About That Guy Who Can’t Access His Bitcoins
A lot of people have forwarded me this story, with some finding it as a reason to remain skeptical of crypto. It makes for an excellent teaching moment.
First, let’s review some events that have happened throughout history:
The owner of something highly valuable, like a diamond, buried it in the woods for safekeeping. He wrote the location on a piece of paper but lost that paper and could never find his loot again.
A ship carrying gold and silver across the ocean ran into a squall and sank. The treasure was gone forever.
A rare first edition book was accidentally sold to an unsuspecting reader at a garage sale. The buyer was just looking for a cheap read and never learned the true value.
An original print of the Declaration of Independence was hidden inside a random painting. It would ultimately be bought for $4 at a flea market by someone who needed a cheap frame.
Millions and millions of people have lost their wallet, and the cash in it.
Now, having heard these stories, do you believe that diamonds, gold, rare books, original prints and cash are somehow suboptimal? Do you believe that the fact that they can be lost, stolen, accidentally sold or forgotten somehow makes them poorly designed, or even worthless?
Of course not. If anything, you believe the opposite. The fact that these things can be lost or stolen — and not easily replaced — is what makes them valuable in the first place. It proves they are scarce, and scarcity is important. It’s one of the principle organizing functions of any society, from the most primitive to the most advanced. Only that which is scarce can have lasting value.
But scarcity also implies risk. If there’s no risk, then there’s no lasting value. Ringo Starr’s original copy of the Beatles White Album sold at an auction for close to a million dollars. Being a physical object, it can easily be damaged, lost or stolen. The streaming version of that album on YouTube can’t. That’s why the streaming version is free.
Bitcoins are also scarce. Not just because the underlying protocol is programmed to eventually stop making new ones, but because the ones that are already out there can be lost or stolen. Bitcoin is the first scarce digital asset in history. That’s really important. Lack of digital scarcity has ruined the internet. Just ask any musician whose music streams online.
Since Bitcoins are scarce, and you can’t just call Satoshi Inc. to get a replacement if you lose access to yours, then owning them is risky — as it should be. You can hire someone to help you protect your coins or access them through an intermediary like PayPal, but it’s important that someone along the ownership chain is taking the risk of loss or theft. Without that risk there’d be no value.
That’s the point that the skeptics who’ve written hundreds of mocking comments underneath that article don’t get. Their schadenfreude is misplaced. Every story like this carries an important subtext: Bitcoins can be lost or stolen, and that loss hurts, because the coins can’t be replaced. So Bitcoins are scarce, like diamonds, physical cash and vinyl records. That means Bitcoins are valuable.
My heart goes out to the guy who lost his key backup and forgot his password, many of us have been there at some point. But the virality of his story is actually bullish for crypto. The skeptics who keep spreading it are doing the rest of us a favor, delivering the subliminal message that this thing that they don’t like and don’t understand must be valuable.
Years from now, our children will have no qualms about any of this. To them, a digitally scarce item will be as logical (and valuable) as a physically scarce one. Their history books will include a chapter on the dark decades between the invention of digital and the achievement of digital scarcity, when everything sucked. The only thing they’ll be confused about is why their parents didn’t buy any crypto when it was still cheap — the same way I feel about the people in my parent’s generation who didn’t keep their original vinyl records.