My Interview With a Bitcoins Expert
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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