Goldman Sachs Report Explores Use of Bitcoin as Currency

Bitcoin and blockchain systems are nearly all designed to exploit new users and extract capital from greater fools who are too late to the game and didn't read or understand the rules and fine print.

Satoshi's Bitcoin and many of the crypto-currencies that have followed create and distribute the supply that effectively creates a decentralized pyramid-ponzi scheme. Semantically, a more accurate term is needed;

Bitcoin is a Satoshi scheme,

.. or a "Nakamoto Scheme" https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/

Imagine an economic policy that uses a "limited" amount of pie as "currency". Bitcoin gave half of this pie away to the first few users who arrived in exchange for the least amount of work/effort possible. Any user arriving later will need to waste more hashing power (computational work) in exchange for a smaller sum of newly generation coins for a successfully mined block reward. or the user might be convinced to purchase a previously produced coin from one of the early adopters. Buying a Bitcoin is worse than zero-sum, as money from buyers is exchanged for previously generated coins, the network must increasingly waste computations and energy.

Satoshi's economic model creates a system where participation is only beneficial if you can exploit the ignorance of another new user who enters the network after you. Bitcoin effectively relies on psychological manipulation though deceptive marketing claims like

  "Bitcoin is deflationary"
  "Bitcoin is rare"
  "Bitcoin is a store of value"

When what actually happens is you either need to enrich someone who generated the coin for far less than you're paying, or waste more electricity and computational work than other early users for significantly less share of the pie.

If you understand the computer science behind Bitcoin, you'll realize how ridiculous the false equivalency to gold is.

1. The claim of "rare" doesn't exactly hold true.

Consider the 10,000 BTC pizza - how did this happen? This was the direct result of Satoshi's economic policy, granting vast sums of BTC to mint out very quickly very early for a short duration to the very small pool of people who ran the software. Satoshi's algorithm produced BTC in plentiful quantities enabling the 10,000BTC pizza - thus it wasn't rare if you were Satoshi and the dozen other early whales hording as much as possible, until the algorithm begins cutting off the production and limiting later users from producing coins, starving the economy. Now there's a psychological game being played, where public relations and marketing must convince new users to buy in. Because the exchanges are unregulated, they can manipulate the spot price though wash trading and painting the tape [2] (where trades are falsified and you just sell the same item back and forth to your friend for a higher and higher price).

The supply was created by running a piece of software. It's not magic. Most of the supply was produced very early on and as much as 30% of all Bitcoins are owned by less than 100 people.

  Best estimates are that there are about one million 
  holders of Bitcoin;  47 individuals hold about 30 percent, 
  another 900 hold a further 20 percent, the next 10,000 
  about 25% and another million about 20%, with 5% being 
  lost.  So 1/10th of one percent represent about half the 
  holdings of Bitcoin and 1 percent close to 80 percent 
  (http://www.businessinsider.com/927-people-own-half-
  of-the-bitcoins-2013-12). The concentration of Litecoin 
  ownership is similar 
  (http://litecoin-rich-list.blogspot.com).  
  Most of the big wallets have been in place from early on, 
  so sitting back and watching your capital grow has been a 
  very successful strategy.


  The distribution of Bitcoin holdings  looks much like the 
  distribution of wealth in North Korea and makes the 
  China’s and even the US’ wealth distribution look like 
  that of a workers’ paradise

2. Easy migration to more advanced e-cash services See: https://coinmarketcap.com/currencies/views/all/

3. Bitcoin network requires ASIC miners, largely centralized in China [3]. Assuming the inveitable surpassing of a more advanced cryptosytem making Bitcoin obsolete, as the market is informed there will be a decline in BTC's spot price and once this falls below the cost of OPEX for miners, the hardware goes offline and the network will cease to function. Maximalists will attempt to offer an emergency fork, in any attempt to save their "investment", just as they have developed the lightening network to create centeralized payment hubs, so "investors" can act as liquidity providors and take fees, instead of miners.

4. Electricty usage is unsustainable, GOTO 3

5. [4]

  Bitcoin value is make-believe just like money. But even 
  though there is bitcoin-sphere governance, there are no 
  bitcoin-sphere assets. Taxes are not paid in bitcoin. 
  There is no FDIC, only hackers that lift a million here 
  and there. And when nation-states decide its a nuisance, 
  what are the guns of bitcoin? It’s anonymity? From the 
  same government that created PRISM and then used 
  mind-magic* to make everyone forget about PRISM? Please. 
  You may think crypto-currencies that require more power 
  than a small country to run can fly under the radar, but 
  somehow I think not indefinitely. After all, becoming the 
  next big thing would mean its a threat to the American 
  dollar, do you really think the US Gov will shrug and say 
  “shucks bitcoin went from a ponzi-novelty to something 
  that will totally usurp this hegemony we worked so hard to 
  make. Guess we’ll have to call it a day.” (If you think 
  this, sell your Bitcoin and buy an imagination.)

  The day you can pay tax bills to a government in Bitcoin 
  is probably the day you can rest easy. Until then dear 
  Bitcoin holders, you do have something of value, just like 
  the Louisiana territory has value. But in this 1800’s 
  metaphor, what makes you so sure you’re America?

  Monopoly money is good to have, while the game is still 
  running. 

[1] https://bitcoin.stackexchange.com/questions/86/is-it-possibl...

http://www.businessinsider.com/bitcoin-inequality-2014-1

[2] https://www.youtube.com/watch?v=6r04gfWfRkE

[3] https://qz.com/1055126/photos-china-has-one-of-worlds-larges...

[4] https://hackernoon.com/the-guns-of-bitcoin-1f779309a718

Bitcoin is not remotely usable as a currency now. The fees are incredible, the confirmation times ridiculous. We need to move on to something more modern like Ethereum, Stellar Lumens, etc. immediately. Asking the current 1 mb blocksize version of Bitcoin to be a currency is like Goldman Sachs writing a report saying they want to run their website on Intel 486 processors.

They mention Zimbabwe moving to it as an alternative. The average Bitcoin fee is now $40 and the average weekly salary there is around $60. It is ludicrous to even think about asking someone to spend almost a week's wage for something as simple as a transaction fee. Bitcoin has failed completely at accomplishing the "banking the unbanked" goal that drew many of us to it in the first place. That story and that loss is a long, convoluted, and sad story for another time. But other cryptos with teams willing to adapt and listen to reason are moving forward with this torch.

Wherever there is blood, there are sharks, vultures...

This was eye-opening. Thanks for posting. I will share this with my friends.

Now is the era where companies are racing to replace Bitcoin. We'll see what happens at the end of this year.