2536 The Pros and Cons of Bitcoin - What You Need to Know!
Does it matter that Bitcoins are backed by nothing? What happens when the power goes out?
Nov. 21, 2013 - Freedomain Radio - Stefan Molyneux
08:03
| 
| Time | Text |
|---|---|
| Hi everybody, Sivan Molyneux from Freedom Aid Radio. | |
| I hope you're doing well. | |
| So, I wanted to respond to some of the most common objections that I hear about Bitcoins, the digital cryptocurrency that is currently racing northwards of $600 to $700 each. | |
| So, one of the most common objections about this digital currency is that it is not backed by anything tangible or physical. | |
| Such as gold. | |
| Now, there's some truth in that. | |
| Certainly, it is the result of an investment of CPU cycles and electricity which are used to generate bitcoins. | |
| Bitcoins are created when computers solve complex algorithms, and those algorithms get increasingly complex as more and more bitcoins are generated to a maximum of 21 million, which is hard-coded into the software. | |
| So there is an investment in resources, electricity, CPU time, and so on that produces them, but it certainly is correct that there's not something like a bar of gold that can be used. | |
| Now, one of the important things when you do thinking in terms of economics is you have to look at the whole picture. | |
| So saying that bitcoins are bad because they're not backed... | |
| Buy anything physical. | |
| It's like saying that renting is always preferable to buying a house because with renting you don't have to put down a down payment. | |
| Well, that's very true. | |
| With buying a house you have to put down a down payment and usually the mortgage payments are more than you will pay for renting. | |
| But that's just looking at the downside of buying a house. | |
| If you put in the full picture, the upside of course is that you actually get to keep a house at the end. | |
| So that's sort of important. | |
| And so when it comes to Bitcoins, yes, without a doubt, they do not have a physical backing in the same way that gold does, but that's just one aspect of it. | |
| The other aspect of bitcoins is that you don't have to get giant machines going into the ground pulling out gold. | |
| You don't have to pay all the people to find it, to dig it out, to separate it from the ore, to melt it down, to purify it, to ship it. | |
| So there's far less overhead. | |
| In Bitcoin, the currency itself is cheaper. | |
| When it comes to storage, Bitcoins are stored in wallets all over the world. | |
| Everybody gets an update of everything that's happening on the Bitcoin network. | |
| So as long as there's one computer running, everybody's still quote got their Bitcoins once other computers get back onto the network. | |
| And so the fact is that Bitcoin is far cheaper to produce than gold. | |
| Bitcoin is almost infinitely cheaper to store than gold is. | |
| And to transfer Bitcoins from one person to another is essentially free, whereas to transfer physical gold from one place to another is quite expensive. | |
| This is why you can pay a multi-million dollar bill in Bitcoin for nothing. | |
| I mean, practically for nothing. | |
| Whereas if you want to pay a multi-million dollar bill by moving gold, then you have a lot of expenses on your hand. | |
| To store gold costs money to store Bitcoin costs virtually nothing. | |
| Of course, Bitcoins can be stolen. | |
| Anything in the world can't be stolen. | |
| I mean, apparently, if you log into healthcare.gov, your entire identity can be stolen these days. | |
| So, your identity can be stolen, gold can be stolen, your car can be stolen, your wallet can be stolen, your credit cards can be stolen, and so on. | |
| So, this happens. | |
| Everything that exists can be stolen. | |
| There's a lot that you can do, of course, to encrypt your wallet, to put it into cold storage, and you can look up all these terms if you want. | |
| There's a huge amount that you can do to protect your Bitcoin wallet. | |
| So, saying it's not backed by anything tangible is actually an advantage, as well as, if you can call it a disadvantage, sure, but it's also an advantage in that it's a friction-free currency that you can transfer for nothing, you can pay bills with no overhead. | |
| Like fees, there's a couple of points on the bills. | |
| Gold, you have to pay for the storage and trust the people you're storing and so on. | |
| So, there's risks and benefits and costs to everything that you do. | |
| And simply pointing out one of these supposed negatives Of bitcoins without saying that those very negatives are also part of why it's so immensely valuable is not a complete picture. | |
| It's kind of dishonest to simply point out the negatives rather than the positives. | |
| It's like saying, well, it's always better to invest in bonds rather than stocks because bonds have a guaranteed rate of return without mentioning that bonds have a lower rate of return on average than stocks. | |
| You have to give the full picture if you're going to talk about financial things. | |
| So a few of the other objections. | |
| One is, well, you see, if the power grid goes out all around the world, then your bitcoins are worthless. | |
| Well, that certainly is true. | |
| But of course, if a giant asteroid destroys the whole planet, then all of your gold is worthless too. | |
| If everyone wakes up tomorrow morning and has a heart attack, then all human goods and services are worthless because humans have ceased to exist. | |
| If a massive plague... | |
| Anyway, you get the idea. | |
| Of course. | |
| If there are catastrophes, then there are catastrophes. | |
| I guarantee you, though, that if the entire electricity grid goes out for all of humanity, the vast majority of humanity will die. | |
| And I don't really think that access to your Bitcoins is going to be your primary concern when people are trying to gnaw off your arm because they can't get food delivered to them in cities from farms. | |
| So I don't think we really have to worry about that as a practical reality. | |
| I mean, In the late 80s, the entire Soviet Union communist system collapsed and was replaced with some elements of the free market, gangster capitalism, you could call it. | |
| And they kept their power grid up. | |
| So I don't think we really have to take that as a practical problem. | |
| So as far as security goes, tons of stuff you can do to protect it. | |
| I would argue to make it even safer than stuff that's in your house. | |
| Yes, it's not backed by anything physical, but that doesn't matter because that very lack of physicality is why it's so cheap to create and to store and to transfer and so on. | |
| So this is, you can say it's a disadvantage. | |
| I would argue that it's one of the main reasons for its value. | |
| In fact, there's a university in Greece that is now taking bitcoins For tuition payments to make it particularly easier for foreign students and it's kind of cool to have money as an investment. | |
| Of course a lot of people have said get into gold and avoid bitcoins. | |
| The reality is that gold has dropped significantly and bitcoins have risen exponentially and it could be argued by the investment opportunity that comes around once every generation. | |
| I mean your average bitcoin now is worth more than a share of Apple stock. | |
| This is significant. | |
| It's important. | |
| I would argue, you know, continue to do your research and don't take simplistic negatives around Bitcoin. | |
| Don't take any simplistic positives around it either. | |
| Of course, it's risky as an investment. | |
| It's an unknown frontier. | |
| But to me, that's where the excitement is. | |
| That's kind of where I want to be. | |
| And if you invest in gold, You are going into a status paradigm. | |
| Governments control gold. | |
| If you invest in mining stocks, particularly small mining stocks, you could argue that there's more volatility there even than in Bitcoin, and that's kind of a do-or-die thing. | |
| The other thing, too, of course, is that if you invest in gold, you're supporting some pretty corrupt regimes around the world because gold claims staking and exploration and extraction and shipping and transport and storage are all very heavily taxed by the state. | |
| Which further, and particularly since gold tends to show up in some pretty politically catastrophic realms in the world, if you invest in gold, you are doing a lot to support some pretty nasty dictators, whereas Bitcoin doesn't suffer from any of those particular problems. | |
| So there's a morally positive aspect, I would argue, to Bitcoin as well. | |
| I'm a free market fanatic, and therefore Bitcoin as a spontaneously generated free market Solution to the problem of currency. | |
| It has my allegiance from a moral and philosophical standpoint, and I hope that you will continue to explore the very exciting world of Bitcoin. | |
| So thank you very much. |
Export Selection