Brandon Smith recently authored an anti-bitcoin screed on Alt-Market. You can read the article here. In this article, I want to address each of the points Smith raises because I see these exact same arguments repeated over and over again by goldbugs the world over.
To begin with, Smith obviously has a bias toward precious metals. Smith doesn’t disclose if he has investments in precious metals, but by the sound of the article, it seems highly likely that he does. Smith is correct to note that bitcoin is a “deliberate distraction away from gold and silver.” Of course, that doesn’t mean it is necessarily evil. People are voluntarily putting their wealth into bitcoin because they can see the potential of the currency system. No one is holding a gun to anyone’s head and forcing them to buy bitcoins.
So let’s go over the first argument Smith makes. Interestingly, he doesn’t actually make an argument until well over half-way through his article. Most of what Smith has written is simply hearsay and bad mouthing. For example, the entire “The Tantalizing Allure Of Non-Solutions” section of his article doesn’t actually present any economic or logical arguments against the currency system. It’s just him ranting about how terrible he thinks bitcoin promoters are because they aren’t preparing for the end of the world.
Smith then attacks the anonymous founder of bitcoin. Smith argues that because we don’t know who this Nakamoto fellow is, it should lead us to believe that bitcoin is a gigantic conspiracy by elites. When people rightly point out that the bitcoin source code is open for all the public to view, Smith retorts with, ”this attitude constitutes an act of blind faith in a currency mechanism, which is exactly what proponents of the dollar are guilty of.”
Obviously this argument is completely preposterous. Open source code means I can download the code project, review all of the software code for myself, and then build and distribute the software myself. This is not blind faith. I can see all of the inner-workings of the software for myself. If the code was doing something bad, it would be readily obvious to the entire programming world (by the way, I’m a professional software developer). To compare that with our present banking system is PREPOSTEROUS! Has the Bank of America released any of the source code to its banking system? How about the Federal Reserve? Have they released any of the source code that runs their side of the banking system? Hell no.
Smith needs to review what the phrase “blind faith” actually means. His use of the phrase in this context demonstrates just how far he has to reach in order to argue against the currency system. At this point we are over halfway through the article and he still hasn’t made any economic or logical arguments against the system. His arguments basically boil down to, *I’m not a programmer, so I can’t understand the bitcoin code myself, therefore it must be an evil conspiracy.*
Smith then goes on to say that, “Bitcoin … has received a steady flow of positive media attention, with the random critical piece thrown in for good measure. Overall, the establishment has embraced, if not directly fueled, the bitcoin trend. This is rather surprising to me considering the “destroyer of the dollar” has only been around for four years.” This is news to me. Just the other day I saw Paul Krugman denouncing bitcoin in the New York Times. I think Smith has selective media blind spots caused by his bias toward precious metals.
Smith argues that bitcoins can be confiscated, but I don’t understand the point he’s trying to make here. Didn’t the federal government confiscate all the gold at one point? Confiscating bitcoins is a million times harder than confiscating gold, so why is Smith even bringing this up if he wants us to return to the archaic gold standard?
Smith then argues that bitcoin’s value can be manipulated because people can make viruses to run mining bots, but this fact doesn’t actually lead to manipulated currency values, so again, I fail to see the point. Even if every computer on the planet was infected with a mining virus, there will never be more than 21 million bitcoins created. So if the supply is locked, how can the value be artificially manipulated?
Again, Smith ignores the history of the gold standard that he advocates for. Under a gold standard, gold accounts were fractionally reserved. In fact, fractional reserve banking is a direct by-product of the gold standard. Fractional reserve banking is directly responsible for manipulating currency values. Under a bitcoin standard, getting away with this is much more difficult because all transactions are carried out using bitcoins directly. I suppose it is theoretically possible to fractionally reserve bitcoins, but since wallet balances are public, and people directly transact with the currency rather than using receipts, it’s not likely to happen on the scale that it did with gold.
Then Smith FINALLY makes a semi-valid argument against the currency system, but he’s forced to use a half-truth to make his point. Smith says, “Though Bitcoiners are considered “partially anonymous”, tracking the individual identity of a bitcoin trade is not difficult for entities such as the NSA because every transaction leaves a digital trail..”
While it is true that every transaction leaves a digital trail, it is NOT true that it is easy to determine who spent what where. There is absolutely NO identifying information in a wallet address. Wallets that are hosted on anonymous servers, combined with “laundry” services that jumble everyone’s coins together randomly, make it virtually impossible for even the NSA to determine with any certainty who spent what where. As far as digital money goes, bitcoin is a million times more private than our present monetary system.
Again, Smith ignores the history of the gold standard here. Since gold cannot be rammed down a transmission wire, in order for gold to be useful as an online means of exchange, it must be represented by a digital account. Who controls those accounts? Tracking gold exchanges online is a MILLION times easier than tracking bitcoin exchanges. Unless Smith wants to argue that we should abandon online transactions, his point is pointless.
Then Smith says we should be wary of bitcoin because it depends on the web. This is actually somewhat false. Bitcoin wallets can be printed on paper and physically swapped, even if the web is down. Paper backups are highly recommended. Further, if we are in a situation where the entire web is down, we have bigger problems to deal with besides the currency system. Retail shops would all be closed, credit card systems would be down, telephones would be down, power would most likely be out, etc.. etc.. etc.. So gold isn’t going to do you much good there either.
Finally, Smith concludes his article with a healthy dose of conspiracy theory, terrified that the entire bitcoin system is just a gigantic evil plot to undermine his precious metal holdings. Give me a break. Bitcoin SHOULD undermine precious metals as a currency because it’s simply a better currency. Cellphones should undermine land lines. Cable modems should undermine dial-up modems. Refrigerators should undermine iceboxes. That’s just how things work.
The fact that this article got play on Zero Hedge is the real travesty. Smith’s arguments aren’t worth a hill of beans. He never once attacks the economics of bitcoin. He never once attacks the underlying structure or premise of bitcoin. He never once attacks a specific problem with the software.
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