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Bitcoin is Not a Scam

2011-08-15

Some people think that the new digital currency; Bitcoin, is a scam. However, it's really not. It seems peoples reaction to Bitcoin is similar to people of one religions reaction to an other religion. It's easy to see the problems with someone else's religion while not realizing the same is true for ones own.

Unfortunately most people don't really know much about Bitcoin and many of those writing about it seem to not have understood it. Here I've lined up the arguments against Bitcoin and the explain why Bitcoin is no worse than any other currencies. And then I'll tell you why it's even better.

Not Actually Worth Anything 

Of course, all currency is totally worthless, unless it can be traded for something. A single Bitcoin can currently be traded for 16 US dollars. A dollar is just a piece of paper, and more often just a number in a computer. We value it because it's hard to fake, the US government is backing it and we can trade it for the things we need.

Unfair Initial Distribution 

A lot of people are concerned with the unfair initial distribution of Bitcoins – early adopters have become very wealthy. However, all money used today has been unfairly distributed. Lots of people inherit staggering amounts of money without having done anything to deserve it, and whoever has money today is derived from who was able to steal it, gold and other resources in wars as well as exploit slaves throughout the ages. Yet it doesn't stop people who grew up with nothing from becoming millionaires.

Deflation is Evil 

I often hear about people who advocate for inflation, yet no one is ever able to properly explain why it's needed so badly. Of course, inflation encourages people to invest their money instead of sitting on it, because just sitting on it would make it lose value. But people can simply invest in the inflation and thus keep the value of their money without risking to lose it.

But people risk their money to gain more, so inflation is not actually needed. In fact, people risk their money to such a degree that it causes economic collapses over and over again. It could be said that we need to risk our money a bit less, and as such, a deflationary currency would be preferable.

Many people are afraid that governments and other financial institutions just keep printing too much money and Bitcoin actually balances the market as a much more solid currency which is not subject to the whims of politicians and other self-interested parties.

Unstable Value 

Several months ago a Bitcoin traded for only one US dollar but as more and more people found out about it it's value increased to one point where it was worth as much as 30 US dollars. It has since falling in value steadily, but then started to come back to around 10 US dollars again. Of course, all currencies do go up and down in value and since Bitcoin is a very new currency it's only natural that it has a much higher variability. Over time, as it gains widespread adoption, it will stabilize more and more.

Stolen or lost Bitcoins 

This is of course true for any valuables. If you keep thousands of dollars in your mattress and someone breaks in and finds them – they're gonna take them. Cash can of course also be destroyed in fires and lost in many other ways. This is part of the reason why you keep your money in a bank. And there are banks for Bitcoins just like there are for any other currency.

However, one of the great things about Bitcoin is the you don't Need to have a bank or a credit card. You can keep all your money yourself, and use whichever forms of encryption and other security you like, and still perform any transaction you like, with anyone, and you don't need to wait for the bank to open.

Copying Money Like Files 

A lot of people worry that since it's a digital currency, can't it just be copied indefinitely like a file? And the answer is of course no. If it could it obviously wouldn't work as a currency. You can make as many copies you like, but you'd only be copying the reference to your money, like having several identical keys to your house, but you still only have one house, no matter how many copies of the keys you make.

Extremely advanced cryptography, the same kind that is used by your bank and other secure websites to prove that you're actually connected to that site and not a fake, is also used in Bitcoin to ensure that only the one owner can spend the money and only once.

Bitcoin is a Better Currency 

There are many great things about this currency which makes it inherently more valuable than traditional currencies. First of all, while it's unstable while it's still new, because Bitcoin does not inflate and is not subject to politics it will not be a speculative currency, like all the others and will as such be very solid and stable. It will be much more suitable as a reserve currency than both the US dollar and the Euro for instance.

The fact that Bitcoin is completely decentralized means that no one person or nation can control it, or attack it. Just like the peer to peer networks used for piracy, Bitcoin can only be taken down by taking down every single individual that uses it.

Anonymity is one of the cornerstones of Bitcoin. While all the transactions and all the accounts can be seen by everyone – no one can know who actually owns an account, and in the standard practice everyone is automatically using a new account for every transaction. This makes Bitcoin more anonymous than even cash, since you don't have to show your face when you pay for something. And privacy is something that becomes ever more important every day.

Finally, Bitcoin replaces the need to rely on financial services such as banks and credit card companies, all of whom take out heavy fees, which an extremely low cost and efficient transaction system that can not be hacked or disrupted, allowing anyone to pay anyone as easily as sending an email.

You might want to read The Dark Side of Bitcoin.