Forget Buffet, let's talk about that hit piece somebody posted in the comment section:
Most people who are currently under the "Bitcoin as a currency" illusion are missing some very important details (on multiple levels) regarding Bitcoin. Most of the information that they've gathered is based on false premises that have been perpetuated by snake oil salesmen, scammers and intellectually dishonest idealists who rely on tenuous and also factually incorrect information. Bitcoin is a cult, it is not a money or currency. It is predicated on a system of half-truths and lies that fall on their face when put under the microscope.
These omissions, misperceptions, half-truths and lies are not at all trivial. They cut right to the core of why Bitcoin (the currency) is faulty at its core, and why it will soon hit a technological, economic and regulatory brick wall.
I'll do you and everyone reading a favor, and I'll provide a list of a few of the problems with Bitcoin, and explain how you've been lied to, where your fundamental misunderstandings are, and why Bitcoin is flawed on a technical, economic and regulatory level.
I'll start with the technical side:
1. In Bitcoin, proof-of-work (
http://en.wikipedia.org/wiki/Proof-of-work_system) is the method used to create reusable tokens (i.e. BTC) that can be sent and received by someone else with a Bitcoin address. When new Bitcoin are created by a Bitcoin Miner/Mining Pool, transactions from the previous (on average) 10 minutes are incentivized through fees (of BTC) to be included in the next ledger, which is built upon the previous ledger.
2. Bitcoin Mining is *HIGHLY* centralized among often anonymous operators. There is very little "distribution" of "hash-rate" to secure the network. Healthy proof-of-work systems require wide distribution of compute power to protect against byzantine faults, and to protect a network against a 51% attack. Bitcoin completely lacks this feature of a healthy network.
3. The Satoshi White Paper DID NOT assume or predict that Bitcoin Mining would become centralized and controlled by very few groups and individuals. or that specialized equipment would be built to enable the level of centralization we are now seeing. When confronted with this fundamental problem of theory vs. reality, Bitcoin promoters brush the issue aside and explain that miners are "Rational Actors", and as such, they have an economic interest to ensure that the network continues in an orderly way. Unfortunately for the promoters, however, "Rational Actor Theory" (which they base their argument on) is a theoretical model that can not be applied to real world outcomes, and is only useful in flat controlled simulations (Game Theory) where all data points are known. It is intellectually dishonest to use the Rational Actor Theory as an excuse for why the Bitcoin network is safe and secure.
4. The Bitcoin network will never be able to scale to support thousands or even hundreds of transactions a second. There is a very real and impossible to overcome barrier in terms of distributed networks, physics, and proof-of-work, that simply cannot be solved, yet just like with the (dishonest) application of Rational Actor Theory, Bitcoin promoters continue to assume that physical and mathematical limits that are inherent and immutable in the proof-of-work system will somehow be overcome in the future. They will not be overcome. Ever.
5. The Bitcoin network is powered by a patchwork of virtually unusable codebase that was originally developed as a "proof of concept" for reusable tokens, much in the way that other academic software system research projects demonstrate novel solutions. The Bitcoin codebase was not designed to scale, yet early on, non-technical libertarians co-opted Bitcoin, raised its perceived currency/monetary value, and created an intractable greed based dilemma: In order to change network consensus methods (proof-of-work, mining centralization), implement solutions that might enable the Bitcoin network to be robust at scale (newer, more efficient messaging methods & optimized peer networking methods), or to be true to the Satoshi White Paper premise of wide distribution of Miners, the price of Bitcoin has to be trivially low. Remember, Miners have spent many millions of dollars to develop and purchase specialized equipment. This is tantamount to vendor lock in. Once the price of Bitcoin went up, and the investments in specialized mining equipment started, the ability to get Miners to *ever* agree to an economic disincentive (like changing the rules of the network to ensure fairness and robustness) evaporated.
6. There is no network or protocol level exchange mechanism. Bitcoin externalizes the exchange duties to 3rd parties (exchanges) in order to support its use as a money transfer instrument. These exchanges have bank accounts in various parts of the world that custody exchange customer USD's, Euros, etc. Bitcoin is completely valueless by itself. Bitcoin promoters often create the illusion that it is a perfect money, and that we will eventually not need exchanges in order for BTC to function as its own economy and currency. The last 2 years have demonstrated that the vast majority of Bitcoin "investors" only care about one ultimate outcome: More Fiat currency in their pockets.
7. Bitcoin (the currency) is totally and completely illegal as a value transfer method in its current state, as demonstrated on numerous occasions by regulators and governments who have made demands of the exchanges that they must either comply with regulatory burdens that other Financial Institutions must follow, or necessarily be criminally liable. This takes us back to the intractable problem of Miners and the flawed implementation of Bitcoin as we now know it: Any types of controls or additional protocol modifications that could be created to help Bitcoin (the currency) to comply with existing laws & regulatory regimes are impossible to implement without the agreement of *at least* 51% of the network. More realistically, the threshold required exceeds 80% of all Miners. Given that miners are heavily centralized (read above), and heavily financially invested in the core premise that Bitcoin promoters have espoused over the past 3-4 years, it is virtually impossible to expect that the Bitcoin network will ever be able to comply with worldwide regulatory requirements. Ultimately this means that existing exchangers of Bitcoin will lose their banking facilities in 2015 and beyond, and Bitcoin (the currency) will very quickly start to approach its real value, which is between $0 and $0.01.
