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Faux Pas Money

January 5, 2011

My friend Kristen sent me this link to a website regarding Bitcoins. You may be asking yourself, “What exactly is a Bitcoin?” According to the website, it’s desribed as “state-of-the-art in money” that is a “form of electronic money” and is becoming “‘the gold standard’ of digital currency.” Wow, that’s ambitious.

I sent the link to my friend Xuan, who is very knowledgeable with her money theory. She pointed out two major flaws with Bitcoins.

First, on the website, it’s stated that “Bitcoin has no central issuing entity… therefore, no single point of failure.” The problem is that there is a central issuing entity. The way to be issued your Bitcoin currency is by visiting your Mtgox account and exchanging for the currency there. Mtgox is essentially the central issuing entity, so if it fails, so does Bitcoin.

Second, Bitcoins can never be traded on par with the dollar because its central server, Mtgox, lacks the power to tax. The reason the paper and coin money that we use has any value is because the government has the power to tax us. It accepts the taxes we pay through the paper and coin money that the Treasury issues. Since Mtgox cannot tax us, its electronic money is much weaker than the dollar.

There is one last thing to point out. The website writes: The value of Bitcoins does not go down when The Fed decides to “print more money”. The Fed doesn’t print money. That responsibility actually belongs to the Treasury department.

I have two conclusions regarding this website. It’s either 1) an elaborate joke or 2) a scam. I do find it humorous though. What other website would have you click a bunny to visit your account?

Thanks to Kristen for the link, and many thanks to Xuan for the brilliant analysis!

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5 Comments leave one →
  1. Xuanie permalink
    January 5, 2011 12:29 pm

    Me like.

  2. January 5, 2011 3:47 pm

    Thanks for the mention Trung, but you left out the tiny detail that I figured it was a scam too. πŸ™‚ Now click my bunny.

  3. nick permalink
    January 6, 2011 3:29 am

    You should know better than to believe Kristen. πŸ™‚
    Mtgox does not issue bitcoins, they simply facilitate trade between people who have them and people who want them. Bitcoins are created by solving a math problem that simultaneously helps secure the network, anyone who solves the problem holds the key that allows them to spend coins. That’s where they come from, not MtGox.
    MtGox is the most active right now, but not the only one.
    You can trade BTC/USD/EUR at bitcoin-central.net
    bitcoinmarket.com is closed to new members because of PP fraud, but will open up again soon with a referral and rating system.
    bitcoin-otc.com has a group of people who trade among themselves mostly communicating through IRC.
    bitcoin4cash.com sells for cash in the mail, if you can trust the USPS.
    There are more, but those are the good ones imo.

  4. May 10, 2011 6:02 pm

    You are clearly totally misinformed. Mtgox does not run bitcoin, and they do not have the power to give you more bitcoins than they have been given or generated themselves.

    Bitcoin is a cryptographic protocol and the supply is controlled by the records in a global peer-to-peer network.

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