Jeffrey Robinson, an American financial crime author, has released a new book titled, Bit Con: The Naked Truth About Bitcoin. Robinson has previously exposed money laundering of epic proportions in the pharmaceutical industry as well as the banking industry. In his most recent book, Robinson spent a year researching bitcoins and has still come to the conclusion that innocents will be tricked out of millions.
When Fortune’s Chris Matthews asked Robinson, “If bitcoin is a con, who is the con man?” Robinson replied:
It’s a con in that it’s not a real currency, but let me back up. There are actually two bitcoins. There’s the blockchain-technology bitcoin, which I think is fantastic, and the future, and all sorts of businesses are investing tens or hundreds of millions of dollars in Silicon Valley and around the world to build businesses on the back of the blockchain technology because it’s so wonderful and can move assets frictionlessly. But then there is this aspect of the pretend currency and the pretend commodity. Part of the con is in the pretend commodity, because this is a completely shallow, liquidless market. When you know that there’s, what, 13 million coins in circulation, and more than 50% of the them are owned and managed by about 950 people, you realize how shallow the market it is and how subject the market is to manipulation.
It’s essentially a pump and dump scam. And then I see these snake oil salesmen like the Winklevoss twins get on TV and tell people that bitcoin is going to be worth $40,000 per coin. And nobody is challenging them, asking, “What are you smoking?” Bitcoin isn’t an investment, it’s a slot machine. Or, more accurately, a loaded roulette wheel.
It’s Only Half a “Bit Con”
Robinson seems to point to “snake oil salesmen” like the Winklevii, as well as the individual small-time buyers, as the alleged con artists pushing bitcoin as a currency in this grand “Bit con.” However, Robinson admits that blockchain technology is fantastic and may have real applications, as evidenced by hundreds of millions of Silicon Valley venture capitalist money; however, he goes on to trash decentralization as mere ideology:
Furthermore, these people are very attached to the concept of decentralization as a matter of ideology. But I would guess if you walk down the street and ask 100 people if they care about decentralization, they’d say, “What are you talking about?” The ideologues say it should matter, that you don’t want the government or corporations in the middle. But what evidence is there that anybody besides a small, small group of people care about this kind of stuff?
Robinson ignored one prevalent fact. The “small, small group of people” that care about keeping governments and/or corporations out of the middle is growing very rapidly. With events like the Snappening and Celebgate, users around the world (especially the nontech-savvy ones) will be seeking new technologies or apps that can guarantee security. With events like the Home Depot, Kmart, and Chase card information and identity hacks, the demand for a push financial system that works is higher than ever. The world already knows that cryptography is the only possible path to security in the digital age. Decentralization is a natural and needed progression, and the average user will end up using decentralized solutions without even realizing it.
What Do Writers Know about Economics?
Robinson also presents the valid point that most famous Austrian Economists do not consider Bitcoin to be a currency (If the definition of currency involves the words ‘legal tender’ then even the dictionary doesn’t think that Bitcoin is a currency). Though, he fails to recognize that in reality, Bitcoin is a unique asset class similar to a commodity, something that Austrian Economists might be more inclined to agree with. It’s understandable for anyone, including Robinson, to have such a statist view of currency; however, even statists should be able to step back and consider that currency and money are orthogonal concepts and there are economic theories of money that underlie the use of both. In its current form, currency, though it is legal tender, is only legal tender thanks to the backing of military power. This is a feature of the current 100% fiat financial regime; for thousands of years before the invention of fiat money, and the associated increased capacity for waging war, gold (a commodity) functioned as money and was used as currency. It almost seems like few people are able to grasp how the incentives worked back then. Pretty much every economist alive has been somewhat tainted/confused by the fact that the majority of their lives have been spent under a 100% fiat financial regime, writers without a proper economics training are even less capable of imagining change beyond the status quo.
Robinson left Fortune with his prediction for bitcoin’s end game:
…There’s no evidence that people who spend down their wallets buy back in. Little by little it will just atrophy, because nobody is really using it. The big kids will get out, and the little guy sitting on one, two, or, sadly, many more bitcoins will lose it all.
Robinson, with his year of research into Bitcoin, thinks that blockchain technology will succeed, but bitcoin the “currency” will eventually atrophy. This view is increasingly being adopted even within the digital currency community, particularly from staunch supporters of altcoins. Only time will tell just how much bitcoin and other digital currencies atrophy as currencies. For now, the Bitcoin community should rest easy knowing that even the greatest financial crimes writer of our time acknowledges the potential of the blockchain, even if he doesn’t believe that decentralization is key.
What do you think about the newest attempt to classify the “Bit Con?” Comment below!
Images from Shutterstock.