Bad Arguments for the Permanence of Bitcoin

I will rebut various elements of a rather poor article arguing that Bitcoin will be around forever.  It might well be — I don’t know — but I do know that this article does not add any light to the topic.  It appeared here:

https://www.theguardian.com/commentisfree/2017/sep/15/jp-morgan-ceo-wrong-bitcoin-jamie-dimon

The random banker bashing in the headline might give you an initial suspicion about who is likely to be right here.

The first rhetorical question the article asks is “Would Jamie Dimon really sack traders who netted a 1,000% return in less than two years? The bank’s shareholders wouldn’t approve”

The answer to this is definitely yes.  Return alone is an inadequate assessment of trader performance.  We must look at risk-adjusted return. A guaranteed 10% return is better than anything lower than a 50% chance of 20%.  If the trader made his 1000% by betting on a single horse, he took an enormous risk to make his 1000%. The shareholders would certainly approve of Dimon sacking such a trader and in fact would demand it.

We then move on to a ‘fake news’ type criticism in which the author attempts to show that Dimon is biased.  He writes “Although JP Morgan was by no means the most leveraged of the banks, it still took bailout money, and, as its CEO, Dimon and bitcoin will inevitably be philosophically opposed.”  So this is a set of claims which don’t stack up.  Firstly, JP was bailed out post-crisis (fine).  Secondly, Bitcoin was invented in response to this crisis (I don’t know, but let’s accept this).  Thirdly, JP must be opposed to everything that happened as a response to the crisis.  Conclusion: JP is opposed to Bitcoin forever.  Premise Three is obviously false.  What can be said to even make it plausible?

The next section of the article accuses Dimon of not understanding Bitcoin because he says it is a fraud.  The author then admits that Bitcoin is in fact extensively used for fraudulent and criminal purposes but it is not itself a fraud.  This is parallel to those arguments against gun control which say that guns don’t kill people, people do.  I will leave that there.

I will close by criticising a remarkable paragraph which packs in a lot of errors and bad arguments.  The author writes: “Dimon declares that we will use the technology – blockchain technology – but that bitcoin will be shut down. That’s like saying we will use football pitches, but football players will be banned. One comes with the other. In any case, you can’t just shut bitcoin down. It’s a decentralised, distributed network. That’s the whole point of its design. There is no central point of failure.”

This is very strange.  Take the football analogy first.  There are two major problems with it.  As a parallel, it may or may not work.  Assume it works.  Let’s be generous.  There are alternative uses for football pitches.  They have been used as prisons and they were used as holding centres post-Katrina.  Other uses could be imagined.  We could land helicopters on them.  So even if Bitcoin ls like playing football and the blockchain is like a football pitch, we can do other things with football pitches and we could do other things with the blockchain.  Strikingly in fact, this is where much of the excitement exists.  There are many potential extremely useful applications of a distributed ledger technology such as property registers and shareholder transaction records.  These would be interesting because they would be highly transparent and resistant to corruption and bureaucratic sloth.

The second argument in here is equally poor.  The claim is that you can’t shut Bitcoin down because it is decentralised.  What this may actually bring out is that you cannot shut down the servers behind Bitcoin because they are decentralised.  But that isn’t what Dimon says.  He says that “There will be no currency that gets around government controls.” What if governments made Bitcoin possession and use illegal and banned its use in any transactions?  They could do that and then what Dimon has pointed out is true but no-one has to go around shutting down distributed servers.

I conclude that the author has done nothing to show that Dimon is wrong or that Bitcoin is not a bubble and will persist.  If you would like to read a higher standard of discussion on financial markets which includes more rigorous argument and some familiarity with the facts, you will want to buy my new book:

https://www.routledge.com/The-Psychology-of-Successful-Trading-Behavioural-Strategies-for-Profitability/Short/p/book/9781138096288

 

 

Author: Tim Short

I went to Imperial College in 1988 for a BSc(hons) in Physics. I then went back to my hometown, Bristol, for a PhD in Particle Physics. This was written in 1992 on the ZEUS experiment which was located at the HERA accelerator in Hamburg (http://discovery.ucl.ac.uk/1354624/). I spent the next four years as a post-doc in Hamburg. I learned German and developed a fondness for the language and people. I spent a couple of years doing technical sales for a US computer company in Ireland. In 1997, I returned to London to become an investment banker, joining the legendary Principal Finance Group at Nomura. After a spell at Paribas, I moved to Credit Suisse First Boston. I specialized in securitization, leading over €9bn of transactions. My interest in philosophy began in 2006, when I read David Chalmers's "The Conscious Mind." My reaction, apart from fascination, was "he has to be wrong, but I can't see why"! I then became an undergraduate in Philosophy at UCL in 2007. In 2010, I was admitted to graduate school, also at UCL. I wrote my Master's on the topic of "Nietzsche on Memory" (http://discovery.ucl.ac.uk/1421265/). Also during this time, I published a popular article on Sherlock Holmes (http://discovery.ucl.ac.uk/1430371/2/194-1429-1-PB.pdf). I then began work on the Simulation Theory account of Theory of Mind. This led to my second PhD on philosophical aspects of that topic; this was awarded by UCL in March 2016 (http://discovery.ucl.ac.uk/1475972/ -- currently embargoed for copyright reasons). The psychological version of this work formed my book "Simulation Theory". My second book, "The Psychology Of Successful Trading: Behavioural Strategies For Profitability" is in production at Taylor and Francis and will be published in December 2017. It will discuss how cognitive biases affect investment decisions and how knowing this can make us better traders by understanding ourselves and other market participants more fully. I am currently drafting my third book, wherein I will return to more purely academic philosophical psychology, on "Theory of Mind in Abnormal Psychology." Education: I have five degrees, two in physics and three in philosophy. Areas of Research / Professional Expertise: Particle physics, Monte Carlo simulation, Nietzsche (especially psychological topics), phenomenology, Theory of Mind, Simulation Theory Personal Interests: I am a bit of an opera fanatic and I often attend wine tastings. I follow current affairs, especially in their economic aspect. I started as a beginner at the London Piano Institute in August 2015 and passed Grade Two in November 2017!

8 thoughts on “Bad Arguments for the Permanence of Bitcoin”

  1. Jamie Dimon and the stuffed suits in Beijing are perfect examples of the privileged, rude, insensitive, unwilling to learn and unwilling to adapt culture that is thankfully dying out around the globe. For the future of Bitcoin, you can look to Japan, where the currency is accepted and protected by domestic legislation. In Japan now exists the framework for fintech to thrive, whereas it has effectively been snuffed out in China.
    Though the old men in suits continue to tremble and bawl on TV, Bitcoin does not in fact pretend to be a currency. It cannot replace a fiat currency because banks can’t create it at will for no cost. Bitcoin can only be created through an immense amount of computational work. As Bitcoin cannot be manipulated by banks, it has no value to them.
    As for being used for fraudulent and criminal purposes, well, so can fiat money. You need look no further than the JP Morgan’s long list of financial crimes to ascertain that.
    All currencies can get around government financial controls. It’s laughable to think that money laundering doesn’t go on (99% of it facilitated by banks exactly like Jamie Dimon’s).

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  2. You don’t supply any evidence for any of these claims.

    I am not sure what parallels exist between the CEO of an investment bank and senior politicians in China and why you think all of these people are rude etc.

    State the domestic legislation in Japan. I am interested to learn about this.

    Fintech is not Bitcoin so I do not see what your point is there.

    Bitcoin clearly pretends to be a currency, because it aims to be a store of value and a means of exchange.

    Money laundering is increasingly difficult and will become more so as cash is eliminated.

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  3. I think threatening to fire employees and disparaging your daughter live on TV is pretty rude, but hey, we all have different moral standards. Likewise for the old men in Beijing suddenly moving to bankrupt an entire industry sector. These are real people with real investments of talent, time, and money.

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    1. He isn’t actually threatening to fire employees because he knows that no one at JP is legitimately trading Bitcoin. What remarks exactly about his daughter?

      I don’t really see why you are discussing JP and China at the same time. What is the link?

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