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The Great Bitcoin Scam

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By contrast, Bitcoin has no intrinsic value — it is just a number. The number may have an agreed value between two parties, but the number itself has no value. Consider a bank account number, such as Wells Fargo Account No. 456789. The depositor and Wells Fargo essentially agree that the account designated by No. 456789 has the value of what the depositor puts into it, less what the depositor takes out. But the number itself, No. 456789 has no value. The same situation occurs with credit card transactions, whereby the credit card processing company assigns are unique value to each transaction, but the number itself has no value.

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At the outset, let me clarify that Bitcoin itself is not a scam, but how Bitcoin is being sold is a scam. More about that below.

To start out, it is important to understand what Bitcoin really is. It would be easy to bore you with a discussion of the technology, about peer-to-peer servers and sophisticated algorithms, but that is not what you need to know.

What you need to know about Bitcoin is that distilled to its technological essence, each Bitcoin is simply a number. That’s it: A number. It is simply a series of digits, with each number being assigned to each Bitcoin.

To illustrate, I’ll randomly pull a $1 bill from my wallet, which bears No. L88793293J. Assuming some minimal level of competency by the U.S. Treasury, no other bill bears that number.

The face value of a $1 bill is, of course, just $1 dollar. But two people could privately agree that No. L88793293J is actually worth $5,000.

To illustrate Fred wants to buy Joe’s golf clubs, but Fred doesn’t want his wife to know — at least just yet — that he spent $5,000 for golf clubs. So, Fred and Joe agree that No. L88793293J is worth $5,000 and Fred gives No. L88793293J to Joe. Fred then tells his wife that he bought the clubs for the $1 bill. At some later time, when Fred’s wife doesn’t care so much, Fred pays $5,000 to Joe for No. L88793293J, and gets the $1 bill back.

The only difference between Bitcoin No. ABC123 and $1 Bill No. L88793293J is that at the end of the day, the $1 bill physically exists and has a face value that is worth something, i.e., Fred could take the $1 bill and buy something off the $1 menu at McDonalds.

By contrast, Bitcoin has no intrinsic value — it is just a number. The number may have an agreed value between two parties, but the number itself has no value. Consider a bank account number, such as Wells Fargo Account No. 456789. The depositor and Wells Fargo essentially agree that the account designated by No. 456789 has the value of what the depositor puts into it, less what the depositor takes out. But the number itself, No. 456789 has no value. The same situation occurs with credit card transactions, whereby the credit card processing company assigns are unique value to each transaction, but the number itself has no value.

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