play? Because the status quo can't survive if too many people experience life outside the box, and metals are not 'outside the box'. Even we libertarians, for all our awakenedness, are still victims of control paradigms. Bitcoin is skyrocketing in value, and the haters will eat their words once they finally (if ever...) come to an ACTUAL understanding of what it is. Ask more questions (you know, the ones you're ignoring while jumping to confirm your bias... ask those) before you make up your mind.

Not that I dont think Bitcoin

Not that I dont think Bitcoin has its place... but we have Rothbard, Ron Paul, Tom Woods, Peter klien etc etc.... what currency economists have come out for bitcoin besides saying it is interesting and worth a shot... never saying it is the ballpark winner.. that is silver. So, this bla bla bla we havnet looked into bitcoin... plz we study money... we have already analyzed bitcoin years ago

SteveMT's picture

Alright, I'll ask more questions. Is Bitcoin being pumped-up?

Is Bitcoin now being pumped-up for a dump just like metals have been in the past? Is the Bitcoin bubble about to burst? Want is the difference with pumping-up anything, enticing people in, and then bursting that bubble?




Until my handlers say its ok, Tips & Donations accepted here :)


and btw: i am in absolutely no way associated with anyone from the pastebin link. I just ran across it while learning about this stuff.

another good question...

Watching market indicators and global financial news can answer this question. Not to mention, the fundamental design and structure of the bitcoin protocol itself...

SteveMT's picture

Do the two previous Bitcoin flash crashes concern you?

The most recent crash occurred less than one month ago. These flash crashes show that the Bitcoin market can be manipulated as much as any other market. There is no doubt that a third one can happen.

Bitcoin 'Glitch' Sparks 23% Flash Crash

Bitcoin’s Flash Crash [to zero]
Jun 22, 2011, 6:00 AM

they're very interesting...

definitely worth noting/watching. There will be more corrections, to be sure, but I see no reason why BTC won't climb out of those tumbles and reach even far greater heights. $300+... even $3000+!?! It's gaining momentum every day.

SteveMT's picture

Likewise, I don't see why gold & silver won't do better either.

They have the historical track record. I'm concerned about the piling-on effect right now with Bitcoin. It could be a setup/pump-and-dump. Be cautious is my recommendation. Peace.

I'd say

Bitcoin is accepted by a wider audience (online anyways) in only 4 years than gold is. I can basically buy anything I want online with Bitcoin. Gold not so much. Sure I can get a tribes person from the amazon to accept it, but I don't plan on going there to buy anything. I'd rather amazon.com. I really liked the e-gold idea, but as we've seen that doesnt' fly with the feds. Bitcoin is a great way to transfer value from one end of the world to another quickly.

Comparing the 2 is like apples and oranges. Gold is great and everyone should have it. Bitcoin is great for doing transactions in this technological world we are all immersed in.

Bump for the use of

Bump for the use of reason...

e-gold... ouch.

I cannot disagree with what you've said

but I am far from a bitcoin advocate. I'm trying to figure it out and be cautious but I also see great potential.

The only thing you as well as the advocates are forgetting is the Bitcoins and Gold are just different.

Just like FRNs are different from both.

FRNs try to be gold and try to be digital currency. And they suck at both.

I could foresee a world where physical gold and digital currency live side by side.

No bitcoins are not as durable as gold, but gold is not as easily transferable as bitcoins.

Each have their benefits and weaknesses no matter what definition you choose for money or currency.

I still think bitcoin will crash. At this point its in the best interest of the ECB and EU to make it happen, in my opinion. But in the end I see bitcoin or a better competitor as the future for a universal payment system.