Something’s been bothering me recently: I feel incredible aversion to Bitcoin, and when analogies with gold are made, it was difficult for me to verbalize what exactly is it that I find objectionable about Bitcoin. Today the final piece of the puzzle clicked, so I’ll explain.
Money is by definition an universal commodity, something that is universally accepted as a standard of value and universally accepted in any form of barter.
People who created Bitcoin think that value of money is derived from scarcity, so they designed it to be scarce. The problem is, they designed it to be too scarce, and so it’s completely useless as money, because money should by definition be a standard of value. If value of money changes over time, it’s useless as money, and that happens when money is either abundant (inflation) or scarce (deflation). This inherent scarcity makes Bitcoin a high-risk investment paper, and people can get rich with high-risk investment papers, but it’s not money. Interestingly, that’s the same reason why fiat currency is not money: it is too variable over time. Gold and silver have a track record of being a reliable measure of value over millennia. That is because the supply of gold and silver seems to scale quite reliably with demand; essentially, when it becomes scarce, it starts making sense to open another gold mine. If it isn’t scarce, it’s mined less. Bitcoin gets exponentially more expensive to mine. Gold doesn’t seem to be quite perfect as a measure of value, but it’s historically much better than anything else, and isn’t a speculative asset. Value stored in gold is frozen, coins buried in Roman times can be dug out and sold for exactly the amount of value that was in them in Roman times. Value stored in Bitcoin is fluctuating wildly.
This is my main objection to Bitcoin, but I only now managed to verbalize it properly; I assumed it implicitly before, but the idea wasn’t clear. There are also other objections, which I will also list.
Money must by definition be physical, on the lowest possible layer of abstraction. This is so because trade must not imply any technological intermediary layers. You cannot assume electricity, computers or global computer networks for trade. You can have all those layers as convenience, for instance you can have paper money that is a banknote payable in gold or silver on delivery, and you can trade banknotes instead of gold coins. You can also have a computerized bank account which shows numbers that replace the banknotes, and you can trade with bank transfers. That’s all fine, as long as you can revert to the actual money when the “pointers” and instruments of convenience fail. Basically, when a solar flare wipes out the technosphere, you still want to be able to buy and sell things. For convenience, of course you will use credit or debit cards or SWIFT transfers. However, for security in extraordinary circumstances you must be able to revert to the most basic physical form of money. This means that nothing abstract can be safely used as money.
Money must be anonymous. If your financial transactions can be monitored by the government, this will necessarily mean a totalitarian power of the state over an individual. No kind of “law and order” argument is more important than this; obedience to the law is secondary to the sovereign liberty of the individual. Everything else is slavery to the state. The ability of sovereign individuals to trade anonymously predates the existence of the state, and is more important than the existence of the state. Gold is anonymous. Fiat currency is much less so (banknotes have serial numbers), and Bitcoin is not anonymous at all. It’s the worst possible invasion of financial privacy imaginable, because once someone gets your wallet number, he can track every single transaction you made till the beginning of time. The Bitcoin ledger is a privacy disaster, comparable only to the current fiat banking system and the credit cards, which also track everything you do. The state which can track everything you do eventually controls everything you are allowed to do.
Financial transactions should be fast; seconds at the most, fast enough to pay at the department store without holding up the line. Bitcoin transactions are slow. To quote CoinCentral, “a Bitcoin transaction generally needs 6 confirmations from miners before it’s processed. The average time it takes to mine a block is 10 minutes, so you would expect a transaction to take around an hour on average. However, the recent popularity boom of Bitcoin has caused congestion on the network. The average time for one confirmation has recently ranged anywhere from 30 minutes to over 16 hours in extreme cases.”
Waiting for hours or days for a transaction to clear is not acceptable, which makes Bitcoin unsuitable as an instrument of payment for goods and services. It’s acceptable as a high-risk investment paper.
So, basically, the only criteria of money that Bitcoin manages to satisfy are scarcity and acceptability, where scarcity was misunderstood by the creators and was thus implemented in such a way that it disqualifies Bitcoin from monetary applicability.
> Bitcoin transactions are slow.
This is the one valid, practical reason preventing bitcoin from becoming on par with fiat currency. If it gets solved in the future, bitcoin will become more prevalent. This, and the complexity of use are the main hurdles. Although, if druggies and junkies with half-rotted brains are able to use it on a daily basis, it might not even be such a big hurdle.
Scarcity is easily solved by mining other coins that are connected to bitcoin, which has been happening for a while now.
High level of abstraction? Our lives are immersed in high levels of abstraction, from those who work in the IT sector to those who use social media. The disaster scenario that wipes out bitcoin also wipes out fiat currency and most white-collar professions. The entire IT sphere would disappear overnight. It actually means bitcoin is as resilient and valid as the other levels of abstraction that people take for granted.
Wallets are anonymous if you cannot prove who the owner is. There is nothing that connects the owner to it intrinsically. Here’s a wallet that’s been making the rounds in a fishing scam:
12EMaHiZG75ztkjUjuPZhQDcyW89qRJVuR
Who’s the owner? Who knows. If it wasn’t anonymous, it would be easy to catch the scammer.
As far as gold, I have lived through a semi-disaster scenario in an isolated region. Gold wasn’t useful, pigs and farm work were. People didn’t suddenly revert to trading in gold, they traded in goods and services. If you were able to provide food and medication for pigs, a couple of farmers would take care of them and you’d split the meat at slaughter time. Nobody used gold for anything. There were gold coins in my family and they’re still in my family somewhere.
Before bitcoin became widespread and found its markets (unsavory as they may be), it made sense to disprove its usefulness. It’s a moot point now.
That’s a great point – neither bitcoin nor fiat money are a long-term standard of value. And gold is definitely not universally accepted in any form of barter (neither is bitcoin, even though you can buy more things with bitcoin than with gold). But I must ask – is there anything that can be rightfully called money as per your definition? What is there that is both a standard of value and universally accepted in any form of barter?
When I started thinking about retirement a while ago, I’ve come to realization that value of everything is constantly fluctuating and nothing is a perfect store of value.
Local currency is unmatched for buying things, but very unstable over periods longer than few months, and slight differences in exchange rate multiply when you hold larger amounts. Real estate is a bit better store of value, and in theory, if you’re forced out of it during a war, you can reclaim it later. But in practice, there’s a real estate bubble every decade or so, state can nationalize it, not to mention that it’s highly illiquid and usually bank owns your house instead of you. Gold has some great qualities, but with paper gold you’re dependent on volatile third party, and with physical gold you have a whole bunch of problems from transporting it and storing it, to instantly becoming target for different thugs. The major thug of course being your own government, like with USA Executive Order 6102 in 1933, or India in recent years, where you’re allowed to have 500 grams of gold for married woman, 250 for unmarried, and 100 for men. They simply take it or force you to convert it to fiat currency. If you’re buying bonds, which all of us do because everybody is forced to in any kind of retirement fund, you’re basically buying junk-rated asset with negative yield (because inflation is greater than return). If you have a business as a way to generate money over time, don’t even get me started, you rely on people you employ, people you sell to, whims or your government, not to mention all sorts of competition which can render your business model worthless.
Paradoxically, stocks, which people consider most volatile and risky financial instrument, have for the past few hundred years been the most reliable store of value. Of course, not individual stocks, but index funds or well-diversified stock portfolios. But that’s investing, and a long way from a simple store of value or any kind of money.
So if you want to preserve value over time, you have to utilize several financial instruments, you build a cash buffer, you buy some gold, you work, or create a company to have people work for you, you buy a house (or rent if it makes more sense, this depends on market conditions, here in Croatia most of what you can rent is a variation on a shithole), you invest in index funds, you max your retirement funds when it makes sense, and yes, you (very carefully) put some of it into crypto because it’s the biggest growth industry, apart from few things such as IT, biotech, and, well, stuff that Elon Musk’s been doing.
Regarding Bitcoin, I’m more of a pragmatic. I don’t particularly care if Bitcoin is backed with something or not, or if it’s money or currency, or vaporware. Since I can have a debit card backed with bitcoin and pay at any Visa/Master POS, I don’t care if it’s money or how many properties of money it has. If it walks like money, and talks like money, it is money for all practical purposes. Will it fail? At some point, probably. Everything does. Even gold failed as a currency. Fiat currencies exist for about 27 years on average (ranging from 1 month to 325 years), and Bitcoin has fared pretty well on that criteria so far, whatever it is.
I understand what you’re saying about physical money. I agree, but no money this civilization uses is like that since the gold standard was abandoned. I could argue that Bitcoin has better survivability chance than an individual; it’s enough to write your public key on a piece of paper and keep it with you (people have made laser engraved pieces of metal to store their keys). As for the bitcoin network, it’s enough to have a HDD with blockchain in a Faraday cage somewhere on the planet. Fiat currencies are much more vulnerable, they can’t even survive the death of state economy, yet alone a death of state. But I won’t go in that direction; as I said above, I’m not sure any kind of monetary value is able to survive stuff that kills civilizations. That’s not the point. The point is that physical money has its issues, for example, transferring it to another side of the planet is costly and slow. That’s why digital money exists, because physical money is a drag in a globalized world. That’s why digital cash, the ability to own digital money without intermediary who can be corrupted, has been a holy grail since eighties. Bitcoin is the first to solve that hairy problem. You can say that it’s not physical enough, but that’s not really an argument considering its advantages over any physical store of value. It’s the same debate as e-books vs physical books. Physical book will survive an EMP, but you’re able to buy e-book from Amazon which is on the other side of the world in seconds.
I wholeheartedly agree with you regarding anonymity of money. It’s a very scarce thing these days, and moving in the wrong direction fast. And I agree, Bitcoin is not nearly anonymous enough, but it’s being worked on. I do have to correct you here though; there is no wallet number. You have your private key, and you can create as many public keys (or Bitcoin addresses) as you want. While nothing prevents you from using the same address for many transactions, typically wallets today will generate new address for each transaction. You can track each coin, but you can’t track who owns them, and you certainly can’t track all that someone owns, same as with serial numbers on cash. So if you pay a ransom, and share the address you paid to with the police, the police can track that money, but only if it ends up in another known address for which they can identify owner and seize it. It’s very easy to swap coins between different people and then the coins are suddenly tracked to a 70-year old granny in Australia. It’s obviously private enough as basically no big Bitcoin heists have been solved so far, so your argument that blockchain is a privacy disaster is false. And then there are privacy coins, like Monero, Dash, and so on, which have solved privacy problem and are basically the only money that’s really private. I don’t get why you’re bashing the first crypto, Bitcoin, based on anonymity, when crypto is the first money that’s really anonymous.
Huge resources that are used for mining is a usual argument. Nobody likes it, but it seems that you must build a strongest supercomputer in the world if you want to be absolutely sure that nobody can attack your blockchain by brute force. It’s also being worked on, the solution is called proof of stake and might be able to replace proof of work. Some alts already use it successfully on a small scale, and Ethereum is planning to switch to it next year. We’ll see. I’d say this problem is solved, waiting for large-scale deployment.
Fast transactions are a problem that’s already solved. First and foremost, in practice, for smaller transactions (like coffee), merchants will accept transaction as soon as it enters mempool, which means in seconds, because it’s an acceptable risk and it’s very unlikely your customer will try a double-spend attack on you, especially if he’s physically present. For most normal transactions (up to a few hundred bucks), you’ll wait for one confirmation or about 10 minutes. For larger transactions (think buying a house or depositing money to exchange), you’ll wait 3-6 confirmations/blocks. That’s because it’s normal for two miners to mine blocks at approximately the same time and for one of them not to include your transaction. The miner who mines the next block will decide which of those two blocks he’ll build upon (that is, which block he received first depending on network layout). It’s possible that the situation repeats and two miners mine the next block again at a same time, each one building upon a different block, and then the process repeats again at the next block. But I don’t think that’s ever happened in practice for more than one round. That’s why 1 confirmation is generally enough, but 3-6 confirmations are recommended for transaction as a precaucion.
But that’s the old Bitcoin. Now there’s the lightning network, which is a secondary layer built on Bitcoin and settled in Bitcoin, which does microtransactions in seconds, at the rate of 1 million transactions per second. Dash, another cryptocurrency, has had InstantSend for years, and recently deployed an upgrade that enables InstantSend by default and without additional fees for all transactions. InstantSend confirms transactions in 1.3 seconds or less – the time it takes to for masternode quorum to propagate and approve the transaction.
So basically everything you’ve mentioned is either worse for anything we use today (like fiat or gold) or there are crypto solutions which are already being implemented on a large scale. What I can’t argue with is that Carrington event might be able to wipe crypto together (and the whole of humanity with it), but it’s a pretty petty argument considering alternatives. In that case you’re better off with a cow than with any sort of money. 🙂
On the level of ordinary humans, only fiat money is accepted in normal circumstances. On the level of central banks, it’s gold, silver and US Dollar bonds, and everybody in their right mind is diversifying away from the Dollar bonds in the last decade or so. The only assets that are seen as an alternative to Dollar after its weaponization became obvious, on the level where actions of central banks of superpowers are evidence of fact, are primarily gold and secondarily silver, as a backup. You seem to be completely oblivious to this. There are probably other strategic assets that are stored as well, but the central banks are much smarter than common humans, and especially smarter than the tech-savvy millennials who all think the way you do – gold is obsolete and old-fashioned, the future is digital, let’s put everything “in the cloud”. All those people are stupid idiots detached from anything practical. I know more about technology than almost anyone, and I’m scared shitless when I think about the dangers. The more people escape into the high-level abstractions the more they cede control of the physical plane to the most dangerous individuals and groups, who will soon breed you all like cattle, while you lie in stasis in your VR pods, completely plugged into a super-abstract sphere, doing everything in some layer of illusion while “stupid” people with “obsolete” gold and “outdated” guns regulate your rights to absolutely everything. And bitcoin actually hastens this. Money without physical backing can make sense only to the people who are used to ceding control of the physical reality of their lives, and that’s probably the scariest part of the whole thing.
While you dream about bitcoin and money in the cloud, people who are probably smarter than me (and I’m much smarter than almost anyone), who control space and nuclear technology, have huge vaults filled with hundreds of tons of gold, and the more hipsters and millennials dream about crypto and how it’s going to make them rich, the more hysterically the smartest and the most powerful people buy gold. I’m talking primarily about Russia and China, but also about JP Morgan and others. When that Jim Rickards guy who worked for the CIA and is friends with everybody who is anybody in the banking system urges people to buy gold and silver and states that it’s the only form of money that’s actually valid, then you either pay attention or you’re seriously overestimating your intelligence. On the outside of the system people talk about papers and numbers, but in the core of power and decision-making, they all know it’s all about gold.
So gold can’t exactly be qualified as money under normal circumstances, right? Maybe in SHTF situation civilization again reverts to gold, but then again, I suspect that gold is so successfully removed from ordinary population for the first time in history that there might not be enough of a gold market for gold to serve as money. Those gold traders which you can see on every corner are not selling gold, they’re buying gold which people come to sell for fiat paper to pay bills. I was flummoxed when I saw how much gold was exported from Croatia by those shops during crisis.
In SHTF situation, stuff like cigarettes, toilet paper and ammunition becomes money between population, not gold. You can pay with gold only to your oppressor, to someone who expects to live through the situation and be able to spend it.
I’m actually with you on the gold. I’m aware that China and Russia have been amassing physical gold for at least the last decade. I don’t know why exactly; everybody seems to agree that they’re trying to build non-dollar reserves, and that’s certainly one reason, but certainly not the only one. What I don’t get is why the US seemingly doesn’t, they seem content with creating paper gold. There’s even conspiracy theory that there’s no more physical gold in Fort Knox. But maybe US thinks they have enough gold, or that they will be able to secure any resources with their war machine better than with gold, or that the point will be moot for whatever reason. Who knows.
That argument I can understand (and I’ll have to think some more about it to fully appreciate it), but it seems to me you are arguing against Bitcoin the one and only world’s currency. Are you? Wasn’t that scenario already proven wrong when the first altcoin was created, and it became obvious that things are actually moving in completely opposite direction, towards many currencies which then fight for legitimacy on a free market.
While I do agree with you that owning gold is useful, it seems to me that no single asset or commodity can offer financial security. Too many layers shifting deep underwater to be sure of anything. When I thought about it I figured that the best thing I can do is to learn to swim as best as I can, and never rely on a single wave to wash me ashore. Because there’s no safe beach in the finance world.
That’s an interesting argument, and I was thinking about it for quite a while. The answer is complicated.
First, it depends on where you are. In Asia, people tend to treat gold as real money and storing your personal wealth in gold is perfectly normal. In the West, where gold was under attack by the central banks and all kinds of propaganda try to portray it as outdated and primitive, it’s another matter, although I heard that the Germans take gold quite seriously, much more so than the Americans for instance. In the Middle East, gold and silver are taken much more seriously than in the West.
Second, there is a difference between money as a store of wealth and money as an instrument of payment. As a store of wealth, gold is unsurpassable. As an instrument of payment, it’s slow, cumbersome and impractical and storing/transporting it actually exposes you to danger. That’s why the banknotes were always incredibly popular, but they were always just a pointer to gold, not value in themselves. Gold is something you want to have in safe storage, not in your pocket. An instrument of payment can be a banknote, or a personal cheque, or a debit card, or a phone that scans QR codes. The problem is that people just kept assuming that all of that superstructure is fine as long as there’s all that gold vaulted there in Fort Knox, and a lot of people today actually believe we’re still on the gold standard. Even in the times when we were on the gold standard people didn’t just go around with bags of gold/silver coins, and I certainly don’t recommend going back there because it would actually be primitive, harmful and would collapse certain economic models that rely on quick digital payments, for instance ordering books from Amazon. Personally, I would prefer something like the BullionVault but combined with an external payment interface, like PayPal, where you charge your store of metal transparently. I actually think the gold standard will be re-introduced in this manner, initially not by the government, or the banks, but by the private companies that will offer bullion storage and trading services, which btw is exactly how paper money started.
So, gold *is* money because people implicitly assume that all value is based on it anyway, and they feel very good when they know their banknotes or digital accounts point to their actual store of gold which they can retrieve at any time. However, even when gold coins were legal tender people thought it was outdated to use them for daily payments and banknotes were seen as more classy and modern. Today, even the banknotes are seen as passé, and I actually agree, I prefer to use a card or a computer. Not only that, in a globalized economy you actually have to use a computer to transfer funds digitally. I just want those funds to have the actual metal as backing somewhere in a vault. And I want to be able to have that metal delivered to my address at any time I give the order.
The crux of the question is why I hate bitcoin. The answer is, for many reasons, of which most were intuitive at first and it took me a while to clarify them to the point of making a succinct argument. So, basically, it was designed and is advertised by its proponents as a money-replacement, and I think money must be as close as possible to having a constant value over time, essentially no speculative asset can be money. You can’t have a pyramid scheme asset serving the role of money – meaning, the first people in get 90% of the overall value of the economy, the rest fight for scraps. That’s what bitcoin is, it’s one of those pyramid schemes that were popular as “investment” scams in the early 1990s here. If I look at it as merely another speculative investment, a highly-volatile one, a plaything for the gamblers, then sure, knock yourselves out for all that I care. But it’s not even a casino chip, it’s a casino chip that gambles automatically on its own while you carry it, and you never know what it will be worth by the time you try to cash out. It’s inherently scary as investment, but I perceive lots of other investment papers the same way, and incidentally they all have something in common: their proponents keep telling me they are awesome and I don’t like them only because I don’t understand them, and I respond that if I don’t understand them, then there must be something really wrong with them, and they also have in common the fact that every single time that happened so far, there was a crisis and everybody invested in that shit was wiped out.
I’ll repeat, the only way money can work is if a person trying to earn it today has the same chance of becoming wealthy as a person who initially introduced this money-thing and had some of it first. If you have first come, first served economy, robbery and violence actually become the most logical and economical ways of getting resources, so violence and not invention/problem solving/work become the most effective means of earning money. My main problem with fiat currency is exactly that: it favors speculators over the free market actors. Have in mind that my best-interpretation of the main cause of success of America is a combination of time-invariant money and patent law. We have electricity because people like Edison, Tesla and Westinghouse worked within that rule-set. You could have an idea, patent it, those patents were honored, and you would be paid a percentage, which over time became significant. If you don’t have time-invariant money, you don’t get smart people who try to patent things hoping to get rich, you get investment bankers borrowing money cheaply and buying speculative assets. It’s a complicated reason, and for most people it might not be intuitive, but I know how inflation affects your concepts of things that make sense for survival; only fast and speculative efforts make sense, and long-term planning and relying on time are suicidal. It goes both ways – people don’t hold on to an inflatory currency because they assume it won’t be worth anything tomorrow and must be spent instantly. People holding on to a deflatory currency don’t want to spend it because they think it will be worth thousand times more tomorrow. That’s bitcoin. People who own it think it will be worth 100000 dollars in a few years. If money is not invested, or is spent too quickly, because it’s perceived as time-variant, you get a shitty economy that doesn’t work. So, basically, when people were on the gold standard they invented the entire civilization, because innovation, planning, investment and all those things made sense. Since the 70s when the gold standard was permanently abolished, the entire civilization started navel-gazing. It’s doing a lot of things, but all of them are useless.
Thanks for the response.
Bitcoin has some intricacies in its design which intentionally make it a speculative asset at the beginning. That’s because of the distribution problem; when you create a new currency, you have to distribute it, because currency doesn’t serve a purpose unless enough people have it. That turns out to be a pretty hard problem. If you just give people money, they won’t value it and it will be worthless. If you force people to use it, they’ll resist. If you pay people in it, it works to some degree, but doesn’t distribute it fast enough. If you require people to pay in it, they’ll do only that, but they won’t use it for anything else. And so on.
So Nakamoto made a formula where supply is high in the beginning, and then falls exponentially, favoring early adopters and encouraging speculation which helps distribution, he tied price of bitcion to price of processing power/electricity; he designed mining so that miners would have to actually spend it to pay for operating costs. So far the formula has worked as intended, Bitcoin price has increased over time, and both number of users and transactions has been increasing. It seems he modeled it to work almost exactly like the initial gold distribution.
I don’t think that he planned for multiple cryptocurrencies, I guess that was not intended effect, but of course software gets forked and there are clones trying different things. That’s, in principle, a good thing, as different experiments going on make it irrelevant if Nakamoto created a correct formula. It seems to me that economy was basically standing still since no country really wants to experiment on its currency. With creation of private currencies, scientific method and free market get applied to economic theories.
In theory, when bitcoin is distributed enough, and enough people are using it, and enough time passes so that inflation falls enough, and price stabilizes enough, it might become stable enough to behave as a currency. I can imagine that, as I observed how volatility keeps falling and more and more people start using it for more and more things. I can also imagine that formula fails somewhere down the line, and something else comes along, or the complete crypto experiment fails because of the incorrect underlying assumptions.
I was pleasantly surprised when I found out that distribution of bitcoin actually increases over time (although I wish it wouldn’t, I would be quite a bit wealthier now). The more bitcoin appreciates, the more people are incentivized to spend it – and they do. People die and it gets divided between heirs. Miners must spend it as they have operating costs to pay. Yes, people try to hoard it, but although I know quite a few people who had it or still have it, I don’t know anyone who didn’t spend anything. And contrary to popular inequality theories, that includes whales and very early bitcoiners. It is extremely hard to own any kind of money over longer period of time, and with bitcoin, that’s even more exacerbated.
I actually suspect the story about 2% inflation for a healthy economy is just a story economists tell to people to lull them into thinking that it’s OK for states to print and thus devalue money.
In truth, people will spend money because they have to eat and pay bills no matter the inflation. Barring extreme hyperinflation and hyperdeflation, people’s spending habits don’t change much due to inflation. Holding fiat inflation around 0% wouldn’t affect people, but it would certainly prevent a country from printing money and spending it.
I suspect the fact that participation in Bitcoin is voluntary, compared to state currencies which people are forced to use, and which are tied to a state economy, will result in much milder deflationary effects than with state currency. But I have no data to back it up so I’ll shut up now; I apologize for dragging you through the subject for this long.
A slight digression, from what I’ve seen this gentleman owns the space in mid to long term. Some general assumptions will not hold, and industry landscape will change, or it is already changing. https://m.youtube.com/watch?v=jMB1K4w-wRk&feature=youtu.be
That is Dr. Craig Wright. Don’t be bamboozled by Craig Wright. People call him Faketoshi, because he is a con man and pathological liar who poses as Satoshi Nakamoto, but is unable to prove it.
In crypto sphere, unlike in normal world, it’s very hard to fake and very easy to prove that you’re Satoshi – you just have to be able to sign a PGP message or move funds that are known to be mined by Satoshi, but Craig is vain enough to keep trying, so people ridicule him – like at the end of this talk.
Initially he tried to get prominent Bitcoin programmers to endorse him, which failed spectacularly because people proved that he faked Satoshi’s PGP signature.
Then he tried to join Roger Ver’s Bitcoin fork, got into fight with Roger Ver, and forked a fork of Ver’s fork. Other than that, he’s basically trying to boost his credibility as a speaker wherever people will tolerate him, and trying to cash on crypto by being a patent troll.
Recently, he’s involved in an amusing lawsuit with late Dave Kleiman’s estate, where he needs to either prove that he’s lying that he’s Satoshi, or pay half of Satoshi’s mined coins to Kleiman’s successors and a lot of late taxes to Australian taxation office.
Anyway, everything he utters is in function of perpetuating his con and should be taken either with a lot of salt or, preferably, not at all.
This guy is super weird, I sense a layered deception, probably by the intelligence agencies. The thing is, the warnings he is making are all legitimate, and his persona is highly discreditable, which points to a double deception. Handle with extreme care.
He plagiarizes parts of other talks and stuff other people wrote, which is why what he talks about usually makes sense. But it’s also useless since it’s usually incomplete and subtly twisted because he doesn’t really care about the subject, he just wants to be in the spotlight.
It does make sense though, when you can’t buy, threaten or discredit Satoshi as he disappeared and doesn’t want to be found, you put a poser in his place and then let a poser discredit himself to casual public eye. Satoshi can’t deny it as he’s not around, and if he reappears, even better, as you gain more material for smear campaign. None if these games say anything about Bitcoin and crypto itself, but it’s a good tool to nudge public away from it, and from what I see, there are both US and Chinese interests that are very motivated to control the narrative about crypto.
This is where I’m absolutely blind and can see only the first layer. If you can find time I could write more info for you to make a judgement.
I am aware of the general perception, and if this is all that you find troublesome I would suggest a more private medium.
From investment point of view – Bitcoin looked a lot like Ponzi scheme from the very start – it is great return of investment for early starters and a loss for mostly everyone else because of incredible instability and fluctuations combined with constant increase of scarcity which combined with complex infrastructure required for it’s existence (as noted in article) also makes it really bad as currency.
Only thing I’d like to note is electricity availability where banks do not provide much more safety.
I am certain most people do not buy gold/silver on a regular basis which means all their money is a digital number in bank computer system.
Since banks can freely use people’s money for trading and investment, they do not cover entire balance with paper (not to mention gold) – which you can easily find out if you try to cash out any larger amount of money.
So, if you turn off electricity, bank accounts for most people are equal to bitcoin as safety is concerned, but for other reasons mentioned, I never considered Bitcoin anyway.
Perhaps creator(s) of Bitcoin counted on Moore’s Law to control scarcity – but since Moore’s Law does not apply any more, Bitcoin scarcity will rise indefinitely.
Or it will become instantly zero if ever reach quantum computing.
Bitcoin sells itself as “scarce” but in reality all crypto coins are traded on exchanges as a single asset class – meaning people fork Bitcoin/create new crypto currencies, and that is how you get gazillion of new ones without having to do it the hard way by mining in the original Bitcoin network, while the classical currencies pumped into this trade through various coins. Therefore, there is no scarcity, you have limitless amount of crypto coins you can buy/sell, it is a sinkhole for limitless amount of money.
Basically you sell bullshit to people about how crypto is great, and they buy some crypto currency, it does not have to be Bitcoin. And then people who are good at programming trading bots find a way to screw them by trading various coins until they suck dry all the newcomers, who by definition don’t know what they are doing.
It is not only a cesspool, but a cesspool filled with crocodiles. It’s like walking in the dark alley at night, in Albania.
Bitcoin sells itself as “scarce” but in reality all crypto coins are traded on exchanges as a single asset class – meaning people fork Bitcoin/create new crypto currencies, and that is how you get gazillion of new ones without having to do it the hard way by mining in the original Bitcoin network, while the classical currencies pumped into this trade through various coins. Therefore, there is no scarcity, you have limitless amount of crypto coins you can buy/sell, it is a sinkhole for limitless amount of money.
Basically you sell bullshit to people about how crypto is great, and they buy some crypto currency, it does not have to be Bitcoin. And then people who are good at programming trading bots find a way to screw them by trading various coins until they suck dry all the newcomers, who by definition don’t know what they are doing.
It is not only a cesspool, but a cesspool filled with crocodiles. It’s like walking in the dark alley at night, in Albania.
I can testify to literally every word you said above. It’s the truth that’s rarely said.
I’d like to add that situation is the same in traditional markets. And there are much bigger sharks swimming on Forex, stocks and commodities markets.
The fact that crypto markets are lightly regulated actually helps a bit, and shitcoins get realistically valued pretty quick, as those markets are actually closer to free markets than traditional markets, where sharks write the rules.
“situation is the same in traditional markets”- maybe, but it is far more visible and common in the crypto markets. A few guys with large positions get on chat and just corner the market whenever they want to. In classical securities markets, this would be a criminal offense, and there is also a high probability that the exchange itself would just stop the sales after certain amount of growth/fall. The crypto space is basically a dangerous spider’s net with a treat in the middle of it, to attract the people who know very little, but have big eyes for quick profit.
You mean things like the Libor scandal, where several guys did just that, got on chat and screwed the whole world over? And then only one of them actually got convicted, everybody else got away clean, including institutions involved. Or that famous Soros vs. The Bank of England incident, where George Soros cornered the Forex market and basically got rich in the process? Or even stuff like drunk oil futures trading incident, where a single guy got drunk and had some fun trading. Or stuff like this guy from Croatia I came across yesterday that defrauded people for 16M HRK. And those are just a few examples off the top of my head – google [any big bank name] and “money laundering” and you’ll find a lot of material.
I’ve found that, paradoxically, the best way to prevent market manipulation from happening is to have market as free as possible, with as much liquidity as possible, and then if somebody tries to manipulate it there’ll be another smart guy that will take his money. Heavily regulated markets work against free market forces and tip those scales in favor of people on privileged positions. You can manipulate some shitcoin as much as you want, but it’s very hard to manipulate bitcoin market now, there’s too much liquidity and too many smart people trading against each other.
It’s interesting how crypto proponents selectively like being and not being regulated. For example they like to be able to do transactions anonymously and not paying taxes and have state get out of their way, but they all get on their last legs when various shady operators just ran away with their money, or exchange gets hacked. Then they want all the property rights in the world and full extent of laws to be applied. They expected this crypto thing to be new, hip, secure and better than old-fashioned money, as it was advertised, but it turns out it has more holes than Swiss cheese.
Examples of fraud you named had consequence of people either going to jail, or their companies/banks being fined, or suffering large losses, or everybody knowing they are assholes and should be watched carefully. But basic property laws still applied there.
In crypto space, where all is global, supranational, beyond those antique concepts like state and national property laws, it is like the wildest of wild wests, where basically robbers rob all unsuspecting investors whole day long and nobody has any recourse.
People are, generally, whiny little bitches.
Me, I’d just like for people to stop trying to protect me. Every time somebody “protects” me from something I had no trouble with before, my anus somehow gets a bit bigger, and my life gets more complicated.
When I lost money because “unregulated” exchange where I, fully aware of the risks, had my money, got hacked, I got the bunch of options, I could cash out with partial losses, they offered to pay me back from future profits, or to convert that loss to stock. I converted it to stock and that earned me almost 3 times the original “lost” amount in dividends alone, and the stock is now worth about 7 times the original amount.
And when I had money on another “regulated” exchange, there was no need for it to get hacked, suddenly they held my funds hostage unless I go through full KYC and AML and whatnot. It took me several months to get my money out, and no matter how much I used my GDPR “rights” they dragged their feet and lied to me that they deleted my data and then had to admit that they didn’t (they still haven’t BTW). And somehow in spite of all regulation that “protects me” nothing could be done. I wonder why.
I’ll take unregulated and free market over regulated every time.
There is an ongoing battle of narratives what bitcoin is, and these views are reflecting down to technical levels.
Less popular one makes distinction between anonymous and private, is meant to be cash down to instant micro payments, able to store ie. EDI records, and generally aimed to compete in terms of efficiency with existing systems which provide tracking, or long term business record storage.
In environment where ecb considers only electronic cash, it seems Internet will be required either way. Gold is still better as hedge, and doesn’t require any kind of supporting infrastructure.
There are two basic tests that I have for something that wants to be money. First test is metric stability. This mean that it should be a long-term reliable unit of measure, like meter or kilogram. Things that were measured in meters at the time it was adopted can be measured again with the same result. Likewise, when a money is adopted, and a unit of money buys you a cow, the same unit of money should be able to buy you a cow a few decades or centuries after the money was adopted, provided of course that there were no major fluctuations on the cow market. 🙂 Essentially, money should have constant purchasing power over time, when averaged out over a spectrum of goods. Why is this important? Because when it’s not constant, it favors experts in money management over people who actually do something useful in the world, get paid for it and save money. This in turn results in a societal polarization and breakdown.
The second test is, can it actually function in the real world. Money has to be something that doesn’t decay, that has just the right kind of scarcity that you can’t just get more, because mining it has to be about as profitable as actually working for it (so, neither Osmium nor Copper can apply), the value needs to scale linearly with quantity (so no diamonds), it has to be practical (so no gasses or liquids or poisons), it can’t decay over time (so no fish, beans or corn), it has to be directly tradable without technological intermediaries of any kind (so nothing inherently digital applies), it needs to be tradable quickly, so you can pay for goods and services as quickly as a bill can be presented to you, and it needs to be able to cover both very small and very large payments. Gold does everything except the last one. It sucks for making very small payments, which is why silver was introduced for smaller payments, and some cheaper alloy for the smallest amounts, and even that is impractical, and the best combination is to use gold as money and some form of digital accounting (ie. card payment) to transfer the exact sums and avoid carrying out the actual transactions in metal. Metal is extremely impractical for carrying out the actual payments, especially for small and fractional amounts, and I would recommend avoiding it for daily business, lest we are to return to the dark ages of economy. However, the direct trade in metal must exist as a fallback option in case of an infrastructural failure, which must *always* be considered an option, because if you only trade in digital, and there is a Carrington event, everybody dies. Today’s financial system is far too sensitive for me to recommend it; it should be revised significantly, with metal-based currency that exists in layers of metal/paper/digital, where you have an option to revert to a lesser layer of abstraction in case of system failure. Bitcoin, don’t even get me started. I find it very annoying when otherwise smart people drool over bitcoin and completely gloss over its enormous dangers and flaws. If bitcoin happened to actually replace fiat currency, how would you buy groceries? Transfer Satoshis and wait 16 hours minimum for the transaction to clear? A fiat transaction clears in seconds, when you use paper or plastic. If you transfer between banks, it takes a day or more, but that’s not something you do when buying bread. You would have to introduce intermediary means of accounting, basically a currency that actually works, and use that instead of Bitcoin, and use Bitcoin as a replacement for gold, where it would be controlled by the banks, and you could charge your Bitcoin account in some ephemeral accounting units and the banks would clear between accounts at the end of the day. But that would still be inferior to doing the daily business in gold-based currency, because Bitcoin doesn’t really qualify as money because it doesn’t scale linearly with demand.
I’m not sure if there is such kind of money which passes metric stability in all kind of environments, but I get your point.
It seems that problem occurs at the time when you shift from physical commodity, to “backed by physical” as it involves trust element and requires information what someone owns in case of reverting to a lesser layer of abstraction.
As for BTC, yes, it is crap, not only for reasons you’ve mentioned, but also doesn’t have utility beyond being gambling asset.
Btw, I feel you’ve somewhat changed your mind re gold, looking at it more favorably. If that is true, can you refer to arguments which made you to reconsider?
I seem to have been “nudged” in that direction; a year ago, late August, I had a strong urge to convert all my savings into gold. I ignored it and lost money. A few months ago again I felt a strong urge to convert everything into gold, and this time I did, and I didn’t lose money. Both times, I was given exactly enough time to actually perform the transaction before the price of gold rose. This intrigued me so I researched things and learned a lot. Basically, I didn’t care much about gold before, I saw it as just another metal that trades on the market, but I was basically told that nobody gives a fuck about what I think about gold as long as the people who own all of us and decide what is money do their core accounting in gold.
And yeah, who knew that trying to save enough money to buy a house requires you to learn the fundamentals of metal-based economy. 🙂 It’s easier if you do everything on credit, you just bend over, apply vaseline and the banks give you the works, you don’t have to know anything to be fucked.
And yeah(2), since nobody “up there” is telling me anything directly these days, the point of the entire exercise might not even be for me to save for a house, it might be to point me in the direction necessary for me to understand those things and tell others. If things are going the way I think they are, nobody’s house will be worth shit.
It’s almost impossible not to buy anything larger on credit, everybody wants to own a piece of you. Although I avoid credit like plague because I got fucked every time I had to take it, some time ago I was in a situation where applying for a loan was the logical thing to do, it looked great on paper and it was a strange unique situation where I would actually earn more money by borrowing money and paying interest than by doing it without loan. I suppressed my unease about the loan and applied for it. And then the whole thing simply got stuck in one of those strange Lemony Snicket ways and went nowhere, in a way where it was obvious that owning stuff you use was more important than having more money, and who knows what else in parallel what I don’t understand. When I scrapped the loan everything got unstuck and went on its way.
For some reason I actually can’t get a loan because the banks seem to have started avoiding me like a plague since I have money. It’s a strange thing: I probably smell like a predator and not prey. I was actually rejected when I tried to lease a car, and the bank knew that I had twice the value of the car in cash. I just smelled wrong. When I was dirt poor and getting credit would get me up to my eyebrows in shit, I could get huge amounts of credit ridiculously easy. Apparently everything’s easy when it’s harmful. So now I live in a parallel financial universe from everybody else. Everybody is in debt to their eyebrows and they all appear to drive more expensive cars, have more expensive clothes and they all feel wealthy. I drive what I was able to pay in cash, and will be able to buy a house when I’m able to pay for it in cash. If the banks sucked everybody who owes them money in a black hole, the last people standing would be me and the beggars on the street who don’t have a bank account. 🙂
There is a great old cartoon I remember from time to time which drives this point home by displaying everyone’s net worth over their heads, let me see if I can find it… 🙂
https://uploads.disquscdn.com/images/053663c072c88d023b5e77a38c06fd051f89a83e1fd3a5973caac68db38a6844.jpg
Sounds like pretty convincing argument. 🙂 This also means sole metal characteristic are secondary to other “qualities”.
As for electronic goods, I’ve thought to offer alternative view where it isn’t necessarily money, but commodity first, for solving wide set of problems like triple entry accounting, tracking, business data storage. This however looks like boring topic and doesn’t draw significant interest, or great amount of emotions like when speaking of money.
For me, the argument was basically “nobody cares what you think, because the reality is that people who own everything set the terms, and if you don’t understand the rules, you’ll end up fucked, and if you want to be fucked and think you’re smarter than everybody, you go right ahead”. It’s like Latin in the dark ages. You could not know it, but then you were a peasant and you couldn’t talk to smart people. Or like having Free BSD on your desktop computer; you can think you’re so smart and cool because you’re running something nobody has, but the facts are you’re investing lots of effort and time in trying to use something that’s unfit for purpose just because you’re on an ego trip. With money, conventions are everything, ant the error of the Bitcoin millennials is in the assumption that they can be revolutionary and make their own rules, screw the old people. Well, there’s a problem, those old people invented the world and they own it, and if you’re a typical millennial with no job, no money, in college debt, playing video games to escape the fucked up reality of his life, you’re playing mindfuck games like pretending the Earth is flat because you want to be special and important, or pretending Bitcoin is money and it will be the new gold and you’ll be the new elite in the future when it takes over and you have lots of it.
Running into the digital realm as a form of escape from the reality in which you are powerless and controlled by others seems to be everybody’s favorite pastime, but it doesn’t solve anything, it just covers bondage with illusions.
I don’t like the fact that Bitcoin doesn’t work without a ton of really high layer public infrastructure and huge quantities of computers in Bitcoin miners’ data-centres. What people don’t usually know is that a single Bitcoin is useless without all those data-centres run by miners (they are required to approve/authorize transactions in essence, while mining for new coins), with increasing difficulty in mining meaning they need more and more computers to do it. In other words, as time progresses the Bitcoin is becoming more power-hungry and inefficient. Whole Visa/MasterCard are probably 1% of computing power of Bitcoin network and they probably use 1% of the electricity to provide real-time authorization (and waiting for hours as with Bitcoin network right now). Basically, the Bitcoin once mined is not a stable thing, which exists by itself, it requires the working of incredible number of computers 24/7 to be of any practical use or worth.
But these are all surface issues. The thing with classical currency is that if the bank’s online banking goes down, you can go to a branch and ask them to pay you out funds manually. Even if their core banking platform is pretty foobared and barely working, as it was with some local banks a few months ago, they can still do it. With debit cards, if the phone line between the merchant and the local bank is working and there is electricity, they can authorize the card in real-time; internet is not used for this at all and neither is the global Visa/MasterCard network (the authorization is done directly in local bank’s platform).
With Bitcoin if any of the extremely complicated tech layers are not working, it is useless/worthless and you have nobody to go to to get some value out of it. You can’t sell it to anybody for sure, unless they are collectors of random bytes on USB stick.
Yes, it’s good that you wrote the technical part; I personally never wrote any crypto currency code so I perceive it from a layer of abstraction. If fluctuations make Bitcoin useless as money (which needs to be a long-term reliable measure of value, and you don’t want meter or kilogram to fluctuate wildly either), this authentication delay makes it useless as currency.
It’s the same with cars. Extremely complicated, very fragile, even more prone to breaking than payment systems. People will fix them for you if you’re willing to pay, and even come and pick you up in their own car and drive you around. 🙂 TCP/IP is also an example of very complicated thing, terrifyingly hard to use on a base level, that works on even more unstable layer, and yet still people use it with no issues, without knowing much about it. Complexity does inherently introduce fragility, and I agree that it’s to be avoided at all costs, but it’s not necessarily a showstopper.
It’s an order of magnitude worse problem with Bitcoin. With fiat, the technology that is actually used to drive the entire network is so primitive, you could drive it with the Apollo guidance computer if you wanted; very simple binary protocols that actually work best if you code them in c. Also, it scales linearly, and the international banking transactions are even more primitive and can work over a telex machine if necessary. The entire system is quite robust, and yet it gives me cold shivers when I think how vulnerable it is to any technology-threatening scenario. In comparison, Bitcoin scales logarithmically, it’s computationally intensive, depends on a much higher level of complexity, to the point that the network doesn’t work reliably and in realtime even in the best of conditions. It would cause a terrible disaster if significant numbers of people actually used it as money on a daily basis, because the delays would increase exponentially to the point where all transactions in the back-log became invalid. Gentry Lee wrote about a similar scenario as a cause of a civilization-ending economic collapse in his Rama series (collaboration with Clarke) and I didn’t find the scenario convincing until I saw bitcoin, and that gave me chills. Bitcoin is bad, it’s really, really bad. It combines the worst aspects of a bubble with the worst aspects of bad technology and is a disaster ready to happen.
There are such things as too much and useless complexity. Bitcoin is a Rube Goldberg contraption, which uses energy and belief of its proponents to walk around in a virtual maze. I don’t like the Bitcoin for the same reason I don’t like financial derivative products; in other words when you are betting on a bet of somebody else’s bet’s bet for the price to go in certain direction. No matter if the chart for the derivative showed it performing great and just going straight up, I would never buy it, since it is too complex for me to have any idea of what is going on there.
On the other hand having physical gold/silver, buying a share in a profitable company are easy to understand things and much more in line with my way of thinking. All of this is from a purely materialistic perspective of course; if somebody asked me what I really think I would say that this world is hell and a complicated trap laced with all kinds of illusions, and that Bitcoin pulls beings toward more illusion, instead of towards less illusion and freedom, and that is should be avoided for those reasons.