My friend Kristen sent me this link to a website regarding Bitcoins. You may be asking yourself, “What exactly is a Bitcoin?” According to the website, it’s desribed as “state-of-the-art in money” that is a “form of electronic money” and is becoming “‘the gold standard’ of digital currency.” Wow, that’s ambitious.
I sent the link to my friend Xuan, who is very knowledgeable with her money theory. She pointed out two major flaws with Bitcoins.
First, on the website, it’s stated that “Bitcoin has no central issuing entity… therefore, no single point of failure.” The problem is that there is a central issuing entity. The way to be issued your Bitcoin currency is by visiting your Mtgox account and exchanging for the currency there. Mtgox is essentially the central issuing entity, so if it fails, so does Bitcoin.
Second, Bitcoins can never be traded on par with the dollar because its central server, Mtgox, lacks the power to tax. The reason the paper and coin money that we use has any value is because the government has the power to tax us. It accepts the taxes we pay through the paper and coin money that the Treasury issues. Since Mtgox cannot tax us, its electronic money is much weaker than the dollar.
There is one last thing to point out. The website writes: The value of Bitcoins does not go down when The Fed decides to “print more money”. The Fed doesn’t print money. That responsibility actually belongs to the Treasury department.
I have two conclusions regarding this website. It’s either 1) an elaborate joke or 2) a scam. I do find it humorous though. What other website would have you click a bunny to visit your account?
Thanks to Kristen for the link, and many thanks to Xuan for the brilliant analysis!