According to the European Central Bank, bitcoin is almost dead. Nevertheless, cryptocurrencies continue to exert a great attraction, especially for young investors. But bitcoins have nothing to do with investing, but everything to do with gambling, charlatans and fraud, says Knack editor Ewald Pironet.
Bitcoin is on its way to becoming irrelevant. That is the conclusion drawn by two economists in a blog on the website of the European Central Bank (ECB). Their analysis is devastating for the most famous crypto coin. It also comes at a time when major victims are falling in the world of digital money, because the crypto exchange FTX, based in the Bahamas, went bankrupt. Total debts are estimated at $10 billion, with potentially over 1 million creditors. The crypto world is therefore shaking to its foundations, and the ECB’s message is clear: keep far away from bitcoin and, by extension, all crypto coins.
The cryptocurrency story began on August 18, 2008, when an article was published under the pseudonym Satoshi Nakamoto entitled Bitcoin: a peer-to-peer electronic money system. The text can be found on the internet in Dutch translation. The English ‘pear’ means ‘equal’, peer to peer that is, each computer in a network assumes an equal role and can exchange information directly with each other.
In the article, Nakamoto outlines a bold plan for “a pure peer to peer version of electronic money that allows online payments to be transferred from one party to another without interference from a financial institution.’ A digital currency is being developed, consisting only of a computer code. That virtual money is only maintained by the users through online networks, and they are kept in a digital wallet, a bitcoin wallet. Financial institutions or central banks are not involved, there is no institution that controls the ins and outs of the crypto currency.
For nearly a decade, bitcoin generated little or no interest from investors. Only in 2018 did the price rebound to $ 20,000, in November 2021 it peaked at $ 69,000. The fact that the price rose so sharply in a short time had everything to do with manipulation of the market and waves of new enthusiastic investors. That was the result of stories in the press from (young) people who had become billionaires in a few weeks thanks to bitcoin. That put many eyes out, and they pumped their savings into bitcoins. Which caused the price to rise even more. And so it went on for a while.
Of course, the owners of bitcoins had every interest in inflating the bubble even bigger. The followers behaved like members of a cult: anyone who even dared to ask questions about the phenomenon was inundated with hate messages and dismissed as a simpleton who was too stupid to understand that bitcoin was the digital version of the philosopher’s stone.
That fairytale is coming to an end. Today, a bitcoin is still worth 16,000 euros and in their ECB blog, economists Ulrich Bindseil and Jürgen Schaaf say that the digital currency is on its way to becoming irrelevant. They leave no trace of the digital currency. They point out that bitcoin (and no other digital currency) has been able to grow in recent years into a currency that is used to buy goods and services. You cannot buy bread at the bakery with a bitcoin. “Bitcoin has been marketed as a global decentralized currency,” they write, “but its conceptual design and technological flaws make it a questionable means of payment. Bitcoin transactions are complicated, slow and expensive. The currency has never been used to any significant extent for legal transactions in the real world.”
Bitcoin is therefore not a means of payment, but it is also unsuitable as an investment, as explained in the ECB blog. Bitcoins not only have no underlying value, the price is not based on anything, unless there is more demand than supply, that there are more people who want to put money in crypto coins than there are offered. In short, the value of bitcoin is based on air.
Moreover, bitcoins do not provide returns. If you have bitcoins, you do not have a steady stream of income, as you do if you invest in real estate thanks to the rental income, for example. You also do not receive a dividend, a participation in the profit, as you receive when you invest in shares. Bitcoins also cannot be used to produce anything, which is the case with commodities. They don’t even have a social advantage like gold, as the ECB blog states: “A gold chain around your neck can give you a certain social status, but you can’t visibly wear a bitcoin.” Bitcoins are not only based on air, they are not much more than air – a computer code, nothing more.
The conclusion of the two ECB economists is clear: “The value (of the bitcoin) is based only on speculation.” Putting money in bitcoins comes down to gambling, so you might as well go to the casino. This is in line with what other economists have stated before. “Stop calling bitcoin a currency,” said Jan Smets when he was still governor of the National Bank. “Bitcoin is a danger to the people who buy it. It’s pure speculation, hoping to get richer. But of course there is also the risk of losing heavily.’
In fact, American economist and Nobel laureate Robert Shiller, author of a book on financial bubbles, labeled bitcoin as “the best example of a bubble right now.” In the financial world, a bubble is an illusion that sooner or later will come to an end, resulting in major losses. That is what we see happening today.
In addition, the creation of bitcoins is energy-intensive. According to the specialized website digiconomist.net, the energy consumption required to create bitcoins corresponds to the electricity consumption of the whole of the Netherlands. In addition, the system produces a mountain of hardware waste in a year, which is also comparable to the amount produced by the whole of the Netherlands. Moreover, digital currencies such as bitcoins are often used to handle criminal cases such as drug sales, kidnappings, hacked computer systems and so on. Digital currencies are not only the favorite territory of charlatans, brats and bubble blowers, but also of outright criminals.
Meanwhile, there are thousands of variations of the bitcoin in circulation. Perhaps the most disconcerting example is the dogecoin, which was launched as a joke at the end of 2013 by two software makers. For a long time, the price of dogecoin did nothing. Until Elon Musk, the extremely wealthy American entrepreneur behind companies such as SpaceX, Tesla and recently Twitter, announced that he had bought dogecoins and talked them up via Twitter. The price then shot up like a rocket. Musk would later say: “I have the intention of supporting dogecoin myself, because people who are not so wealthy have encouraged me to buy and support dogecoin. These are people who work in Tesla and SpaceX factories. They asked me to and so I do.’ In addition, he denied encouraging people to also buy crypto coins.
Anyway, bitcoins and other cryptocurrencies are the latest example of a ponzi scheme, named after Carlo Ponzi (1882 – 1949). This American Italian set up a whole system in the early twentieth century, in which he promised investors a lot of profit. And indeed, the first investors also made a lot of money, because they were paid with the money of new investors who also wanted to get rich. In the US, this becamerobbing Peter to pay Paul’ robbed Peter to pay Paul.
Such a fraudulent scheme is set up regularly. In our country, for example, in the 1980s by the famous Jean-Pierre Van Rossem: his Moneytron investment system eventually turned out to be fraud, the high returns he paid were not due to his ingenious investments, but were paid for with the money of new investors. Until the business collapsed and many were left penniless.
Compared to Ponzi or Van Rossem, bitcoin is a much more shrewd and also more insidious system, since the initiator of a crypto coin remains anonymous at all times. Ponzi and Van Rossem were arrested and convicted, but no one will succeed in holding the initiator of a crypto coin to account, let alone obliging him to compensate his victims. The identity of Satoshi Nakamoto, who launched the bitcoins with an article in 2008, is still not known. It is also not clear how many people ripped their pants on bitcoins. People would rather talk about how much they’re making on an investment than how much money they’ve lost as a result of some stupidity they committed – blinded as they were by the illusion of quick cash gains.