Bitcoin
The siren song of a currency that it independent of governments, banks and regulations
The rocks await
Before we reach them though, let’s ask what Bitcoin actually is.
Not in detail, I prefer my discussions to be readable, but philosophically, it is based on a concept called “proof-of-work”. This is enforced through a “distributed-ledger” based on a cryptographic blockchain. The point to having these things is that work has to be done and it is used to ensure that you cannot copy your digital coin and spend it again. There are other distributed-ledger techniques to resolve this issue that do not rely on additional work being done.
Why is this important?
The work being done in that “proof-of-work” to validate each transaction, is work that is subtracted from the work available to fuel human civilization.
For all that its supporters and adherents shout about their use of renewable energy, the fact remains that what they are producing is something that is actually not relevant to human survival. It is effectively work in the same way that it is work to dig a hole in your yard, fill in the hole. Selling someone the filled in hole? That’s a bitcoin.
Your work could have been used to build a dam, heat a home, run a train or farm a crop but instead here is this nice bit of filled-in hole to show for it.
This is not merely proof-of-work, it is proof of WASTED work. A crime against human civilization itself given the situation we find ourselves in with CO₂ emissions.
So we really need to use one of those other distributed ledger systems.
https://www.scs.stanford.edu/17au-cs244b/labs/projects/li_chen_xu.pdf
https://www.researchgate.net/publication/342826913_Fast_Byzantine_Agreement_for_Permissioned_Distributed_Ledgers
Now about those rocks
The value of a Bitcoin is based on the two characteristics
it is unique
it is scarce
Those who followed here from the first post on this substack will recall that money is actually supposed to be following the laws of thermodynamics. It always does in the end, but not always in the obvious ways.
Bitcoins have a 3rd characteristic that is important, they are immune to the effects of entropy.
So how does bitcoin work? It certainly works as a store of value at present, but because the laws of thermodynamics in terms of money are that ownership cannot make money and money is subject to entropy, it cannot work as a form of money.
That doesn’t mean that a society cannot try to use it as money. It only means that if we do, it will wreck either the society or its value as money.
The fact that its value is based on scarcity makes it a speculative store-of-value and so allows ownership to make money. Scarcity is not actually a valid reason to set a monetary value. Consider when a scalper overcharges you for a concert ticket.
He’s getting away with your money because the tickets are scarce AND you can pay the extra. Your willingness isn’t the issue, you value the ticket to be sure, but his getting that money depends on you having enough. The tickets are rationed by wealth, and there is no shortage of people wanting one, it is your ability to pay that connects these dots.
How is this different from a house being auctioned?
Scarcity based pricing is a blight on our society.
So Bitcoin really cannot be used as money, and largely is not, except by criminal enterprises as it is so much more convenient than Gold for these purposes.
The second rock is the fact that it IS independent of governments, banks and regulations.
Bitcoin related fraud is yet another aspect of the weakness of this solution.
https://www.cert.govt.nz/individuals/guides/cryptocurrency-security/
You’re on your own. YOU have to ensure your own wallet’s security, you have to choose an exchange you can trust, somewhere. You have no recourse to anything but the bitcoin community and the exchanges are targets.
The third rock is that IF a country adopts or recognizes Bitcoin, the supply of money in that country is no longer under the control of the country. This is not merely a bitcoin problem, it is a problem for any currency that attempts to be “universal”.
The existence of it undermines the ability of separate nations to have their own taxation, social support and financial stability. It will either fail as a currency, break some of the countries attempting to implement the common currency, or entirely remove the national boundaries between those nations.
In other words, those Bitcoin enthusiasts are in fact advocating for one-world-government. They don’t understand that, but it is what they are doing.