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While the iconic sitcom "Friends" was never a favorite of mine, whenever the reruns come on TV I do get a chuckle. Don't we all?
One of the funnier episodes, "The One with the List," comes early in the show, in the second season, where Ross has to make the almost impossible decision between Julie, his current girlfriend, and Rachel, his longtime secret crush who he's just found out also has a secret crush on him. (Oh, the drama.)
Ever the problem-solver, Ross decides to make a list of Rachel and Julie's respective pros and cons. Rachel has lots of cons: too into her looks, thick ankles, and "just a waitress."
Julie has plenty of pros: smart, driven, a paleontologist, and cute. She has only one con: "She's not Rachel."
Unfortunately for Ross (but hardly surprisingly), he soon finds himself without either girl – but with a very important life lesson learned: don't make lists about who to date. (Or, you know, don't live in a sitcom.)
In the spirit of that episode, I present to you my latest Bitcoin installment: "The One with the List." Let me take a swing at listing the pros and cons of the Bitcoin currency as it stands… and get started directing you towards some profit recommendations.
Bitcoin Cons: What the Haters Are Saying
Full disclosure here: I don't entirely believe many of these "cons." Let me show you where I agree and disagree (and do a bit of debunking).
"Bitcoin is not a currency because it doesn't meet one or more of the characteristics of the definition."
Classic economics says that money is:
- A medium of exchange
- A unit of accounting
- A store of value
Bitcoin has been widely employed as a medium of exchange, and this doesn't seem to be slowing. However, Buffett famously said in a CNBC interview years ago that Bitcoin "is not a currency" because "it is not a durable means of exchange." He followed that up with saying he "wouldn't be surprised if it [Bitcoin] wasn't around in the next 10 to 20 years."
Far be it from me to disagree with the Oracle of Omaha. However, our time horizons may differ a bit here. I would add that in the near term, Bitcoin has proven quite robust, surviving the failure of its then-largest third-party exchange, MtGox, which lost $400 million in bitcoin in 2014, and the January 2018 cyber theft of $523 million worth of a different digital currency.
"Bitcoin owners have suffered through security breaches and have lost money."
That's true – as I mentioned above – though this is an issue with exchanges and not the central Bitcoin/cyber currency blockchain infrastructure. (We talked above about the wallets or exchange that lost almost $1 billion in cyber currency.) Still, the losses have been from the Bitcoin ecosystem, even if they weren't through the Bitcoin algorithms.
On the other hand, it's a good thing there has never been widespread credit card fraud… oh, wait. Even good corporate citizens like Target show that almost all forms of transactions have vulnerabilities. And while it's somewhat of an apples-to-oranges comparison, credit fraud in 2017 was $7.7 billion, putting the cyber currency issues into perspective.
BIG, FAST PROFITS: This one pick paid 100% in seven days, then 205% the next day, and 410% by the next week. You've got to see how it's done…
Bottom line – I think that Bitcoin will be judged by history as contributing a revolutionary leap in transaction security, whether it survives as the top dog or not.
"The wide speculative price swings make it tough to value."
Fair enough. But I'm not too keen on the price stability of Argentinian pesos, either. Because current exchange costs are relatively high, merchants can't immediately turn any purchase into dollars or euros or whatever to reduce volatility risk. Bottom line – this will continue to be a problem for cyber currencies that will wane as the currency matures.
"Bitcoins have no intrinsic value."
On this one I have to disagree. I believe the sophistication and efficacy of the security algorithms, combined with the vast network of peer-to-peer computing power that enforces those algorithms, create an infrastructure that does lend intrinsic value to bitcoins. The ability to transact securely and instantly with low or no fees alone lends intrinsic value to the system. However, one could argue that this is a tenuous trust and that tactics like mass collusion could undermine this foundation. So far, it looks like the internal security features have worked in a very robust way.
"The privacy features mean that law enforcement agencies can't track illegal activity."
This is a tough one to overcome, but not entirely true. Bitcoin has been an alleged component of drug trafficking and money laundering cases. But as venture capitalist Marc Andreesen said in a well-written New York Times article, Bitcoin is pseudonymous, not anonymous. It can be tracked, but not nearly as easily as bank transactions.
Perhaps worst still, the multiple central banks have issued warnings specifically about Bitcoin being used for terrorist funding. Unless the world's crime enforcement agencies are sandbagging on this issue, it will still be an important one for Bitcoin and other digital currency ventures to address.
"The same privacy features make taxation enforcement difficult to impossible."
If the previous point about drug trafficking, money laundering, and terrorist funding wasn't enough to get most governments' undies in a bundle, this one sure will. The bottom line for me is that the privacy issue will be the Achilles' heel of Bitcoin. Governments can't support or even stand aside and watch any transaction platform that can't be taxed or policed for rule of law violations.
And now, some equal time for the Bitcoin positives…
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.