Bitcoin is going to teach you a lesson. A costly one

Bitcoin is going to teach you a lesson. A costly one

Summary: Bitcoin is a really bad idea. Promoting digital currency is like promoting digital food; it will leave you empty and you'll wonder why you ever thought it was a good idea.

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TOPICS: E-Commerce, Banking
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There's nothing like watching someone trying to create a fake currency to make my day complete. Bitcoin is the silliest of ideas, even when explained in video format from the website. I registered a new account on the site just for fun. The crazy thing is that when I logged in, I discovered that I can buy one Bitcoin for $199.95. Really? Sign me up for that! In fact, put me down for a whole pocketful of them. Oh, wait, sorry, digital pocketful, since, you know, they don't really exist.

If you pay $200 for a single fake digital coin, you have something seriously wrong with you. And if you have $200 to blow on something stupid, you can donate it to the Ken Hess Party Fund. In fact, I'll accept Hesscoin exchanges in $5.00 increments. So, you can get 40 Hesscoins for the price of one Bitcoin. And Hesscoins have real value because I'll turn them into party supplies for me and 100 of my closest friends, which could include you. Maybe more if the donations...er...crowdsourced funds...er...purchases pile up to a level sufficient to support the guests.

That sounds like a really good plan. I'll call it the world's first crowdsourced party. I'll rent a place, supply the refreshments, entertainment, and a place for you to stay. Of course, the purchases have to support that. What I'll do is from all the purchases, is draw the names of 100 buyers of Hesscoin and they'll attend the party. Sound like a deal?

If I don't get 100 buyers, then what I'll do is randomly select 20 percent of the buyers to attend the party. OK, we're set. And I've digressed.

At least with Hesscoin, you have a chance of getting some value for the real money that you spend on the fake money that has no value.

The whole Bitcoin thing reminds me of a movement that I tried to get going a few years ago here in Tulsa, that I called Tulsa Dollars (based on the Ithaca Hour bartering plan). The concept was to create a barter currency that people could trade with each other for goods, services, and whatever. It never caught on.

Here's the problem with fake currencies. Aside from having no actual value, they have no tangible exchange rate. The theory behind barter dollars was that you have to set a standard value on labor, which at the time, it was suggested that we use $40/hour. Well, I charged $55/hour for computer consulting services, lawyers charge $100/hour to $200/hour for lawyering, and so on. You see, there's no way to standardize on something like labor because everyone views his labor as more valuable than yours.

When dollars had gold backing, there was actual value in our money too. Once the brilliant Franklin D. Roosevelt took us off the gold standard, our money dropped significantly in value.

You see, for a currency to work, it has to have some external value. Digital currency, no matter how cute it is, or how you spin it, it has no value. It's a silly concept but someone always tries it.

And here's the other thing. Just because some doofus creates something like this, doesn't mean you have to participate in the silliness. Things like Bitcoin only have value because you give it value. There's no external value in a digital coin.

The other reason why fake currencies fail is that you create a false sub economy with them. The good and services exchanged don't get taxed and while you might think that's a good thing, let me tell you that it's not. Taxes are how we pay for roads, electric lines, phone lines, Internet lines, and other necessities. And you should be aware that just because you're using a fake currency doesn't mean that you're necessarily excluded from owing taxes on your transactions. Even the Bitcoin FAQ tells you that.

Underground economies don't give back anything to the common good. Plus, someone, at some point, is going to have to use real money and have a real job to support all these alternative types who want to undermine the evil government overlords. 

Another thing that's really dumb about Bitcoin, or Bitcon, as I like to call it, is that the evil Bitcoin overlords are limiting the number of Bitcoins to 21 million. Weird. 

FYI: There's an unlimited number of Hesscoins available.

I think that Bitcoin is a cute but annoying experiment in human folly. It proves that people will do dumb things for no apparent reason.

The whole Bitcoin thing still boggles my mind. It's hard to believe there's any attention at all given to it. It's even harder to believe that I'm spending time on it as well. The writers of the Bitcoin FAQ are a little off on what they believe to be a currency's value but at least they do understand some basic economic principles, though tainted by the downright silly factor of this whole Bitcoin thing.

My advice is to not spend time, effort, or actual dollars on Bitcoin. It's ridiculous and a 100 percent waste of time. So, stop mining, and focus on making real dollars. Underground economies don't work. Focus on something productive like viral videos, Gangnam style dancing, flash mobs, or taking up a new hobby. Quatloos, on the other hand, are real currency. You can buy people with them.

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Topics: E-Commerce, Banking

About

Kenneth 'Ken' Hess is a full-time Windows and Linux system administrator with 20 years of experience with Mac, Linux, UNIX, and Windows systems in large multi-data center environments.

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227 comments
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  • Your ideas of money are broken

    I love bitcoin because it is the world's first truly internationally, truly democratic form of barter.

    I value bitcoin because I know that no government or corporation can artificially create more than the preset 20 million maximum bitcoins.

    I value bitcoin because it isn't inflationary, it doesn't create powerful banking cartels, and government can't inflate it to wage useless wars.

    I value bitcoin because it can't be counterfeited.

    I value bitcoin because I can send money internationally to anyone I want, at almost no fee, instantly. I can send it to loved ones who are desperate, even if they live in a country my politicians say is blocked.

    I value bitcoin because my spending habits aren't instantly monitored by third parties: advertisers, tax agencies, identity thieves, etc.

    I value bitcoin because I see it as an excellent way to tip or compensate people in tiny amounts -- I can tip a nickel to a blog writer, or a few bucks to a bartender, or twenty dollars to my neighbor for shoveling my snow. Instantly. Without fees. To anyone, anywhere, at any time.

    No overdraft fees, no random auto-debits I didn't authorize, no intrusion by people who have no right to my monetary balance.

    And, it's backed by trust. Maybe only 20,000 people trust it today, but that number will keep growing.

    You're old news, Hess. Time to retire.
    A.b. Dada
    • @Dada

      Isn't inflationary??? Have you seen the current "value"? LOL. Dude. Too funny.
      khess
      • Inflation means money DROPS in value

        While the value of Bitcoin is inflating (getting bigger), inflation is generally used to refer to the prices you have to pay to buy stuff. If the value of Bitcoin is going up, then prices are falling, and thus Bitcoin isn't inflationary. It is deflationary.

        One thing I will agree with you on. You should not write on this topic.
        paulsnx2
        • @paulsnx2

          No, I was referring to the inflated "price" of this "currency." Be ready for a repeat of the dot com bubble and bust. Those who don't learn history are destined to repeat it. Very sad.
          khess
          • @khess

            You are really having trouble getting your head around this thing aren't you? WHile your article seems to indicate nothing valuable will come out of this bitcoin thing your comment here compares what is happening to the dot com bubble and bust - insinuating something valuable will come out of it? Or do you think the dotcom bubble didn't yield anything valuable.

            You are steering your readers away from the most significant innovation in a very long time - more significant than printing press, internet, email and phone put together.

            Yes, there is a ton of risk but there is also a ton of reward as bitcoin and competing virtual currencies such as peercoin, battle for market dominance.

            I would advise doing more research.
            hammyburger
          • @hammyburger

            The dot com bubble and burst did yield something valuable--insight for future reference.
            khess
          • Did we enter a time loop?

            The Bitcoin bubble already happened earlier this year. Remember when it went to $200 and then crashed to $50?
            The build-up to its current value happened naturally.
            reverb256
          • Dot com bust yielded more than future reference...

            @hammyburger (BTW kudos for the nic), @khess:

            You both have valid points and as always, innovation comes in many flavors.

            As Thomas Kuhn once put it: "rival paradigms are incommensurable—that is, it is not possible to understand one paradigm through the conceptual framework and terminology of another rival paradigm".

            Thus you can't measure Bitcoin against current economic scaffolding. As the first poster put it, BC allows us to tip blog posters, waitresses, pizza deliverers, et al, without incurring in the financial overhead created by current enormous economic entities, including banks, treasury departments, etc.

            In this economic crunch the 99% need a way to interchange value w/o government intervention, cause when money's plenty you can offset the costs, but when it's scarce, you can't.

            So the real game changer is not the Bitcoin but rather the Satoshis, since, contrary to "normal" currency where it's financially inviable to print anything under 1 cent, in digital media, supply and demand can be in sync and they can offset the elevated value of the upper echelon.

            Last but not least, any revolution doesn't need to be entered at its infancy. The Internet waited ten to 15 years (depending on when you start counting) to go mainstream and still, from the birth of the first browser (1991) to Facebook (2004) so there's plenty of time to jump into this bandwagon if you're in for the long run.
            cosuna
          • If you have ever tipped a waitress with part of a bitcoin

            ... then you are a mind-bogglingly gigantic douchebag.
            Kafziel
          • What a joke.

            gimme a break. Everyone knows this shit isn't going anywhere. I'll take money I can hold in my hand over virtual money any day. The fact you think that this is more innovative than the above you mentioned is laughable. All this Bitcoin shit does is show us the suckers of the world.
            Jake Boone
          • The dollar you hold in your hand is only backed by supply and demand

            It has a very small intrisinic value. Our dollar is based on fiat. There is nothing backing it. Just like bitcoin which is also fiat. It is all supply and demand.

            But I am no fan of bitcoin. Would love to see it die. But I am not sure that it will.

            Some guy thinks a painting is worth $100,000 and I might hate it. But if somebody is willing to pay $100,000 that's its value. And I am not opposed to taking advantage of that.
            DevGuy_z
          • wow, ultra dumb

            "more significant than printing press, internet" 43 people are as stupid as you.

            1. WHY, moron, would it be more significant? You've committed a logical fallacy called "begging the question".

            2. How, idiot, is it more significant than the Internet if it relies on the Internet as does the entire planet for Internet transactions? DUMB.

            3. How idiot is it more significant than the printing press when if not for it we'd no more advanced than Rome at it's peak, no electronics at all, no mass printings of Bibles that spurred billions on to be honest, or at least be hypocritically honest, being that billions are fake Christians, regardless, trying to be honest, even if for the wrong reasons, no printing press means no Internet would have ever been made, the world would repeatedly engage in devastating wars from lack of wisdom, which is clearly your problem, you don't even have common sense. Get a study Bible or two and read them you imbecile, you're not even on square one in life yet, you're still a baby brain.

            4. What do you even mean by "significant", that means "signifying" you oaf, what is it "signifying more of" than the Bible which when understood and obeyed leads to eternal peace with God or the Internet which allows the transmission of all kinds of information and currency? You're words signify that what a stupid blind person you are. No doubt you're an atheist.

            http://eternian.wordpress.com/evidence

            There's another gift for you gullible assumer parrot.
            Daniel Knight
          • Price per coin means nothing

            Like a stock, the price means nothing unless you consider the outstanding number of shares. The currency has a total capitalization of ~$2 Billion dollars. I believe there are 3 million people that use, own and value bitcoin at the moment. Thousands of start-ups and a who's who of VCs are involved. What the starting value of a currency with that type of ecosystem? Apple has a marketcap of $475 billion, and it is one company with a handful of products.
            infomaniac2000
          • and those who never learned economics?

            Paper money is worth what others will exchange for it. So is gold. If you were alone on a desert island with a pound of gold, the gold would have only aesthetic value.

            If Ken Hess wouldn't exchange anything for them, it means almost nothing. Since they can be used to buy drugs or weapons, they do have value. Whether they're pernicious is a different matter, but they are a medium of exchange. That's all money is.
            hrlngrv 
          • Compared to the dollar...

            The problem isn't that Bitcoin's price is inflating, it is that the Dollar is currently unstable - just look at the Government closedown and the debt ceiling to work out why it is worth so little, compared to Bitcoin.

            The dollar is falling against a lot of "real" currencies as well. That doesn't make the Euro, Sterling etc. over inflated or cons either, it just means that the dollar is weak.

            As Bitcoins have to be mined and you can't simply print more Bitcoins, it means that the currency should remain stable. There are a finite number of Bitcoins that can ever be generated, unlike "real" money, which no longer has any basis in reality either.

            The dollar used to be a "gold standard", but the US scrapped that a while back...
            wright_is
          • Bah!

            The problem is that Bitcoin's price ISN'T inflating...

            We need an edit option here!
            wright_is
          • Wow... take an economics class!

            Inflation (a *decrease* in a currency's value) is a completely different phenomenon from the price of a currency going UP (which is an *increase* in a currency's value).

            You see, "inflation", as we usually encounter it, is due to an increase in the *amount* of money in circulation (not necessarily *physical* currency, mind you, as many people are paid, these days, with direct-deposit, and we buy things with a debit card, so no physical currency ever moved through our bank account. So, we're talking about the total amount of bank-account assets plus their cash minus their debts). When the amount of money in the economy goes up, that's more money people can spend on items in the market. And, since every price is the result of an invisible bidding war between buyers on a non-infinite supply of goods, if people *can* spend more money on something, some *will* spend more on it, and the price will be driven up.

            When this happens, the price of the *currency* drops. It doesn't cost you as much, in terms of other currencies, to purchase it, because it doesn't have as much purchasing power. For example, suppose the British pound and the American dollar were trading 1:1. Suppose a candy-bar costs 1 dollar or 1 pound. Then, the American gov't prints a bunch of money and pays the people to build a bunch of roads or whatever. Now, the American people have twice as much money in their pocket, so they're going to be able to pay twice as much for a candy-bar, so the price of candy-bars goes up to 2 dollars. Meanwhile, a candy-bar *still* costs 1 British pound. And the *exchange* rate becomes 1 British pound buys 2 American dollars. *THAT* is inflation.

            This is the opposite of what's happening with Bitcoin. A bitcoin's price, in terms of other currencies, has been going *up*, even though the supply of bitcoins has been (slowly) increasing. This is due to increased demand for it as more and more merchants accept it (which is the same as "demand" increasing).
            joeaaa20
          • lol

            The correct word for an inflated price is bubble. Inflation has a different meaning in monetary terms. I think you're just trying to cover your ass though. The free market will decide on the value of a value exchange system like bitcoin. Just like it will decide on the value exchange system called USD. Also, I just unsubscribed from zdnet (free market at work for you). Get competent writers that study a subject first, otherwise you are wasting my time. The time of ignorant readers is over bro.
            Olivier Janssens
          • @KHess

            as I have said, I am no fan of bitcoin. That said, there are reasons that it may not be a bubble (overvalued). New bitcoins are increasingly hard to find (mine) and demand is increasing. There is also a limited supply - by design.

            These forces over time should force bitcoin value to increase.
            DevGuy_z
        • I agree he should take a course on economics

          I am no fan of Bitcoin, but KHess arguments that he uses, i.e. buying something that doesn't exist are specious. He doesn't seem to understand the concept of fiat money and why it exists vs a gold standard.

          And I am sure he uses fiat money all the time.
          DevGuy_z