Bitcoin’s been called a lot of things in its short existence: a currency, a commodity, the wave of the economic future. The latest expert to weigh in on it was far less laudatory, calling it an out-and-out scam due to collapse and financially ruin its small-time, diehard ideological backers.
This is according to an interview Fortune conducted with author Jeffrey Robinson concerning his new book, Bit Con: The Naked Truth About Bitcoin. In the book Robinson argues that while bitcoin’s proponents laud its decentralized nature and free-market bent, the entire bitcoin economy is stacked in favor of the few hundred early adopters who control over 50 percent of the entire bitcoin supply.
While the exact numbers are difficult to pin down, some estimates put the wealth disparity at an even higher number, with as much as 98 percent of all bitcoin controlled by 1 percent of its users.
This issue is nothing new – it’s been known for some time that a disproportionate few control the majority of the bitcoin supply. For instance, its highly possible that the anonymous designer of bitcoin Satoshi Nakamoto alone personally controls over 1 million of the 13 million ever mined.
The real problem is what could happen with the ideological backers who are theoretically in for the long haul. Those backers, who aren’t into bitcoin for the quick buck but rather the supposed revolution that will upend “fiat” currency, make easy marks for the “snake-oil salesmen” like the Winklevoss brothers. That is, the snake-oil salesmen can continue talking up bitcoin, and advising its adherents to continue to buy, buy, buy while saying they’re holding for ideological reasons as well. And then, the holders sell – if they haven’t started to sell already.
That’s the beauty/problem with bitcoin: nobody knows exactly who’ owns what wallet. Or, who’s emptying their wallets and tipping the market. That’s why Robinson calls bitcoin a “pump and dump scam” and a rigged casino table game. Ideology isn’t enough. You can believe in roulette, but that doesn’t mean just because you believe hard enough your odds of not getting ripped off are going to change.
Bitcoin users like to point out that the US dollar has lost 95 percent of its value in its history because of inflation, so isn’t it a scam as well? But the US dollar is supposed to lose money at a steady rate – inflation encourages spending — while bitcoin encourages hoarding and speculation. Instead of steady inflation, you'll see a prolonged crash.
To be sure, there have been strides in making places where bitcoin can be spent, but it’s still a scintilla of its entire economy. It still largely exists to be traded. And as Robinson argues, we’re entering the point where the trading is favoring the profit-takers, who “treat themselves to a vacation or a new computer with their bitcoins, and they don’t buy back in.” If that's the case, bitcoin's ideological backers won't have a currency that can be spent, or traded, or anything at all. It won't be called a currency, or a commodity, or the wave of the economic future. It'll be the thing it's backers fear the most: it will be worthless.