Tag Archives: Cryptocurrency

Jamie Dimon is Right to Fear Cryptocurrency

Bitcoin (stock photo from http://maxpixel.freegreatpicture.com, CC0 license)
Bitcoin (stock photo from http://maxpixel.freegreatpicture.com, CC0 license)

When JPMorgan Chase CEO Jamie Dimon called Bitcoin a “fraud,” what ensued looked a lot like a “poop and scoop”  con: The practice of driving down a thing’s price by saying bad things about it, then buying up a bunch of it before the price bounces back. After Dimon’s comments, JPMorgan briefly became one of the cryptocurrency’s biggest buyers. The company claims it was purchasing Bitcoin on behalf of clients, not as corporate policy, but it looked bad.

Now Dimon is badmouthing cryptocurrency again. And, as before, he clearly either has no idea what he’s talking about or has sinister motives.

“It’s creating something out of nothing that to me is worth nothing,” Dimon told CNBC. “It will end badly.” He also warned that as cryptocurrencies become more popular, government crackdowns will drive them into the black market (that’s happening in China right now).

The key words in Dimon’s “to me [it’s] worth nothing” are “to me.” Value is subjective. What’s a thing worth? Whatever it’s worth to you, or to me, or to Jamie Dimon. Each of us may find that thing more valuable, or less, than do the other two.

Dimon considers cryptocurrency “worth nothing” for one reason only: Because his company — the largest bank in the United States and among the largest in the world — doesn’t control it. And that’s one of several reasons why others find it very valuable indeed.

Cryptocurrencies run on blockchains, “distributed ledgers” without central authorities. Dimon prefers fiat currencies, which are created by governments, managed by central banks, and funneled through institutions like his, legally privileged choke points taking generous rake-offs from wealth created by others but forced to pass through them.

Neither crypto nor fiat currencies are backed by physical commodities like gold or silver, but the resemblance ends there. Crypto is backed by the work of maintaining its ledgers, called by the imaginative name “mining.” Fiat currency is backed only by your trust in the governments (and the Jamie Dimons) of the world.

“Creating money out of thin air without government backing is very different from money with government backing,” he says. He’s right. Money with government backing pays Jamie Dimon. Cryptocurrency threatens his business, his paycheck and his way of life.

His prediction of government crackdowns isn’t just a prediction, it’s a fervent wish. He’s desperate to see cryptocurrency crushed, unless he can find a way to force it through the JPMorgan toll booth.

Dimon should be careful what he wishes for. If cryptocurrency is forced entirely into the “black market,” that market will, sooner or later, bury his. His only chance is to co-opt blockchain and cryptocurrency methods into the fiat system. Here’s hoping he fails.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

PUBLICATION/CITATION HISTORY

Cryptocurrency Will Survive And Thrive, But Will Bitcoin?

The bitcoin logo
The Bitcoin logo (Photo credit: Wikipedia)

March 2017 came in like a lion for Bitcoin as, for the first time ever, one Bitcoin sold for more than one ounce of gold. As I write this, the Bitcoin currently in circulation, if sold at current prices, would bring in more than $20 billion US (that’s nearly 12 times the market capitalization of its closest competitor cryptocurrency, Ethereum). As it enters its ninth year,  the future looks very bright for an idea that many have spent the previous eight years scoffing at and predicting the imminent demise of.

But this time they may be right. Bitcoin is in crisis, and the crisis could kill it.

A few days ago, I spent a small amount of Bitcoin (in the range of $5 US in value). The transaction took nearly 30 hours to confirm. This was because I elected to pay only the minimal “miner fee” (about 25 cents, or about 5% of the amount I wanted to spend — 1% would be a better target in my opinion).

To survive and thrive over the long term, a cryptocurrency is going to have to be used as a medium of exchange by regular people buying regular things at regular stores. This means that transactions have to be confirmed quickly and that the fees involved have to be attractive versus PayPal and credit cards.

Recently, transactions on the Bitcoin blockchain have slowed waaaaaaaay down for people who are unwilling to pay fairly high “miner fees.” The (as non-technical as possible) explanation of that term:

Bitcoin is created (“mined”) by people (“miners”) who run computer software that keeps track of Bitcoin transactions (“updates the blockchain ledger”). The miners are rewarded with a bit of the newly created Bitcoin and with miner fees.

As more and more people use Bitcoin, more and more computer power is required to update the blockchain ledger. Transactions with the minimum fees included go to the back of the line and are taking longer and longer to process.

If this isn’t fixed, Bitcoin will become nothing more than a store of value for people who move it around in quantities big enough to justify large fees and long waits. If that happens, the value of Bitcoin will plummet back toward a famous early transaction in which someone paid 10,000 Bitcoins for two pizzas. No customer or shopkeeper is going to pay a dollar in fees and wait 30 hours for confirmation to buy or sell a can of cola.

Two proposals for improving the system, “Bitcoin Unlimited” and “Segregated Witness,” are under consideration by the Bitcoin developer and miner communities.  I’m not the guy to ask about the technical virtues of each proposal, but my sense is that Roger Ver, the main evangelist for Bitcoin Unlimited, has a better understanding of what needs to happen and why. That is, he sees that small, fast, low-fee transactions are the future of cryptocurrency.

If Bitcoin developers and miners don’t get that fact through their heads, and soon, cryptocurrency as such won’t die — but Bitcoin will cease to be people’s cryptocurrency of choice.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

PUBLICATION  HISTORY