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Here is how to respond to those who are ignorant of the future, ranging from well-meaning family members to Nouriel Roubini types.
1. If they say: Crypto is for drug dealers.
You respond: In the early days of the internet, many people had older relatives who listened disapprovingly to talk about “that internet thing” and declared that the internet was mainly about pornography (sure “hotmail” accounts are for exchanging information …) and declared that the only people who would adopt the internet would be perverts. The same mindset exists today for crypto. Remind them of these early day views and ask them: do you use the internet? Does that make you a pervert?
If you want to buy drugs you are much better off doing that with money that is anonymous, like US dollars in cash. Say to them: let’s go do a little experiment. We’ll find some seedy inner-city street corner and find a drug dealer. I’ll try to pay in bitcoin and you offer dollars and we’ll see who gets the drugs. (And, make sure you livestream this on the internet so we can all watch the results.)
2. If they say: But, you can buy drugs on this “dark web” I have heard about that is anonymous and cannot be traced by law enforcement. Terrible.
You respond: Using a crypto currency is technically pseudo-anonymous, not anonymous like cash. And, use your brain: even if you did manage to buy drugs online, where are you going to have them sent? To your home? Some “secret” mailbox? You think that is anonymous?
Illegal transactions can certainly be traced; the simple proof is that a number of people have been arrested for these activities, just like in the physical world. Blame human nature if you want, not crypto.
3. If they say: Crypto does not meet the definition of money.
You respond: It sure does. Essentially, money simply reflects the memory of something valuable that was created by our efforts, like selling your time to an employer or making shoes. Historically, money allowed us to specialize and exchange items of value, so we were all better off. Money is often defined using complex language (with lots of adjectives by pretentious economist-types), but it only has two, simple, common-sense characteristics:
- Money needs to be scarce.
- Money needs to be accepted by others as having purchasing power.
That is all that money is.
4. If they say: Crypto currency has no intrinsic value.
You respond: Wake up! No money has any intrinsic value. US dollars, gold, bitcoin, etc. have value only to the extent that they are scarce and are commonly accepted to purchase goods and services. Money is a symbol, a representation of purchasing power; it is not valuable in itself. If aliens show up tomorrow and want to sell us a cure for cancer, they are unlikely to take our money in payment. It is unlikely anyone on their home planet takes US dollars or gold or bitcoin.
That is all that money is: a symbol that is scarce and has purchasing power. Don’t be misled by anyone to think it is more complicated than that.
If you want to know more about money, read this.
1 Some items have been used as money that do have value in themselves, like barley or cigarettes, but, when used as money, for an exchange purpose, their value was their scarcity and purchasing power, not because you could eat or smoke them.
5. If they say: Well, the US dollar is backed by the “full faith and credit” of the US government. What is crypto backed by?
You respond: Well, I have two points:
1. The US dollar has lost just over 95% of its value over the past 100 years. You know why? Because you can print more US dollars. You know who benefits from money printing? Debtors, since the amount they need to repay is less than before. You know who are the largest debtors in any economy? The government and the banking sector. You know who is in charge of creating more money? The government and the banks. See any conflict?
2. Here is what backs crypto. Ready? I’ll tell you in two words: “fixed supply”. That is what causes it to preserve its value: you cannot just print more of it. Sure, its price varies in the market, but it doesn’t lose purchasing power due to money printing (inflation).
Here is what the “full faith and credit” of the US government has got you over time, in one illustration.
Value of US Dollar Since the Inception of the Federal Reserve
6. If they say: Crypto is a fraud.
You respond: No, it is the current banking model (based on the fractional reserve principle) that is a fraud.
It is simply a fact that fractional reserve banking involves a lie at its core: the depositor is told that their money is safely held in the bank while, at the same time, the bank lends most of this money to borrowers or uses it for its own purposes. Similarly, the banking process involves a number of misrepresentations, including: that depositors are told that the money in the bank belongs to them when, legally, it is an unsecured loan from them to the bank; that the “deposit” is insured when, in fact, there is no insurance fund whatsoever.
That is the fraud.
Crypto was created in reaction to the 2008 financial crisis, to counter institutional fraud and protect people from being preyed upon by banks.
If you want to know more about crypto compared to the banking system, you can read this.
7. If they say: But, people like Jamie Dimon and Warren Buffet call crypto a fraud.
You respond: Jamie Dimon is the CEO of JP Morgan, one of the world’s largest banks. Warren Buffet has made a meaningful part of his fortune by investing in the financial sector. As of the most recent filing for Berkshire Hathaway, seven of his 10 largest holdings were in banks or relations/enablers.
They both enormously benefit from the fact that the banking sector takes a little bit from everyone to accumulate enormous wealth at the top. It is the main cause of inequality in society. The root cause of many protest movements, from Occupy to the Arab Spring to yellow vests frustration in France is because of the inequality created by the banking industry.
Also, banks create most of the money in society, not the state.
You, the crypto denier, need to understand that crypto is an existential threat to the banking system… and to these bank shareholders and the rest of the 1%.
So, asking Jamie Dimon or Warren Buffett what they think about the crypto system is like asking a taxi driver what he thinks about Uber.
8. If they say: Crypto is used for money laundering.
You respond: Crypto runs on a public architecture called the blockchain, which is simply a lot of databases, holding unchangeable records. In the same way, nation state issued currency runs on a private architecture of banks, central banks, Visa/Mastercard payment systems, courts, law enforcement, etc.
Yes, crypto accounts are (semi) confidential, just like your bank account, but the information is recorded forever in these databases, man, for everyone to see. Who would use something like that for money-laundering?? If you were a criminal and know technology and are smart, you would never use the crypto system to launder money.
If you really want to launder money, you call your friends at a traditional bank, like HSBC. Refer the crypto denier to the Netflix documentary on HSBC’s money-laundering, if they really want their eyes opened about basic money-laundering through banks. If you want to get sophisticated, like Malaysian politicians who engaged in some serious criminal activity … well, you call Goldman Sachs and get the president on the line. You don’t set up a crypto wallet on the blockchain. It is just common sense: bad idea to launder money on an unchangeable database held by thousands of people.
9. If they say: Crypto is a get-rich scheme for scammers.
You respond: Crypto currencies are not-for-profit. It is the banking and payments system that are operated for vast profits. That is one of the main points with crypto: to prevent banks from preying on people. With crypto, a user only pays a small fee to the community that provides security and maintains administration.
However, on top of crypto currencies, some unscrupulous people have, indeed, tried to use the potential of crypto to scam people and get rich. It just seems to be human nature that when there is excitement about what a technology can do for humanity, from railroads to the internet, that some people try to take advantage of this. But what these people tried to do does not take away from the core underlying benefits of crypto. The scammers were trying to do something on top of the crypto currency layer, not change the principles of crypto. Anyway, we can agree with the crypto deniers that anyone who tries to deceive people and pervert something intended for the common good should burn in hell.
But, let us also be honest: at its core, crypto is a not-for-profit system and is intended to make the world a better place. The banking system, at its core, is based on a fundamental untruth, involves the few profiting from the many, and it underlies much of the malaise that exists elsewhere in society.
10. If they say: Crypto is bad for the environment.
You respond: That is an egregious lie. Crypto uses electricity for its two basic functions: administration and security for the entire system. Much of this comes from renewable sources that are not otherwise utilised. Imagine adding up the costs, globally, for how much bank and payment infrastructure costs? It would be a vast amount; the crypto expense is a small fraction of these costs. In addition, as crypto allows for secure payment with finality, there are no enforcement costs required. So, for a fair comparison, add in the costs in the traditional system of lawyers, courts, police, auditors, regulators, etc. and then make the comparison.
The main (and only) “report” on crypto electricity use is completely unscientific (it infers technical inputs from assumed financial outputs), the “researcher” has no background in energy economics or systems modelling. His methodology and conclusions are discredited by real scientists, including environmental research scientists.
Crypto electricity costs will undoubtedly come down as the technology evolves. The crypto industry should try to reduce electricity consumption, for sure; but to suggest crypto is a serious environmental issue is absurd and must raise questions as to the motive.
If you want to know the real story, you can read this article.
11. If they say: Give me a tangible example of what crypto is good for.
You respond: The UN’s World Food Programme uses blockchain technology to provide identity and has distributed millions of dollars in food to tens of thousands of Syrian refugees in Jordan since May 2017. The major benefit to the food program so far is “a large drop in payments to financial services firms”, the usual middlemen for transactions. Such fees have dropped “significantly,” according to Houman Haddad, the WFP executive leading the project.2
12. If they say: Crypto is just a fancy database which serves no purpose.
You respond: Crypto makes it as quick and easy to send money as you can send email. But, with email, you can send multiple copies. With money, you don’t want to allow this. So, the multiple database structure is required to solve a difficult computer science problem: preventing sending the same money many times. So, it has a clear purpose.
13. If they say: the price decline shows that people don’t want crypto.
You respond: No, actually the number of transactions across crypto has increased every year and keeps growing. More people used crypto to make payments last year than Paypal. The main reason that the price has declined is that there are not enough real-world opportunities to use crypto. This is partly because the banking industry does everything it can to prevent crypto from being adopted. Once there is a genuine crypto banking system in place, adoption of crypto will increase significantly.
2Quartz, November 3, 2017
14. If they say: why is crypto better than paper money?
- Lower cost (transaction costs much lower than bank transfers)
- More convenient (you transact directly, cuts out the bank/credit card company middlemen)
- Fixed supply
- Greater alignment with our better human values
Tell them that the crypto system is digital technology. Traditional banking/payments is analog technology, that cannot be upgraded; the entire architecture is antiquated 1970s technology cobbled together in a fit of absent-mindedness. Crypto is your smart phone. The banking system is like using a Blackberry. The payments system is like using a rotary dial fixed line phone.
If you want a comparison of crypto and the payments system, read this.
15. If they say: why do people really get involved in crypto?
You respond: People get involved because of value and values. Crypto is a system of money that corresponds to how humanity has exchanged value for most of our history. Technologically, this system is based on mathematical formulae and a straight-forward verification and record system. The implications are spectacular: you can now trust exchanging value with another person or institution directly, even if you don’t know them.
If you want to know more about why people get into crypto, read this.
Robert is part-Canadian, part-British, somewhat autistic and lives in Geneva. He is going to link the crypto system to the real economy and create a better banking model, or die trying. His interests include mountain-climbing, chess, piano, programming and distrusting authority. In his early career, he was an M&A investment banker in London, then in private equity, and then moved to Switzerland to invest his own money. He holds an MSc degree in Finance from London Business School.
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