Bitcoin Ponzi not Bitcoin’s fault

This recently collapsed ponzi scheme was based on Bitcoins. It could have happened with US Dollars or Danish Krone or South African Rand, so it’s not really the fault of Bitcoins (to personify a digital currency momentarily) but I think there is a link.

Those who like Bitcoins are from four groups

  • Nefarious ne’erdowells who like the anonymity for their illegal dealings
  • Paranoids who don’t do anything wrong but like the anonymity. Yes, you are paranoid if you invest this much time in a Bad Idea called Bitcoins.
  • Geeks who want to try it out because it’s interesting and having 2 Bitcoins to digitally rub together (digital, digits, fingers, get it?) is kinda cool
  • Economically naive self-taught conspiracy theorists who drink too much coffee and like tea parties, who think that fiat money is the root of all evil but really don’t have a clue about how money works, why monetary policy flexibility is a good thing and just how very many financial crises there were during various gold standards. And for that matter, how almost every gold standard that ever existed also “failed” in that it didn’t last.

In my mind it’s the last group that is most worrying because they try to affect and infect other citizens. It’s also that group who thinks they know better and therefore everything to do with Bitcoins is a Good Idea (they’re not) and are more likely to get hooked into a Ponzi scheme than others because they’re too smart to listen to anyone else’s opinion or advice.

Possibly my bluntest post ever, but at least I have listened to the outside views, thought about them, and discarded the ideas from that last group of Bitcoin supporters while recognising the legitimate interests of the first three groups. Note the interests of the first three groups are no motivation for wider acceptance of Bitcoins, just that some individuals may have their own, internal reasons for wanting to use Bitcoins.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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