What is your opinion of bitcoin? It would seem that it does not exist in the true sense and does not serve other human beings. Investments only have value when other people place a value on them.
Jeff N.
Dear Jeff,
We’re getting a strong urge to start this answer by saying that nothing in our Ask the Rabbi column should be taken as investment advice and that past performance is no guarantee of future results. Now that we’ve got that out of the way, we can answer your question.
The point we would like to make is that bitcoin’s value, as you say, is based on people’s willingness to honor it. That is true for many things we call money. For example, United States savings bonds are “backed by the full faith and credit of the US Government.” If the government falls or become dishonorable, the bonds quickly become worthless. The service any form of monetary exchange provides is allowing people to function economically in a more sophisticated manner than basic bartering. But any government behaving immorally by inflating its currency in order to surreptitiously tax its citizens will quickly find its currency valueless.
The coins or bills in your pocket have little intrinsic value. Neither does the check you receive from your employer or the plastic card you swipe at the store. They represent a general agreement by a large number of people to treat those items in an agreed upon manner. Once money was separated from the gold standard, its entire value is as a symbol. And though it has a long history, even gold depends upon human agreement as to its value. When the Spanish took gold from central America in the 16th century, its main use to the locals was as decoration. The yellow metal was far more valuable back in Spain among a population that agreed to agree on its monetary value. If trust in other human beings and government ceases, any currency quickly loses its value.
Some of our grandchildren amass beads when they perform certain activities. They trust that their parents will trade in a certain number of beads for ice cream, books, toys or an outing as promised. The interaction is entirely based on faith and honor. We do the same with dollar bills, however our interaction is with large groups of fellow citizens and citizens of the world rather than with people we know and trust. Bitcoin, in our limited understanding, is an attempt to do exactly the same thing by making a new currency that exists outside of government control. Whether it succeeds or not, it is basically the same animal dressed in different clothing. Bitcoin enthusiasts depend upon Internet algorithms to prevent too many bitcoins being ‘mined’ and thus debasing the currency just as we depend upon government not to devalue the currency by printing too much of it. They depend upon the blockchain ledger system to maintain an accurate record of bitcoin transactions and ownership.
In our view though it is still early, there is no reason why bitcoin or other crypto-currencies shouldn’t evolve into useful tools of transaction. Its existence outside of government is useful for freedom but will be vehemently opposed by governments. Imagine how many refugees would have been thrilled to bring some of their wealth with them, in the form of bitcoin, to lands of refuge instead of arriving as penniless refugees after their wealth was confiscated?
Do your research and invest with your head, not your heart.
Rabbi Daniel and Susan Lapin
Why do you always seem to wear a yellow tie? Are they clip ons?
Dear Paul==
I do not “seem to”. I do!
No, they are most assuredly not clip on. They are each meticulously tied by hand. Actually hands. Mine.
Cordially
RDL
IN GOD WE TRUST
History of satisfaction is a good indicator of the integrity of the issuer of the promise. But then again past performance doesn’t guarantee future results. Men of faith (Businessmen) make it work.
Thanks for sharing your wisdom.
Gamaliel
Gamaliel, as we point out in some of our books, one Hebrew word for businessman is ‘omein’ from the same root as ‘amen.’
Dear,
Rabbi Daniel and Susan Lapin
I’m a Longtime follower first time poster here.
Thank you for all your shared wisdom and materials I’ve enjoyed them always from your TCT series Ancient Jewish Wisdom, Thought Tools emails, podcasts and book Thou Shall Prosper. Looking forward to ordering the complete library pack plus soon. As your 10th commandment says “NEVER RETIRE” I’ve learned so much from both of you. My Rabbi!
About this subject bitcoin I don’t know much but I am skeptical it will survive as a “currency” for various reasons.
I’ve learned there’s centralized money government fiat like the Dollar Euro Yen and Peso.
Decentralized people’s money like the bitcoin mania.
Then there’s God’s money GOLD atomic number 79.
Genesis 2:12 “Gold is good”
Gold has been here since eternity and has been a real store of value for thousands of years. Unlike fiat currencies America has had 3 so far the current greenback the confederate and the continental. Central banks all hold gold in their reserves vaults maybe because they know it’s real money.
What more can you share with us about Gold and the hidden and mysterious wisdom from the Lord’s hebrew language? Maybe we need a thought tool for this question 🙂
Thank you and God Bless
Gamaliel
Thanks Gamaliel
Here is an excerpt from my book, Thou Shall Prosper https://rabbidaniellapin.com/product/thou-shall-prosper-hardcover-book/
I think it addresses your question.
he problem with all private currencies whether flooz, beenz, or your check, is obtaining information on the reliability of the issuer. Suppose you were selling an asset to, say, Mr. Jones, a man with vast financial resources and limitless integrity. He could write you a check drawn on an obscure bank in Albania, he could scrawl an IOU on the cocktail napkin, or he could just tell you that he’ll messenger over the money in the morning. Each of these three choices would be acceptable to you and is an example of private currency. You would find that you could use each of these three forms of payment; each would be acceptable to your creditor as long as he knew of Mr. Jones by reputation. The problem is trust and reputation. How do people discover the integrity of the issuer of the promise?
Cordially
RDL
I wouldn’t even know where to acquire it. Even if I were interested. How about an emailed print of one of my paintings?
Brian
Sorry Rabbi,
I don’t have a cow. Nor do I have fields of grain. You will have to make do my check or credit card. I know it is poor recompense but it’s the best I can do. You have accepted them before. Hopefully they will be accepted.
Also take this with the tongue in cheek that it was intended.
With love and respect,
Brian
OK, no cow. I can reluctantly accept that. But how about Bitcoin, Brian?
Cordially
RDL
Right on.
I remember a conversation we once had in Sunday school about this very same topic, ie. money not bitcoin. We decided that if A had all of the worlds gold, silver and jewels,
and B had all the wheat and grain, and C had all of cattle and meat. Then all of A’s wealth would be worthless if the others wouldn’t take it in payment.
I once heard in a high school history class that at one time in this country you could write a check on the side of a cow and the bank would have to honor it. ( I can’t verify that). As you say, Paper, coins and credit cards are merely a convenience.
Brian
Yes, indeed, Brian-
all true. And, if you ever want to send me a gift, you can by all means feel free to send me a cow, with or without a check written on its side. I’ll think of you and thank you through each delicious mouthful of BBQ (or drink of milk if it is a dairy cow). I’m just sayin’
Cordially
RDL
Hello Rabbi Lapin,
I am in general agreement with your analysis of cryptocurrencies. You have covered most if not all of what a currency represents and why. I always depend on your advice when you speak of work and money.
Some see these “currencies” as a pyramid scheme. “Blockchain”/chain letter. Hope to win expect to lose.
It is a scheme that has no FDIC. We “invest” in the stock market. We “deposit” in a bank. We look to the bank to safely “store” our money and receive a small interest payment for allowing the bank to loan a portion of the deposit. Cryptocurrencies do not have this mechanism.
In the stock market we look for capital appreciation and dividends. Short of a mutual fund your one stock could bankrupt you or make your fortune.
The bank deposit is guaranteed up to $250K. So by spreading deposits among accounts and banks you can limit your loss. I don’t think there are enough banks for billionaires to take advantage of this but for most of this it will do. In a financial catastrophe I suppose FDIC would not matter (see http://www.usdebtclock.org).
Think of a lottery ticket, MegaMillions, as a bitcoin. The more the jackpot grows the more people jump in. The odds of winning are 302,575,350 to 1. If my number is drawn last I would have to wait 2,909,378 years to run all the combinations. If more than one ticket has the same winning combination I have to split it.
The more bitcoin is “worth” the more people want in. Few people are spending these “coins”; they want to drive the “value” up and cash out and rest crash out.
There are countries in Asia and Europe that are running multimillion dollar computers tracking and “investing” in these currencies. The ordinary person does not have the computing power to do this. It takes high end motherboards and graphics cards that have to be replaced annually to compete. Not to mention the cost of electricity to run them.
If China, Russia, and N. Korea can hack our government and companies stealing the plans to our submarine and stealth bomber technology you better believe they are doing the same with cryptocurrencies.
Bitcoin “banks” have been hacked for millions. Individuals have been hacked through their email accounts having their two factor authentication taken and sent to a hacker. Fake Deceptive Internet Criminal.
It is a chess game of pawns.
Even without bitcoin we are too dependent on the internet. Think of all the ways we can be hacked and the fact that the internet, cellphone, and GPS, could end in an instant. But until then it is useful.
Head or Tails?
Thank you for the time.
Thanks for such an interesting letter, Mike,
I should have written that Bitcoin’s use as a currency depends upon the speculative fever running its course as it obviously will eventually. I should also mention that these Ask The Rabbi questions are answered by both Susan and me working in close collaboration.
Cordially
RDL
My apologies.
Rabbi Lapin and Susan.
Got it.
Sorry.
MG
Oh Mike,
no apology needed at all. Happy to have people like you reading our work.
Thank you .
Cordially
RDL
As I have read about Bitcoin and talked to friends, my thought have gone back to your long standing on money. That money is based upon trust between the people who use it. To me, Bitcoin is another example of people using the spiritual part of our lives to provide options. I don’t know if Bitcoin will be successful as an alternate currency, but I love Bitcoin as an example of the spirit.
I do believe that block chain technology will have great value to society. It is already being tested as a way to track precious gems (avoid blood diamonds/gems) and pharmaceuticals. Making sure that counterfeits are kept out of circulation has great value.
Dear Anita-
Good point. So often discoveries have unintended but serendipitous benefits. I feel certain that blockchain technology will have other uses outside of cryptocurrency as you suggest.
Cordially
RDL
I’m sure Jeff and I are among the many people that have asked you this question this period!
Thanks for your answer, Rabbi. Insightful as always!
Another great response, Rabbi.
Bitcoin has failed as a currency so far because of its volatility. Many people are on board for the short term investment aspect, rather than the long term value as a currency. When the value goes up and down as much as 20% a day, that doesn’t seem like much long term trust.
The real value lies in the blockchain technology, but my personal opinion is traditional banks will utilize it to diversify their security.
There is also the government aspect of the equation. The looters will never willingly allow a currency they can’t steal. They will do whatever they can to destroy it.
There are several good basic cryptocurrency guides online if anyone is interested. They cover the technology as well and the potential of this type of transaction as a whole.
Also, there is an up and coming coin called BitCoen which meets Jewish law. Fantastic idea!
Dear Gal–
Like anything else, as you surely know, Bitcoin can be explored on the Internet. Like everything else, there are good and reliable information sources and there are also many bogus resources with no value. Each person has the same responsibility to not mislead himself as he has not to mislead anyone else. I am not sure whether your last sentence was intended to be a joke or a reality. There is nothing about Bitcoin that contradicts Jewish law or outlook, so I don’t know what you meant. Nevermind.
Cordially
RDL
Thank you for your wisdom and insight. My reluctance with bitcoin is the lack of history and physical substance. But, my $20 bill has very little value too. The idea of a non-governmental currency does have appeal though.
As far as investments, we have a home and four amazing children.
You hear people say that children were an investment only in agrarian society. Sadly, some believe that and don’t realize until too late that children are the best investment in any society.
Nothing has value unless it can be attached to something of value. Not dot coms, ipo’s., etc.,
Put your investments in proven producers!
Rabbi, I agree with this assessment. State-issued “fiat” currencies have central banks able to enact policies such as Quantitative Easing, whereas crypto-currencies offer the prospect of independence from any one government’s economic policy.
I think crypto-currencies will serve a purpose in allowing rapid monetary transfers worldwide in seconds rather than days, and as a useful trading currency in nations where the local currency suffers from hyper-inflation. As you often say, more opportunities for humans to connect and interact brings prosperity!
Wow! This is great wisdom Rabbi
Thank you Jonathan–
We endeavour to give satisfaction. (Jeeves to Wooster in books by P. G. Wodehouse)
Cordially
RDL