Why Bitcoin is Stupid

Well, shit. I’ve been watching this situation for a few years, and assuming it would just blow over so we wouldn’t have to talk about it here in this place where we are supposed to be busy improving our lives.

But a collective insanity has sprouted around the new field of ‘cryptocurrencies’, causing a totally irrational worldwide gold rush. It has reached the point that a big percentage of stories in the financial news and questions in Mr. Money Mustache’s email inbox are about whether or not we should all ‘invest’ in BitCoin.

We’ll start with the answer: No, you should not invest in Bitcoin. The reason is that it’s not an investment. Just like gold, tulip bulbs, Beanie Babies, 1999 dotcoms without any hope of a product plan, “pre-construction pricing” Toronto condominiums you have no intent to occupy or rent out, and rare baseball cards are not investments.

Update, three years later: Since I wrote this, the imaginary price of Bitcoin has continued to be all over the map – it initially dropped over 70%, then it went back up many hundreds of percent, over and over. This instability just further proves that it would make a terrible currency – and a recent study reveals that about 95% of even the trading volume is fraudulent. People get excited about Bitcoin when the price goes up, but that’s because they like making money – not because the underlying object has any actual value or usefulness.

These are all things that people have bought in the past, and driven to completely irrational prices, not because they did anything useful or produced any money and value to society, but solely because they thought they would be able to sell them to someone else for more in the future.

When you make this kind of purchase, which you should never do, you are speculating, which is not a useful activity. You’re playing a psychological, win-lose battle against other humans with money as the only objective. Even if you win some money through dumb luck, you have lost some time and life energy, which means you have lost.

Noticed this ad on the corner of a website recently … because we ALL need daily updates on an obscure piece of niche software technology!

Investing means buying an asset that actually creates products and services and cashflow for an extended period of time. Like a piece of a profitable business or a rentable piece of real estate. An investment is something that has intrinsic value – that is, it would be worth owning from a financial perspective, even if you could never sell it.

Now, with that moral sermon out of the way, we might as well talk about why Bitcoin has become such a big thing, so we can separate the usefulness of the underlying technology called “Blockchain”, from the mania about how people have turned Bitcoin it into a big dumb lottery.

This separation is important because the usefulness of Blockchain is the primary justification people use for the big dumb Bitcoin lottery. 

Once you make this separation in your mind, you can see that Blockchain is a simply a nifty new software invention (which is open-source and free for anyone to use), whereas Bitcoin is just one well-known way to use it.

Blockchain is just a computer protocol, which allows two people (or machines) to do transactions even if they don’t trust each other or the network between them. It can have applications in the monetary system, contracts, and even as a component in higher level protocols like sharing files. But it’s not some spectacular Instant Trillionaire piece of magic.

As a real world comparison, I quote this nifty piece from a reader named The Unassuming Banker:

… imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it on-line, freely available for anyone to use.

Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trade marked it, and started selling it to the highest bidders.

I think we can all agree a cure for cancer is immensely valuable to society (blockchain may or may not be, we still have to see), however, how much is a Cancer-Pill worth?

Our Banker friend goes on to explain that the first Cancer-Pill might initially see some great sales. Prices would rise, especially if the supply of these pills was limited (just as an artificial supply limit is built right into the Bitcoin algorithm.)

But since the formula is open and free, other companies would quickly come out with their own cancer pills. Cancer-Away, CancerBgone, CancEthereum, and any other number of competitors would spring up. Anybody can make a pill, and it costs only a few cents per dose.

And yet imagine everybody started bidding up Cancer-Pills, to the point that they cost $17,000 each and fluctuate widely in price, seemingly for no reason. Because of this, newspapers start reporting on prices daily, triggering so many tales of instant riches that you notice even your barber and your massage therapist are offering tips on how to invest in this new “asset class”.

But instead of seeing how ridiculous this is, even more people start piling in and bidding up every new variety of pills (cryptocurrency), over and over and on and on, until they are some of the most “valuable” things on the planet.

NO, right?

And yet this is exactly what’s happening with Bitcoin. And if you haven’t been digging into the cryptocurrency world much, it gets way weirder than this. Take a look at this shot from the website coinmarketcap.com, and observe the preposterous herd behavior in real life:

Fig.1: Various cryptocurrencies, ranked by how many people have been fooled.

“Holy Shit!” is the only reasonable reaction. You’ve got Bitcoin with a market value of $234 Billion Dollars, then Ripple at $92 billion with Ethereum right behind at $85,792,800,592.

These are preposterous numbers. The imaginary value of these valueless bits of computer data represents enough money to change the course of the entire human race, for example eliminating all poverty or replacing the entire world’s 800 gigawatts of coal power plants with solar generation. Why? WHY???

An Aside: Why should we listen to you, Mustache?

I’m only a mediocre computer scientist. But coincidentally, after I got my computer engineering degree I ended up specializing in security and encryption technologies for most of my career. So I did learn a bit about locking and unlocking information, hacking, and ensuring that independent brains (whether they are two adjacent CPUs on a circuit board or two companies negotiating across the Pacific) can trust each other and coordinate their actions in lockstep. I even read about these things for fun, with Simon Singh’s The Code Book and the Neil Stephenson novel Cryptonomicon being particularly fun shortcuts to pick up some of the workings and the context of cryptography.

But that’s just the software side (Blockchain). Bitcoin (aka CancerPills) has become an investment bubble, with the complementary forces of Human herd behavior, greed, fear of missing out, and a lack of understanding of past financial bubbles amplifying it.

Mustachianism – the mental training that gets you to very early financial freedom – requires you to evaluate inefficiencies in our culture and call bullshit upon them. Even if you are the only one in the room willing to do it.

In the field of personal wealth, this means walking your children past the idling lineup of your neighbors’ Mercedes SUVs, over the snowy grass and up to the door of the school – and being confident that you are doing the right thing. Even if you’re the only one doing it.

When evaluating investment bubbles, it means looking at where everyone is throwing their money – no matter how many billions – and being willing to say “Bull. Shit. Guys. Not going to do this with you.”

So I also read a lot about investment bubbles and fundamentals and how to tell those apart. One book that I found very useful in understanding the greed-fear cycle (and Central Banking and the Federal Reserve system to boot) is the 2001 classic Towards Rational Exuberance by Mark Smith. For a shortcut to understanding good investing, you can also simply look up Warren Buffet’s thinking on almost any topic – he’s careful enough about offering opinions that by the time he makes a statement on something, you can be pretty sure it will be among the best answers out there.

And of course, the purpose of this whole aside is that I want to establish credibility with you, so you will give this article some consideration. I believe the current Cryptocurrency “investment” mania is a huge waste of human energy, and our rate of waste has been growing exponentially.

The sooner we debunk the myth and come to our senses, the richer our world will be. So we need more credible people to speak out against it. If you’re one of these credible people, please do so in the comments or in a blog post on Medium that we can all read.

Why was Bitcoin Even Invented?

Understanding the motivation is a big part of understanding Bitcoin. As the legend goes, an anonymous developer published this whitepaper in 2008 under the fake name Satoshi Nakamoto. It’s well written and pretty obviously by a real software and math person. But it also has some ideology built in – the assumption that giving national governments the ability to monitor flows of money in the financial system and use it as a form of law enforcement is wrong.

This financial libertarian streak is at the core of Bitcoin, and you’ll hear echoes of that sentiment in all the pro-crypto blogs and podcasts. The sensible-sounding ones will say, “Sure the G20 nations all have stable financial systems, but Bitcoin is a lifesaver in places like Venezuela where the government can vaporize your wealth when you sleep.”

The harder-core pundits say “Even the US Federal Reserve is a bunch ‘a’ CROOKS, stealing your money via INFLATION, and that nasty Fiat Currency they issue is nothing but TOILET PAPER!!”

It’s all the same stuff that people say about Gold, which is also a totally irrational waste of human investment energy.

Government-issued currencies have value because they represent human trust and cooperation. There is no wealth and no trade without these two things, so you might as well go all-in and trust people. There are no financial instruments that will protect you from a world where we no longer trust each other.

So, Bitcoin is a protocol invented to solve a money problem that simply does not exist in the rich countries, which is where most of the money is. Sure, an anonymous way to exchange money and escape the eyes of a corrupt government is a good thing for human rights. But at least 98% of MMM readers do not live in countries where this is an issue.

So just relax, lean into it, and grow rich with me.

OK, But What if Bitcoin Becomes the World Currency?

The other argument for Bitcoin’s “value” is that there will only ever be 21 million of them, and they will eventually replace all other world currencies, or at least become the “new gold”, so the fundamental value is either the entire world’s GDP or at least the total value of all gold, divided by 21 million.

People then go on to say, “If there’s even a ONE PERCENT CHANCE that this happens, Bitcoins are severely undervalued and they should really be worth, like, at least a quadrillion dollars each!!

This is not going to happen. After all, you could make the same argument about Mr. Money Mustache’s fingernail clippings: they may have no intrinsic value, but at least they are in limited supply so let’s use them as the new world currency! 

Why not somebody else’s fingernail clippings? Why not one of the other 1500 cryptocurrencies? Shut up, just send me $100 via PayPal and I’ll send you a bag of my fingernail clippings.

Let’s get this straight: in order for Bitcoin to be a real currency, it needs several things:

  • easy and frictionless trading between people 
  • to be widely accepted as legal tender for all debts, public and private
  • a stable value that does not fluctuate (otherwise it’s impossible to set prices)

Bitcoin has none of these things, and even safely storing it is difficult (see Mt. Gox, Bitfinex, and the various wallets and exchanges that have been hacked)

The second point is also critical: Bitcoin is only valuable if it truly becomes a critical world currency. In other words, if you truly need it to buy stuff, and thus you need to buy coins from some other person in order to conduct important bits of world commerce that you can’t do any other way. Right now, the only people driving up the price are other speculators. The bitcoin price isn’t rising because people are buying the coins to conduct real business. It’s rising because people are buying it up, hoping someone else will buy it at an even higher price later. It’s only valuable when you cash it out to a real currency again, like the US dollar, and use it to buy something useful like a nice house or a business. When the supply of foolish speculators dries up, the value evaporates – often very quickly.

Also, a currency should not be artificially sparse. It needs to expand with the supply of goods and services in the world, otherwise we end up with deflation and hoarding. It also helps to have wise, centralized humans (the Federal Reserve system and other central banks) guiding the system. In a world of human trust, putting the wisest and most respected people in a position of Adult Supervision is a useful tactic.

Finally, nothing becomes a good investment just because “it’s been going up in price lately.”

If you disagree with me on that point, the price of my fingernails has just increased by 70,000% and they are now $70,000 per bag. Quick, get me that money on PayPal before you miss out on any more of this incredible “performance!”

Figure 2: Random people on Twitter doing some deep, useful Investment Analysis on Bitcoin. (Update from late 2018 – Mike ended up being wayyyy wrong.)

The world’s governments are not going to let everyone start trading money anonymously and evading taxes using Bitcoin. If cryptocurrency does take off, it will be in a government-backed form, like a new “Fedcoin” or “G20coin.” Full anonymity and government evasion will not be one of its features.

And you don’t want it for this purpose anyway – after all, do you currently hide your money in offshore tax havens and transact your business on black markets? Do you practice illegal tax evasion as your primary wealth strategy? Probably not, because life is better and wealthier when you aren’t living a life of crime.

The Cryptocurrency bubble is really a replay of the past: A good percentage of Humans are prone to mass delusions which lead to irrational behavior. This is a known bug in our operating system, and we have designed some parts of our society to protect us against it.

These days, stocks are regulated by the SEC, precisely because in the olden days, there were many, many stocks issued that were much like Bitcoin. Marketed to unsophisticated investors as a get-rich-quick scheme. The very definition of an unsophisticated investor is “Being more willing to buy something, the more its price goes up.”

Don’t be one of these fools.

Further Notes

About the Comments Section: Normally, I try not to publish comments that are just emotional reactions or totally uninformed. For this article, I have set the bar much lower to show you the religious conviction that crypto speculators have.

People are genuinely mad at me for calling out this speculative aspect (note that I did not criticize blockchain at all, just the idea of uninformed people betting on future price increases for the arbitrary “coins”).

The general trend seems to be accusing me of “not doing enough research”, even after I dug into this stuff pretty deeply for a long, long time. I remain open to more information on the uses of Blockchain, but I’ve never seen a valid fundamental reason for betting on future increases in the prices of these things.

And just as a warning, I am always going to tell you that price speculation is a bad way to spend your life. This part of it is ideological to me: You Must Earn Your Money By Creating Value for Everyone.

Here’s a great description of the whole scene by Chain CEO Adam Ludwin. You’ll note that without prejudice and emotion, he describes the actual uses of the technology, without getting into how we should all place uninformed bets on its future value. 

The real test of if you should be a cryptocurrency supporter: would you be exactly as passionate and spend the same amount of time thinking about it, if Bitcoin were still an obscure piece of code, worth less than one cent, and offered no chance of ever earning you any money? Because if you’re going to be an evangelist for anything, it needs to be purely based on the underlying merits, not what you hope it will do for your personal fortune.

This YouTube Video is one of the best shortcuts I found for explaining how Blockchain (and Bitcoin) works.

This Vice article explains yet another ridiculous aspect of Cryptocurrency: running the transaction network (called “Mining”) involves a deliberate computer-intensive crypto challenge syetem called “proof of work”. This inefficient design is now wasting more electricity than many entire countries. Doing one transaction burns 215 kilowatt-hours of electricity, enough to run the entire MMM household for more than a full month, or to power an electric car for more than 800 miles of driving.

Another interesting side-effect of bitcoin mining: big sales of computer graphics cards, and theft of electricity and cloud computer services. One of my coworkers at MMM-HQ works for nVidia, and part of his job is hunting down mining thieves who comandeer virtual servers (cloud computing) to mine coins on their behalf. Some of my conversations with him inspired the research in this article.

I enjoyed this analysis by Aswath Damodaran, a thoughtful investor and Professor at NYU school of business

Another intelligent case by highly experienced crypto business lawyer Preston Byrne. Favorite quote:

“Bitcoin’s growth is not based on its technology alone (which, while powerful, is open-source and therefore easily replicable) but rather on the strength of virality, encouraged by the vested interests who held early and invested in marketing it; with no genuine business underlying it, it acquires its (very substantial) memetic potency only from the evangelism of those who hodl and preach.”

David Webb’s great explanation: Bitcoin: the World’s First Decentralized Ponzi Scheme

Preston Byrne again (brilliant guy!): the Problem with calling Bitcoin a Ponzi Scheme

  • a1pharm January 14, 2018, 1:03 pm

    There seems to be 4 main counterarguments posed by bitcoin fanboys in the comments:

    1. Blockchain is probably useful, therefore Bitcoin is useful – this displays false equivalence bias
    2. You can’t trust government, therefore you can trust Bitcoin – these are unrelated ideas NOT dependent on one another
    3. I’ve made money (or I’ve heard of others doing so), therefore Bitcoin is awesome – these folks use anecdotal evidence to dismiss large scale statistical truths
    4. People thought the internet was stupid when it first came out, now it’s HUUUUGE. Therefore, because Bitcoin is currently stupid, it will also be HUUUUUGE! – these folks forgot about Beanie Babies, tulip bulbs, JNCO jeans, fannypacks, and more…

    MMM – thank you for encouraging the masses to place their investment dollars in smart, productive assets. A lot of people will ignore you today, and secretly hate you once their Bitcoins become worthless tomorrow. Keep fighting the good fight!

    • Mr. Money Mustache January 15, 2018, 12:14 pm

      Don’t forget this one:

      5. “Nobody can predict the future, but Bitcoin is a revolution. So I’ll just put a tiny bit of my net worth into Bitcoin, and I’ll be even more responsible by adding some Dogecoin and other assets, and I can afford to lose it all, but it might just as easily become worth a billion dollars. So where’s the harm?”

      The harm is that it only takes a tiny percentage of the world’s population adopting this attitude, to drive ANY imaginary speculative thing, to a multi-billion-dollar valuation. And human nature guarantees that people will follow in each other’s sheepsteps, regardless of the underlying rationality.

      To create a better world, we need to behave MORE rationally, on average, and reduce the amount of time we spend falling into our own built-in cognitive weaknesses. Not speculating on stuff “just in case it goes up even more” is a key part of this.

      • Andrew Mullen January 17, 2018, 9:20 am

        I think that your drive to push people to create a better world is what attracts so many people to this blog. I can definitely see your vision of the better world that we can create, but in my opinion, that world would embrace a crypto currency. Managing the financial system that we currently have requires a tremendous amount of time and resources. Why is it necessary to have large towers filled with high salary earners to process a financial transactions, manage the supply of money and set rates? If you want to pay for a good or service you can just send the bitcoin (or whatev) directly to the seller without the need of the wise folks in the tower. So, to me, saying that the current system is better is like saying that it’s better to take an F-350 to the grocery store for milk. In the future this blockchain technology and the smart contracts that can be created for just about anything will automate many activities that we currently spend a tremendous amount of time and energy on, thus leaving us with more time to focus on creating a better world.

        • a1pharm January 18, 2018, 12:56 pm

          The value of bitcoin has dropped about 50% in less than a month. I prefer that the currency I use to buy stuff doesn’t lose value like that. I’m glad this crypto stuff is a fad – it would be a real shame if people relied on it to buy important stuff (like food), and found that while they could feed their children yesterday, they cannot today, because of the unregulated (and bogus) nature of crypto coins.

  • Mr.FP January 14, 2018, 6:14 pm

    People seem very worked up over this whole thing. I had a bunch of co-workers get into the crypto-craze and kept saying how great block-chain is……The entire thing smells more like speculation than anything else, which is fine as long as you’re clear about what’s going on.

  • Steven January 15, 2018, 5:49 am

    Wow there is a bit of cool-aid drinking behaviour by the pro-Bitcoin people…. I have put about 2% of my portfolio in Cryptocurrency as it is something that interests me. I understand it’s most likely a bubble and what I put in I’m prepared to lose. However I’m hoping to make some quick gains and will see what happens. I plan to take my initial investment out if it goes up a bit and then hope what’s left goes to the moon.

  • savetheday January 15, 2018, 6:11 am

    MMM, I just kept thinking about this article and how you talked about the FED as responsible, trustworthy people. Yet our country is over 20 trillion in debt. This is a complete debt emergency. What do you have to say about our national debt? Would you be willing to share your ideas in a longer blog post? It just seems to go so much against your teachings that you blindly put faith in these money-printers without questioning the debt at all…

  • CALEB S January 15, 2018, 6:43 am

    Btc bad, fed inflated funds and real estate good! Seriously though you’d happily have people invest in the stock market which is the most overvalued its ever been and in resi and commercial real estate, which, you guessed it, is also the most overvalued its ever been. Your strategy might have worked well over the past decade as QE has distorted the economy but it will be interesting to see how you get on through a deflation cycle. Stick to the ‘tighten the belt and cut the lattes’ stuff and leave this kind of thing to those with a realistic macro view. Punching way above your weight.

  • Reginald January 15, 2018, 7:41 am

    The irony here is that a lot of people are retiring early by having ignored just this kind of advice.

    Personally, I am investing 2% of my portfolio in cryptocurrency. If it ends up being worthless, so be it. Notwithstanding MMM’s technology credentials, certainly there are many people with plenty of tech expertise who are onboard with crypto.

    Here are some particular quotes from above that don’t hold water: “Government-issued currencies have value because they represent human trust and cooperation.” Um, okay. In other words, they hold value because they “represent” something completely intangible. So why is this an argument against cryptocurrencies?

    “The world’s governments are not going to let everyone start trading money anonymously and evading taxes using Bitcoin.” Personally, in my opinion, privacy coins are perhaps the best crypto investment class. How are governments going to stop people from trading these coins? Good luck. BTW, Bitcoin isn’t anonymous. Monero is.

    Then there is the whole part about using fingernails as currency, which supposedly would be equally good, according to the author…

    Overall there are a lot of tired arguments here, supported by weak logic and little analysis of the technological component. I’ll agree that we’re in a bubble, with plenty of ridiculousness (e.g., see the market cap of Dentacoin), and loads of coins that are purely scams.

    At the same time, you have guys like Richard Branson and Peter Thiel putting significant resources into cryptocurrencies, along with many technologically sophisticated VCs. These people aren’t stupid. And many cryptocurrencies are good faith efforts by highly intelligent people to solve real issues.

    For a different perspective, I suggest this interview with Naval Ravikant:


  • Mike January 15, 2018, 10:30 am

    I’m normally a pretty big fan of your posts but this one was clearly poorly researched. There’s much more to the crypto space now than bitcoin/currencies. People solving real world problems using blockchain tech. There are also other currencies that don’t rely on mining like BTC.

    I agree it is a high risk investment but I think it’s more likely the whole space ends up being worth trillions as opposed to less than what it is now in a few years.

    It seems a little silly you won’t even entertain the notion that there may be immense value in the space. What if you’re wrong and you’re sitting out the greatest investment opportunity in many generations?

    Are we in a bubble? Maybe. That doesn’t mean all crypto is worthless. People have been saying the bubble is going to pop for years, but here we are.

    Only invest what you’re willing to lose and do your own research!

    • Jeff January 16, 2018, 2:50 am

      Blockchain doesn’t scale. A theoretical maximum of 4000 transactions per second will not serve a worldwide audience, no matter how hard you try. This is not about investing. It is about a technology with fundamental real world limitations due to its intrinsic design.

  • Gary McKinnon January 15, 2018, 11:43 am

    From this article i sense you’re a traditional investor locked in traditional views. The fact that this hasn’t ‘blown over’ should tell you something. It’s value is mainly from speculation at the moment, yes, but more and more businesses are taking it on as a currency, Romania has BTC ATMS, Microsoft and other large corporations have taken an interest.

    Already non-nerds are taking it up, it’s easier to purchase and sell than ever.

    It’s here to stay and will only improve. If you don’t want to invest in it, trading it is a great income since it often oscillates with stable periodicity.

    It’s a well-written article and i enjoyed reading it but i don’t agree with your bleak outlook on the matter.

  • Honest Bob January 15, 2018, 12:46 pm

    The genius idea was to call these things “coins” because no-one would “invest” in these nothings if they had been called “points” (such as “frequent flyer points”). I’d rather buy my rare (but equally useless) toenail clippings.

  • Honest Bob January 15, 2018, 1:02 pm

    Crypto-coins are like shares without any company or asset behind them. They are essentially collectables – like old coins, stamp collections, art… But unlike collectables, they have zero inherent value. You can’t admire a bitcoin hanging on the wall. They are not like any investment that produces an income (like a share or investment property) or that can be used for any reasonable purpose (eg, you can admire a painting or live in an investment property but you can’t even see your bitcoin – it’s just a long mysterious series of digits and you just have to trust that it hasn’t already been stolen by a hacker).

    Maybe you can buy something with a bitcoin or move funds from Point A to Point B with Ripple (XRP), but we can already do this with money or credit. Why does the world need these “coins”?? Next someone will re-invent the wheel and we’ll all be convinced it’s revolutionary and super valuable!! It’s crazy!

    People will probably lose fortunes if they hold on to bitcoins or any crypto-currency before the inevitable crash. They are only worth what someone is willing to pay so, when everyone panics to sell, they will crash to zero – that is, if you can sell them when there are no more buyers.

    And why would anyone want to use crypto-coins for everyday transactions or for fund transfers when their “value” is so unpredictable/unstable? Yes we have inflation and fees with fiat money but surely this is better than unpredictable crypto-coin price fluctuations! By the time you receive your “coins”, their value might be much different to what you expected!

    Yes, banks and countries (like Israel) might develop their own crypto-currencies but they will probably be tokens with a stable value – not tools for speculation.

    By the way, I don’t think Ripple (XRP) was ever intended to be a currency for everyday use. It’s simply a virtual token to be used as an exchange tool by financial institutions (eg, they will convert AUD to XRP then instantly convert the XRP to another real currency – with speed essential to avoid losses due to XRP value fluctuations). I have no idea why anyone (other than the Ripple company) wants to own Ripple (XRP) – especially at the current ludicrous price.

    Also note that there are billions of Ripple (XRP) versus only 21 million bitcoins – it’s not exactly a rare commodity. My toenails are rarer and possibly a better investment. (Yes, Ripple’s software and the Ripple company are good and valuable – but please don’t confuse these things with the XRP “coins”, “points” or, as I like to call them, “nothings”.)

    Be careful out there! (This is not investment advice. I know nothing!)

    • SweetBabyJames January 17, 2018, 9:25 pm

      Normally when people resort to analogy to explain things they assume you don’t understand ANYTHING about the subject OR they themselves need the analogy to simplify a complex idea. Calling crypto “collectibles’ you definitely fall into the latter category.

      As to your XRP points, I’ll be brief but you’ve missed the point entirely. To use an analogy; XRP is like a re-invented wheel except it goes faster than other wheels (settles in 3-4 secs vs days for ACH). It gets from point A-B quicker thus costing less gas (transaction fees). The trips are so fast that you don’t have to worry about air pressure in your wheel fluctuating (inflation/deflation). Because you can get XRP wheels anywhere you don’t have to keep extra fiat wheels all around the city (27 Trillion in nostro/vostro accounts) and Ripple, who makes the wheels, is setting up interconnected wheel outlets on every block to track/verify wheel purchases while preventing theft (DLP ie Blockchain).

      Leaving the allegorical world behind, I’d suggest looking up Satoshi vs Drops to better understand Ripple vs. Bitcoin scarcity. There is quite a bit written by people in and outside of Ripple itself explaining incentives for 3rd parties to provide liquidity along with reasons why Banks, FIs, and businesses could get XRP at or below market value while still reaping the low friction fast settling cross currency benefits listed above.

      I hope that helps clarify a bit. No need to thank me. It was “nothing”.

      • TomTX February 5, 2018, 7:19 am

        So, apparently you’ve never heard of Zelle.

        I can move money between different participating banks, and it is typically transferred within seconds. Possibly a couple minutes. Secure, backed by the banks and my FDIC insured funds stay FDIC insured

        That seems to remove just about all your touted advantages of XRP. Pity you didn’t research currency transfer and chose just the ACH as your strawman – it tells me you are an evangelist and have no interest in honest debate of the merits of XRP.

    • Avi January 19, 2018, 12:51 pm

      > Crypto-coins are like shares without any company or asset behind them

      Facebook shares are shares without any asset behind them. Well, almost. The Facebook website itself is an asset, and all the infrastructure needed to run the website is also an asset. But there is no way that is worth $500 Billion dollars.

      The real “asset” behind Facebook is not the website itself but the community of users that are locked into the system. The same can be said about cryptocurrencies. They are decentralized companies of sorts.

      > Maybe you can buy something with a bitcoin or move funds from Point A to Point B with Ripple (XRP), but we can already do this with money or credit.

      Moving financial instruments in the legacy finance system is incredibly inefficient, slow and costly. Simply STORING financial instruments in that system is costly. Ask any professional trader or asset manager about custody and transaction costs. In actively managed funds, those costs can consume 1% of the fund’s value per year!

      Those costs are lowered by ordered of magnitudes, once you move financial instruments to a blockchain. And not just financial instruments, also insurance contracts and many other things. Saying that this is “reinventing the wheel”, is like saying “bah, why does anyone need email if they can send a letter?”

      > And why would anyone want to use crypto-coins for everyday transactions or for fund transfers when their “value” is so unpredictable/unstable?

      People are working on tokens whose value is tied to commodities, price indexes, etc. through oracles and prediction markets, and other clever tricks. Give it some time! Blockchain technology is in the very early stages right now.

      > Also note that there are billions of Ripple (XRP) versus only 21 million bitcoins – it’s not exactly a rare commodity.

      There are trillions of grams of gold in the world but only a few megatons of silver. Therefore silver is rarer than gold?

      • Michael January 20, 2018, 9:47 pm

        ICOs of coins is no where near the same as IPOs of shares.

        Owning shares of facebook gives you an ownership interest in their future revenue stream. Many companies pay dividends, many re-invest their revenues to grow income (and therefore stock price). Yes, a company can be over-valued, but there is an intrinsic asset there. And there is lots of due diligence behind an IPO and for the most part share buyers can figure out a good deal about a company and their plans before buying shares.

        Owning tokens of an ICO gives you … what exactly? Do you own any of the future revenue stream of the company? Nope, the founders of the company offering the ICO have 100% ownership… You can play with the company’s future product, if and when it is built. But, you can buy the tokens in the future to use the product after it is built and you can see whether you’d like to use it. And by waiting you avoid the risk that the product isn’t built/successful… Do you get good due diligence and a look at the company and it’s product? From the few ICOs I’ve read about it doesn’t look like it.

        I feel like I’m missing something about how ICOs work to compensate early buyers…

        • Matt February 20, 2019, 12:52 pm

          There are cryptos that pay out a percentage of profits the business produces, you just have to find them. Ethereum uses smart contracts that can do this, some of the crypto trading platforms do this already, if you hold the coin you get a percent of the trading profits of the exchange.

      • TomTX February 5, 2018, 7:23 am

        Storing financial instruments in the standard financial system is costly?

        Ridiculous. The bank is paying me 1.5% to store my money there.

        Financial instruments are expensive? Also ridiculous. Buy stocks directly at a reasonable broker and you have no carrying costs at all. If you want mutual funds or ETFs, don’t be stupid and buy expensive ones. Use VTI and the maintenance is all of 0.04% per year.

        Your arguments are that of the evangelist, not one who wants to honestly evaluate cryptocurrency against standard financial instruments.

  • Isaac Rabinovitch January 15, 2018, 1:47 pm

    “A currency should also not be artificially sparse. It needs to expand with the supply of goods and services in the world, otherwise we end up with deflation and hoarding. It helps to have the Federal Reserve system and other central banks guiding the system.”

    I believe the premise of bitcoin is exactly the opposite: a limited money supply protects you from Evil Governments that want to Destroy Your Wealth. Back in the 70s and 80s, I heard libertarians using the same logic to advocate a return to the gold standard.

  • Honest Bob January 15, 2018, 2:24 pm

    The mighty crypto-crash (in 2018?) could help to reverse the inflationary pressure of QE. A good thing? Then the poor confused crypto-fanatics will stop buying Lamborghinis and luxury homes and some will dump real assets to pay off debts. Maybe the government should intervene now to avoid this crisis. I see that Korea and China are making moves. What next?

  • Dan January 15, 2018, 3:39 pm

    When my barely literate Uber driver can’t contain his excitement for “Bitcoin, man” I know the bubble is close to bursting. A few fortunes will be created, millions of suckers get fleeced.

  • DividendFamilyGuy January 15, 2018, 7:40 pm

    I have a guy at work that asks me daily when I am going to get in. Not only him but several friends. I have read enough history and lived long enough to see speculation and bubbles. While I have been tempted I don’t know how to tell a good crypto currency from one of the other thousand. And I like knowing I will get paid a dividend or two from company profits. Also when I ask about transaction fees they start to get quiet because they know they are very high. Hopefully those that do cash out will use the money to better the world.

  • Avi January 16, 2018, 1:25 am

    By the same argument, Facebook is not an investment. Facebook is just a website that anyone can copy. Sure, the website has SOME “intrinsic value”. If you wanted to copy Facebook, you would have to rent servers, hire web developers, customer support, etc. But it would cost a tiny fraction of Facebook’s $500 Billion valuation.

    So where does Facebook’s insane $500 Billion valuation come from? It doesn’t come form the “intrinsic value” of the website itself, it comes from the “speculative value” of its user base. The value is “speculative” in the same way that bitcoins value is “speculative”, because it depends purely on the number of people using Facebook. The more people join Facebook, the more useful, and thus more valuable, it becomes. Bitcoin exhibits similar (stronger even) network effects than Facebook.

    A more accurate analogy than a Cancer-Pill would be a vaccine with a strong herd immunity effect, ie. the vaccine becomes more effective for the individual the people are taking it already.

    • Mr. Money Mustache January 16, 2018, 1:48 pm

      Aha, that’s a perfect example.

      Because when you buy “Facebook”, you are NOT buying pieces of the easily-duplicated website, wrapped up in encryption and labeled as a “coin”, as is the case with crypto currencies.

      Instead, you are buying a LEGAL SHARE of an established, profitable business that you expect to eventually pay a lifelong stream of dividends. And remember that dividends (or in rare cases buyout proceeds), are the only reason shares have any value. If no dividends were ever expected, the value of any company’s shares would be zero. Buying shares is buying EARNINGS.

      A company’s valuation is equal to the net present value of all future profits from the company. Sometimes it undershoots or overshoots this because of a mixture of unpredictable futures and speculation. And you’ll note that on this website, I advise people AGAINST even buying individual company shares. You buy the index funds to reduce the risk of individual stocks that might just be speculative burnouts.

      If you want to “invest” in bitcoin, you would need to buy shares in a profitable company whose fate is tied to the technology. The value would be based on eventual dividends you receive from this long-term ownership.

  • Andrew Mullen January 16, 2018, 3:17 pm

    Wow, this comment section is out of control too! I agree that we have entered bubble territory, but I am also a strong believer in the concept behind these crypto coins. The financial crisis left a lot of us scarred and wondering if we can truly just banks and the fed reserve and the rest of the wise folks. I mean we don’t have to look very hard for proof that the US taxpayers really got screwed having to foot the bill for the bailouts and then the trickle down bailouts…etc. So, born out of this disaster we now have a peer-t0-peer money system with no 3rd party required. As a huge fan of most things P2P I have to say that the idea excites me. I realize that there are still plenty of flaws, but I can’t help but wonder….if we were going to start society over from scratch (thinking Mars colony)…would it be easier to rebuild our current financial system, or just start over with something like bitcoin? I would vote for the P2P system.

    • Darren January 16, 2018, 4:02 pm

      Andrew Mullen,

      Not really the point of your comment, but it is worth pointing out that the US government (and hence tax payers) made money on the bailouts. The bailouts weren’t gifts or even loans (for the most part), they conferred equity ownership to the federal government (or some similar arrangement, like Fannie Mae). Though some companies declared bankruptcy and hence were total losses (e.g. GMC), the US government has made 100s of billions of dollars on AIG, Fannie Mae/Freddie Mac, Citigroup, Bank of America, … Then there is the indirect returns of avoiding a prolonged recession.

      • Andrew Mullen January 17, 2018, 8:30 am

        It’s all artificial; capitalism and bailouts do not mix. The US would be healthier had we let the invisible hand work its magic.

        Moving on….another thing I was thinking about is the “waste of human energy” comment. I agree that people have become obsessed with this crypto mania and that is definitely not healthy, but think of all of the human energy wasted in the current financial system. Is that healthy? A protocol, like bitcoin (if embraced) could eliminate the need for bankers, tax processors, and most other financial service jobs….literally hundreds of millions of people around the world wasting their energy managing something that no longer needs to be managed.

        • SweetBabyJames January 17, 2018, 8:53 pm

          Except inefficiencies are the only thing generating money (which is why the service economy and service jobs are still growing in a somewhat stagnate climate). Aldi, for example, packs shelves directly from pallets still in the shipping box. They sell mostly their own brand and are extremely efficient. Cashiers don’t bag a thing. This drives down consumer prices BUT tellingly, Aldi hires a fraction of the laborers employed by other groceries stores. The writing is on the wall for a number of jobs a efficiency is a poor goal from the “consumer” end of things.

          Uber vs. Cab drivers. AirBnB vs. Hotels. Everywhere you see friction between consumers and their desires, if broken down, equates to less pie to go around in the long run. Say we cut friction even further and somehow, the frugal consumer manages to hold on to it and invest. What next? Blow bubbles into a record DOW Jones and further inflate returns based on . . . well not any tangible investment that’s for sure.

          Crytpo currencies is just another hobby for the aspiring middle class same as FI. Bitcoin is at least one of the last grass roots movements to make a global impact (now we have astro-turfing ie. fake grass roots) which is more ideologically appealing than whatever exotic derivative product upsets the collective economic apple cart next time. Stability is a much better goal for finance than efficiency.

  • Cameron January 17, 2018, 6:07 pm

    Investing in bitcoin is stupid in the same way paying for gym membership is stupid. Some people will get exactly what they want from it and the investment will have been worthwhile, whereas some won’t. The returns will be wildly different depending on the person’s commitment and strategy.

    I fkn hate gyms and won’t be touching bitcoin… but everyone’s experience and journey will be different. Whatever road you decide to travel, god speed!

  • Grey January 17, 2018, 8:06 pm

    Crypto frenzy is at a peak right now and I agree that most of these coins and companies 99% of them will be gone in a year or so. That being said, I’ve been investing a decent amount of money every month since last march and have just reached 1.7 million of REALIZED profits off of a $20,000 initial investment.

    I would not recommend investing now as everything is way overpriced. I got in early enough and crypto changed my life. Moving 90% of my earnings into traditional investments now and playing around with the last 10% in crypto to ride it until it dies.

    Don’t chase the money people. I would recommend just keeping your ear to the street… you never know what opportunities are passing you by.

    • TomTX February 5, 2018, 7:25 am

      Good timing/speculation on your part.

      Unfortunately it’s typically not reproducible.

  • PG January 17, 2018, 8:17 pm

    • TomTX February 5, 2018, 7:29 am

      The common story is overstated, but tulip mania certainly happened. Read your own source.

      Much like Bitcoin, most of society didn’t get involved. Speculators and traders ran the prices up to huge values, which then collapsed.

  • Marc January 17, 2018, 8:33 pm

    I believe I have the right to do drugs. The government won’t let me buy drugs. Thus I use monero to buy drugs online as its safer than buying from the crackhead down the road. The use case for crypto is buying illegal shit and keeping wikileaks alive. I care deeply about my drugs and Julian Assange. Therefore some value will be derived as there are at least two legitimate use cases. I’m not here to make money, I’m here to assert my rights but my government won’t let me do that through traditional means so I choose an alternative. This is how society progresses. We don’t all have legal weed like you MMM

  • Claus January 17, 2018, 10:04 pm

    I agree that Bitcoin has sent everyone into a spin, but it is not a Ponzi Scheme and it is here to stay and alt coins will make the improvement for usability that Bitcoin is lacking , its important to remember why people are looking for an alternative to our current monetary system, this is where it gets interesting because unless you understand the financial system we currently have you can not possibly understand why people are looking for an alternative or why there are many benefits to Crypto currencies I urge you to watch the documentary with the link below if you really want to understand our monetary system, the host Mike Maloney’s gives a very detailed account you can also watch his take on Bit coin which I have also pasted a link below
    It is also important not to isolate Bitcoin from alternative coin investments Bitcoin as it stands now its a facilitator for transacting from Fiat into crypto as well as a store of wealth, once you have done this you are free to transact between other coins (Investments)
    My post here is not to engage in arguments but merely ask people to open their minds and do their own research
    Hope you enjoy the contribution to the discussions



  • bcg January 18, 2018, 8:44 am

    Good on you for making a distinction between the technology of Blockchain and the use case of Bitcoin. For those thinking that Bitcoin is a bubble, however; some perspective: https://99bitcoins.com/bitcoinobituaries/

  • Jared January 18, 2018, 12:37 pm

    I agree that fundamentally, having a life that creates value for society is the way to go! The most sure way to create value for society is to work or invest in things that benefit society.

    Sure, someone could speculate and get rich and then use their time to benefit society, but the chances of succeeding at speculation are small. And the act of speculating doesn’t provide any intrinsic value to society. I didn’t expect a post on bit-coin to get me thinking to philosophically, but I do agree that it is speculation and there are many better places to invest.

  • ezd2027 January 18, 2018, 2:33 pm

    I remember hearing a comment that in the gold rush days, the people who made the money were the suppliers of goods, i.e. mining equipment, and whatever else was required to the keep the process going. So most likely the only ones making money on this tech are the trading markets, and companies that allow you purchase and sell coins, and the suppliers of computer parts that are mining, and the power companies.

  • Sean January 22, 2018, 5:34 am

    This whole discussion reminds me of a comment I saw on facebook recently.

    In that discussion a woman told a story about how she had $20 in her wallet and that she was running out of gas and needed that $20 to have enough gas to get home, but also needed that $20 to pay her babysitter that was watching her child at home. She ended up buying lottery tickets with the $20 and ended up winning $100 and therefore was able to by the gas and pay her babysitter.

    The woman said that people say she made a mistake by doing this, but “haters just gonna hate.” In her mind, she made the right decision because she was able to pay for her gas and babysitter in the end.

    Of course, the fact that the outcome was successful does not mean that her decision was “right.”

    And, if she didn’t end up winning with her lottery ticket does not mean that her decision would have been “wrong” either.

    There are two legitimate ways to look at the problem to decide whether it was “right” or “wrong” in my view

    1) The only way she could have possibly paid for both is by buying the ticket. Therefore the right decision was to buy the ticket. A probability of success of 0% is worse than a probability of success of very, very low.

    2) Buying the ticket is a waste of money and she should have just bought the gas and told the babysitter she would pay her later.

    I am part of worldview 2 here, as I don’t know how likely it was that the babysitter was going to run off with the baby if not paid immediately. So, in my opinion she made the wrong choice. But, perhaps the babysitter was part of an organized crime ring and she made the right choice.

    At any rate, you have to judge right or wrong before making the choice. Not years after when bitcoin either is the world’s economy or it isn’t. The bitcoin people may be right in assuming that you should get into bitcoin even if there is a super small chance that it becomes the world economy because the downside if you don’t is that you are completely broke when you are bitcoinless in 20 years. The non-bitcoin people may be right in assuming that there is such a small likelihood of that happening and, rather. it is almost certain you will end up with nothing by investing in bitcoin that investing in bitcoin is the wrong choice. But, the “look who’s laughing now” next year or in 20 years is not how to judge if you are making the right or wrong choice. And certainly the “I was able to make a profit on bitcoin” argument does not make investing in bitcoin the wise choice.

  • Mike Robinson January 22, 2018, 7:23 am

    “Extraordinary Popular Delusions and The Madness of Crowds.” By Charles Mackay. First published in 1841, still in print and still very relevant today. So much so that it even has its own Wikipedia page. It really says what needs be said by the human motivations which drive bubbles like this, again and again and again.

  • Tom, Just Tom January 22, 2018, 1:32 pm

    “Shut up, just send me $100 via PayPal and I’ll send you a bag of my fingernail clippings.”

    In the next post, MMM says that Matt Cutts sent MMM $100 via PayPal.

    So Matt Cutts is undoubtedly investing in MMM’s fingernail clippings.

    Quick! Buy MMM’s fingernail clippings while they’re affordable! Matt Cutts is buying them!

    (Can you spot the logical fallacy in this way of thinking? If so, I’m guessing you didn’t “invest” in Bitcoin either.)

  • Troy January 24, 2018, 6:27 am


    Holy shit, my Lyft riders told me about Mr. money Mustache and about Bitcoin (To be fair, four riders told me about each – so evenly tied between current conversations). The amount of knowledge and oddly controversial debate in these comments is sexy and passionate.

    To be fully transparent, as I’m new to this community (and will be staying with how great MMM article is) I have some crypto coins.

    I personally see a great future in the block chain technology, I even believe in the form of a currency held accountable by the owners of the currency and removing middle men (Banks, Government Shut downs, gas to deliver physical currency). I currently work in an industry where middle men were removed, Lyft. I also know in four to ten years the rideshare industry will be replaced. If I made a prediction now. Ten years from now a person taps a phone to block chain an auto driving car to them and off they go. No currency, no credit card, no nothing. It will be a simple check of identity and verification they have whatever, “Magical Digi currency” is King. At the same time millions (Semi truckers too) of driving jobs will be displaced by technology. I know I don’t want to be a taxi cab driver holding onto a physical currency as the be all, like they held onto their medallions which use to be valued insanely in New York.

    One very good place to listen to experts in the field of cryptocurrency, with less emotion, is Laura Shin’s podcast, “Unchained” https://www.forbes.com/podcasts/unchained/#6f9f0fb25b4f . Her last podcast about paying taxes on cryptocurrency was a great example of digital currency meeting government. I share this purely as one of many avenues of knowledge to consume, with no intent of telling anyone who is right and who is wrong.

    Writing fingernails hold value, like digital currency, or even that physical currency holds value by government backing is flawed. All currencies are faith backed currently. A housing crash depression (2008) made the value of real estate extremely volatile. The great depression made currency and life volatile. Because one has faith that a physical currency is insured by an entity, that for societal reasons we trust to have our back, is more stable than a mythical digital currency is missing just how volatile our current form of currency is. One day the Swiss Frank is higher value, the next the Canadian dollar is a bit more than the United States dollar. Though I agree these currencies, in their age, have become less volatile than our current cryptocurrencies.

    The creation of pennies has had studies prove that the energy and materials put into pennies is actually a waste, as a pennies, “Faith held value” is higher than its, “Material and processed faith value”.

    Is trusting a people that makes a penny worth less than the monetary value any more crazy than trusting other people in placing magical value on digital coins that require electricity and computing power to prove?

    Anyway, I’m so going to read more MMM articles to continue my hunt for the wealth if knowledge humanity holds for us.

    Looking forward,


    • TomTX February 5, 2018, 7:31 am

      Why would I need cryptocurrency or blockchain to pay with my phone? I already pay for things with my phone.

  • Amit January 24, 2018, 2:36 pm

    You may be right, but half the G20 countries (Mexico, Brazil, Argentina, South Africa, Saudi Arabia, Turkey, Russia, India, China, Indonesia) have had political, currency, or capital control issues in our lifetimes that would make their citizens want to be able to move money discreetly. And they still have enough economic activity to gain this sort of international recognition. Whether the purposes are legitimate and whether cryptocurrencies would actually enable this are separate issues.

  • Luciano January 25, 2018, 8:06 am

    You have just changed the way I look into speculation.
    Thank you

  • Jared January 25, 2018, 8:48 am

    Not really surprised that MMM doesn’t support Bitcoin. I agree that in the West, the need it at the moment is quite low. Though the need is high in large parts of the world a lot of people can’t get a bank account, or are suffering from hyperinflation or corrupt governments.

    I, for one, am glad that the technology is evolving, and a the idea is taking root in the minds of people that we are not simply stuck in the current financial system.

    A bit suprised how shallow/sensational the arguments in the article are. Supposedly MMM did a lot of research, but probably confirmation bias got the best of him.
    E.g. the energy cost of running Bitcoin is way less than the energy use of all appliances in stand-by mode in the US alone. Of course, that headline is less sensational…
    Most of the technical bottlenecks in Bitcoin will be worked out in the coming year(s) (see the upcoming “release” of the Lightning Network on Bitcoin).
    I agree that there is a lot of speculation happening in the space (nobody denies it really). But that doesn’t matter much in the long run.
    The ponzi-scheme accusation is simply false. It’s a market, supply and demand. It’s true that if you got in earlier you made a good buck, but there are no guarantees, no central figures or organisation…
    You have hundreds/thousands of the most brilliant minds flocking to this sector in the last years. Thousands/millions of people are educating themselves about it, and starting to experiment/invest in it.

    Money is a social construct (see the book “Sapiens”). It doesn’t have to be backed by anything (central banks, software, metal…), even though it can be. As long as people believe in it, it will have value. The volatility is part of the growing pains (caused by adoption and speculation), but will smooth out over time.

    Bitcoin and some other crypto-assets are part of my total portfolio, albeit a small percentage. I think they will grow more over the coming years, but if they don’t, I’m fine with that. It’s a high risk investment, probably not suited for most frugal types. Do your own research I’d say, I first got into it a couple of years ago but sold when I heard that Buffet was against it. He still is, even though he admits he doesn’t know anything about it, lol. A good introduction is the book “Cryptoassets”, for those still interested after reading this article.

  • Mike January 25, 2018, 3:57 pm

    Great article. BTW, how in the holy hell does MMM keep a household of 3 in Colorado in comfort, using under 215kWh of electricity per month?! Assuming you have rooftop or community solar, so is that 215kWh purchased from the grid, in addition to what you self-generate, or is that 215kWh of consumption total? In either event, well done!

  • TomTX February 5, 2018, 7:12 am

    Hey, where did all the crypto evangelists go?

    Did a 50% drop scare them off?

    • Catapult February 5, 2018, 11:40 am

      Hahaha! Oh yeah, I was waiting for them to come here and tell all of us to continue buying the dips

      • Dave February 5, 2018, 4:31 pm

        Still up 108%.

  • Peter February 5, 2018, 9:36 pm

    I heard this interesting podcast on crypto currency and one guy he mentioned that it can take up to 8 hours for a Bitcoin transaction to go through. I don’t understand how this doesn’t make Bitcoin completely useless as a currency. I also wonder whether transaction times are similar for all the different crypto currencies.
    Can anyone comment on this?


    • Joe February 10, 2018, 10:26 pm

      Hey Peter. A little background: for many cryptocurrencies, every single transaction is recorded to a global, distributed ledger. Because all transactions are distributed across a global network, there’s a kind of self-imposed bandwidth limit to each coin. A few of the more popular coins see enough use that they are running up against their bandwidth limit.

      When you make a transaction, you pay a fee that kind of gets distributed to the operators of the network–and as a side note, the operators aren’t a special company, but anyone who elects to run the necessary hardware. If your cryptocurrency is running against its bandwidth limit, then you can pay a higher fee to give your transaction a higher priority. If your fee isn’t high enough, then yeah, it can take days: of course, there are some transactions that you might not care if they take days to clear.

      A couple of months ago, it might take a $20 fee to make sure that your Bitcoin transaction would be included promptly. More recently, a fee of less than $1 would suffice. Across many cryptocurrencies, people are working on solutions to “increase the bandwidth” without compromising whatever other design characteristics they consider essential to their coin.

      None of this is meant to answer the question of whether Bitcoin is useless as a currency, just to provide enough background that you might be able to answer it for yourself. Also, none of this addresses the valid concerns raised by MMM.

  • Amanda McPherson February 9, 2018, 11:14 am

    Congrats on taking on the fury of crypto zealotry! Great article. Why there isn’t a trust problem with currency, there is massive inefficiencies with other assets like property titles and global payments, and as you point out, that’s where the blockchain can unleash massive benefits. Instead of blind distrust of all institutions, we should rationally examine how well they’re working and start from there. I’m extremely bullish on the power of blockchain to give more power to the individual in places where there are massive security and efficiency issues, like those mentioned above or things such as medical records. It makes more sense for me to store my medical records in the blockchain and give access to providers as needed. One benefit of Bitcoin mania though is the Pineapple Fund. The developer recently gave a very worthy open source project I’ve worked on a bit $1m from his/her bitcoin windfall. The project is OpenMRS and helps a lot of people all over the world. So at least crazyass speculation has some positive benefit. :)

  • Joe February 10, 2018, 11:23 pm

    Hey MMM. I consider myself the guy in your post who would be interested in this technology even if I never hoped to make any money from it. Without trying to convince anyone of the investment value of any cryptocurrency, I wanted to address a technical question implicit in your post: why would anyone try to make a currency out of blockchain? I read through the rest of the comments, and I don’t think this question is addressed.

    Bitcoin is the first realization of a distributed, trustless database. If you don’t care about databases being distributed and trustless, then I can’t blame you: I can’t provide a good argument for it. But distributed and trustless is what cryptocurrencies add to blockchain.

    By itself, a blockchain is a database, with the special property that blocks of entries are ordered: block U follows block T and is followed by block V, which can be verified because block U includes a summary hash from block T and block V includes a summary hash from block U.

    If you want to create a distributed blockchain, with multiple participants adding blocks, then you run into the typical problems of distributed systems, namely global consistency and ordering of entries. For example, if entry X and entry Y are individually legal but mutually conflicting, then who gets to decide whether entry X or entry Y is included in the next block? If one block author proposes a block that includes X, and another author proposes a block that includes Y, how do you choose among them? Or what if the blockchain already has blocks T, U, and V, and some author proposes a new T’, U’, and V’: which set should be the “real” T, U, and V? One solution to this problem is that you can restrict the set of authors to the blockchain: you hand out some cryptographic identities to trusted authors and a block is only valid if it’s signed by a bearer of one of those identities: we only hand out these permissions to entities whom we trust to follow some rules of fairplay to resolve these conflicts.

    But if you also wanted a _trustless_ distributed ledger, with no central authority handing out write permission, then how do you address the distributed systems problems? Cryptocurrency answers these with proof-of-work and the atomic reward. To author a block, authors have to prove that have expended or invested resources in producing that block. As a reward for that investment, the block includes a reward of value to the block author. By expending these resources into the creation of a block, authors demonstrate that they are invested in the smooth functioning of the database network: we can “trust” authors not to author blocks maliciously, because if they did then the value reward that they received would be useless.

    The key bit is that for a database block to atomically include a reward of value to its author, the database has to be “about” value; the transactions have to be “about” transacting value. And I’m using “value” here as a weak synonym for money. If the database is not “about” value, then you can not–within the database–assign rewards of value to block authors. If you do not assign rewards to value to block authors, then you cannot trust block authors to act in the good interest of the database network.

    Again, none of this is meant as a defense of investing in cryptocurrency. It would be out of character for your blog to recommend that, and I wouldn’t recommend it. But I do hope to answer why anyone would try to make a currency out of blockchain: the answer is that it allows you to make a database which is both distributed and trustless. And if you don’t consider that an answer, then at least I’ve helped you anticipate a crummy counterargument to your objections. :P

  • Heather February 11, 2018, 2:06 pm

  • Alain Guillot February 11, 2018, 4:15 pm

    Wow, so much passion in this subject.

    I wrote an article in which I called Bitcoin a speculation and referred my readers to this article. I didn’t realize how long it would take me to the bottom.

    “Don’t own assets which don’t produce a return. This includes gold, Bitcoin (Blog post from Mr. Money Moustache about Bitcoin), collectibles, etc. These are not investments; these are speculations. You are buying it with the hope that someone else will buy it at a higher price. To give you an example, I could buy a real estate property and collect rent for the rest of my life. I don’t have to sell it to make money. If I buy a bar of gold or a Bitcoin, the only way I can make money is if there is another person willing to pay a higher price.”

  • Shawn Laidlaw February 19, 2018, 10:30 am

    I really enjoyed a recent tweet from Neill Strauss that essentially went:

    *Bitcoin goes up to $20,000

    “I wish I had bought Bitcoin at $7,000′.

    *Bitcoin drops to $7,000

    ‘Bitcoin is tanking, I’m getting out’.

  • Kurt F February 24, 2018, 4:01 am

    I’m glad I’m not the only one who is scratching their head and wondering what all these people are doing investing in cryptocurrencies. I mean, I get if you’ve got money to burn, toss a 1000 bucks into the bucket and see what happens, but I’ve read articles of people refinancing homes to get into this mess.

    Please don’t do that.

    Cryptocurrencies are generally a great idea, but if you believe the countries of the world will hold hands and accept bitcoin as currencies, when they could just make and control their own (as MMM pointed out) I’ve got a bridge to sell you, and Trump has a new university for you to attend.

  • michael March 19, 2018, 5:25 pm

    This article focuses on the speculation side of crypto, but ignores the one potential space where I can see it working, and where it actually solves a real problem: online microtransactions.

    Currently the web relies on advertising to run. It’s extremely imperfect, not least because anyone mildly knowledgable blocks advertising for the sake of security. It’s not feasable to use regular dollars to charge users, because the smallest amount I can give you is a penny. Advertising fixes this by aggregating clicks. Cryptocurrencies could fix this by being divided into very, very small amounts. MMM could charge me a tenth (or a hundredth, or whatever) of a penny in order to access his content, rather than the current system where he charges me nothing but relies on an ad network (that I don’t trust in the slightest).

    I expect that in 10 years, once all the hype has blown over, cryptocurrencies will be used in this manner. It could break the Google/Amazon stranglehold on the web by eliminating advertising.

  • rutleyh March 30, 2018, 10:31 am

    Now that almost 3 months have passed since this post, it is noteworthy that the day of reckoning has begun. IMO – this is only the beginning. This is nothing more than speculation. The Dutch tulips for the modern era. Yes, the blockchain technology is useful but the coins are a misapplication of that technology. It is my belief that they will all be virtually worthless within a year or so. It is actually hard to find an investor who also uses them. That is because they are difficult to use. The greater fool theory has found another home. Regrettably I know people who bought BitC between 12 and 20K and Etherum between $1100 and $1300.

    My own brother who has a horrible history with money bought into Etherum. (sorry if that is misspelled). He had 2 minor surgeries and had $4K in deductibles. He was convinced that he would make enough money to “pay for his surgeries”. That was in January. He lives in what used to be my Mom’s house (who has passed). He told me to bring the checkbook I have that covers his real estate taxes. My mom’s will indicated that she wishes for an account to be established that would pay for 3 years of RE taxes. I refused and pointed out all the obvious things. So, he dipped into his inherited IRA (about $45k at the time) and took out $8K and within 10 days had it invested. He actually got in around $1100 so he did not buy at the very top.

    Fast forward a couple of months and he is now asking me who he can sue. I tell him to look in the mirror. He had the advantage of receiving solid guidance on this topic and ignored it. Now, his $8K is worth around $3K and he still owes $4K for his surgeries. Further, he did not withhold taxes on his IRA withdrawal so he is probably another $1600 to $2000 in the hole on that.

    I should mention that this occurred because his next door neighbor invested in Etherum very early and made a ton. They are a fairly young couple with a ton of disposable income and probably just got lucky. I talked to one of them and they did sell half their position after making a healthy 2000% gain! So, he was tempted and fell into it.

    In 8-10 years, after the memories fade, it will be something else that people throw money at.

  • miniMMM April 14, 2018, 6:36 am

    I agree the electricity use is out of hand, newer cryptos that use Masternodes and PoS will address that, not to mention lower block rewards. And yes, BitCoin is speculative. However, you’d be surprised how good some of the non top 10 cryptos are, in terms of functionality and developers. Aeternity is a prime example, have hired some of the top Erlang developers in the world the past 6 months. Ulf Wiger and now Robert Virding.

  • Thomas April 17, 2018, 1:59 pm

    Bitcoin is not just “stupid”, it’s terrible: https://blog.habets.se/2017/11/Why-bitcoin-is-terrible.html

    • Mr. Money Mustache April 17, 2018, 4:37 pm

      Hey Thomas, nice article!
      (I normally try to discourage people from posting links back to their own blog, but in this case your analysis is really good)

  • Lazer May 15, 2018, 8:54 am

    You can’t compare cancer pills with cryptocurrency-networks. “how ridiculous this is, even more people start piling in and bidding up every new variety of pills (cryptocurrency)” – If it is so easy, why we don’t create new facebooks or twitters and get rich? Of course the technology behind bitcoin and a lot of Alt-Coins is similar. But didn’t you follow the well-managed fork last year? There are thousands influencer behind Bitcoin. That’s create trust and in my view value!
    See http://www.businessinsider.com/why-bitcoin-has-value-2013-12?IR=T

    • Mr. Money Mustache May 15, 2018, 12:22 pm

      I just went and read that Business Insider article because the headline suggested it might have an answer for what nobody else seems to be able to answer: why is it valuable to speculate on further increases in the price?

      Remember, this article is not about whether or not bitcoin is useful. It’s about “is speculating on its price increasing a good idea?”

      The article had no answers at all, and its sole argument was, “Bitcoin is one of the best ways for wealthy Chinese people to smuggle their fortunes out of the country without the government knowing about it”.

  • bahamas June 20, 2018, 11:13 pm

    Don’t fall for buying MMM’s fingernails!! I ordered two sets over a month ago and they still haven’t arrived. Sure they were expensive, (I paid 3 bitcoins for them) but you need to remember that there can eventually be 21 million bitcoins whereas MMM has a limited amount of fingers (probably like 10 or 11 or so) and on that basis I think the rarity of his nails will be worth more in the long run… p.s. If you have ordered fingernails from MMM and have received them, be sure to measure them as I have it on good authority that there are some counterfeit toenails passing as fingernails out there.. Buyers beware!!

  • Nishi July 15, 2018, 9:16 pm

    Jan 1: $14,112.20

    July 15: $6272.70

  • Michael Sheeran August 14, 2018, 12:38 pm

    You have some points but I think you’re missing the mark on all the important ones. Maybe it’s just me but where I start is 1) we need some version of internet cash. and 2) Money needs to evolve. Credit Cards filled a need we had but now we have new needs. Debit cards are a step but still puts you at the mercy of your bank (and it seems you now understand how that can be a big negative sometimes). Crypto can fix these issues once it gets past it’s growing pains. Like a nuclear reaction, it has to reach critical mass before it become efficient and self-sustaining. We’re moving into a global economy and we need a global currency free from the manipulations of state actors. Not a replacement for a national currency but one that augments it like credit did to checking accounts. I’m no anarchist but I don’t have huge faith in our “too big to fail” financial institutions these days and don’t like seeing the purchasing power of my dollar drop. I have to invest it just to keep it’s value.
    It’s not a corrupt government that scares us in this country, it’s systematically greedy & self serving institutions that keep charging us more & more for less & less. Charging people a fee if their balances go below a certain level. Not everyone can afford a checking account these days but they still might like to be able to pay for their overstock order online. No one got anyone’s personal detail from any BitCoin breach, can Experial or Yahoo or ______ say that ?
    What we consider money has always been evolving. Trustless exchanges are the next step in the connected world. ICOs will allow people who don’t meet the ridiculous “Accredited Investor” definition to actually participate in our economy. Why should just the rich have a chance to profit from the market ?

    • Spencer August 15, 2018, 8:10 am

      1) “Some version of internet cash” is vague. Practically all banks have a website where you can manage your cash. Venmo has served me well as internet cash.
      2) You seem to be referring to MMM’s recent tweet about frozen funds. Damn the man for freezing funds, certainly. But they did resolve the issue 30 minutes later. You aren’t likely to find comparable customer service when issues arise at your local crypto exchange. Scrolling down the Coinbase subreddit, I find a fellow asking for some help getting his funds unfrozen. They’ve been frozen for 2 months. This type of thing is not uncommon. (Citation needed, I know, but it’s not hard to find more examples).

      A small amount of inflation is good for an economy, you can google why deflationary currency causes problems. If you don’t like to invest in stocks, there are plenty of safe options to get lower returns, but still keep you ahead of inflation (CDs are at reasonable levels for that now).

      There are checking accounts without minimums (Discover, for example). I certainly haven’t paid a fee for a checking account service in years. The MMM website is the place to be if you can’t afford a checking account, though I don’t understand how that’s possible. Some are free. Shit, some even pay you to open one!

      Beware the exchanges. I wish you luck dodging the exit scams:

      ICOs. Best of luck here as well:
      “…as a percentage of the total number of ICOs, we found that approximately
      78% of ICO’s were Identified Scams, ~4% Failed, ~3% had Gone Dead, and ~15% went on to trade on an

      Your final note is precisely what this site is about! You don’t need a hyped up new currency to profit from the market. Spend less, save more, and invest wisely what you can!

  • Thomas September 11, 2018, 6:42 pm

    100% agreed – Bitcoin is not an investment.

    However, as an expat, Bitcoin offers me the easiest, cheapest and fastest way to repatriate my money. Given the weakness (and continued weakening) of my country’s currency, I actually make a small margin on exchange.

    Would I use it as a store of value? Never. But as a tool? You bet. International bank trafsfers are a ball ache.

  • Amanda September 26, 2018, 10:48 am

    I actually *did* manage to make a 1700% return on Bitcoin: by purchasing nVidia stock right after they lost some court case in 2009 (or was it 2010? Whatever.) Sadly, I only bought $1000. While I also slightly regret selling right when I did, I am still grateful to the universe for giving me $17k for no good reason.

    There’s an old saying that goes something like, “in a gold rush, there’s a lot of money to be made selling shovels.”


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