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5 Ways BitCoin and CryptoCurrencies Could Collapse

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Jamie Dimon called BitCoin a fraud last week, and he’s right. But only in the context that all fiat currencies are arguably fraudulent, and are only made viable by the collective faith and confidence of the society in which they transfer and hold value. The United States dollar is the most visible case in point. If the balance sheet of the United States was forced to comply with Generally Accepted Accounting Principles, (GAAP) or even the more lenient International Financial Reporting Standards (IFRS), it would have been sold off to creditors years ago for pennies on the dollar.

Fortunately for the United States though, having the biggest military pointed at the heads of the international lending community, and having them pregnant themselves with USD, it is easy to convince the rest of the world that this debt is sustainable.

But right now, the faith and confidence being diverted away from dollars and into cruyptocurrencies of every imaginable stripe (led by BitCoin) is rampant, and shows no signs of abating. (DISCLOSURE: Midas Letter Financial Group is actively financing Cryto Currency and BlockChain technologies). This suggests that the world is in fact clamouring for an alternative to the elite financial control of currencies, and is convinced that the solution lies in cryptocurrencies resident on blockchain technology due to its “decentralized” nature.

While this is foolish and myopic wishful thinking, that won’t stop crypto and blockchain from having an extended day in the sun, of which the dawn is only beginning. So, just as the tulip bubble that Dimon refers to made millions for early investors before collapsing, the same will likely unfold with BitCoin, Ethereum, BlockChain, and every other manner of coin, token and digitally distributed financial ledger.

So while we dutifully stampede after every and any deal with Bit or Block in the name somewhere like everybody else, we will not be left holding the proverbial bag of fragrant paper when the music eventually stops. And stop it most surely will.

Why? Well, here’s a few reasons:

1. HyperInflation: The beauty of BitCoin we are told, is that there will only ever be 21 million coins made, and so it is perfect for a global financial system. That’s arguably true, if we were all to agree that BitCoin was going to be the global currency we all used. However, that is not going to happen.

In fact, the rate at which new coins are being issued is enough to make your head spin. Here’s a hypothetical question: What’s to stop every tech weenie who can code from starting his or her own currency?

At what point will the entire financial community wake up and say, “Wait a sec!”. It happened with tulips, and it happened with the Dot Com bubble. It happened with real estate, and the next “black swan” furiously paddling into view is Crypto.

With no limit on the number of CryptoCurrencies being created, how soon will it be until the world realizes that this most simple of threats is also the most real.

2. Fraud: The BlockChain is immutable, we are told. It can’t be tinkered or toyed with without every single node “knowing” that such has occurred.

Oh yeah?

That’s interesting. So how did all this BitCoin go missing when Mount Gox collapsed? There are still over 650,000 BitCoins missing. A company called Chainalysis, who was retained by Mt. Gox bankruptcy trustees to find the coins, say they know exactly where they are, but have provided no proof. Why doesn’t every single node “know” where it is?

Simply put, the BlockChain, being code, can always be rewritten, and its self-administering reconciliation can most certainly be tricked. While we wait for another monstrous example of this to punch the wind out of the currency hysteria, think about this.

What about counterfeit crypto? Who among us possess the depth of understanding needed to really know if the Crypto Coin they have forked over our hard-earned fiat paper currency is actually legitimate? Its hard enough for banks and institutions to keep up with the variations on counterfeit paper currencies. How will crypto impact this organized crime favourite pastime?

3. Government Intervention: China has already moved to shut down all BitCoin and CryptoCurrency trading platforms. China is not very subtle when it comes to dealing with perceived threats. The free world, however, waits to see if it can somehow take financial advantage of the threat before moving to block it.

BitCoin is no doubt causing a lot of belly-button gazing by central bankers and regulators alike, and the absence of any coherent policy on their part means, like most of us, that nobody really fully understands the threat that crypto presents to financial stability globally. Thanks to the United States and its baffed out currency and utterly corrupt commodities, currency and stock markets, the illusion of viability can now persist long beyond the point where viability has become impossible. Look at Bernie Madoff. Or Enron. Or Donald Trump.

The bottom line is that when the governments think that their currency’s confidence is being usurped by cryptocurrencies’, there will be regulation, if not outright control. This eventuality borders on certainty, and when it happens, the crypto game will come to an abrupt end. If you think the United States is going to let its currency be replaced by a virtual one, you clearly aren’t thinking straight.

4. Crash: What happens if this rapidly replicating code catches a flu bug? Are there fail safes in place to avert a complete and total corruption of the “immutable” blockchain?

I don’t think anyone really subscribes to the idea that programmers are idiot-proof. I can tell you from personal experience that while some might be very talented at scripting elegant objects that are breathtaking in their simplicity, they also have a tendency towards myopia, which is a very desirable feature in a programmer.

And so while the world we live in is evolving into an ever-higher percentage of geeks than ever before, one might argue that the chances of a bad bit of code somehow infecting the entire system grow bigger with each transaction. Never mind that crypto currencies are going to become the favourite target of every dark star hacker in Eastern Europe and Taiwan.

5. Infrastructure: We know that the computational difficulty of mining BitCoin increases with every BitCoin mined. If mining is over at 21 million BitCoins, great. But can somebody please explain to me what the electricity and bandwidth demand will be of a thousand cryptocurrencies all growing computationally more challenging with every spewed coin? You know what? No one can.

I’ve asked the CEOs of some of the biggest miners in the world, and they uniformly “can’t say” or “don’t know”, or my personal favourite, “who knows?”

So take your pick. The risk factors section of a Crypto prospectus would likely exceed the length of the rest of such a document exponentially.

So yes! There will be billions made from crypto speculation, but Jamie Dimon is absolutely right. All cryptocurrencies, at the end of the day, will be found to be fraudulent.

For now, however, that attitude is not widely appreciated or supported. But mark my words. The fall will be sudden, and the longer the crypto craze lasts, the more spectacular will be the dollar value of wealth that will be vaporized.

Original article: 5 Ways BitCoin and CryptoCurrencies Could Collapse

©2017 Midas Letter. All Rights Reserved.


Source: https://www.midasletter.com/2017/10/5-ways-bitcoin-cryptocurrencies-collapse/


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    Total 5 comments
    • GET OUT WHILE YOU CAN

      Unfortunately you are uninformed of the fundamentals that will drive BitCoin past $10,000 when the market fails.

      Only 1% of the population knows what a BitCoin is. What happens when that number hits 5 or 10. It’s such a bad idea Japan has made

      BTC legal legal money. Ah what do they know right?

    • Daydreamer

      LOL, what a complete BS article.

      Beforeitsnews, why do you allow such tripe on your website?

      • DK

        Because of Freedom of speech and expression the real tripe allows no comments to balance the fake article i.e. this fella /contributor/pages/64/291/stories.html, No opposition Cromwell!

    • JimmyB

      I read this and thought it must be an Onion satire piece. You have no clue how cryptocurrencies work. Please do your readers a favor and delete this article.

      #1 Hyperinflation. Tulips? Check the real story behind tulip craze. Dot com bust? I believe we had a few strong companies such as Amazon come out of that. Bitcoin and a few other cryptos will survive.

      #2 Fraud. The point of crypto is that you don’t know who owns it. Paper money can be lost, just like crypto. Paper money can be used for crime just like crypto. You can’t just change the code and nobody will notice. The code is open source and reviewed by many. and then you have to convince the nodes to run the new software. Counterfeit? It is backed by math, can’t be counterfeited.

      #3 Government Intervention. Certainly this is a possibility. But look at how Bitcoin bounced back from the China bans. The more governments interfere, the more people see the need for cryptos. It would take a worldwide ban to shut it down.

      #4 Crash. Flu bug? Sorry, a crypto can’t catch a virus. Bitcoin has been tested for almost 9 years and has proven itself. It has an incredible team of developers to adjust as needed.

      #5 Infrastructure. Infrastructure will keep up. Some coins use “Proof of Stake” which doesn’t require vast amounts of electricity. There are a lot of new coins every week, but most won’t survive. Several will thrive.

    • Ricardo Martinez

      the author clearly doesn’t grasp the subject he is writing about, and his mt. gox example demonstrates his ignorance on the topic

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