... fake market instrument
Video version of the argument:
https://youtu.be/aZzH1Js2l4kThe easiest way to detect if paper or digital currency is real money or fake money is to check whether it can perform the primary function of money, which is to serve as an auxiliary means for exchanging goods and services. Real money is capable of performing this function while fake money is not.
Suppose that a guy hacks into his bank and put additional digits into his account. Then he uses his debit card to buy goods and services with these digits. Suppose that he also used money counterfeit machine to print dollar bills that he then spent in the market. What is obvious in both of these cases is that this digits and bills were not created to serve as an auxiliary means for exchanging goods and services. Instead they were created to serve as fraudulent means for extracting goods and services from the market participants. For that reason they do not perform the primary function of money and as such they are fake money.
Now let's check what happens when bills and digits are created in the banking system. Suppose that Federal Reserve printed new dollar bills and lent them to a commercial bank which further lent them to some borrower. Also suppose that the commercial bank created dollar digits and lent them to the same borrower by putting them into his bank account. Finally the borrower uses these bills and digits to buy some goods and services in the market. What is immediately obvious here is that this borrower got these goods and services from market participants in the same way as the guy that created fake dollar digits and bills. But there's one huge difference here. Unlike that guy the borrower will return goods and services back to the market participants. Namely, given that the borrower has the obligation to repay his loan, he needs back those dollar digits and bills that he previously put into circulation. The most common way to get them is employment. As an employee he produces goods or services. Those are then traded on the market for dollar digits or bills which are then used for his salary. Finally his salary is used for loan payments. The process just described will continue until he completely pays off his loan. So although the borrower contributed to the pool of goods and services with his employment he cannot access this pool because his salary went for loan payments. Instead to borrower the access to the pool was granted to the market participants that had dollar digits and bills. And that's how the borrower returns goods or services back to the market participants. In other words unlike the guy that created fake money, the borrower did not use digits and bills for extracting goods and services from the market participants. Instead, he used them as an auxiliary means for exchanging goods and services with these participants. For that reason, bills and digits that are created in the banking system perform the primary function of money and as such they are real money.
The money in the form of gold certificates works in a similar way. It is just that party that puts them into circulation must first deposit the goods in the form of gold at some depository. The depository then issues the certificate which is traded on the market for goods or services. Then the current holder of this certificate can take it to the depository in order to claim the deposited gold. Once the holder receives the gold the exchange process between him and the gold depositor is finished. As we can see, the gold certificates are also used as an auxiliary means for exchanging goods and services. For that reason they are also real money.
Now that we have learned how real money operates we can finally turn our attention to Bitcoin. In the bitcoin system a group of people known as miners is the one that puts bitcoin into circulation. They do that by purchasing goods services or real money from the market participants, who in turn recieve digits to their virtual addresses. Now is the role of bitcoin miners similar to the role of borrowers and gold depositors? Or is it similar to the role of the guy that put fake digits and bills into circulation? In other words, do miners have the obligation to take Bitcoin out of circulation and in that way return goods and services to bitcoin holders. Further did they have the obligation to deposit some commodity prior to putting bitcoins into circulation so that bitcoin holders can claim it if they want to? Or, are these miners free of any such obligation. Well the answer is obvious. Just like the guy that created fake digits and bills, once miners extracted goods services and real money from the market participants they are free of any obligation and they can disappear without a trace.
This is indisputable proof that bitcoin is fake money. It doesn't serve as an auxiliary means by which bitcoin miners and market participants exchange goods and services. Instead, it serves as fraudulent means by which miners extract goods services and real money from the market participants.
Besides being fake money bitcoin is also fake market instrument. This is because it is impossible to evaluate its market price. If something is real market instrument one can easily determine whether its market price is cheap or expensive. Let's check a couple of examples.
If a bond with a face value of $1,000 a coupon rate of 5% and maturity in 5 years is priced at $500 we immediately know it is cheap. If priced at $5,000 we know it is expensive.
If a bread roll is priced the same as pizza we immediately know it is expensive because the utility that is need-satisfying power of a bread roll is lower than that of a pizza.
If a guy was granted a loan in the amount of 50,000 units of money and used his small house as collateral but then he asks a big luxury house in exchange for these 50,000 units we immediately know this is expensive. This is because although money created in the banking system gives the entitlement to goods and services of borrowers, as we explained at the beginning of this video, this entitlement is approximately equivalent to the size of their collaterals. In our case the collateral is a small house. So given that the utility of a small house is lower than the utility of big luxury house we know that exchanging such house for 50,000 units of money is expensive. If someone would offer him a bicycle for this 50,000 units we would immediately know this is cheap. This is because he must produce the goods or services in the value equivalent of his collateral in order to get money for loan payments. And obviously his house has higher utility value than a bicycle.
And finally, if the book value of a company per share is $100 and the company has small positive earnings we immediately know that if it is priced at $500 it is expensive. If priced at $10 we know it is cheap.
So in all mentioned examples we have used the utility or entitlement behind market instruments to determine whether their market price is cheap or expensive. To put it differently, when we exchange real market instruments we can easily compare what utility or entitlement we recieve as buyers and what utility or entitlement we give-up as sellers.
In the case of bitcoin this is impossible because there is neither utility nor entitlement behind bitcoin. In other words, unlike a bread roll or a pizza you cannot use bitcoin for satisfying human needs to be able to compare utilities. Unlike money created in the banking system bitcoin doesn't give you the entitlement to someone's goods and services. Unlike bonds bitcoin doesn't give you the entitlement to periodic payments and return of initial investment after some fixed period of time. Unlike stocks bitcoin doesn't give you the entitlement to profit of some company or share in its liquidation balance.
So essentially, there is neither utility nor entitlement behind bitcoin. That's why when you decide to buy Bitcoin, that is, a number, there is nothing to put into comparison with the thing you give-up, and it is impossible to evaluate whether the market price of bitcoin is cheap or expensive.
With that said we can easily see where the crux of bitcoin fakeness lies. When you buy real market instrument you become the holder of some utility or entitlement and then some number is inserted into a database in order to express the quantity or size of received utility or entitlement. However when you buy bitcoin only number is inserted into database. That's all. And this number expresses nothing but itself.
So bitcoin is just a worthless number in a database that was smartly disguised as a real money and market instrument in order to lure the public to purchase it. And this is basically how investment scams operate. Every investment scam uses some worthless item that is disguised as something valuable to attract investors. In our case this item was a number in a database. The Bitcoin scheme is therefore a classical investment scam. Now this scam is used-up due to the enormous mining costs. We can say that current miners are also its victims. But this was to be expected given that investment scams are intended to benefit its designers not the general public. In the case of bitcoin its designers are its initial miners. They mined large amounts of bitcoins at almost no cost. Then they spread the false story of bitcoin being real money and market instrument to lure the public into transferring their valuable possessions into their hands. And they were successful. Very very successful.
