Bitcoin’s Hidden Secret

One of the reasons here at we suggest people consider investing in physical precious metals is safety. The precious metals are a relatively stable store of value that, given it’s thousands of years of history, will be there when you need it. It can’t be printed out of thin air like paper currencies. It is not likely to follow the history of every paper currency that has been over printed, or “quantitative eased” and ended up being eroded in value and eventually become worthless.

The other reason people feel it is safer is because it can be “outside the system.” This means it can be outside the banking system whose “fractional reserve system” only keeps a fraction of the total deposits on hand in the belief that not every depositor will withdraw their money on the same day. It’s not hypothocated, pooled or other fancy financial concept that basically means your specific store of wealth is not where you thought it was.

Some people have been suggesting Bitcoin as an alternative store of value that is “outside the system.” While it is true that for now it is outside a central banking system or the Federal Reserve bank whose policies can inflate the value away to me there seems to be several serious and potentially fatal flaws.

As I understand it the short version of Bitcoin is that an anonymous programmer devised a “task” that can only be performed by high powered computers working long and hard to produce an answer to a complex problem. This answer or result is the Bitcoin.

The first flaw it seems to me is that Bitcoin has no intrinsic worth other than facilitating purchase and transfers. Silver has an industrial use as well as an investment use. Gold is valued by billions of people for its use in jewelry, coins, and industrial uses. It takes real machines digging in the dirt and refining thousands of tons of ore to produce the final precious metals product.

Right now supporters are saying Bitcoin has value because it takes a computer real work over time to produce. However we have seen the phenomenal growth of computing power in just the past 20 years. What use to be considered a super computer, filled an entire room, and required a big, big budget for electricity is now out-computed by the desktop computer on your desk. Who is not to say in ten years or five years or some other time in the future the “massive task” needed to produce a Bitcoin can’t be done by the future version of your desktop computer? Who is to say in the future you might not be able to produce Bitcoins on your desktop computer of the future using spare unused CPU cycles much like the SETI@Home project does now? The massive task of SETI, the Search for Extra Terrestrial Intelligence, is portioned out to millions of home users who devote their computer’s unused CPU cycles to the task.

Right now the blockchain, which is a record of every transaction of every user, every purchase and every Bitcoin transaction history as I understand it must be downloaded to every Bitcoin users’ computer. My concern is twofold. First if there is a repository of every single transaction you have made and every single transaction every other Bitcoin user isn’t that just a little bit scary? Isn’t that just one step closer to the ability of total monitoring? If the government at some point in the future does regulate Bitcoin doesn’t that scare you to know they would have a record of your total transaction history and 100% of your transactions. Is that something you would feel comfortable with? Given the NSA and government record of their ability to keep “secrets” secret how do you feel about this? And that’s the “good guys.” What about the ability of hackers to crack many of the supposedly “secure” systems we use now and their ability to leapfrog ahead of the people we trust to keep our information private?

This video is about another potential problem I hadn’t really thought about. The “blockchain” of transactions that every Bitcoin user must download to their machine according to this video, is growing by leaps and bounds as Bitcoin grows more popular. The point of this video is that it may soon be too large for the average user to store on their local machine.

We’ve seen “Bitcoin” grow in value. There have also been periods of extreme volatility. I’m not a computer programmer but it seems like there are several potential flaws. You may be able to make some money now while Bitcoin appreciates and those “flaws” remain “potential” flaws. However I would urge you not to be the last person holding a Bitcoin when the “potential” flaw metastasizes and becomes “fatal.”

Since I am not a computer programmer I’d welcome any supporter of Bitcoin to leave a comment showing me where I am mistaken. Intelligent, specific, researched and thoughtful comments welcomed. Just calling me a XXX??? does not qualify and will not be approved for publication so don’t waste your time or mine.

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