Bitcoin Believers Keep the Faith

NEW YORK (TheStreet) -- Bitcoin is being boosted, according to a survey by Simulacrum, by some Ron Paul diehards.

The survey indicates they have an average age of almost 30, they are nearly all male, they have money to spare and most feel themselves to be part of a global community, not a local one.

Their politics are highly libertarian, even anarcho-capitalist, meaning they have enormous distrust of any government, according to a survey of libertarians by PublicReligion.org, and they generally have enough money to toss at something that may be worthless, like a bitcoin.

In other words, they are a lot like Coinbase CEO Brian Armstrong.  Armstrong, 31, is a graduate of my alma mater, Rice University. According to his Crunchbase profile, he previously co-founded University Tutor, which puts students together with qualified tutors.

In a commentary posted last week at TechCrunch, Armstrong insists those who have invested in bitcoins "remain totally confident" because it's an open-payment network, a protocol such as e-mail, and he noted that bitcoins are gaining merchants, such as Overstock.com (OSTK)

Bitcoin isn't gold, but as with gold, there is a limited quantity of bitcoin. Bitcoin believers think that makes it safer. But as with everything else involving bitcoin, that, too, is a matter of belief. There's no governance structure underlying any of the believers' claims.

There is no inherent value in bitcoins, which are "mined" by computers. Their value is determined through an ongoing auction process. There is nothing real backing them -- no physical product -- just the faith and credit of corporations backing the trading process.

Companies like Mt. Gox.

And these corporations, such as Coinbase, are not really people, despite what the Supreme Court may say. If Coinbase goes away, Brian Armstrong goes merrily on, and the same is true for all the other bitcoin exchanges -- Bitstamp, Kraken, BTC China, Blockchain, Circle, The Bitcoin Foundation -- now piling into the market.

Armstrong says these represent "trustworthy and responsible companies and groups," but what we really have for that are his word and his belief. The response of a bitcoin fan is that the same is true for the U.S. government, but governments also have the ability to tax people.

What really strikes my funny bone about bitcoin followers is how they like to claim their goal is to "bank the unbanked" -- to save money for poor people who are presently outside the banking system, reduced to having their money taken bit-by-bit through cash checking services or in big hunks by payday lenders.

The idea that the anarcho-capitalists are going to save the poor by having them use a faith-based currency that can disappear as fast as a hacker can hit an enter key, rather than dollars, is a profound disconnect. Brian Armstrong is shedding no tears for the victims of Mt. Gox -- why should he care about you?

Real money doesn't disappear because a bank goes bust. Real money is backed by trustworthy agents who can replace all, or at least most of that money. The Federal Deposit Insurance Corporation will give you back up to $100,000 if your bank goes bust, which is why ordinary people didn't panic during the Great Recession.

The entire stock of bitcoins is worth about $7.2 billion, according to BitCoin Watch. The current monetary base of the U.S. alone is $4 trillion, according to the St. Louis Fed. 

With whom would you rather trust with your savings, Brian Armstrong or the Federal Reserve? The fact is, all currency is faith-based. We trust money because we trust the institutions behind it. If governments everywhere are truly untrustworthy, we will need new, more trustworthy governments to replace them. Or we can engage in some sort of barter, goods for goods, as many people do.

The idea that bitcoins are going to replace this structure with a non-structure such as e-mail sounds like great politics, but it works only if the market's participants are backed by something real, the way governments are backed by something real.

Where is the "there" in bitcoins?

At the time of publication, the author held no stock in the company mentioned here.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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