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.
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