Bitcoins Are Just the Worst Idea Ever

Unless you are a Winklevoss twin or are still trying to hide your Internet credit card purchases from your wife, chances are you have already decided that Bitcoins are largely irrelevant to your life and aren't much use except as a talking point for a nerdy, 20-something's tumblr. The Web-based currency has littered mainstream news throughout 2013 -- from "what exactly is a Bitcoin?" to "Largest Bitcoin exchange already proving to be a giant failure." But it may be this most recent event that has the largest implications for the anonymous, government-defying Super Mario coins.

"You just don't get it"
If your first thoughts upon reading my opening paragraph are that I am naive and probably had to have this article transcribed by someone literate, then I suppose time will tell. But for those who are also skeptical -- i.e., nearly everyone who isn't directly involved in funding the Bitcoin revolution -- let's examine the latest reason that this is a giant pile of e-nonsense.

As fellow Fool Dan Newman pointed out in his piece on the virtual currency, Bitcoins have had a decent run this year -- to the tune of 1,200%. As of this writing, the currency is worth a little less than $130. What that buys you, other than carefree adult entertainment, I'm not sure. Perhaps there will soon be a Bitcoin Redemption Center, where for 1,000 Bitcoins you have the choice of a Styrofoam helicopter, a stuffed Pikachu doll, or a sharing-size box of Everlasting Gobstoppers.

But seriously, don't be enticed by the undeniably awesome run-up of Bitcoin valuations. Because, as with Magic: The Gathering cards, when some vague entity in a cellar or Bitcoin exchange releases the latest guidebook on values, your virtual currency could be worth, well, what it's worth in the real world -- absolutely nothing.

Think I'm being hyperbolic? Here are plenty of reasons.

Plenty of reasons
As most know by now, the largest Bitcoin exchange, Mt. Gox, is in the government's crosshairs to the degree that regulators have frozen many of the firm's financial accounts. It's not because there was a big expose or because Mt. Gox did something with criminal implications; Mt. Gox simply didn't file the right paperwork. Mt. Gox claimed that it had set up an account with Wells Fargo in May 2011 as a money service business. And when asked on the questionnaire whether it dealt or exchanged in money for its customers, the firm answered, "No."

Now, I hate paperwork as much as the next disorganized person, but if you are creating the currency of the future, you should probably let someone know (via paperwork) that you are, in fact, creating the currency of the future.

This week, Costa Rica-based online currency transfer business Liberty Reserve was busted by the feds, who alleged that the firm was responsible for a $6 billion money-laundering scheme. Federal prosecutors said the firm had become "a financial hub of the cyber-crime world, facilitating a broad range of criminal activity. ... Liberty Reserve does not require users to validate their identity information."

Similar to Liberty Reserve, Bitcoin allows users to spend real money on these untraceable, unidentifiable units. Even if we do find out that Bitcoin is more trouble than it's worth, there's no one from whom to seek restitution. Bitcoin was fathered by an invisible man who goes by the name Satoshi Nakamoto. No one really knows who he is or what his real name is.

Please for you to make a donation to me
Do you ever get that message from John St. Crucible, the missionary from Nigeria who uses far too many articles in his requests for $70,000 sent via Western Union to the Church where he works? Check your spam -- I guarantee you he thinks your investment will pay off in the millions within two weeks. This is the same league.

The truth is, we know nothing of what goes on at Bitcoin headquarters. We know that people like Cameron and Tyler Winklevoss -- two man-children who, had they invented Facebook, would have actually invented Facebook -- are major backers of the currency. We also know that if you lose a life while playing Mortal Kombat, your $129 Bitcoin can probably buy you another.

Please, Fool reader, do not be intrigued by the Pig Latin of currencies. There are vast amounts of publicly traded companies that make stuff and earn cash by selling it. It may be traceable, but that's because it's real.

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Read/Post Comments (14) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2013, at 8:49 AM, Monguesto wrote:

    This is a very strong view from someone with limited understanding on the topic. It makes you seem fanatical when you write a viewpoint without a balanced view of the subject.

    As a business owner I am personally frustrated by the lack of digital currency. When business transactions are done over the web primarily they are done by credit card, this charges a 2% merchant fee. When profitability is very tight this 2% fee can be deadly to a small business. Instead of US government, or some other entity creating digital currency safe and secure for our digital transactions-it was done by a 'mathematician'. In the end, it could revolutionize business transactions by cutting out third parties and their fees. It could do to governments And their currencies what the Internet has done to the music industry and many others.

    It also has the benefit of having no inflation. All currencies are based on perceived value-as long as bitcoin people believe then they can fly! This may be the first, and succeeded by something better,but it represents a revolution in money that we have not seen for thousands of years.

  • Report this Comment On May 31, 2013, at 10:35 AM, jtjathomps7 wrote:

    Oh wow, this is a pretty misinformed article. It's too bad really. I hope the author will take some time and do some real research on the topic. Some of the same things were said about PayPal.

  • Report this Comment On May 31, 2013, at 12:12 PM, aafffeee wrote:

    After reading the full article, I just don't get why it is a that BAD idea.... It seems the only reasons is that it is new and small. Which is in my humble opinion a very weak argument.

    On the other hand, bitcoin having a limited supply (21M), a high divisibility (up to 0.00000001), an international aspect, providing irreversible transactions, being outside the reach of controls from anybody, having a fully transparent structure while being very private, etc seems to be a pretty darn good idea for me and I don't see why it won't get more and more popular over time.

    In conclusion, don't loose your time reading this poor article.

  • Report this Comment On May 31, 2013, at 12:54 PM, exodave wrote:

    "There is no reason anyone in the right state of mind will want a computer in their home."—Ken Olson, President of Digital Equipment Corp, 1977.

  • Report this Comment On May 31, 2013, at 2:29 PM, ErisianBuddhist wrote:

    This article is so poorly informed and its arguments so weak (the "Plenty of Reasons" sections is a single reason) that I'm calling Poe's Law on this. I've read better reporting by Fox News.

  • Report this Comment On May 31, 2013, at 2:30 PM, ErisianBuddhist wrote:

    *(the "Plenty of Reasons section is a single reason only and doesn't even apply to Bitcoin itself but a single exchange out of the growing global list)

  • Report this Comment On May 31, 2013, at 3:31 PM, nerdo4 wrote:

    Sorry guys, but as an early bitcoin adopter & computer science professional I saw the potential of bitcoins and turned 20.000$ into 90.000$ in less than a year.

    As an ex subscriber I must add that none of the advices I picked up in the motley fool (3d printing & co) even managed to beat the s&p 500.

    Also, if you would understand the technical genie behind Bitcoin, you would think differently.

  • Report this Comment On May 31, 2013, at 4:42 PM, parakkaroo wrote:

    Bitcoin is open source. The code, like a published science paper, is there for anyone to check and see. It does not matter who wrote it because math does not lie.

    Bitcoin is not just a currency. It is a protocol. A protocol is a way of communicating. It is like TCP/IP. You can add layers on top of it - just like HTTP:// is layered on top of TCP/IP.

    What does that mean? It means any data could be used within this decentralized network. It could be used as a notary. Or for super secure messages. Or future contracts. Or stocks. The potential is limitless.

    There was no insight offered to the reader in this piece, just ramblings. I've seen great and quite informative critiques of Bitcoin. This is not one of them. Bitcoin has flaws, but you fail to point a valid one. If you're going to critique something properly at least learn what it actually is.

    For a great article, read this:

    http://radar.oreilly.com/2013/05/bitcoin-is-a-money-platform...

  • Report this Comment On May 31, 2013, at 6:03 PM, cylonmaker wrote:

    It's pretty embarrassing this article made it onto the Fool.

    What's so terrible about a new comm protocol that reduces transaction costs and mimics fixed supply currency? Don't be an idiot and pile all your savings into it, but the world is better off for experiments like this.

  • Report this Comment On June 01, 2013, at 1:00 AM, BitcoinByte wrote:

    Many of the comments on this article are much more sensible than the article itself.

    For one of the best articles on Bitcoin, written by Erik Voorhees, visit;

    http://bitcoinbytes.blogspot.co.uk/2012/04/on-life-and-liber...

  • Report this Comment On June 01, 2013, at 11:27 PM, dolvlob wrote:

    This horrible article is typical of the quality of Motley Fool. This is a dying site.

    Did you know that Motley Fool publishes computer-generated article spam in an attempt to pump up readership?

  • Report this Comment On June 03, 2013, at 7:03 AM, tiktik8 wrote:

    The article is not as horrible as inexperienced users make it appear to be.

    SIMPLE FACTS:

    1. Users are the weakest part from a security perspective.

    2. Bitcoin is perfectly transparent, this is underestimated.

    3. Bitcoin is not solely utilized by tech-geeks , its impressive how much disinformation, scam, organized crime, personal interest hunting, effective teams and much more meet here, all comes together providing the most exploitable environment.

    Bitcoin can break from different perspectives within a day, yes, in a day.

    I don’t need to prove what i say, i know bitcoin into deep right from the beginning, i know what i know and this alone satisfies me, prove me wrong...

  • Report this Comment On June 03, 2013, at 10:08 AM, LouisBSAS wrote:

    1. MtGox said "no" to the money exchange question - reason: Bitcoin is not yet defined (officially) as a currency. Thus, MtGox never exchanged any Currency. They only took US deposits. (iTunes should register too, they sell digital items that are not currency too)

    2. As someone who lives abroad and gets paid/pays taxes in the U.S., price doesn't matter to me - just the fact that I can get my money out of the states for a fee of $0.07 makes Bitcoin valuable! Goodbye Western Union. (yes, I have a line a mile long of people who want BTC and they pay 10% over MtGox current price.

  • Report this Comment On September 02, 2013, at 7:40 AM, madtechtrading wrote:

    By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.

    Paul Krugman - 1998.

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