Is Bitcoin A Scam? – Bitcoin USD (Cryptocurrency:BTC-USD)


In a recent article on CNBC, Jordan Belfort (also known as the “Wolf of Wall Street”) issued some dire warnings about Bitcoin (BTC-USD) (COIN) (OTCQX:GBTC).

“I was a scammer. I had it down to science, and it’s exactly what’s happening with Bitcoin.” “Central banks don’t want it, they’ve spent all this time trying to stop money laundering, why now allow something that’s anonymous and lends itself to making money-laundering easy?” “There’s a lot of really honest people who are going to get slaughtered.” “The whole thing is so stupid, these kids have gotten themselves so brainwashed.” “This thing is going to evaporate like a mirage.”

I disagree. In fact, I will show that points one and two are invalid. Additionally, without points one and two, points three, four and five won’t make much sense either.

Is Bitcoin a scam?

If it’s possible to reduce scams to a science, then it should be fairly easy to identify if Bitcoin is a scam, as Mr. Belfort suggests. In fact, Mr. Belfort appears to have given us the formula.

What is a scam?

Here’s an example of a scam provided by Mr. Belfort himself.

In order to manipulate markets, Belfort highlighted the need for demand. “Back in the day” he had an army of people calling around the country and the world persuading people to buy stocks he would later “dump” and profit off of. – CNBC

The scam that Mr. Belfort ran was intentionally established to defraud investors, centrally controlled, and operated in the shadows (except for the army of callers, that provided the necessary smokescreen). Let’s see if those things apply to Bitcoin.

Was Bitcoin created to defraud people?

Bitcoin was proposed by Satoshi Nakamoto as a peer-to-peer electronic cash system. Its purpose was to enable transactions between two parties without the need for a trusted third party. In this way, Bitcoin is both a payment network and a currency.

Bitcoin was not created to be an investment at all. It was based on the idea that it should be possible for individuals to transact with each other without needing a financial institution. Bitcoin could be seen as an alternative system to the current fiat system and central banking.

Satoshi Nakamoto left us this message in the first Bitcoin block ever mined.

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks – Bitcoin Genesis Block

Whether or not you agree with the philosophy of Satoshi Nakamoto, and that of the Cypherpunks and early Libertarian adopters, it is clear that this project was conceived as a technical solution (that also makes use of some clever low tech solutions) to a problem they were concerned about. That problem was the irresponsible expansion of the money supply to suit the needs of those in power and allow them to spend with no restraint.

In case you forgot, here’s the monetary base from the St. Louis Fed.

Image Source: Fred – St. Louis Fed

Since Satoshi wrote that message in 2009, our monetary base has grown by a factor of four in just nine years. Maybe he was on to something?

We don’t know if the current system will survive, or how long the failure will take if it does eventually fail. But it seems useful to me to have an alternative just in case. Nassim Nicholas Taleb said this:

It may fail but we now know how to do it – Foreword to the book by Saifedean Ammous “The Bitcoin Standard.”

Is Bitcoin centrally controlled?

In order to pull off a successful scam, Mr. Belfort had to make sure things went just as he wanted. He had to be in control, or the jig would be up. So, who’s in control of Bitcoin?

It turns out that power is shared among many groups in the Bitcoin network. There is no one in charge. Power is distributed among the participants in this way:

UsersCan choose which Bitcoin client and wallet to use. Can run a full node or light node if they want. Can reject software implementations they do not like. Can signal support by choosing which software they use. Can decide to leave Bitcoin for an altcoin if they want. Miners – such as Hut 8 Mining (OTCQX:HUTMF)Can choose which cryptocurrency they want to mine. Can choose which hardware they will use. Can use an existing mining pool, or create their own. Can signal their support by putting a comment in a block that they mine. Software EngineersCan write different clients to talk to the blockchain. Can add new features if they want. Can update the source code. Vote by writing the software they think is best. Can make powerful technical arguments to support changes to the protocol. Businesses (including exchanges)Can hire people to build applications that connect to the Bitcoin network. Can offer services that they think users want. Can offer support for services and software they like by using it at their company and making public statements of support in the media. Can raise money from outside the Bitcoin network (VCs and such). Are in the best position to create a PAC to push political reforms beneficial to Bitcoin Chip Makers (such as Bitmain)Can design…
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