Saturday, March 01, 2014

Open Letter to My Old Boss Dave Ramsey About Bitcoin


Let me start by saying I have great respect for you. I worked for you for just under four years, and it was the best job I've ever had. You've helped millions of families, including my own, get out of debt and make sound financial decisions. You're one of the smartest, most successful people I've ever had the privilege of learning from.

I also respectfully think you've made a mistake with your stance on bitcoin.

On April 8th 2013, I sent you an email making myself available as a resource related to Bitcoin. You were kind enough to reply with "I have no idea what you are talking about. I am sadly ignorant of that world." My intention was to help you be a well informed voice in the media on this issue.

I remember when you expressed negative opinions concerning social media, you turned to those with more experience to make a case for its value. Now with over a half a million Twitter followers, you'd probably agree it was wise to change your opinion there.

I believe Bitcoin will be bigger than Twitter, Facebook, and YouTube combined. I've argued it could be more disruptive than the Internet. Investor / entrepreneurs such as Chris Dixon and Marc Andreesen (the creator of the first web browser) feel the same way. Andreesen compares Bitcoin in 2014 to personal computers in 1975 and the Internet in 1993.

The most incredible thing about Bitcoin isn't the currency (bitcoin). It's the protocol (Bitcoin), a system of rules for maintaining a decentralized public consensus network. A trust-less system controlled by math (cryptography), not central planners. It may end up being one of the most transformative inventions of my lifetime.

Someone brought this video to my attention today where you ask, Is Bitcoin a Good Investment? I also found your blog post where you say you don't like it one bit.

I agree with your assessment it's unwise and stupid to keep a life savings in the hands of a third party. MtGox is not Bitcoin. It's a poorly run centralized exchange which the Bitcoin community has been telling people to avoid for many months, if not years.

In the video you mention problems with the pre-FDIC banking system and with trust and transparency in general. You also give a great explanation as to what gives money valuethe extent someone else wants to trade for it. I applaud you for clearly saying our fiat currency paper money "never really had value" either, other than what people are willing to trade for it.

(Side note: I've purchased electronic equipment, a TV, advertising for my company, and a hotel stay using bitcoin).

You start losing me around five and a half minutes in when you start discussing bitcoin and how it's "looking like it's not going to make it." The "death" of bitcoin has been reported so many times over the last few years, it's really becoming ridiculous for the media industry. You further describe "intelligent people, while intelligent are not wise" who have purchased bitcoin. I think much of wisdom comes from experience.

Dave, you have little or no experience when it comes to open source, peer-to-peer cryptographic currencies. As you said in your email last year, you are "ignorant of that world." Your recent comments indicate you haven't yet done your research.

Calling bitcoin the "Iraqi Dinar of the Internet" communicates ignorance of what bitcoin is. You describe it as "something whacko like that" and a "made-up computer game." You're convinced people who believe in this technology (and the currency on top of it) are "stupid and will lose their money."

How can you be so sure? Have you studied how it solves the Byzantine Generals' Problem? Do you know how the Bitcoin protocol could potentially replace centralized financial and trust systems such as notaries, escrows, trust funds, stock exchanges, clearing houses, payment networks, checking and savings accounts, etc...?

Do you know how disruptive and beneficial programmable money could be to society? Have you thought about the opportunities for freedom which will be created when individuals can control their own store of value, even if they are unbanked in a third world country with nothing but a cell phone?

For me, this comment summarizes your current level of understanding: "One of these computer nerds just flips a switch, the whole freaking thing is gone." Did you know the decentralized Bitcoin network has more computing power (be it for a very specific purpose) than the major super computers of the world combined? There is no centralized "switch" to turn off. Also, unlike M0 (physical money) which makes up around 8% of the money supply, most bitcoin are stored in offline wallets also known as paper wallets. This digital currency is more physical that the money you use every day.

Just as peer-to-peer systems disrupted the music industry, this can not be stopped. Blockbuster may have disliked Netflix's approach, but that didn't prevent Blockbuster from becoming irrelevant.

The good news is, you probably have a few years before you have to reevaluate your stance on bitcoin. Bitcoin is very volatile and will probably remain so for years to come. If it becomes as revolutionary as some believe, your current stance could hinder your credibility as a financial guru. As you've helped myself and so many others, I'd hate to see that happen. My hope is you'll follow the same path as other skeptics who did their own research and eventually came to the conclusion bitcoin is here to stay.

My original offer still stands. If you'd like to know more about Bitcoin, please let me know.


Luke Stokes

P.S. With a small investment of time, you can understand the Bitcoin protocol and the bitcoin currency. :)


Jeff Goins said...

Ho boy! Bring on the controversy! Btw, did you see this? It's interesting:

Luke Stokes said...

Controversy? Dave is no stranger to it. :)

Interesting article, but I've heard many of these same arguments before and I'm still not convinced.

"...however much we say we mistrust governments and banks, when it comes to our money, we trust them a lot more than we trust some clever lines of computer code."

What about SSL and TLS that handle trillions of dollars in transactions? Those are just lines of code. We trust the banks and governments because, until now, we had no other choice. On that note... how long will we continue to trust them? Those who live in the Ukraine and Venezuela right now are losing insane amounts of purchasing power due to that (in my opinion) misplaced trust. What about Wachovia, HSBC, Citigroup (see yesterday's news)? Serious amounts of criminal activity are taking place there. Why should we trust them?

As for bitcoin being a bad currency, that's kind of like saying (in the early days) the Internet wouldn't succeed because to send an email message you had to use a terminal and code out SMTP commands directly (not to mention the IP and TCP protocol layers underneath). We're in the early days and things are still complicated.

A share of Berkshire Hathaway can fluctuate by thousands of dollars but no one notices because of the huge share price. Many believe when the bitcoin marketcap increases, the volatility will be minimized. We've seen that in just a few short years already, percentage wise.

Thanks for commenting, Jeff. :)

@Bitcoinrat said...

The problem with the incumbent players in Finance is that they are wedded to not only their 'traditional economics education' but they also attempt to analyse any new development that arrives ( like derivatives, swap options, hedge bets etc ) in terms of current financial modelling tools.

Bitcoin doesn't fit into either of these categories and is therefore dismissed and/or ridiculed. Criticising bitcoin for its ability to be used for drugs, money-laundering , terrorism etc is very easy ( as all these activites apply to fiat currencies of which they are accustomed. But it totally misses the point that the blockchain has never existed before, and the applications that do, and will in the future, sit on top of the blockchain dont, and wont, fit it any existing analytical model.

All their attempts to try and define where bitcoin fits therefore in our existing money-market structures will never understand that it is the FUTURE where bitcoin actually lives. ie it is an idea well ahead of the curve - so far ahead that they can't understand its relevance.

The real relevance of the blockchain lies in the future - when "intelligent machines" driven by algorithm controls will wander the world of the internet and will use 'electronic decentralised currency' to trade, gain access, share data etc.

bitcoin , or its off-springs, have to be that payment mechanism - as only decentralised incorruptible currency will be universally accepted by trans-national wandering bots.

I'm working on an idea at the moment where I am using my 'crypto-rat' characters to create story-lines that take bitcoin into this area of future application - not as 'science fiction' but as 'science-reality'

That's why I created the @BitcoinRat character !

Luke Stokes said...

Very cool! Thanks for sharing. My favorite line: "only decentralised incorruptible currency will be universally accepted by trans-national wandering bots." :)

David Molnar said...


Luke Stokes said...

So... too much then?

wiser said...

Great post! I've actually been very reluctant to look into Dave Ramsey's financial solutions despite knowing I could benefit from them, until very recently. What changed? Basically, my involvement with Bitcoin and other cryptocurrencies provided a new income stream which makes aggressively paying off my consumer debt possible where it really wasn't before. So now I'm actually planning to read The Money Makeover and see what I can learn from him.

Vance Lucas said...

The tone of this post sounds like you're taking his opposing position on Bitcoin a bit personally. Dave Ramsey is concerned with **what makes real money right now**, not speculative possible future value IF Bitcoin replaces the entire financial system and everything it's based on.

Sure, some of the terms he uses are a bit harsh, but that's his personality. He is controversial and says people are stupid for lots of things and lots of reasons. It doesn't mean he is wrong about this. No good financial advisor is going to get behind a highly volatile and speculative brand new currency, no matter how much potential it has. If he even mentions that he likes it, some of his followers may buy into it thinking they will make money, and may actually end up losing quite a bit. He can't risk that, so he sticks with stuff that's proven to make money in the past. Seems like a stance that makes sense given his role and his audience.

wiser said...

That's just the crux of the issue, though. I am not a speculator or particularly financially savvy, but I (and many others) have been able to make money through involvement with Bitcoin because it actually is possible for ordinary people to do so, provided you go into it with an open mind and balanced attitude. I would not recommend Bitcoin as an "investment" either for many of the same reasons, but that doesn't mean it has no use or value. The real opportunities lie more in trading your skills for Bitcoin and then either spending those Bitcoins to buy something you want or trading them into fiat and then using the proceeds to better your life, such as pay off debt. A trusted financial consultant such as Dave Ramsey would actually be doing his clients and audience a tremendous disservice to ignore a way that they can improve their financial situations, so I really hope that he takes BeStoked up on his offer to learn more.

Vance Lucas said...

Why would you trade your skills for Bitcoin and then convert that into a fiat currency like USD? That makes absolutely no sense. I would much rather just perform services for USD and make my life much easier and get the USD faster that way.

Again, FOR HIS AUDIENCE, recommending Bitcoin - or even really mentioning it as something good to have - simply doesn't make sense. These are people who can't even manage basic finances, and most of them probably don't even know how to trade stocks. You want him to endorse a highly volatile experimental digital currency as a way to make money or as a good store of wealth? You're insane.

As an aside, I myself do own a small amount of BTC because it's very interesting to me, I do see the potential upside, and I am willing to lose the money I have in it, but there is no way that I would expect ANY financial advisor to recommend or endorse BTC **AT ALL**. ESPECIALLY to the typical people that Dave Ramsey helps - with debt way over their heads.

wiser said...

To answer your first question, because it's easier. The Bitcoin community is just chock full of opportunity that for some may be harder to connect with in the fiat world--less competition for one. It might be an early adopter bonus, but one that will be around for a while.

Just because someone got into debt over their head doesn't make him or her stupid, or unable to evaluate the potential risks and rewards of an opportunity. The fiat monetary system is debt based by nature (or design?) and so if a person (even a very smart one) is not consciously choosing to *not* get into debt, he will by default get into debt, and lots of it.

Successfully getting out of debt and taking back control of one's finances could very well involve some out of the box thinking and creativity. Doesn't Ramsey recommend people mired in debt take on a second job or something? If that "second job" happens to involve getting paid in Bitcoin, is that really so bad if it's actually helping that person move forward financially?

I wouldn't go so far as to say Ramsey or any financial adviser should endorse Bitcoin or any other opportunity. There is no one size fits all financial solution for everyone, so things to do with Bitcoin won't work well for everyone. But knowing something about it and being able to speak intelligently about its strengths and weaknesses doesn't seem like that would be hurting anything.

By the way, I first got into Bitcoin the way most people get into Bitcoin, which is I bought some. But after a year, I have found that buying Bitcoins is neither the only nor the best way to get them (unless you're rich--have money you can afford to lose). And if what I just said makes no sense to you, then with all due respect, you really don't know too much about it

Vance Lucas said...

You just don't get it. The focus of the people that Dave Ramsey helps is GETTING OUT OF DEBT. You don't help people get out of debt by telling them to get paid in a "currency" that's gone from $100 to over $1,000 and back to $600 in less than 6 months. I never called anyone stupid, either - so don't put words in my mouth.

Great, so you understand it and you've made some money it - good for you. People make money on penny stocks too, but you won't find anyone recommending that people invest in them or get paid in shares of stock that they then have to trade to pay off their debt. I'm not saying these things because I don't understand Bitcoin or the promise behind it - I am saying these things because that's the economic reality of Bitcoin today. You could very well "loose your butt" as Dave Ramsey says, and lots of people have with Mt.Gox and now Flexcoin, too. You're just not being realistic about what Bitcoin is TODAY to someone who needs to focus on paying off debt.

Also - The Dave Ramsey model proves that someone CAN consciously choose NOT to go into debt. Just because the monetary system is based on debt doesn't mean that you personally inherit that debt. It affects the currency in other ways, like devaluation, inflation, etc.

Luke Stokes said...

Hey @Vance Lucas, thanks for your comments! I can't speak for @wiser , but I'll share my thoughts.

For a financial adviser to not be thinking about and looking to the future, in my opinion, limits their long term effectiveness. You make some great points about his audience and the risk involved here, but the point of my post was to highlight the comments he made which were (IMO) factually untrue when it comes to the Bitcoin technology. If I'm taking it personally it's because I care about Dave and his reputation in the industry over the long term. This video in the future could make him look silly if Bitcoin does take off, and I contacted him so he could avoid that. Sure, that's a big if, but I think there are ways to protect his audience from something he feels is extremely volatile without saying things which aren't true.

Just this morning I listened to the third hour of Monday's show and at around 11:45 he has another rant about it. This one, I feel, is a little more cautioned because he hedges his words a bit with the possibility it might have value in the future. He said something along the lines of "In ten years, it may have stabilized". If we analyze disruptive technology adoptions historically, I think it could happen sooner than that (and, as with many other technology breakthroughs, I don't think it has to fully replace the existing system to have value). That said, he still calls it "bitcon" and the "The Iraqi Dinar of the Internet." That sounds a lot like the "it's a ponzi scheme!" arguments the media had been using all last year. I just don't see that.

Dave may never change his opinion on bitcoin. Plenty of people use credit cards and love them and Dave will never change his opinion on that topic either. I also think there's a risk for him to be seen as so out of touch with where things are going. He could lose some relevance to his audience. If bitcoin does take off, shouldn't we have people like Dave Ramsey explaining how to use it safely?

I wish Dave would spend more time talking about what money actually is. Right now, money is debt. It's based off debt and we have to inflate the existing dollars to pay for future dollars. That's not a sustainable plan at all. Bitcoin could be a better form of money, if it stabilizes in the future. Just as he talks about spreading things around into multiple baskets, why not put a tiny bit in things like gold, silver and bitcoin? He thinks those are terrible investments, but what if they are more like insurance?

Thanks again for your comments. Many in the bitcoin community need more pushback on their ideas. :)

Luke Stokes said...

That line of thinking wouldn't have worked out so well for those who bought at $1200 and are looking at today's prices in the $665 range. Buying into a future speculation while still having debt isn't a great plan, IMO, because it introduces way too much risk. I wouldn't be involved in bitcoin if I still had consumer debt.

wiser said...

with fiat

wiser said...

I've tried to post a reply to that twice, but it doesn't stick. Is it a technical glitch or is my comment really not wanted? I just don't want to keep trying if it's *not* a technical glitch.

wiser said...

It works both ways, and at this point it's pretty important to cash out BTC fairly quickly after getting paid; otherwise, you do expose yourself to that kind of risk. But even in the worst case scenario, if the work done would not have been obtained in the fiat world or is extra, then you still do come out ahead.

MoisesColon said...

I would like to know more about bit coins. Where to start?

Luke Stokes said...

I the link I have at the end of this post is a good place to start:

Walter K said...

Luke, thought you would like to know I enjoyed the article. Unfortunately as a result of sharing your article, I believe you old boss blocked me on Facebook from doing anything with his fan page because I disagree with him on this point as well. I am curious that if he did this for just sharing an article in a comment on one of his posts, what did he say to you. Please keep up the good work.

Matt McWilliams said...

Proud of you for writing this Luke.

I don't have an opinion on it...yet. I will continue to learn more little by little. But I am definitely impressed by your open letter.

jiddu peter said...

Luke do you believe everyone can be debt free?

Luke Stokes said...

Well that's a loaded question, I think. If everyone paid off their debt overnight, the financial system as we know it would collapse (money right now IS debt and more debt has to be created to keep the system going). That said, yes, I do think a financial system could be structured with no debt (another reason I like bitcoin). The arguments for or against that view tend to resemble arguments for or against Keynesians vs. Austrian economic theory. We can argue all we want about the glory of debt money to promote prosperity, but I tend to think the bills come due eventually. If people live within their means, work hard, skill up and take advantage of unlimited knowledge via the Internet, i do think you can be anything you want to be and pay off any debts. I'm a bit of an idealist in that regard, but i've also lived it myself, paying off $80k in debts.

jiddu peter said...

I don't think it was a loaded question. If all money is debt then we cant all be debt free. We cant all live within our means and the system still work.
It seems it would be violent behavior to hoard money and have no debt. Someone has to hold the debt so others can hoard money. The more stratified society becomes the more poverty will exist. I called Dave on air and he would not acknowledge that the only way we get money to survive is for someone to go into debt for it. If he did it would hurt his message. He is lying to people for his gain

Luke Stokes said...

Ah, see, but it was a loaded question. :) You already knew how you'd respond before I answered it.

Money hasn't always been debt. It's supposed to be a store of value representing someone's labor which is more efficient than barter. When central banking started messing with things in the 1700's it started getting squirrelly. Once 1913 rolled around and the third attempt at a US central bank finally stuck, things got worse. The confiscation of gold in 1933 foreshadowed what was coming. The 1944 Bretton Woods agreement got all the other currencies pegged to the dollar making us the world reserve currency. Prior to 1971 the USD was actually pegged to gold. That's now out the window. So yes, right now world currencies are pegged to the dollar (though China and Russia are making serious threats to change that) which is floating and really just a system of debt.

Does that mean when I paid off my school loans and my second mortgage, someone else had to go into debt for me to do so? I don't see it that way. I do think the current system is doomed in that if the first dollar borrowed into existence has to be paid off by a second dollar borrowed (also with interest) then that's simply a Ponzi scheme. It's not that simple though. It's not just the Fed creating money. Banks create it with every loan and ultimately those aren't paid off by new debt, they are paid off with labor.

For all these reasons and many more, I think bitcoin could play a major role in fixing things by developing non-debt based economies.

The current system can't continue forever. Eventually the dollar will have to hyper-inflate or be replaced.

jiddu peter said...

Nice history lesson. Sounds pretty accurate. However , I just can't get past if someone hoards money (is rich). Someone else has to hold that debt. Not saying the person is bad but its a system problem. Actually its a system where the money creators become more wealthy while everyone else becomes more poor.when I called Dave he asked why poverty exists and I said it s a system problem. He said it was the people s choice s. I disagree. Its inherent the system. The people are operating in a scarce condition. Isee bibit coin as having positives but the truth is we need a system that moves beyond money.

Luke Stokes said...

Does the system have problems? Yes. Their roots can be traced historically. What I'm failing to see is the connection you're making to one person's profit being someone else's loss or debt. Dave is a big fan of the book Thou Shall Prosper. You should give it a read. When I produce something through my labor, it adds to the economic activity, making the pie bigger for everyone. It's not a zero sum game where my profit is someone else's loss. History shows the way everyone loses is when profit incentives are removed so everyone stops producing and the pie shrinks. Just because the current score keeper of value (USD) is a debt based instrument doesn't change the fundamentals of what works economically. Modern monetary theory believers (I don't think I am one, still leaning) say the government debt is inconsequential. They could pass laws and print debt free money tomorrow. I assume the IMF, IBS and other central banking authorities wouldn't look so kindly on that approach, but it can be done.

jiddu peter said...

I don't agree with modern monetary theory but that's another story. The way I see it for someone to prosper another has to hold the debt attached to that money. Who holds the debt? When one extracts money from the system it doesn't change the fact that it started as debt and still is. We can't all succeed. Poverty is built in.

jiddu peter said...

I am probably repeating myself here. I think when all money originates as a debt. Only some will prosper. Someone has to hold the debt for others to be debt free. I want Dave to admit he was wrong. Or if there is something I am missing I will. I gladly accept truth. I believe the profit based system of greed is at the root of most of societies problems. All the human suffering is unecessary. The only need for money is if things are scarce. This is actually artificial scarcity created to keep things valuable. Technology can help eliminate scarcity and create a society that doesn't need money. Its the moral route with today's reality of technology. Society should put peoples needs first.

jiddu peter said...

Luke, do you agree?

Luke Stokes said...

I think we disagree on how the mechanics of money work. Before money was debt money (i.e. before the federal reserve), do your arguments still stand? What about when money was, say, gold, silver, tally sticks, shells or stone wheels with holes in the center? You say "the profit based system of greed" but, as a business owner myself, I really don't know what that means. Yes, I've watched the zeitgeist films also, but I don't think a technocracy has all the answers (seems like a more efficient mechanism of control if it's not properly decentralized). I'd like a StarTrek world with no money and replicators providing for everyone's needs, but I don't think we're there just yet. 3D printers, bitcoin, cheap energy production... we might be heading that direction. There certainly has to be a change in how we think of employment, but these are all discussions way off topic from the original post which had to do with (what I believed to be) factually incorrect statements made by Dave about Bitcoin. If you want to discuss your ideas further, a forum would probably be a better... well... forum for that. :)

jiddu peter said...

My original point was can we all be debt free. Looks like your saying we can. Ill admit its very hard for me to understand that thinking when all money has debt attached to it. I see it as the most powerful system ofcontrol tthat's ever existed. I have enjoyed the back and forth. Maybe another time I will post on your google plus that is if you don't mind.

Luke Stokes said...

Yeah, that would be a great place to continue the discussion. Also, I haven't read Debt: The first five thousand years yet. It sounds like you may be approaching money from that perspective, which I'm not yet familiar with.