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home | Tea Party Economist | My Interview With a Bitcoins Expert

My Interview With a Bitcoins Expert

Gary North - December 07, 2013
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Reality Check

Today, I interview Bitram "Bitty" Coins, the nation's leading expert in the Bitcoins market.

GN: Mr. Coins, I am happy you consented to an interview.

BC: Call me Bitty.

GN: OK, Bitty. I want to find out what this Bitcoins deal is all about.

BC: It's about liberty. It's about a new international market. It's about a New World Currency Order.

GN: It's also about buying 10,000 Bitcoins for $50 in 2009, which are worth $13,000,000 today.

BC: I call this value-added investing.

GN: I call it a digital tulip mania.

BC: I see that you are a skeptic.

GN: You have very clear eyesight.

BC: Maybe I can persuade you otherwise.

GN: Give it your best shot.

BC: Let me tell you about the #1 benefit. You get complete privacy.

GN: Complete?

BC: That's right.

GN: How does this work?

BC: You go to an online exchange and buy Bitcoins.

GN: How do I get my money to the exchange?

BC: Through your online banking account.

GN: Which is a matter of public record if the government wants to know.

BC: Yes.

GN: Then where can you spend them?

BC: Anywhere you like.

GN: You mean like Silk Road?

BC: Not Silk Road. The U. S. government shut it down.

GN: And confiscated 26,000 Bitcoins.

BC: Sadly, yes.

GN: Then maybe Sheep Marketplace, Silk Road's replacement?

BC. It went out of business when someone stole $100,000,000 in Bitcoins -- maybe the biggest theft in history.

GN: How did he do this?

BC: Nobody knows.

GN: Will the police catch him?

BC: The police can't do anything about it.

GN: Why not?

BC: Because, with Bitcoins, you have complete privacy.

GN: So does the thief.

BC: That's the price of complete privacy.

GN: Then what recourse do the victims have?

BC: Well, one of them said this. "I won't find this guy. Somebody else will. I assume he'll be jailed, blackmailed, tortured or killed." I find this inspirational. It's 100% privacy at work.

GN: Are these heists a pattern?

BC. Not at all. They are random.

GN: But there are so many of them. Here is a list.

BC: It's just a cost of doing business anonymously.

GN: Because there are no contracts.

BC: Correct.

GN: Because there are no courts.

BC: Correct.

GN: Because no one knows who he is dealing with.

BC: Correct.

GN: So, if you get robbed, you lose everything.

BC: Yes. But the risk is low.

GN: How low?

BC: No one knows.

GN: Because the Bitcoins market is 100% secret.

BC: Correct.

GC: Let's get back to your account of how I get 100% secrecy. Let's say that I buy some Bitcoins on an exchange. A reliable exchange.

BC: A good idea.

GN: My bank keeps a record of this.

BC: Yes. It shows where you have spent the money.

GN: So, I don't transfer the money secretly.

BC: Correct.

GN: Then how do I get 100% secrecy?

BC: Because no one can follow your money after you transfer it.

GN: Even me, if it gets stolen.

BC: Correct.

GN: What if I want to sell some of my Bitcoins?

BC: No problem. You sell them, and you get dollars.

GN: Untraceable paper dollars?

BC: No. Digital money.

GN: But digits can be stored only in a bank.

BC: Correct.

GN: Then the digits -- dollars -- wind up in my bank account.

BC: Correct.

GN: So, this is not secret.

BC: Of course not. It's central bank digital money.

GN: So, to maintain 100% secrecy, I must never sell my Bitcoins for dollars.

BC: Correct.

GN: What can I buy with Bitcoins?

BC: Illegal drugs.

GN: What else?

BC: Computer programming.

GN: Anything else?

BC: Not much. But there are more things all the time.

GN: So, let me be clear about this. I give up dollars, with which I can buy anything, so that I can buy Bitcoins, which can't buy much of anything.

BC: You are buying secrecy.

GN: But I can go to my ATM and get currency. I can spend currency anywhere. I can spend it on anything offered for sale for dollars. This leaves no trace.

BC: But there is a record of this withdrawal.

GN: There is a record of my withdrawal to buy Bitcoins.

BC: True.

GN: Then why should I buy Bitcoins?

BC: Because they keep rising in price.

GN: Why do they go up in price?

BC: Because of success stories.

GN: Give me one.

BC: In 2010, you could have bought 10,000 of them for $25 in pizza.

GN: But in 2009, someone paid $50 for 10,000 Bitcoins. He took a 50% loss.

BC: The dollar-denominated price of Bitcoins is volatile.

GN: So, I should buy them as a speculation.

BC: We don't call this a speculation.

GN: What do you call it?

BC: Buying the money of the future.

GN: Will it buy more things in the future than illegal drugs and programming?

BC: Of course.

GN: What is the evidence of this?

BC: It is the substance of things hoped for, the evidence of things not seen.

GN: That's the New Testament's definition of faith.

BC: Say, you really know your Scriptures!

GN: I do. This one comes to mind. "Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal."

BC: Right! Lay up your treasures in the cloud!

GN: I don't think that was what Jesus was getting at.

BC: Well, it's what I'm getting at!

GN: Let's get back to privacy.

BC: Let's!

GN: You say that the money that goes out leaves a record at my bank.

BC: Yes.

GN: You say that the dollars that come back leave a record at my bank.

BC: Correct.

GN: Can the IRS get access to these records?

BC: Yes.

GN: Can the Department of Homeland Security get access to them?

BC: Yes, but why would they want to know that?

GN: Because there is no record of where the money went.

BC: So what?

GN: Because at some point, they may declare Bitcoins a means of funds transfers for terrorists. They may think I am a terrorist.

BC: They can't prove it.

BC: They don't need to prove it under the Patriot Act. They just arrest people. And then there is no further trace of them.

BC: I guess they're just like Bitcoins. "Now you see them. Now you don't."

GN: Well put.

BC: I was just making a little joke.

GN: You're a laugh riot.

BC: Thanks.

GN: I was just making a little joke.

BC: Oh.

GN: Let's get back to the IRS. When I get money -- real money: dollars -- deposited in my account, the IRS can find out.

BC: Yes. Of course.

GN: It can tax me on this money.

BC: If you report it, yes.

GN: I had better report it. There is a record of it.

BC: True.

GN: What tax rate do I pay? Capital gains or ordinary income?

BC: The IRS has not yet determined this.

GN: How can I prove what my purchase price was, to see how much is profit and how much is the return of my capital?

BC: Just show what Bitcoins were worth when you bought them.

GN: How can I do this?

BC: By showing when you bought the Bitcoins.

GN: How can I prove that I bought Bitcoins?

BC: Show them the date of purchase. You bought it from a Bitcoins exchange.

GN: So, there is a record that I am a Bitcoins user.

BC: Of course.

GN: The government can find out how many I bought: date, time, and price paid.

BC: Correct.

GN: And you define this as 100% privacy.

BC: The best in the world.

GN: This is the basis of the coming New World Currency Order.

BC: How could anyone plausibly deny this?

GN: So, the IRS can say that 98% of this was profit. Or maybe they just say it was 100% income.

BC: I guess they could.

GN: What do you mean, "guess"? You know they could.

BC: Yes.

GN: So, let me get this straight. I take real money, digital dollars. I don't withdraw currency, which leaves no tracks when I spend it, and with which I can buy anything offered for sale for dollars. Instead, I buy Bitcoins from someone I do not know, on an exchange that may be run by crooks, so that I can buy illegal drugs, computer programming, and maybe a few other items.

BC: Correct.

GN: Why should I do this?

BC: Because you're a libertarian filled with hope.

GN: Hope in what?

BC: That Bitcoins will defeat central banking.

GN: Just so long as no one ever sells his Bitcoins for real money. Just so long as nobody else uses real money.

BC: We do not refer to dollars as real money. We refer to them as fiat money.

GN: Then what are Bitcoins?

BC: Virtual money.

GN: Then what can I buy with this virtual money?

BC: Virtual goods.

GN: What are virtual goods?

BC: Future goods based on faith.

GN: The substance of things hoped for, the evidence of things not seen.

BC: I get it! A joke.

GN: Not very funny, is it?

BC: Not really.

GN: What will be the proof that Bitcoins have replaced the dollar, the euro, and all other government currencies?

BC: The price of these currencies will universally be reported in their value in Bitcoins.

BC: So, we will be told on CNBC that the dollar has fallen to one ten-thousandth of a Bitcoin.

BC: Probably much lower.

GN: When you think this new reporting system will begin, worldwide?

BC: Real Soon Now.

GN: So, I should sell dollars and buy Bitcoins. But I should never convert Bitcoins back into dollars.

BC: Correct.

GN: And you think their price will go up.

BC: Yes.

GN: Why?

BC: Because other people will buy Bitcoins.

GN: And they won't sell for dollars.

BC: Not if they value their privacy.

GN: I have heard this before: "Buy and never sell." It is the basis of every mania.

BC: This time, it's different.

GN: I have heard this before, too.

BC: But this time, it really will be different.

GN: Why?

BC: Because Bitcoins will replace dollars.

GN: How?

BC: Because we will all use Bitcoins.

GN: Which we bought with dollars.

BC: Correct.

GN: Which remain in the banks as digits.

BC: Correct.

GN: Which are used to price everything.

BC: Yes.

GN: Including all capital goods.

BC: Correct.

GN: When can we expect this?

BC: Real Soon Now.

GN: You are saying that Bitcoins will replace all other central bank currencies.

BC: Correct. They are all doomed.

GN: So, why would anyone sell Bitcoins for dollars?

BC: He won't.

GN: So, the price of Bitcoins will be infinite in terms of all existing currencies.

BC: At least.

GN: And no one will be selling Bitcoins for central bank money all the way up.

BC: Not if he values his privacy.

GN: But I can buy them today with central bank money. Bitcoin owners will sell for dollars.

BC: That's temporary.

GN: So, at some point no one will sell Bitcoins for worthless central bank money.

BC: Correct.

GN: So, at some point, the dollar price will have no effect on the sale of Bitcoins.

BC: Correct.

GN: So, Bitcoins will be infinitely inelastic.

BC: What does that mean?

GN: Sorry. That's neoclassical economists' jargon. It means price-sensitive.

BC: Then why don't they just say this?

GN: Because they want to sound like physicists. Then people might take them seriously.

BC: Bitcoins at some point will not be price-sensitive. No one will sell at any central bank digital money price.

GN: Because Bitcoins offer 100% privacy if you never sell for central bank digital money.

BC: Correct.

GN: So, privacy will have infinite value.

BC: As denominated in central bank digital money, yes.

GN: So, Bitcoins at some point will become the world's first 100% non-price-sensitive money. Owners will not sell at any dollar price, euro price, or pound price.

BC: Correct.

GN: This time it really will be totally different -- a currency that no one will sell for all the money in the world.

BC: Central bank money, yes.

GN: What is the evidence of this?

BC: The substance of things hoped for, the evidence of things not seen.

GN: Why will Bitcoins replace all of today's currencies?

BC: Because the Bitcoins market has no contracts, courts, or police. It has no way to settle disputes.

GN: In short, 100% privacy.

BC: Yes. We have proof of this.

GN: What is this proof?

BC: Sheep Marketplace.

GN: I see that our time has run out . . . rather like Sheep Marketplace's time. Good night and good luck.

BC: May the algorithm be with you.

For articles explaining Bitcoins, go here:

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