Promoters claim bitcoin is a new type of money, reduces transaction costs by abandoning intermediaries, and will become a safe asset that they call “digital gold.” The bitcoin network, in fact, is a game of chance subject to existing gambling regulations.
Economic theory states that money should reduce transaction costs for payments, loans, and relative valuations, which require a stable value. The extreme price volatility and the high transaction costs – especially the time component – make bitcoin almost useless as money. Bitcoin increases, instead of reduces, transaction costs. Furthermore, an intermediary exists – the miner – who charges a transaction fee. Finally, the bitcoin system has no responsible issuer. So, if the system breaks down, holders have nobody from whom to claim – or to whom they assign blame.
The fundamental value of assets is based on their cash flow or utility, which applies to shares, bonds, real estate, and intellectual property. Gold is the best-known store of value and a hedge against financial crisis and inflation. Bitcoin has no cash flow or utility, and statistics show that it is no hedge against anything. It is, in fact, pro-cyclical and its three crashes of more than 50 per cent, one in 2018 and two in 2021, are unmatched by any of the main fiat currencies in the last 50 years.
Bitcoin has no intrinsic value and is not anything at all like digital gold. Bitcoin is an open Ponzi scheme. The Ponzi is “open” since it is public knowledge that there are no assets at all backing a bitcoin. To the promoters of bitcoin, the lack of assets is “a feature and not a bug.” The lack of assets makes the price more volatile and, therefore, bitcoin more exciting to trade. The main function of the bitcoin network is simply unlicensed gambling.
Although bitcoin is nothing other than a public and decentralised ledger of accounts and transactions, the bitcoin network and its promoters have been very successful in increasing the market value of a bitcoin from $10 to $45,000 in 11 years.
- distracting investors from which functions bitcoin has or does not have;
- directing attention to irrelevant technobabble; and
- manipulating trade and prices in the bitcoin market.
The marketing of a strong brand and visual illusions in the form of physical glittering coins make the impression that bitcoin is something valuable. The average investor is succumbing to these successful methods and risks their house, savings, and pension.
Bitcoin is also used for criminal activities such as ransomware payments, tax evasion, and money laundering. The bitcoin network consumes vast amounts of electricity and critical advanced computer chips, which consumption creates negative externalities in the form of higher prices and shortages in other sectors.
Bitcoin is a game of chance similar to betting on beating the point spread in professional football: one is betting on how others believe that the game will end. With no fundamental function – not even providing governments with tax revenue specifically due to the unlicensed game of chance that bitcoin really is – bitcoin’s actual value for society is negative.
Before there is more damage to the public, gambling regulators can immediately investigate — under their existing laws — those who operate the bitcoin network and ecosystem. Such operators include bitcoin miners, cryptocurrency exchanges, bitcoin funds, and investment banks, each of whom takes a cut of each transaction and, thus, may be acting as The House in a global gambling enterprise.
Bob Seeman is the author of an authoritative critique of bitcoin, The Coinmen; Bitcoin Exposed He is a Co-founder of RIWI Corp., a data analytics company, speaker, electrical engineer, California attorney, and consultant. He will also be a speaker at our annual Africa Fintech Summit 2022.