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Mr Money Moustache, a financial blogger writing for the Guardian, warns folks should not invest in the cryptocurrency craze focused primarily on Bitcoin, with countless other digital currencies also striving to gain attention these days.
Bookmaker accepts most crypto-currencies
The reason why is that it’s not an investment; just as gold, tulip bulbs, Beanie Babies, and rare baseball cards are also not investments.
These are all things that people have bought in the past, driving them to absurd prices, not because they did anything useful or produced money or had social value, but solely because people thought they could sell them on to someone else for more money in the future.
When you make this kind of purchase – which you should never do – you are speculating.
It's highly unlikely you will have many with a vested interest in Bitcoin comparing the cryptocurrency to tulips or Beanie Babies.
The Guardian blogger notes that “investing means buying an asset that actually creates products, services or cashflow, such as a profitable business or a rentable piece of real estate, for an extended period of time”.
That's not what Bitcoin entails.
He also draws comparisons to the concept of a first cancer pill.
As a real-world comparison for blockchain and bitcoin, take this example from the blogger The Unassuming Banker:
Imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it online, 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?
Sure that first cancer pill will see great sales initially but there is now an open market for competitors.
Imagine everybody starts bidding up Cancer-Pills to the point that they cost $17,000 each and fluctuate widely in price, seemingly for no reason. Newspapers start reporting on prices daily, triggering so many tales of instant riches that even your barber and your massage therapist are offering tips on how to invest in this new “asset class”.
Instead of seeing how ridiculous this is, more people start bidding up every new variety of pill (cryptocurrencies), until they are some of the most “valuable” things on the planet.
That is what’s happening with bitcoin.
There is Bitcoin, Ethereum, Bitcoin Cash, Ripple and others.
The imaginary value of these valueless bits of computer data represents enough money to change the course of the human race, for example, eliminating poverty or replacing the world’s 800 gigawatts of coal power plants with solar generation.
Bitcoin (aka Cancer-Pills) 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.
Mr Money Moustache goes on to point out the many flaws tied to cryptocurrencies like Bitcoin.
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. Bitcoin exchanges such as Mt Gox in Japan, Bitfinex and various other wallets and exchanges have been hacked.
- Aaron Goldstein, Gambling911.com
