The ex-CEO of Paypal – and of Intuit – is insistent that Bitcoin is simply a grand scam, a pump and dump, even a Ponzi scheme. The bit that’s he missed being that this doesn’t mean that it’s valueless, not at all. There’s a value to experimentation, that’s actually how the world advances. And it’s only once something has been tried, blown up and the rubble cleared that we find out what that value might be:
I’m tired of saying, “Be careful, it’s speculative.” Then, “Be careful, it’s gambling.” Then, “Be careful, it’s a bubble.” Okay, I’ll say it: Bitcoin is a scam.
In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters “pump” up the price of a security creating a speculative frenzy, then “dump” some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen.
The losers are ill-informed buyers caught up in the spiral of greed. The result is a massive transfer of wealth from ordinary families to internet promoters. And “massive” is a massive understatement — 1,500 different cryptocurrencies now register over $300 billion of “value.”
Hmm, well, OK. Who knew that being able to email money to people was going to be so valuable? After all, we already had a banking system to handle transfers, didn’t we?
Bitcoin is the greatest scam in history and is nothing more than a “colossal pump-and-dump scheme.” That’s what Bill Harris, the founding CEO of PayPal and former CEO of Intuit, wrote in a blistering takedown of the world’s largest cryptocurrency by market cap.
So, let us just take all of this at face value. Yup, it’s a scam, a pump and dump. Does it still have value? Sure it does.
Note what is not being said – not by me at least – that we’ve proof that a Bitcoin itself has a value. There’s the obvious tautology that someone will pay you for one therefore it has a value. What he means is that the value is going to trend to zero real soon now. My point is a little different, which is that even if that second is indeed true then the whole game still has a value.
for this is how we get richer. What can be done changes over time. What people want to have done changes over time. We want a method of working through the two sets of options. And the outcome is of value. Even “No, don’t do that” is a valuable answer about the world. As with the pain of putting your hand in the fire – it’s a valuable even if unhappy experience.
This is true of all economic experimentation. Sure, that socialist idea of shooting all the bright people first didn’t work out well but we do indeed still have that knowledge of looking at the rubble in 1989 and resolving never to do that again. John Law’s Mississippi Company is a great warning not to fall for the Modern Monetary Theory loons.
Bit coin might have some interesting technical value as a precursor to sensible uses of the blockchain in asset registration for example. But even if it doesn’t, even if it all goes “poof” tomorrow, it’s still a valuable experiment. Or as we might put it, the value of Bitcoin has pretty much nothing to do with the value of a Bitcoin.