Are bitcoin & other cryptocurrencies overhyped & dangerous?
With the main stream media caught up in bitcoin hype as the cryptocurrency smashes another all-time high this week, few stories cover the possible dangers of the phenomenon.
Anonymity is not always right
In the most recent incident last week, hackers demanded a ransom of at least $6 million in bitcoin from HBO to stop leaking spoilers and episodes from the new season of Game of Thrones. Bitcoin transactions are ideal for criminals because they are hard to track. While some may not sympathize with a TV channel with a multibillion dollar market cap, the same blackmail technique could be used against any of us, and there is little likelihood the criminals would be caught.
HBO offered $250k ‘bug bounty’ to ‘Game of Thrones’ hackers – leaked emails https://t.co/Tl2PCcaGRnpic.twitter.com/TsI2yA46Pt— RT (@RT_com) 11 августа 2017 г.
The defenders of anonymous payments say any currency can be used for illegal means.
"Demanding bitcoin in an extortion is just a new version of an old problem. Kidnappers and extortionists have demanded cash in the past as a way of remaining undetected. Most crime is still conducted with US dollars. I imagine that HBO can still attempt to fight the extortion the old fashion way," American economist at the Ludwig von Mises Institute Mark Thornton told RT.
No one understands it
There are thousands of articles and FAQs about mining and transferring bitcoins, but let’s be honest. The technology is extremely hard to understand and experts do a terrible job of trying to explain it.
"Many people have heard of bitcoin now, but I agree that the vast majority--99%--don't know what it really is. Of course, bitcoin can be dangerous. It is certainly very volatile. Most people who own bitcoin do so as an investment rather than as money--a medium of exchange. However, I would not recommend investing in it unless you understand it and know the risks," Thornton said.
The market speculation aspect of cryptocurrencies is easy to understand with traders trying to make a quick buck. Whether it is rational or safe to invest in something that few understand is mostly ignored by the mainstream media.
Max Keiser of RT's Keiser Report offers a different view on the subject.
"The problem describing bitcoin is twofold. First, you have to throw out what you think you know about money. Second, you have to become moderately fluent in a few technologies. The beauty of bitcoin is that as the price of bitcoin rises, more people are incentivized to tackle the learning curve out of self-interest. When the price was $3 - when Keiser Report first covered bitcoin - you could afford to ignore it. But as price heads to $5,000 and higher, you can't afford to ignore the technology and accept the fact that your preconceptions about money are probably wrong," Keiser told RT.
Cryptocurrencies have no real value
The value of bitcoin has hit an all-time high of above $4,000 this week. A single token is now worth more than three troy ounces of gold. The total value of all cryptocurrencies has surged this year from $17.5 billion to around $120 billion, more than Goldman Sachs and the Royal Bank of Scotland combined.
This phenomenon raises the question of what intrinsic value of something is, whether it's gold or bitcoin.
"Bitcoin has intrinsic value the same way a gold mine has intrinsic value When you own bitcoin, you own a piece of a network that, like a gold mine, has intrinsic value," Keiser explains. "This is a bit misleading in that gold supply is worth trillions and bitcoin is worth billions. The real question is, what price would bitcoin need to get to the equal value of gold. The answer is, well into the $100,000 per bitcoin. Will it get there? I think so, yes".
Cryptocurrencies are a speculative bubble
To other investors and analysts, the digital currencies market is just another tulip mania. The period during the Dutch Golden Age is considered the first recorded speculative bubble. The price of tulip bulbs reached extraordinarily high levels. At its peak, a person could buy a home for two bulbs, before prices collapsed in 1637.
"Bitcoin can certainly become a 'bubble.' The bubble will form in opposition to central bank policies and government threats. A bubble would encourage governments to pop it with new interventionists policies or shutting down the exchanges. So governments do not care about the exchange rate for now, but they easily could as bitcoin continues to increase in value relative to paper currencies," Thornton told RT.
You could argue the same things can be said about bank notes. However, they are backed by governments, which are interested in keeping their value more or less stable. Governments don’t care about the bitcoin exchange rate.
Max Keiser disagrees.
"No. The US dollar, stocks, bonds, and property are all in bubbles. Bitcoin (and gold) are underpriced vs. these other assets that are in bubbles. bitcoins are very cheap vs. government bonds - that are trading at multi-hundred-year highs - for example," said Keiser.
Lost cryptocurrency is almost impossible to recover
In 2014, Welshman James Howells says he accidentally tossed a hard drive with 7,500 mined bitcoins. At the time he had mined them, they were worth very little. But today they would be worth almost $25 million. While there are many tutorials to recover bitcoins in case of a technical difficulty, if you don’t know where are your bitcoins are physically, you will likely lose them forever.
“It’s extremely improbable, and effectively impossible [to recover lost coins]. This is what the security of bitcoin is actually based on. If you’ve lost your private key, the system is so secure that you may not be able to recover it,” says Greg Schvey, a bitcoin researcher.
Risk of unknown technical flaws in system
The bitcoin system is still relatively new and could contain unexploited flaws. If such a flaw is found, the exploiter could steal a vast amount of money and even destroy the bitcoin economy. Last month, one of the world's largest bitcoin exchanges Bithumb was hacked, compromising 30,000 accounts with several million dollars in bitcoin stolen. It is just a fraction of the robbery of the Mt. Gox exchange, where $460 million in bitcoin (at then current prices) disappeared in 2014.
#Ethereum hacked for 2nd time in 1 week, $8mn stolen https://t.co/PfiXC3O3C2— RT (@RT_com) 26 июля 2017 г.
Bitcoin is overhyped
In terms of the main stream media's responsibility when covering the bitcoin phenomenon, Max Keiser offers a final thought.
"It's impossible to overhype bitcoin. The way bitcoin is changing society is as profound as Gutenberg's printing press or Edison's light bulb," he said.