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Peter Schiff Keeps Making Dumb Points About Bitcoin. Let’s Set It Straight…

January 25, 2021

OK, so let's talk about Peter Schiff. First, one of his recent tweets

Peter Schiff has been around a long time as an economic commentator and investor. He is the CEO of Euro Pacific Capital. He's also a precious metals dealer.

Schiff is a "gold guy". A "gold bug".

Schiff is also a guy who has spent a lot of time in the media. He knows how to get attention.

To be clear, I respect Peter Schiff. I also see major value in precious metals and I'm well aware of the history of precious metals in finance. I own precious metals. 

But, it is particularly annoying when he continually makes really stupid points about Bitcoin. The way I see it, there are only two options here:

  1. He just says this stuff in order to garner attention.
  2. He is truly ignorant about Bitcoin and so entrenched into his own world view that he is literally incapable of seeing it otherwise.

He seems to partake in this zero sum mentality that there can only be one "winner": gold or Bitcoin. This seems like a dumb point and CLEARLY precious metals will always play a role in world finance and can do so right alongside cryptocurrency.

But, let's address this point he made in this tweet.

Peter Schiff contends that the fact that a Bitcoin can be broken down into 100 million units means that there's no scarcity. That because the number is big, it isn't scarce.

Yes...

1 Bitcoin = 100 Million Satoshis

We haven't yet gotten into this much since this site is so young, but... the "inventor" of Bitcoin is known as Satoshi Nakamoto

He is a myth. A legend. And that's because nobody knows who it is. For all we know, it might have been a group of people. Bitcoin was released as a whitepaper by an anonymous online identity as an open source project. And whoever that "person" is called himself Satoshi Nakamoto.

For this reason, the absolute smallest unit of Bitcoin is known as the "satoshi". Some people call them "sats" for short.

A satoshi is 1/100,000,000th of a Bitcoin. Each Bitcoin can be broken down into 100 million units and no more than that. And that unit is a satoshi.

Now, here's where basic elementary school math takes over...

If you take 1 whole and you break it into a bunch of parts, the whole didn't just become bigger.

If you have a pizza and you slice it into pieces, your pizza didn't just get bigger. And even if you sliced that pizza into 100 million units, you STILL don't have more pizza. You basically have.... pizza molecules. 😉

Just the same, you could take a gold bar. You could break that gold bar into 100 million pieces. Each little piece of gold would be tiny. Really, REALLY tiny. But, STILL.... put it together and it still equals no more than the original gold bar.

This is basic math.

And so, just the same... if you break a Bitcoin down to satoshis, you still have the same amount of Bitcoin.

To argue that means Bitcoin has no scarcity would be the same as saying gold has no scarcity because it could be divided into 100 million pieces.

So, is Peter Schiff just stupid?

No. Misguided, but not stupid. Here's where I think he's coming from...

Gold Has Mass. Bitcoin Doesn't. Therefore...

Here's the logical leap that Schiff seems unable (or unwilling) to make. And that is that something that you cannot touch or hold can have value.

In his paradigm, gold has innate value because it is physical. It is a metal. It has history to it. And, in some arenas, there are some real- world uses for it.

It would also be fair to say that  it would be impractical and impossible, in the real world, to break a gold bar into 100 million pieces.

In a digital world, that is possible. And being digital, that means you can never hold a Bitcoin in your hand.

So, in Schiff's world view, the idea of breaking a Bitcoin into satoshis would be like dividing zero by infinity. It still equals zero.

The entire basis for this ongoing "war" between Bitcoiners and "gold bugs" is based on the fundamental assumption that, in order for there to be value, it must have mass. It must be "real" and something you can hold in your hand.

How Can A Non-Physical Thing Hold Value?

This is one of the many reasons I love Bitcoin. It gets people to fundamentally think about what money and value actually IS.

We live in this world where we're sorta used to measuring value in dollar terms only. But, even then, when you get into the nature of the dollar itself, you sorta realize the dollar itself is fairly worthless outside of the fact that we all THINK it has value. It isn't backed by anything. It USED to be backed by gold, but that hasn't been true since 1971.

In the end, the only thing that gives anything value is the fact that we all, collectively, AGREE that it has value. Human agreement is the ONLY thing that assigns value to anything.

Gold has no innate value just because it is rarer than another metal. If it wasn't for the fact that us, as humans, have collectively assigned this status to it, it would be no different than anything else. It is just one of the many possible forms that bundles of atoms arrange themselves into on planet Earth.

And not to get too much weirder on it here, but if you take any physical thing and break it down to the atomic level, you realize that most THINGS are just... energy. Mostly space and energy. Anyway, that's rabbit hole stuff right there. 😉

The idea of "Value" is a human construct. It is a result of collective agreement.

Now, with that in mind, whether it has MASS or not doesn't really matter.

As somebody who works in the web business, I know that a website can have real market value. In essence, a website is nothing more than 1's and 0's on a disk sitting on some server. It isn't physical at all. Yet, it has value. Because people think it does.

A copyright has value.

Stocks have value. They're not physical. They represent shares in a company which, itself, is only worth what the market thinks it is worth.

Digital assets CLEARLY have value. Not innate to the properties of a physical material, but because we all collectively assign value to it. And all value is a result of human agreement.

Which brings us back to Bitcoin.

Bitcoin is a digital asset. The way it is designed is such that it enforces scarcity. However...

Scarcity alone is not value. Ultimately, only human agreement can bestow value on something. We have to THINK it is valuable.

Well, in the early days of Bitcoin, clearly barely anybody thought it was valuable. It was worth essentially nothing. A guy bought a pizza with 10,000 Bitcoin and he probably thought that was the coolest thing ever because BTC was worth nothing.

It had no collective agreement giving it value.

But, it grew. It's network effect increased. And it began to reach a critical mass.

The market value of Bitcoin only increases because more and more people were beginning to recognize and assign value to this asset.

That is ALL that gives it any value.

If suddenly the mass market decided Bitcoin was worthless... well, it would be worthless.

But, at this point, Bitcoin has reached escape velocity. We're at a point were major corporations are beginning to recognize the value of Bitcoin. All of this is adding to the collective agreement of the value of Bitcoin. And, as a result, the price goes up.

All money is... is an idea. And idea backed by collective confidence in it's value.

You combine that with the scarcity of Bitcoin that cannot be altered in any way, and you see why the market price of a Bitcoin keeps increasing.

Is Bitcoin Better Than Gold?

Well, you have to judge it for yourself. I think it is. But, I am also not a believer in a zero sum game here.

Precious metals will ALWAYS have agreed upon value. Nothing will change that. But, I also recognize that it is only that agreement that gives it value. Otherwise, it is just one of the many Earth elements and it really isn't any different than any other in terms of "value" to human beings.

Bitcoin WILL inevitably (and already has) raise to a substantially higher market value than an ounce of gold. It will always be that way. Gold will never, ever catch up.

Because Bitcoin IS more scarce.

The fact that it can be broken down easily only makes it more USEFUL, but it does not change the value nor the scarcity.

Even if Bitcoin reaches a market value of $1 MILLION at some point, all that would mean is that a satoshi is worth a penny.

That's a utility. It makes it more divisible, which is a property of good money.

Bitcoin will have real VALUE as long as people hold a collective confidence and agreement in said value. If it ever disappears, Bitcoin wouldn't be worth anything. That idea would have lost it's confidence, so would therefore no longer function as a form of money.

But, I would argue that every day that the Bitcoin network grows and more Bitcoin wallets are created, the LESS likely that becomes.

Could it happen? Sure. Not likely, tho. Network effect is a pretty strong thing. And when you have this many people who WANT it to be valuable, it is very likely to remain that way.

Yes, gold has been recognized as valuable for a lot longer than Bitcoin. Nothing will ever change that.

But, the properties of what gives it value are NO different.

And, due to the digital nature of the way our world works, Bitcoin is way more useful. It simply functions better as a store of value.

Final Thoughts On Peter Schiff (And "Gold Bugs")

If you're going to pay attention to Peter Schiff, you have to do so knowing that cryptocurrency is just not his zone.

He has a lot of great things to say. He's right about much when it comes to our financial system.

But, he's pretty continually wrong about Bitcoin.

He's either really stuck in his paradigm and just can't change it, or he just loves to stir things up for attention. 🙂 Who knows.

The other thing about Schiff (and "gold bugs" in general) is that...

Gold bugs are historically very incentivized to say the economy is about to collapse. Eventually, they'll be right. But, their whole world view and the very success of the asset they love so much is that everything else has to collapse. They almost WANT it to happen... just so they can be right about it.

Truth is, for gold to reach super sky-high valuations, you pretty much NEED an economic collapse. You would need a currency collapse.

Now, again, this will happen eventually. All fiat currencies eventually return to zero. EVENTUALLY, Peter Schiff is going to have his high gold values in terms of the US dollar. But, it will only be because the dollar just collapsed.

One thing I like about Bitcoin and cryptocurrency in general is that...

It's success does not require the economy to collapse.

The utility of these coins and the crypto/blockchain space in general is so high and solves so many problems that it will change the economy and rise in market value naturally. Because it solves a problem. A whole LOT of problems.

We're in the very early phases of all this, so this time period is when maximum investor opportunity is there.

Eventually, all this stuff will be more normal and you won't be able to sit there and make the massive investment gains anymore.

But, it all goes up in value because of adoption and solving actual problems.

Unlike gold.... which essentially requires economic collapse to rise like that in value.

It is why gold bugs sit there and almost revel in all the bad economic news they can find. They LOVE it! And so does Peter Schiff.

So, take that into your considerations, too.


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Further Reading

  • I love how you write, David. So informational and funny with some personality. And I liked the philosophical rabbit hole you peeked in on this one. It’s all about math. And math is real!

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