In the world of cryptocurrency and bitcoins, which I consider to be a bubble worse than the Dutch tulip craze of the 1600s, there could only be one thing worse.
That would be saying something because as I’ve argued repeatedly here at CCN, bitcoin is vapor. There is nothing to back it, it isn’t money, there is no rhyme or reason for the price that it trades at in the market, and is nothing more than gambling in a casino that has worse odds than Las Vegas.
While supporters of bitcoin scream and yell at me on a regular basis for my opinion, nobody ever seems to be able to muster an actual argument to challenge my assertions.
So what could possibly be worse than bitcoin being as ridiculous as it already is?
How about North Korea deciding that it is going to create its own cryptocurrency?
A North Korean Cryptocurrency Is Insane
North Korea is a communist dictatorship in which the entire population is starving and has no wealth, while only the small number of people in power control what wealth does exist. They also control important things like electricity and whatever Internet they’ve managed to create over there.
I want to joke that they still have dial-up, but we know that that’s not the case.
So what possible use would a country that has no viable currency or economy need with cryptocurrencies? It’s almost like creating vapor on top of vapor.
Or is it? Maybe I have the whole thing wrong.
North Korea actually held a cryptocurrency and blockchain conference earlier this year to explore the possibility of creating their own cryptocurrency.
Since the whole idea of bitcoin and cryptocurrency is to create means of exchange that is not under the control of a centralized government, it makes perfect sense in a BizarroWorld way that a communist dictatorship would create a cryptocurrency that is, in fact, solely controlled by a centralized government.
The Crazy Reasons Behind This Idea
The idea in North Korea is that, in creating its own bitcoin, it could escape economic sanctions slapped on it by the United States and other nations. At least, that’s the theory.
It assumes that other people and nations around the world would accept a cryptocurrency from an ostracized regime.
Given that Russia, Iran, and Venezuela have also explored the same idea, we may as well add North Korea to the group.
After all, North Korea has apparently been stealing other cryptocurrencies and mining them. It uses bitcoin for ransomware and hacks and steals other cryptocurrencies in order to raise money for its weapons program.
As much as supporters of bitcoin may point to this story as further evidence for the usefulness of cryptocurrencies, I submit that it proves just the opposite.
The only thing that this proves is that bitcoin and cryptocurrencies are becoming the go-to currency of black markets and criminal activities. We already know that’s been the case for quite some time. The fact that outlaw nations are now using it for the same purposes seems hardly a reason to celebrate.
How Fiat Currency Fits Into The Story
This is where the fiat currency discussion becomes really interesting.
As I discussed in a recent article, the reason that fiat currency holds up in developed nations like the United States is due to Mises’ Regression Theorem.
That is, we trust fiat currency because of its long history of being a viable means of exchange, that it was backed by a hard asset at one point, and because it derived directly from a long history of barter transactions.
Supporters of bitcoin insist that when fiat currency collapses, which is a highly questionable assumption to begin with, people will use bitcoin instead.
The problem is that theory omits an important step. It requires first that the rapidly devaluing fiat currency be converted into bitcoin. It assumes a global liquid market in which someone would buy that rapidly devaluing currency, and sell their bitcoin in exchange.
But why would anyone buy that rapidly devaluing currency given how quickly it is devaluing? They certainly can’t rely on being able to then convert that dying currency back into bitcoin or hard asset.
It also assumes that people will have already exchanged that currency, prior to it falling apart, into bitcoin.
Yet why would anyone do that if the currency were stable in the first place? We know when we go to bed at night that the value of one US dollar will buy the same amount of hard goods and services when we wake up the next morning. With bitcoin, we don’t even know what a single bitcoin will buy five minutes from now.
Why would anyone be foolish enough to make that exchange for any reason other than to speculate that bitcoin’s volatility will drive the price higher?
The conclusion is that bitcoin cannot magically and suddenly replace a fiat currency.
The Cryptocurrency Argument Fails For Dying Countries
So when it comes to this idea that cryptocurrencies are coming out of Venezuela, and that North Korea is next, what idiot would want to buy into a cryptocurrency from an outlaw regime, without absolute certainty that it can then be exchanged for hard goods and services?
That is, I don’t think very many Venezuelans were quick enough on the trigger to convert their dying currency into bitcoin. It isn’t a store of value there!
That means that there is a “Venezuelan bitcoin” that might’ve been created, but what idiot would buy it unless it could be converted into actual bitcoin or hard goods and services?
The same goes for North Korea.
Why would anyone want to buy a North Korean – derived cryptocurrency? What can it be converted into? What can it buy? A holiday trip to Pyongyang?
If I own bitcoin, why would I trade it for some cryptocurrency derived from North Korea? Why would anybody?
This is why the idea of a North Korean cryptocurrency feels like it was invented by the creators of South Park.