Washington Post “Wonkblog” writer Matt O´Brian wrote a scathing criticism of Bitcoin in the column on January 14, 2015 that called Bitcoin a Ponzi scheme, implying that venture capitalists who were investing millions in the protocol were merely trying to sell a pipedream to cover their investments.
O´Brian suggests that the recent price losses will be the death of Bitcoin, especially in light of the recent two weeks. He seems to think that the devaluation of Bitcoin means that it will eventually fail and that if there were a Central Bank to “help stabilize” the currency it would be better. He does not however apply the same logic to the recent 60% drop of the Greek economy after their financial withdrawal from the Euro or the even more recent devaluation of the Russian Ruble, which lost 7.9% in less than a week.
According to O´Brian “If Bitcoin was a currency it would be the worst performing currency in the world”. His proof of this is a blog written by Max Nisen with Quartz and Business Insider. According to Nisen Bitcoin has recently performed worse than either the Russian Ruble or crude oil. Nisen also wrote a recent article claiming that business schools should not be a “hotbed of innovation”. Both O´Brian and Nisen work for organizations with a view toward protecting traditional economic systems.
The Washington Post was purchased in 2013 by Jeff Bezos, CEO of Amazon.com. While Bezos has not come out publically in support of Bitcoin he has been a staunch supporter of innovation:
[blockquote]The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams,” writes Bezos. “These innovative, large-scale platforms are not zero-sum – they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers.[/blockquote]
This makes O´Brian´s attack on Bitcoin confusing. According to him Bitcoin is a way for Libertarians to redistribute wealth from one to another. He uses the common argument that Bitcoin has no “inherent value” while failing to mention that the cash in his wallet has no more inherent value than Bitcoin. He also uses a relatively short term loss to forecast complete disaster for the currency. There is also no mention in his blog post of the nearly 70,000 businesses worldwide that have chosen to accept Bitcoin in payment, thereby giving the currency inherent value.
But finally, he completely misrepresents how Bitcoin works. He says that Bitcoin allows you to send money online without needing a bank to confirm it. He then suggests that paying a bank a fee for these confirmations is better than miners earning new Bitcoins for verifying transactions and even suggests that bank transfer fees are only 2%. But the lowest bank transfer fees range from $15-$60. This means that unless you are sending thousands of dollars the fees will be considerably higher than 2%.
O´Brian does raise one valid point: The problem with Bitcoin mining. The higher the price of Bitcoin rises the more miners there will be which raises the difficultly level. This requires miners to invest more money, which they often borrow from banks, to keep pace and make a profit. O´Brian then contradicts his own point by suggesting that with falling prices miners stand to lose money. If increasing prices draw more miners and increase difficulty it would seem that declining prices would cause some miners to drop out, making mining less expensive for those who stay in the game.
Finally, O´Brian suggests that without the Federal Reserve to “cushion the blow” caused by deleveraging, Bitcoin will fail. He forgets that the Federal Reserve has been unable to cushion the blow from the Great Depression, the 2008 crash of the stock market and every recession since 1929. O´Brian chooses the “facts” that he wants to present carefully in order to paint a picture that presents Bitcoin as either a scam or a project doomed to failure while completely ignoring that the current price is still ten times higher that it was only two years ago and acceptance by both consumers and retailers is growing at a rapid pace.
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