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SEC Warns About Bitcoin – My Response

The SEC has made a statement to warn people about Bitcoin, saying, “A new product, technology, or innovation – such as Bitcoin – has the potential to give rise both to frauds and high-risk investment opportunities.” This is a very interesting statement, and I think that anyone that is involved with Bitcoin, or really any crypto currency right now, already has a firm grasp on this. We have seen scams come and go, both in businesses and coins themselves. With the lack of regulation that is still in the field of crypto currencies, it makes sense. We are essentially dealing with an area where the people are making the rules, and the problem is that, for all intents and purposes, there are no rules. Everyone is able to do as they please. With that said, I want to talk about my feelings about the SEC's statement because I feel that it is pushing out the wrong message.

What is the Effect of the Message?

I think anyone who is reading should already know what the effect of this statement is: it causes people to start distrusting the Bitcoin world. It is basically like telling everyone that the entire system is a scam and that they need to be more careful and (probably) not even get involved. While this may not be the goal (based on the fact that the government has shown a decent effort to try and get grips on the crypto currencies), it is how we end up interpreting it. Making a strong statement like this is pretty hard to come back from, too, because it is pretty much just saying that everyone needs to avoid it.

Are There Scams?

The answer to this one is “definitely.” Bitcoin and other crypto currencies are anonymous, so they open the doors to a lot of scams. Include the fact that they are irreversible, and it means that when someone steals coins, they do not even have to worry about getting them taken back. There is nobody (assuming the identity of the thief stays anonymous and they did not make the mistake of sharing their identity with anyone or doing something that helps make it public) that is able to take them back or otherwise force them to return their ill gotten goods.

We have seen scams in a lot of businesses. They will come out with a great, or rather “great,” business plan. They will have all of these promises of greatness and how much money they are going to be earning for the investors. They have tons of details about how great their business is and how long it is going to last. And then when people throw them money as an investment, it disappears, along with the company.

We have seen scams in coins as well. Someone will release a coin and charge for the initial batch, promising the investors that the value will go up and they are all going to make a profit. Then when the coin goes through its true launch, the creator dumps theirs, the value tanks and the coin dies, leaving the creator with money and everyone else without it. Another form of this (other than the investing method directly) is when a creator does heavy pre mining on their coin and claims they have a specific purpose, only to dump them and take the profit for themselves.

Both of these situations are things we have been seeing time and time again. Of course, there is also the scam of services and goods, but that is something that we are dealing with in everything else as well (even fiat), so I do not lump them together. The simple fact is that the easier it is to steal money from someone, the more people are going to be willing to do it. When it comes to crypto currencies, there is no real risk as long as the thieves are smart, so there are two outcomes for their scam attempt: either they are going to make a lot of money and be able to run off with it or they are going to make nothing and have still lost nothing. In either case, they did not lose.

What Really Needs to Happen

I think instead of pushing people to victimize themselves (by saying that the system is a scam because of the massive number of scams that are present), there should be a greater focus on educating people on how not to lose their funds. Before people invest in a company, for example, they should be doing due diligence on that company, its board, etc. to make sure it is a legitimate deal. Hoping that others are going to save them when they jump in on a business they know nothing about is wrong, and I do not thing that we, as a society, should keep pressing towards protecting them. At the end of the day everyone is capable of making their own choices, and if people want to throw their money around without even thinking about what they are doing before they do it, that is on them: not us.

This does lead to an issue that is trying to be resolved, though, which is called the “web of trust.” Right now, there is still a major lack of trust when it comes to crypto currencies. Because of the anonymity and the irreversible transactions, it means that you have to really know and have a lot of trust in someone before you give them money. It is not like buying something on a credit card, where we can simply do a charge back if the other party does not follow through; if they take the money, it is as good as gone.

The web of trust tries to help fix this by opening the gates to a way for people to rate one another. As someone proves time and time again that they are a legitimate person and are not just out there to try and steal everyone's money, their trust rating continues to increase. As it increases, others start to trust them and they get more business. This keeps going on in a snowball, and the scammers are essentially left behind while the legitimate people are able to gain the trust that they need to continue their businesses. Being that crypto currencies are still pretty young, though, this is something that is going to take a lot longer to build. We can expect it to be years before we really know who we can trust in the field, and what makes it even harder to get by with is that everyone starts out at the same level: with absolutely no trust.

Another issue with a web of trust, other than the time it is taking to really build it up, is that some people are inevitably going to embed themselves in to the community as a legitimate person, only to steal later down the road. We have had multiple situations like this occur in the past already, where someone would run a business and do everything they said they were going to do, and then later on either scam their current customers (or investors) or start up a new business to scam with, using their positive past to help sell it. Really, though, this is something that just as often happens out in the real world. The only difference is that in the real world there are ways you can fight back. When dealing with crypto currencies you are pretty much on your own, unless you happen to know the person behind the shady business. So while a web of trust is definitely a step in the right direction, it still does not solve all of the problems that we are currently facing (or will be facing going in to the future) when it comes to dealing with people and scams.

Instead of just relying on a listing or something, we need to come up with a better way to help push people off the idea that scamming is a good idea. At the end of the day they are hurting not only those that they steal from, but themselves as well, being that it hurts the overall view most people have of crypto currencies as a whole. As each scam takes place, the outside world views it as being more proof that they are a scam altogether and only works to keep people from putting more money in to the economy, therefore reducing the value of the coins and halting their progression in terms of adoption. This is the complete opposite of what we want, and the short term benefits of scamming do not compensate even a little when it comes to the long term damage that is being done by the bad choices.

Conclusion

There is no doubt that what the SEC said is true, but I think they are putting out the wrong image by how they said it. The statement looks more or less as if the entire crypto currency idea is a scam and that everyone needs to stay as far back as possible from it, when really it is still a very small (compared to the overall number) group of people that do scam. Being that we face scams constantly in our day to day lives as well, I think that working to portray cryptos as being worse off is the wrong way to handle it. Instead, people need to be better educated as to what they are getting involved with and what they need to do in order to protect themselves. Just like with anything else, knowledge is everything. Instead of having everyone victimized, they should learn from mistakes and work towards making better decisions in the future. It helps everyone: the new investors and the old ones alike, and helps to make the entire economic system flourish as a result.

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