Sky Views: It is time to write off Bitcoin?


If you wanted one word to sum up everything wrong with cryptocurrency, it might be "penis".

Gizmodo reports about a crypto start up called Prodeum that took investors' money, in return for a stake in a project to "overhaul the Price Look-Up (PLU) labelling process" for fruits and vegetables.

This weekend, Prodeum vanished. All it left behind was a white web page featuring the word "penis".

At least when people were sold snake oil they got to keep the bottle. And the weren't taunted with references to the more private parts of the anatomy.

Image:Thefts of the cryptocurrency have totalled billions of pounds

Investors lost their electronic cash but it was fairly small fry compared to other major heists. On Friday, £380m worth of tokens were stolen from Coincheck, a Japanese exchange.

The wonderful thing about the internet is the scale it offers. The largest physical bank heist ever, in Brazil in 2005, was a haul of £38m and involved digging a 78 metre tunnel.

Stealing crypto offers ten times the rewards and you don't even have to don a hard hat.

In December, £50m was stolen from a Slovenian exchange.

That is not to say physical crime does not have its place in the world of digital currency: on our own shores, robbers broke into a house in Oxfordshire and demanded the owner's bitcoin at gunpoint (the transaction didn't go through).

Asked whether one Bitcoin would be worth $500,000 within three years, John McAfee replied: "if not, I will eat my d*** on national television." That's the level of debate around Bitcoin and it's probably the level it deserves.Tom Cheshire

Along with the big thefts, smaller fraud is taking place. Pump-and-dump schemes organised on encrypted messaging apps are rife.

John McAfee, who founded the eponymous anti-virus company, later going on the run in Belize and Guatemala, is one of the biggest Bitcoin boosters and can move entire markets with a tweet.

Asked on Twitter whether one bitcoin would be worth $500,000 within three years, he winningly replied: "If not, I will eat my d*** on national television."

That is the level of debate around Bitcoin and it's probably the level it deserves.

The frenzy of speculation around Bitcoin over the last year, but especially the last few months, has invited all sorts of hucksters and charlatans – and they are stealing ordinary people's money.

In December, Fortune reported that nearly one-fifth of all Bitcoin buyers are using credit cards to do so. Some are even taking out mortgages to buy the currency.

Good luck to them; it might pay off. I'm probably just bitter because I can't remember the password to a wallet that has 0.3 bitcoin in it – worth about £2,000.

But plenty of people are going to be in trouble when the party ends.

The web page disappeared, leaving just the word penis this week
Image:The web page disappeared, leaving just the word penis this week

Bitcoin's constant price fluctuations make it unusable as an actual currency. US payments firm Stripe ended its support for Bitcoin because payments take too long and cost as much, in fees, as regular bank wire transfers.

"Empirically, there are fewer and fewer use cases for which accepting or paying with Bitcoin makes sense," the company wrote.

Bitcoin also uses a potentially world-ending amount of energy: currently as much as Denmark consumes annually. Some (probably overambitious) projections say that by 2020 Bitcoin will use as much electricity as the whole world.

Nor are cryptocurrencies really decentralised. Part of the appeal for wild eyed libertarians was that no central bank controlled Bitcoin or Ethereum. Instead, individuals do.

For both blockchain platforms, "mining [is] very centralised, with the top four miners in Bitcoin and the top three miners in Ethereum controlling more than 50% of the hash rate", according to a study from Cornell University.

So Bitcoin, which promised to be a decentralised way of sending cash, actually does neither of those things. At this point, it is traditional for crypto-zealots to point to the transformative nature of the blockchain technology that cryptocurrencies rely on.

Bitcoin is now worth more than £4,780
Image:Bitcoin uses a potentially world-ending amount of energy

There are certainly some interesting projects here. In particular, in making supply chains more transparent and accountable, with pioneering companies like the London-based Provenance.

Others have pointed to the potential of "smart contracts" – digital agreements that automatically fulfil themselves.

Law firm Nortons gives the example of a smart contract for flood insurance policy, linked to a feed of rain data from the Met Office: "When the data feed shows the threshold is met, the policy automatically pays out claims."

But smart contracts would seem to work best only with discrete, easily measured events. For the complicated mess of human life, old-fashioned legal contracts, which necessarily include a degree of subjectivity, are unlikely to be replaced.

Bitcoin was created in 2009. Nearly a decade later, we have yet to see anything that really justifies its hype. All we have is a speculative asset bubble, circled by cheats and swindlers.

More from Bitcoin

How long do you give a technology before you write it off?

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously: Rhiannon Mills – Why are domestic abuse victims forgotten?

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