Why Gary North Is Wrong About Bitcoin

gary north bitcoinI like Gary North. I appreciate his work and I spent a very pleasant hour hanging out with him at FreedomFest a few years back. We have mutual friends. I saw the headline for his anti-Bitcoin article but didn’t take time to read it until we got several emails asking about it.

So, with respect that is due, here’s why Gary is wrong, point by point:

Ponzi Economics

I’ll quote Gary in italics, then respond in a plain font. The section titles are his.

… someone who no one has ever heard of before announces that he has discovered a way to make money. In the case of Bitcoins [sic], the claim is literal.

First, whether we’ve heard of him or not is meaningless, and here Gary sets a negative, suspicious tone.

Second, Satoshi didn’t say he could “make money,” he created a program that would verify cryptocurrency. That’s not really the same.

He made this money out of digits. He made it out of nothing. Think “Federal Reserve wanna-be.”

Money out of digits isn’t true at all. Bitcoin is money made with cryptography – with mathematics. And as much as I like Gary’s preferred gold and silver, mathematics is eternal, built into the very nature of the universe. That’s hardly a soft foundation. Those who don’t understand mathematics may jump to the conclusion that Bitcoin is “unbacked,” but that position is simply ignorant.

Likewise, to call Bitcoin a Fed wannabe is opposite to the truth. Bitcoin is the Anti-Fed.

The individual who sells the Ponzi scheme makes money by siphoning off a large share of the money coming in… The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits. Then, by telling his story, this individual created demand for all of the digits.

And Gary knows this how? (Suspicion is not a proof.) If fact, he can’t know it, and that’s one of the beauties of the currency – there are no names attached.

And how was the money “siphoned off”? Someone, we don’t know who, started mining bitcoins, a fairly difficult process. In other words, they worked to get it, just like people work to get gold out of the ground. Gold miners and early Bitcoin miners – in identical fashion – made big initial finds. Shall we despise and accuse them for it?

Lastly, Satoshi did NOT “tell his story” or “create demand.” Satoshi disappeared. Gary can guess that Satoshi is working under some other name now, but he has no way of knowing that.

The coins will never be the money of the future. This is my main argument.

“I know what will happen in the future” is very poor logic and is very far from compelling.

The Austrian Theory of Money’s Origins

Gary begins by quoting old definitions of money. There is nothing particularly wrong with those definitions, but are they supposed to negate progress for all time? To freeze the world in place? Should they make any new adaptation evil? I hardly think that was their intent.

Here is the central fact of money. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production, because it increases the size of the market for all goods and services.

Bitcoin is nothing but the operation of market forces – there is zero coercion involved.

Bitcoin is utterly decentralized – there is no center at all.

Bitcoin is utterly unplanned – it involves a million people, all doing their own thing.

As for speed, the Bitcoin idea was created in the 1990s and has been implemented for almost five years. How slow is slow enough?

No one says, “I think I’ll invent a new form of money.”

Yes, they do! That’s precisely what the first person to use gold did!

Bitcoins Are Not Money

Admittedly, those who got in early on this Ponzi scheme are doing very well. They will probably continue to do well for a time.

Honestly, this reads like an appeal to envy.

As more people hear about this investment, which is justified in terms of its future potential as money, more people will buy it… [like] late investors in Charles Ponzi’s scheme thought they were buying into the arbitrage potential of foreign postage stamps.

I’m sure some people will think of Bitcoin as an investment (which it is not) or that it is an arbitrage vehicle (which it is not) and will do stupid things. Some people always do stupid things. So what?

I and many others have been saying that Bitcoin is a cryptocurrency, not an investment. We’ve also warned incessantly that it is new and has enemies. In a How to Use Bitcoin report we issued just last week, we said “This is not a place for the timid,” and, “There are no guarantees.”

Bitcoins are not an alternative currency. They are something you buy in the midst of a mania, and you will sell at some point in order to get back your money.

Here we see something sad and ironic: a man who hates the Fed, trying to ruin the one tool that can actually slay the Fed.

Bitcoin is not important because its price is rising – it’s important because it takes the control of money away from the cartel.

Concern with the dollar equivalent is a fetish, a distraction. The purpose of Bitcoin – the intent of Satoshi – is not to play price games, but to dis-empower the fiat cartel.

Just Say No

In order for Bitcoins [sic] to become an alternative currency, there will have to be millions of users of the currency.

Umm… there are, or at least soon will be. Everything new starts from zero.

They will have to develop in a market on their merit as money.

Perhaps Gary is unaware, but tens of thousands of people are using Bitcoin precisely because it is better money. Consider sending money to your cousin in Manila via a bank wire or Western Union; then compare that to sending Bitcoin.

What Goes Up, Comes Down

… the market will unravel. It will unravel for the same reason that all Ponzi schemes have unraveled: not enough new buyers. When the new buyers do not show up in great numbers, the holders will start to dump them.

There have been several “crashes” already, and the majority of Bitcoin holders sat firm – because they actually USE the currency and want to continue using it.

Furthermore, “buyers” is mostly a misnomer, applying only to the most ignorant Bitcoin holders.

This mania is going to be the stuff of best-selling books. This is going to be this stuff of Ph.D. dissertations in economics and psychology. This is going to be the equivalent of Mackay’s book, Extraordinary Popular Delusions and the Madness of Crowds.

Translation: “People will make fun of you!”


Anytime that anybody tries to sell you an investment, you have to look at it on this basis: “What are the future benefits that this investment will give final consumers?”

Again, Bitcoin is NOT an investment. And the benefit it gives is obvious: it’s better currency.

There is no economic justification of buying Bitcoins [sic] as an alternative currency.

A million of us have learned differently. All you have to do is try: Send a hundred dollars by Western Union, then send them by Bitcoin. Compare.

it was impossible as an economic concept from the beginning. The Austrian theory of money shows why.

I know Austrians who disagree.

I do not invest in capital that has no economic justification other than the greater fool theory.

So, Bitcoin users are “fools”? Hardly a charitable position to take.

My Conclusion

It’s a tragic thing: Precious metals people have been complaining about the Fed and the fiat currency cartel for decades. Then comes a tool that empowers them to both ruin the cartel and to free their precious metals… and they do their very best to destroy it.

I find the arguments in Gary’s piece to be misleading and wholly unconvincing, and I hope my reasoning is fairly clear.

But, all that said, take a look at both and make up your own mind.

Paul Rosenberg

64 thoughts on “Why Gary North Is Wrong About Bitcoin”

  1. I’m not against Bitcoin, and hope that it (and/or its competitors) gradually replace FRN’s and other corrupt fiat currencies. But I think that some of your statements can be challenged.

    Those who don’t understand mathematics may jump to the conclusion that Bitcoin is “unbacked,” but that position is simply ignorant.

    If Bitcoin is “backed”, what is it backed with? Saying it’s backed with “cryptography – with mathematics” doesn’t do much for me. I appreciate that the scheme (if, as it appears, there are no unrevealed back doors) does not allow for creation of additional coins without a lot of computational effort, so I’m not particularly concerned that some thief can “mine” huge amounts and thus dilute the value of coins already held, but it’s really not “backed” by anything that I can see.

    that’s one of the beauties of the currency – there are no names attached.

    No names, but a lot of identifying information is attached to transactions, because of the necessity to prevent spending the same money multiple times. There’s a central database that tracks transactions, right? With some effort one can make tracing difficult, just as with some effort one can make his web surfing habits difficult to follow, but saying “there are no names attached” could be misleading.

    Bitcoin is utterly decentralized – there is no center at all.

    See above. I’m no Bitcoin expert; am I wrong about this?

    Neither Gary North nor you touch upon my biggest concern with Bitcoin: that the criminal government will outlaw its use and will relentlessly persecute anybody they can catch who defies them by using it. I think this is highly likely, given the moral and financial bankruptcy of the thieves in Washington. This possibility does not preclude using Bitcoin as a currency between now and then, and I applaud your repeated assertions that Bitcoin should be thought of as a currency, not an investment.

    1. So far as I can tell, the only thing “backing” Bitcoin is its users’ desire to use it. In that respect, it is still superior to government fiat currency in that there’s no way for a central authority to manipulate the available amount and “inflate” or “deflate” it by turning a printing press on or off.

      As far as anonymity is concerned, not only is it not inherently anonymous, but it’s less anonymous than cash insofar as every Bitcoin transaction can be viewed by anyone and everyone, forever and ever, in redundant, plaintext, publicly available copies scattered all over the Internet. If you want to be anonymous while using Bitcoin, you have to do extra work (routing transactions through “laundries,” accessing your wallet in ways that don’t reveal your identity, etc.). And of course the state and its lapdog companies are trying to gain control of bottleneck points between Bitcoin and fiat currency to force users to identify themselves (a good reason to get as much commerce as possible going Bitcoin end-to-end).

      1. You posted an introductory article for Bitcoin newbies a few weeks ago, did you not? Could you provide the link? I do want to dabble in it, on a quick turnaound basis to (hopefully) dodge wild price fluctuations.

        1. I don’t think I’ve written anything that would serve as a real intro to Bitcoin, just some remarks.

          As far as recommendations go, I recommend against speculation in it, especially if you’re averse to wild price fluctuations (the best way to speculate in it would be to wait for a crash, scoop it up, then hope you can predict the top pretty well). The fluctuations seem to me to be getting better — more time between crashes, not as deep a hole each time — but some pretty smart people don’t agree with me on that.

          I took some money that was owed to me awhile back in Bitcoin, and used it for some donations I had been meaning to make, and bought some real-world stuff. If I had held on to it for awhile longer, it would have been worth quite a bit more, but I got merchandise equivalent to the dollar price of the Bitcoin I accepted at the time I accepted it, so my toes are tapping.

          1. Glad they helped — but I try to avoid holding myself out as an expert on the subject. I know enough to get by, and HOPEFULLY enough not to get myself in deep shit 😉

    2. Hi JdL,

      Quick responses:

      Bitcoin is backed by math and the expensive process of mining it. (Lots of time, equipment and electricity involved.) Math makes it counterfeit proof and guarantees that the supply is finite.

      There is not a “central” database. The database is shared on a million computers. To hack it, you must hack all those computers at once.

      The guvs could come after Bitcoin, but, then again, they criminalized pot for decades and everyone who wanted it, got it just the same.

      Plus, the best and brightest of the young generation are involved, and they will adapt to threats.

      1. There is not a “central” database. The database is shared on a million computers.

        Fair enough, but still every transaction is recorded and can potentially be traced back to the person(s) making it. Thus the anonymity I would desire, if not completely lacking, is not solid.

        Math makes it counterfeit proof and guarantees that the supply is finite.

        This is like saying “The math used in public key cryptography programs such as PGP makes them impossible to crack.” I consider this statement false. What is true is “The math used in [Bitcoin, PGP, whatever] is by presently known techniques extremely difficult to unlock, and as far as we know that difficulty will continue into the foreseeable future, so that it is and will be computationally impractical to crack them.” Don’t get me wrong, I use PGP, and my guess is that it IS secure, at least at present, but I would never say that its security is “guaranteed”.

        they criminalized pot for decades and everyone who wanted it, got it just the same.

        Everyone who was willing to assume the extra risk and increased price got it, and I’m sure that Bitcoin will continue to be used to some extent when/if it is outlawed, but its desirability (and almost certainly its value against other currencies) will take a serious hit. As I said in my original post, however, that doesn’t mean we shouldn’t use it as a currency today. And I would consider my patriotic duty to use it at least ONCE after it were outlawed, just to tell the criminal parasites in government F*** YOU.

        Here’s another critique of Gary North’s column that you may have seen:


        My quibbles with either your column or that one are relatively minor; I think North was wrong.

    3. You point about Bitcoin anonymity is valid, however there are relatively easy fairly foolproof ways of disguising your connection with any particular bitcoin (or fraction of a bitcoin) in the form of bitcoin laundries. In effect such a laundry is a pool of bitcoins that you put your bitcoins into and then an equal amount of other bitcoins are withdrawn and forwarded to whomever is the intended recipient. Now, government could outlaw such laundries just as they could outlaw bitcoin, however what I think many of us in the US fail to realize is the Bitcoin isn’t American. Bitcoins are international and transnational, so even if bitcoins are outlawed in america that wont stop bitcoin, in fact it could be argued that such a move might make it even more valuable as any commodity that is outlawed tends to rise in value such as drugs, gold (during the FDR years), guns, etc. Drugs are also illegal in nearly every country on earth and that has done nothing to curb demand or supply and have caused prices to remain very high. Bitcoin may be destined to become the currency of choice for the global underground market, also known as System D, or the informal economy, which is estimated to have a market size of over 10 TRILLION dollars, most of which goes untaxed. Even if it were only accepted in such an unofficial and underground capacity, it would still account for the second largest economy on the planet. So lack of acceptance by government or even outright outlawing of bitcoin is unlikely to kill it. If it makes it easier to skirt the law it will be used by those who don’t particularly fear breaking the law in the first place.

      1. Thanks for your reply. I hadn’t considered before that the value of bitcoins might rise after Bitcoin is outlawed (I take it as given that the criminals in Washington will outlaw it), but your reasoning makes perfect sense to me. I wonder if government(s) could go after the miners? It’s not clear to me if they can remain anonymous. I do expect a strong effort on the part of the thugs to stamp out Bitcoin: it’s too much of a threat (especially to their paranoid minds) for them to ignore.

  2. I like your work a lot, also like North’s work.

    As far as Bitcoins, I agree with North.Your argument about mathematics as the source of the coins, can be made about FR notes; the later being the product of physics (geometry, paper and ink + a printing press, etc.).
    Both have zero intrinsic value, and are useful only as long as the users place their faith in it ( willingly, or via coercion ).
    If forced to choose, I’d prefer dutch tulips; there is beauty in those flowers 🙂
    Time (and there is a lot of it available) will prove Mr. North, myself, and others right. It will however be too late for the unfortunate holders of Bitcoins.

    Carl Castle, NYC

    1. Hi Carl,

      Time will tell for sure. As for “unfortunate holders of Bitcoin,” most of them are using their gains to buy things with Bitcoin. So, they are not at all unfortunate.

    2. I see beauty in numbers. But in practical terms, Bitcoins cannot be forged, so in that respect it is far more solid than paper money. And your tulips will rot if you sit on them too long, unlike the cash corporations/banks are withholding because of interest rate speculation.

    3. What is value?…. Monetary worth? Check. A relative worth, utility, or importance? Check. A numerical quantity that is assigned or is determined by calculation or measurement? Check. Are these values intrinsic to Bitcoin? Check.

    4. Name one other currency that you can send to anyone in the world without any restriction and almost for free. Can you do that with tulips?

      It’s mind boggling how people don’t see the obvious benefits of trustless e-cash.

  3. ” Money is the product of the market process. It arises out of an unplanned, decentralized process.
    This takes time. It takes a lot of time. It spreads slowly, as new
    people discover it as a tool of production, because it increases the
    size of the market for all goods and services.”

    When I first read this essay at Lewrockwell.com, I wanted to ask: How do you explain the Euro, with respect to the above quoted text? It was almost an instant “hit”. The Euro was certainly not an unplanned decentralized process. (The same could be applied to the Yuan, etc.) The only reason any of those currencies gets used is via government mandate (legal tender laws).

    The other question I would have liked to have ask Professor North (whom I greatly admire) is why would anyone (absent the legal tender laws) use them since they continually lose value (purchasing power) due to continued inflation of the money supply by central banks.

  4. Well, I have to disagree with the idea that Bitcoin is just a “currency.”

    Bitcoin is a open source programing environment which any number of apps can be developed on. This is vastly more interesting then just another currency. Check out: http://www.youtube.com/watch?v=Cs6F91dFYCs and get even more bullish for Bitcoins.

    1. No time to watch the vid, but yes, there are a lot of additional things that can be done with BTC (colored coins, etc.). I just wanted to stay on-point and simple for the article. Can’t say everything at once. 🙂

  5. How is bitcoin not the ultimate fiat currency? Its nothing but 1s and 0s, just like fed notes.

    “Mining” is a very opaque process and it seems ripe for exploitation. For instance, how many bitcoins could a government with thousands of computers running 24/7 mine?

    And, c’mon, anonymity online is a pipe dream.

    1. And, c’mon, anonymity online is a pipe dream.

      Like you, I’m concerned that attempts to achieve anonymity online may fail, but would not go so far as to say it’s a “pipe dream”. There is now and I expect always will be a tug-of-war between citizens trying to maintain their privacy and criminal thugs (government and otherwise) trying to compromise that privacy.

      As things stand today, I’m not confident that I can sent Joe Blow information without the government knowing I have done so. I AM confident that the thugs can’t decipher what I have sent him, or (using steganography) even whether I’ve sent him something I don’t want anyone else to see.

      And, while I wouldn’t assert it as a certainty, my guess is that we the people will win the entire privacy war eventually (subject to inevitable ongoing sniping by criminals trying to capture passwords, etc.).

    2. I have read that the current Bitcoin mining network has 250-times the computing power of all the supercomputers on the planet, combined. Besides, even if a government set to work mining with some huge computer network of it’s own, they couldn’t mine it any faster than the algorithm allows – it will still take 100 more years to get the remaining nine-million Bitcoins. On top of that, so what if they end up with all remaining nine-million? They will either hold them forever thus freezing the present value of currently circulating Bitcoins, or they will send them all into the market, inflating the currency by not even two-times. Prices in Bitcoin will almost double and that will be the end of it. They couldn’t mine anymore. They couldn’t manipulate it anymore after that. Save for trying to buy them all, which would fail for a multitdue of reason. As they bought and bought and bought, the price would eventually rise to impossibly expensive levels and they would never get them all. And even if they did the impossible, it still wouldn’t be the end-of-days. Another crypto-currency would be invented to replace Bitcoin. That’s the funny thing about markets: When people have a demand for something, enterprising folks try their damndest to deliver a supply for it.

      Having said all that, I’m not an expert on Bitcoin, so anyone who is smarter than me, please point out my flaws here, please.

      1. I was reading about mining bitcoin, and apparently more computers working together does increase the rate. Most mining is done in pools and mining is becomng less profitable. If I am understanding it correctly, you get some profit from finding a block, but you also get a commision whenever that block is used. This seems to suggest that your “wallet” is connected to the blocks you find. I’m working from memory of something I skimmed last night, so if I’m wrong, be gentle.

        Everybody says, “I’m not an expert on bitcoin,” that’s a red flag to me. All the excitement without anybody claiming to fully understand it seems like “irrational exuberance”. It seems like its built on trusting anonymous computer nerds.

        Of course, early adopters always take bigger risks than conservative stick-in-the-muds like me!

        1. The Bitcoin wiki entry below says:

          “The rate of block creation is approximately constant over time: 6 per hour. The number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 4 years. The result is that the number of Bitcoins in existence will never exceed 21 million.”


          My lack of understanding of Bitcoin, and anyone elses lack of understanding is not proof of irrational exuberance, nor is it proof of nobody understanding it. I don’t understand the chemical and physical make-up of gold nor the processes used to coin it, but I trust it nonetheless. I know, just from general knowledge that it can’t be easily duplicated for instance. This video gives a good rundown of why Bitcoin works the way it does: http://youtu.be/Lx9zgZCMqXE

          It could be that Bitcoin does turn out to be garbage. I accept all possibilities. I have no crystal ball. I am willing to take the risk. I don’t blame folks for not being as willing.

          1. I’m not necessarily saying that bitcoin can’t work, it just seems like an easy thing to hijack because its so opaque. I’ll admit that I’m not the most trusting sort, but saying that “somebody” understands it seems too trusting, I’m sure “somebody” understood credit default swaps and other shenanigans leading up to 2008.

            I guess if you use it as a payment system just to buy and sell online then it really wouldn’t matter if bitcoin’s value gets artificially manipulated.

        2. Blocks are nothing more than a collection of transactions that have been broadcast over the network (they also include the hash of the previous block, a genesis transaction for the block reward, and a nonce which is incremented as miners hash the block).

          Your wallet is not connected to a block. A wallet is a collection of private/public key pairs which can be used to accept or send bitcoins. The blocks just record the transactions between public keys.

          1. Your wallet is connected to a block, its in the transaction history which tells you where the block has been. So if its been in you wallet, thats in the recoed. Your only anonymity is the wallet itself.

    3. If the US government started today, it couldn’t mine more than 9 million (based on 12 million existing at the moment), and it wouldn’t mine those 9 million in the next 100 years. However, it couldn’t even mine those 9 million all by itself.

      This isn’t a weakness on the part of Bitcoin- the government, if it did as you suggest, would be earning its Bitcoins legitimately.

      1. What I’ve read suggests that more computing power equals faster mining, what you say is that the release of bitcoins is controlled.

        It seems that the algorithm is essentially a type of random number generator. When the number generated, the hash, is below a certain number, the difficulty target, you get a valid block. This is grossly simplified, of course.

        I want to say that I’m not against bitcoin, its your money, do what you want with it, I just think its too opaque and that makes me curious. Like I said in another comment, I’m not the trusting sort, so maybe I’m just paranoid.

        Maybe I’ll read some more, it is interesting.

    4. “For instance, how many bitcoins could a government with thousands of computers running 24/7 mine?”

      A maximum of 25 per every ten minutes, currently. The mining difficulty adjusts every 2016 blocks. If they ramped up the hash rate quickly enough they might achieve a slightly higher return than that, but of course that could never be maintained.

  6. Bitcoms are artificial. If governments went away, which is the assumption with bitcoms, then people can choose what ever form of money they want. If they don’t, well then governments will simply tax bit comes. And taxes must be paid in legal tender.

    In the absence of government people can produce anything they want as long as they have the resources and ability. If they don’t have the resources, they would have to make something or export a particular resource to someone who does have bitcoms. But that assumes that they want bitcoms. But, most people would trade locally with people that they know with things in their possession..

    Why? Money is only a byproduct of free trade. And in the absence of fiat currency, free trade is more prevalent in local economies. Big companies cannot exist as cost would catch up to them. This would mean that small businesses rule.

    Most small businesses would produce products locally, not nationally and sell (trade) things with people they know. Gold and silver allowed people to trade over great distances with people they don’t know.. But it worked because those markets would trade goods and services for Gold.

    People would need to know that they can trade their bitcom for something real in their domestic market. But with the free flow of information and technology, why use bitcoms? If people can produce things themselves or find people locally that can do it, then why can they not define their own money? Why use bitcoms. If the rest of the world falls apart who will people import from?

      1. I have been waiting for this response from JdL. It smacks of desperation. Do not violate the sanctity of Bitcoin by calling it Bitcoins. You and the author, Mr. Sic, being the authority, central or otherwise, will set us straight. It is a good thing no one ever called dollars by other names like bucks, simoleons, greenbacks or any other name it has gone by, huh? The currency will be accepted on its own merits and will be called whatever the market determines to make it recognizable and universal. Good luck with your pet JdL when the grid goes down or the NSA overtly seizes the internet(s). Don’t be so desperate for recognition it is a sure sign of what Gary calls a Ponzi Scheme.

        1. Calling them “Bitcoins” is one thing, but Bitcom is a bit much, I think.

          I’ve tried and failed to comprehend what overall point(s) you’re making, other than taking offense at my chiding Tk69 for his spelling problem. Do you like or not like Bitcoin? They won’t be usable if the grid goes down, which makes me think you don’t like BC. They’ll be called by any name people please (whether “Bitcom” makes the cut is an open question, I’d say), which suggests that you do.

  7. The main problem these Austrians are having is they can not understand how gold and silver lost the battle for currency against the fiat currencies of today. Yes, this financial system of central banks and fiat money is both theft at a grand scale and not sustainable, and many people actually know this but how come gold and silver is not money anymore.

    Mostly people think in terms of conspiracy theories on how gold and silver lost, and I used to think the same, but Bitcoin helped me finally figure out.

    Gold and silver lost because of very high transaction costs. Notice when people started to give up on gold and silver themselves, not the substitutes and derivatives. It was when industrial revolution happened and global trade exploded. Gold and silver couldn’t handle this big of a trade volume, because it is very hard to ship and keep them safe.

    So people had to give their money up to banks, and use notes. Gold and silver derivatives. And we all know what happened next.

    The genius of Bitcoin is that it solves this problem. With bitcoin you do not need third parties and you can get delivery immediately and with no cost. So there will never be Bitcoin substitutes and derivative. There will be no third parties to abuse and over issue Bitcoin derivatives and the ones that will try will go bust.
    Imagine the bank runs of the old. Bitcoin runs are more efficient because you dont even have to go to a place and get in a line, just use your computer or smart phone.

    So without understanding why gold and silver failed, you can not comprehend the genius of Bitcoin. And the main problem today for the school of Austrian Economics is this.

    1. So people had to give their money up to banks, and use notes. Gold and silver derivatives. And we all know what happened next.

      What happened next was that corrupt governments stopped backing their paper with gold and silver, and people foolishly accepted the ploy rather than seeking out other options that ARE still backed by gold and silver. Criminal government thugs also of course have made it hard to use other currencies; witness the fate of the Liberty Dollar.

      I don’t see any reason why there will not be new paper currencies brought into existence that are backed by precious metals, and I don’t see it as inevitable that such currencies must become debased over time by detaching their backing.

      (I’m not against Bitcoin either, with the caveats that I’ve expressed elsewhere on this page).

  8. The situation is more nuanced than Gary North portrays, but this article is not a very strong refutation of his core point.

    “Those who don’t understand mathematics may jump to the conclusion that Bitcoin is ‘unbacked,’ but that position is simply ignorant.”

    Cryptography doesn’t ‘back’ Bitcoin in the economic sense. It merely provides a secure means of verifying transactions. It is very dangerous to conflate these two concepts.

    “Bitcoin is nothing but the operation of market forces – there is zero coercion involved.”

    This is not true. Bitcoin derives its utility, and therefore its value, from its ability to circumvent government-controlled financial institutions. Black markets may consist of non-coerced transactions, but to say no coercion is involved is misleading.

    The core point is that for something to function as money, it must have value in the market place independent of its role as a medium of exchange. Both Federal Reserve Magic Tokens and Bitcoin indeed have value independent of their roles as money. The problem is that in their case that value is ultimately derived from government coercion.

  9. I am big fan of North’s writing, but that was one of his worst and most misguided efforts. There are a lot reasons to be suspicious of Bitcoin’s future, but the paradigm itself (open-source peer-to-peer payment) is extremely powerful, and some cryptographic currency/ies will (or have) arise to fill that that market space.

    1. The price tags show dollar signs, not the bitcoin B. Who is misguided? Put your money where your mouth is and exchange all your money for bitcoins. I will keep mine in currencies that can be used to buy bread. Ten years from now we’ll see who can buy bread for those savings, me or you.

  10. It is perfectly possible to transfer Bitcoins anonymously, as long as you know what you are doing. However, anonymity is always going to be compromised if you use them to buy physical goods- you must pick up your goods somewhere. I do get very annoyed when people claim Bitcoins allow anonymous transactions- they don’t for the most part. For example, the government can always take note of that speed boat in your driveway that you bought with Bitcoins, and it can assess tax and penalties for the non-reporting of income if you can’t prove it was purchased with properly taxed income.

  11. Lots of people, even Austrians, take the position that “Gold is money because of its intrinsic value.”

    This is strange because Austrian Economics teaches that there is NO SUCH THING AS INTRINSIC VALUE. EVERYTHING IS A SUBJECTIVE STATEMENT OF PREFERENCE.

    On what, then, lies the value of Gold? Well, gold is valuable because people like it.

    I can point to a great number of its attributes that make it function well in a number of roles, a noble metal that does not corrode, electrical properties, density, malleability, etc. But those purport to explain ‘why’ people like it. Its VALUE is determined by the FACT that people like it, and have consistently liked it for thousands of years. In short, gold is a highly marketable commodity BECAUSE people like it.

    What about Bitcoin?

    I could argue that it is a monetary commodity. But otherwise it is not marketable at all. It may make decent money. But it makes nothing else at all.

    Bitcoin is not different from paper currency in that regard. It is, in fact, no different from a currency that you or I might print in the basement PROVIDED we could replicate Bitcoin’s authentication qualities (i.e. anti-counterfeiting) and non-arbitrary expansion qualities.

    For instance, similarly to metals Bitcoins must be produced using a process reflective of overall economic factors of production. This is very different from centrally produced fiat currencies.

    But still, there is no demand for Bitcoin aside from its monetary value.
    But there IS demand for metals aside from any monetary value.

    Of course, gold has a serious drawback that caused the fiat currencies to be produced in the first place… It is expensive to store in a marketable fashion – ergo its marketable portability.

    As such I would have to say that Bitcoin is better than fiat currencies, but inferior to Gold. I don’t know how to measure it… but the balance of current value between Bitcoin and Gold rests on their relative marketable storage qualities. The future value lies always with Gold over some time frame, because of its proven durability.

    1. Besides, who ever said only ONE currency could be good? Anti-fragility protection would dictate that the more and more divergent currencies that can simultaneously be held in a usable fashion is most likely to preserve marketable wealth.

      1. A currency needs to be enforced as the way to buy and sell in a nation, otherwise it is not a currency no matter what you say. You can’t go to a store and buy things for bitcoins. That is the enormous wall you run into no matter how much you talk about bitcoins anti-fragility protection or whatever. The price tags show dollar signs.

        1. Again, you have failed to make a single factually correct statement.

          A currency needs only to be used currently as a medium of exchange.

          Here is a SHORT list of institutions who accept bitcoin:

          And price tags… Ah! So you believe yuan and Euros are not currency because the pricetags show $?

          If people who produced real things accept it in payment….then it is currency. The question was IS IT MONEY?

          Gary North says that depends on regression theorem, which in turn depends on the definition of commodity. Gary North says no because he, consciously or unconsciously, equates a commodity with a physical object that exists in nature. But most definitions rely on whether the ‘thing’ is bought and sold – its marketablity.

          Clearly people are buying and selling bitcoins. Clearly people were buying them before businesses started accepting them as currency. People were buying them for their store of value function. I think that satisfies regression theorem.

          Aristotle thought money should be:
          1. Durable
          2. Portable
          3. Divisible
          4. Have intrinsic value.

          I think both the dollar and other fiat currencies – and bitcoin – are currencies.

          But I don’t think any of them are money, albeit for different reasons.

          Fiat currencies fail as money because they do not function as a store of value – they have no instrinsic value. They are valuable only for exchange.

          Intrinsic value being alternately an exclusionary statement regarding utility of the prospective money, and subjective with regards to the question, “Do people like it”.

          Bitcoin fails because it is not durable.

    2. Of course, gold has a serious drawback that caused the fiat currencies
      to be produced in the first place… It is expensive to store in a
      marketable fashion – ergo its marketable portability.

      No, that drawback caused it to be held in banks, which issued notes that showed that you owned gold. The notes we call dollar bills. The dollar bills were not a fiat currency. The fiat currency came when the government decided to take all the gold and declare that the dollar bills could no longer be used by the owners to get gold from the bank.

      1. Wrong. Wrong and demonstrably so on all points.

        Before the first paper currency were Goldsmiths who would hold peoples gold because they had the storage space and issue paper receipts. The paper receipts traded as CURRENCY.

        One problem with this: The Goldsmiths had EVERY motivation to write more receipts than the gold in their vault could actually back. The unbacked receipts were PURE FIAT CURRENCY.

        In process, method, conception, and in many instances current family ownership, the goldsmiths of yesterday are the banks of today. It is called ‘Fractional Reserve Banking’.

        The DOLLAR (meaning the paper dollar – not the Constitutional Dollar which is a weight of silver or gold), now that you mention it. WAS ABSOLUTELY A FIAT CURRENCY. During the Civil War the Government didn’t have the gold ‘specie’ to pay their bills. So, they wrote a ‘Legal Tender’ law to force everyone to use the new national paper money which was green on one side – a.k.a. “GREENBACKS”. That they were unbacked was then entire point of the exercise. If the government had had the specie, they’d never have needed the greenbacks.

        And so it continues today. The fact that the Treasury would at some times in the past, and only for some people, redeem paper dollars in gold is quite beside the point.

        From the first day of the first paper dollar right down to today, there has never been enough gold in any vault to redeem paper dollars. They were always a fraud.

  12. I think Gary has a problem wrapping his head around the concept of digital money.
    As many of us do…
    BTW, I wish I had a bitcoin for every time he mentioned Ponzi but I digress…

    1. I wish I had a dollar or a piece of gold for every time he mentions that truthful description. Because dollars and gold have actual value in transactions. Just ask Sanatoshi, who became a dollar billionaire by convincing people to get his bitcoins. No doubt he knows it will be dead in ten years, but he will keep his fortune in dollars.

      1. Unresearched claims don’t win you any believers here I’m sure. Ponzi was the wrong word for Gary North to use.

    1. Tell me when you have walked into a store and bought bread with bitcoin. Name just one time. If you can’t name any such occasion, but you still encourage people to spend money on obtaining bitcoins, then you shouldn’t be the one telling people who is “retarded”.

  13. I’ve yet to hear anyone put their finger on the fundamental reason why Bitcoins will fail as an alternative currency. Here it is – for any currency to be viable, there has to be a physical region, an economy if you will, like the U.S., where it is essential to use that currency in day to day transactions. There is no economy in which you must transact
    business using Bitcoins.

  14. I also find it interesting that many “gold-bugs” attempt to trash Bitcoin. Perhaps the reason is as simple as this: they fear Bitcoin could replace gold as a store of value (which is a natural function of a deflationary currency like Bitcoin). In other words, competition in the space traditionally occupied by gold and silver. Gold has been falling. Bitcoin has been rising. And that’s the market talking.

    1. Gold has been used for thousands of years by people all across the world, who independently of other cultures decided that it had value. It has maintained its value in people’s minds through thick and thin, through peace and war, through prosperity and disaster. It is accepted by billions of people as a way to obtain either currency or goods directly. Bitcoin is accepted by a few thousand idealists/opportunists, while the vast majority of people have never even heard of it. The idealists/opportunists use it to get dollars, which is the real deal.

      So yeah. There is a reason why those who advocate a currency based on gold are “trashing” bitcoin. That is not a negative thing, it is a way to save people from wasting money on a Ponzi scheme. Ten years from now bitcoin will be dead.

  15. Great critique. I am on the BitCoin bandwagon myself, and my dad is on the opposite side. I know he is wiser than I, but BitCoin is so incredibly beautiful as a complex network I believe in it.
    My question for Mr. Rosenberg is has anyone looked at the investment attributes that BitCoin has been displaying in terms of Gresham ‘s Law? New currencies have appeared rivaling, or even state sponsored replacing (Renten Mark) a fiat currency? Also, has there even been a means of exchange with so many shared attributes with gold coming into a market and becoming the good money pushed into the pockets of investors?

    1. I’ll be honest: I have never heard of Gresham’s Law. But I have seen the prices in the grocery store. The price tags don’t mention Bitcoin. If the average guy can’t use Bitcoin, then it will lead nowhere. It’s a Ponzi scheme.

  16. As I understand it, the founder of Bitcoin wrote
    some software and set up a Bitcoin trading network which he promises to
    maintain, and for his labor and toil, he received dollars from those who
    originally purchased Bitcoins from him, coins he created from nothing. Did he
    make a fair profit? I don’t know. Did he make an excessive profit? I don’t know.

    It’s been a while since I read Bitcoins business
    plan, but it seem like he was going to inflate in spurts till he had a certain
    number of coins in circulation. Then he would stop inflating, yet
    consider inflating at a later date. If he stops inflating and can not make a
    fair profit to maintain the computer programs and trade network, it’s a ponzi

    Since industalized nations economies grow at an
    average rate of 3% per year. He could inflate up to 3% per year to maintain the
    computer programs and trading network and make a fair profit, without putting
    downward pressure on the value of his coins. That
    wouldn’t be a ponzi scheme, but it would seem there would have to be some
    mechanism like competition of other currencies to keep him from making an
    excessive profit or replacing the Rothschild’s rather then dethroning

    On another note, if the worlds currencies are
    devaluing a lot, he may be able to make a fair profit and maintain his computer
    programs and trading network. Simply by holding a certain number of Bitcoins
    himself, assuming they are appreciating in value against the worlds

    If the owner of Bitcoin bought gold with the
    Bitcoins he creates from nothing. Then if Bicoins starts to lose value against
    gold, he can sell gold for Bitcoins and delete them from circulation to revalue
    his coins.

  17. Bitcoin is a fiat currency trying to compete with the dollar fiat currency. In that competition Bitcoin will lose.

    I wish something could replace the Fed’s printing scheme, but this is not the way.

    Try to go to a store and buy a loaf of bread with bitcoins. Most likely the cashier has never heard of it. Now try to buy the bread with dollars. The cashier will say yes. This is the true test of a currency, not who can win an ideological discussion in blog posts.

    Bitcoin is a way for people to get dollars. They get some bitcoins and hope the price will rise – in dollars – so they can exchange the bitcoins for dollars. Bitcoin is in a mania stage, like Gary North says. It is a novelty backed by ideological praise. A small group of people like that. But they can’t buy much for it, and so it will deflate.

    Bitcoin made its inventor Sanatoshi a billionaire. In dollars.

    1. When have you bought bread with gold? Gold is must be a ponzi then; great logic. Gresham’s Law says that bad money (inflatable fiat) will push good money (stable or non-inflatable) out of circulation. People will save (or invest) in the good money, putting it in the mattress (or BitCoin wallet so to speak) , and spend the bad money while it’s still useful. The same is applied to Gold and silver. You can’t spend you gold Eagle for a flat screen at Walmart. People choose to save in gold and silver while spend USDs at the store. To me, BitCoin will not be traded in stores until the USD dies, just like silver or gold; but I buy BitCoin, like gold and silver just for that time. You don’t want to get caught after the financial reset without some of all three.

  18. The best attibute of bitcoin by far is in it’s ability to transfer wealth with ease. It’s also a fantastic trading platform due to its volatility. Two great reasons to make use of it. But we are told it was ‘created’ by an anonymous programmer who termed the creation of new bitcoins (using computing power) ‘mining’. Sort of like the Fed ‘creating’ $85 billion a month from nothing. Both are highly suspect and deeply flawed as a substitute for money. History tells us that only gold and silver are money and that money must be a store of value and also have intrinsic value. Ignore history at your peril. Perhaps the best way to understand bitcoin is to see how it is used most successfully in steering folks away from real money. Don’t be fooled, every central bank and every politician in this world are working overtime to make sure human beings see fiat and crypto currencies as money and gold and silver barbarous relics with no use or function in our ‘modern’ society. The gold and silver charts look terrible, taxes on gold and silver ‘profits’ are punitive, all media coverage of gold and silver are overwhelmingly negative, and the Fed chairman himself has told us that gold is not money. Place your bets folks, either central bankers and politicians are smarter than us and are working on our behalf or they are not.

  19. I am in firm agreement with Bill Still; “It’s not what backs a currency that matters, what matters is who controls it’s quantity.”

    What is killing the price of precious metals is their paper markets. Few people want to be bothered with physical metals because they are cumbersome, expensive, and slow to move from one place to another. Then there is the Crimex: It is well know that physical metals are leveraged at least 100:1 and that ratio is getting higher.

    Crypto, BitCoin, has no paper market. Nobody could print up fake receipts for multiple claims on the same Bitcoin. Actually, someone could try – but there would be no market because there is nothing to be gained. Bitcoin – in it’s natural form – can change ownership – irreversibly – in the blink of an eye anywhere around the world. No need for claim checks or IOU’s as with precious metals.

    BitCoin’s only vulnerability is it’s market cap. When all else is equal, whoever is holding the leash of the biggest and meanest dog wins the fight. That is why fiat will reign supreme until it eventually collapses under it’s own weight.

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