Another day, another central banker who totally doesn’t understand Bitcoin or cryptocurrency. Alan Greenspan has shouted his ignorance of the subject from the mountain tops, and hopefully the Bitcoin and crypto markets won’t react, or will go higher, to show that crypto investors understand fully that Greenspan simply is an old man who doesn’t get it.
This is truly amazing and I almost fell off my chair when I read his comments as they came through the crypto RSS feeds on my tech site.
Alan Greenspan Proves He Doesn’t Understand Bitcoin
So, none other than Mister Irrational Exuberance himself has decided to comment on Bitcoin.
I was wondering how long before a piece of Greenspan produced anti Bitcoin FUD would hit the news wires, and here is the mother of all ignorant statements by a well known central banker and economist.
I just want to point out a few places where his analogy breaks down.
Bitcoin is not a fiat currency like American Revolutionary War currency was.
Bitcoin IS revolutionary, but that’s where the similarity stops.
He is trying to say here that Bitcoin is only worth what people want to believe it’s worth and that it’s not really worth anything, sort of like that 18th century war money that he is comparing it to.
Well, yes there has to be an agreement by people that it is valuable and the demand is partially dictated by belief of value, but let’s look at how it’s not just what people want to believe that factors into this.
American Revolutionary War currency was not scarce.
The Continentals could print as much of it as they wanted, theoretically, and there was no hard limit. If they needed more, they printed it. We all know that government’s tendency do overprint money leads to inflation.
Bitcoin has a hard limit of something like 21 million coins, and apparently a few million have been lost so the true number is closer to 17 million. Scarcity mirrors assets like gold, where there is a limit to how much that you can mine and you can’t just make more of it at will. Scarcity keeps demand and value there.
The demand for Bitcoin is global, and the numbers of people who WANT it are astronomical, so there is actually pent up demand. It is being seen more as a store of value, much like gold, so people aren’t going to dump theirs willingly. If some dump and the price goes down, there will be someone there to buy the dip and make it go back up.
There are many possible factors to think that the value will keep rising even with corrections along the way.
We already mentioned scarcity as a value factor, but here I am talking about cost to produce.
What do you think it costs to produce paper fiat money?
Ink, paper, some labor and machinery…. engravers… for a government, the costs are small. They can print as much as they want when they want, at the cost of more inflation.
At least Revolutionary War money had some silver and gold backing. The current US Dollar is not pegged to gold or silver. Of course you can say “Full Faith and… blah blah … of the US Government… blah blah” but just like anything, when you print too much the value goes down. Of course most countries have gold and silver reserves, but the money is not on that standard anymore.
Bitcoin is not free. It may be virtual and reside on a computer network, but as more are produced, it gets harder to produce more, and this keeps spinning up the difficulty. This means that costlier hardware is needed to crack the cryptographic problems in order to create more, and this requires massive amounts of electric power, too. Unless you are running off a renewable power source like solar, this costs a lot.
As of late 2017, it costs John McAfee, who owns a Bitcoin mining company, about $2000 to create a single Bitcoin, so while the true cost is much less than the actual market cost (nice mining incentive), Bitcoin is NOT free to produce, not anyone can do it, and when you marry that to a hard upper limit, you get scarcity and intrinsic value of sorts.
Fiat has little of this. Gold and hard assets like precious metals and jewels do.
Here is where government and central banking shills like Greenspan are really afraid of Bitcoin and cryptocurrency.
Bitcoin and cryptocurrency is mostly decentralized, residing on a network that is global and impervious to total central control. Like the Internet, you whack a mole here, and another pops up there. Only a global EMP blast would or could kill it, and if that happened, there would be a LOT more to worry about than money. Also, if there were optical backups of the ledger, or copies that weren’t fried by the EMP, it could get back running when the computers were repaired or replaced. OF course this would be a minor disaster compared to the major disaster of something like that happening on a global scale.
So, we have a decentralized ledger that doesn’t need banks or middlemen to secure or exchange value between parties. Aside from the hacker problems, and there are countermeasures to keep yours safe, it works, and the banks and people like Greenspan and Jamie Dimon FEAR this more than anything.
It sort of makes their ilk obsolete.
So, to compare Bitcoin or crypto to American Revolutionary War currency is a pretty stupid comparison, even for Alan Greenspan. It is kind of like Jamie Dimon’s comparison of Bitcoin to the Dutch Tulip bulb bubble of the 17th century.
It kind of shows how panicked these vermin really are.
No one is saying that Bitcoin or Crypto are immune from disaster, but these weak comparisons, backed by a misunderstanding of what crypto is, are growing tiresome.
BUY and HODL!