by Ramin Mazaheri
There are seemingly rather few commentators who understand the “real economy” (encompassed by national growth rates and employment rates), the “fake economy” (the 1%-dominated FIRE sector: finance, insurance and real estate) and crypto currency. I have seen top commentators make the most fundamental errors regarding crypto since it began a spectacular boom in April.
And then there is a fourth axe: socialism. Even fewer Western commentators understand socialism than crypto. I think I can make a fair claim understand enough of all four to make decent daily journalism in all areas.
My bitcoin knowledge is the weakest, but it sure has been a fun couple weeks learning! I got turned on to crypto while searching about China’s new gold-yuan-oil exchange, which is a crippling blow to the domination of the dollar and the “exorbitant privilege” of the US to finance their deficits. Nixon took the US off gold in 1971, but the Saudis put the dollar on oil. Now that China is going to allow countries like Iran, Venezuela and Qatar – which alone comprise a huge chunk of the world’s known oil and gas reserves – to cut out the dollar, it is a whole new financial and political world. Very few bitcoiners I’ve talked to know about this development, but this is all related, certainly.
To augment my bitcoin knowledge I interviewed Manuel Valente, the director of the one brick-and-mortar store for bitcoins in Paris – Maison du Bitcoin. The timing couldn’t have been worse: it was just one hour after China announced that all 3 top bitcoin-for-yuan exchanges will be closed by September 30. Bitcoiners will likely remember this day as “Black China”, because bitcoins dropped 40% in 24 hours.
I pictured an office in chaos, and expected he wouldn’t have time to see me.
And yet he could not have been more unperturbed and genial. That should tell you something. He even gave me – a journalist with the credentials of “an Iranian government TV and leftist/anti-imperialist reporter” – more than an hour even though bitcoins were in the middle of a bloodbath.
Confirmed yet again: China knows what they are doing
Expecting an anti-China tirade, I asked him: “What’s your greatest fear?” His answer was “ICOs”.
An ICO is just like an IPO – it’s a way for a new crypto-currency to publically ask for money. It stands for “International Coin Offering,” and the coin functions the same as a stock.
What this means is that Valente approved of China’s first rattling decision earlier in the week: to ban ICOs. Many short-term investors interpreted this as “banning all bitcoins”, but those were the know-nothing, money-grubbing speculators.
The problem with ICOs is that, thanks to the technological advancement provided in February by what is now the #2 bitcoin, called Ethereum, all someone has to do to create a new crypto-currency is to add just 100 or so lines of code to Ethereum and voila. So it is too easy, and there are now perhaps 2,000 coins which aren’t Bitcoin (capital B, and the industry leader by far). And these are all totally unregulated. That means some of these new bitcoins which have been rushed to market are total scams.
“We’re in 1998,” Valente said, a reference to the dot-com boom, which produced spectacular flame-outs like pets.com. “It’s going to be a bloodbath for ICOs.”
And it should be. “95% of all these new ICOs can already be done with Ethereum.” If your product provides no technological or philosophical advantage, there’s no reason the public should need you. Some people will heed Valente’s advice – others will say they have found the 1 new coin which will hit it big and make them billionaires.
Valente suggests normal people should invest only in Bitcoin and Ethereum. “There’s space for maybe 5 or 10 cryptocurrencies,” he said. And that makes sense: you have Visa, MasterCard, Discover, and a few others which are widespread…and then some other cards that are predatory, usurious cards which should be banned.
The US Securities and Exchange Commission is headed in the same direction as China: they are looking at ICOs, seeing their similarity with IPOs, and warning that they are pump-and-dump scams.
The news of shutting down the top 3 bitcoin-yuan exchanges was the second, bigger shock. Crucially, China’s international exchange and a bitcoin mining pool are unaffected. What it means is that Chinese bitcoin holders will not able to, as of September 30, get their yuan out. That money stays in China.
That makes the Chinese government correct yet again: Valente estimated that 99% of bitcoin holding in China was purely speculative – they are not using bitcoins very often commercially, like Japan, South Korea, and others. And that makes sense: a socialist country like China has (thankfully) very few opportunities for investment for those who hold a lot of capital – you can see how bitcoins were appealing. Speculation and amassing capital is a no-no in socialism, but China is not on tough on this as they used to be.
However, what they are tough on is capital flight to foreign nations, because that is a major problem for developing countries. If money leaves the country, how can poor countries rebuild? For many years the nascent South Korea criminalized sending capital out of the country…and this forced domestic investment is how South Korea got to be a top 10 global economy. Whereas African nations, for example, whose leaders hold their money in Switzerland…they have achieved undemocratic but superbly capitalist results.
So pushing unregulated bitcoin usage in wealthy countries should be encouraged, because then bitcoins can function as an effective way to redistribute wealth. Bitcoins can be an amazing pro-socialist and anti-imperialist tool, but I don’t have much space for that here.
China is perfectly correct to suspend the outflow of an increasingly large and popular form of wealth, and to investigate ways to regulate to make sure The People aren’t harmed. That’s simply good governance.
Bitcoiners hate the Chinese right now, but the Chinese people owe their government a debt of thanks.
There is a simple, obvious compromise on the question of how to regulate bitcoins
There is only one genuine problem: how to regulate the interface between the bitcoin and fiat/paper worlds.
It is not difficult: bitcoins simply must be declared and taxed. Voila.
Some 15-year old bitcoiners are probably reading “1984” while in the totalitarian setting of high school, and they are dreaming that they can get around this. They are wrong – it is criminal and anti-social. The bitcoin community must realize that they cannot remain forever anonymous because at the point of interface – cashing out your bitcoins – that simply must be accounted under every society’s moral laws.
What bit coiners can take comfort in is this: Governments must realize that the bitcoin sphere itself must remain unregulated. The protocols cannot be tampered with…the geeks have already won.
The US and their allies are also dreaming if they think they can stop the flow of bitcoins inside the cyber sphere. That’s why bitcoins are an amazing way for countries like Iran, Venezuela and other targets of American imperialism to avert cruel, murderous sanctions. Governments truly can’t touch the bitcoin netherworld – that horse is too far out of the barn, and the barn is the size of the entire globe.
However, at the point of interface – the moment of sending bitcoins out…well, governments can easily sanction people on the individual level. So, everyone’s fascist/anti-fascist dreams aside – bitcoins ultimately will be just like any other commodity. Sadly, they can still blockade Iran, Cuba, Palestine, etc. But they can’t do that just yet, so send the Irans and the Cubas of the world some bitcoins, you early adopters!
Once we all learn more about bitcoins, people will realize these are the only solutions.
But I suppose the alternative to good sense is always possible: protracted war between nations and cybergeeks, with varying degrees of success. Such a fight means bitcoin will sill certainly not be stopped in the next week, or year.
And accept this as fact as well: If capitalists can create fiat havens in Luxembourg, the Isle of Man and the US state of Delaware, surely some nation will gladly become a bitcoin haven. That means bitcoiners can go there to put in bitcoins and take out dollars, rubles, pesos ,etc.
Forget about all-or-nothing scenarios – think short-term, like 50 years
This is one of the biggest problems when discussing bitcoins with anybody: People love to take the bitcoin question to its extreme conclusion.
Look: there is no chance that we are ALL going to be making ALL our purchases in ONLY bitcoins next month. The day when bitcoins replace all currently-accepted forms of stored wealth – paper money, gold, silver, Monet paintings – is roughly the year 2525, I’d say, so stop being needlessly argumentative.
We must realize that all these forms of wealth – gold, silver, oil, real estate, stocks, Fabergé eggs, etc. – have their place…and now you must add bitcoins to that very long list.
Look at it this way: If bitcoins ever even represent just 3% of all merchant sales…bitcoins will have a trillion dollar market valuation or more.
And that’s why, even if China does totally ban bitcoins, they can absolutely survive losing the Chinese market.
Bitcoin users are already global: Russia, South Korea, Japan and others have all said that bans are not should not happen and that regulations are just a few months away. Bitcoins, like the discovery of a 2nd New World, are going to have major geopolitical consequences, but I will get into that in future articles. But stop thinking that everyone is going to react like China: countries are different, and they will have different approaches.
China is certainly a bit annoyed at bitcoins, which threatens to undermine their brand-spanking new gold-backed order which we leftists have all been waiting decades for China to impose. It should be no surprise that these two drastic Chinese state decisions come so close to one another – China wants a Petroyuan and yuan-dominance.
But back to the survival of bitcoin: Yes, it would hurt to lose the Chinese market, but it is absolutely not a death blow, and the fact that bitcoins bounced back at the $3,000 mark proves this fact.
Anyway, China has already “banned bitcoins” several times, only to backtrack; China is the biggest global holder of bitcoins; I would bet good bitcoin that China is going to do what they should – freeze the situation, come up with regulations, and then get back into bitcoins. That’s what history has proven and that’s what they should do – protect the Chinese.
I would bet a smaller amount of bitcoin that China is crashing the price to buy more bitcoins, further protecting the yuan’s dominant future. Considering that China’s decision came at the same time as JP Morgan Chase’s Jamie Dimon (America’s favorite banker) declared bitcoin to be a “fraud”, dropping the price further, you have to wonder if they all aren’t in it together? We leftists hope not, China….
So, to repeat, bitcoins don’t need to wipe out the competition to be a good investment – they just need a bit of acceptance and the resulting stability that entails.
So what is stability? Well, nation-states will take forever to figure out bitcoins and the results will not be uniform. So what’s the other dominant sphere besides national governments? High finance.
Bitcoin bonds have debuted in Japan. The Chicago Securities Exchange is months away from debuting a bitcoin future. Clearly: high finance is getting on board. At Davos 2016, a Financial Times reporter asked the 1% banker-dominated audience if they were on board with bitcoins and only 1/3rd of them raised their hands. Guess what – 1/3rd is actually quite a lot in this context! One-third is enough to do what is currently happening: give bitcoin enough of an “official ok” from high finance to become a permanent financial fixture.
The Eurozone’s endemic failure and looming crisis will forever legitimize bitcoins
But nothing “backs” a bitcoin!
Well, wake up: When the European Central Bank buys 60 billion euros of bonds every month in Quantitative Easing, that’s not backed by anything like gold or silver; and they aren’t even printing the paper “gold”; they are just tapping on a keyboard and, voila.
So invisible money is already here.
Invisible money is not the problem – the problem is that it’s not being loaned down to small and medium-businesses; it’s not paying off your overvalued mortgage; it’s not creating jobs and improving the productivity and efficiency of the “real economy”…it’s going to the 1% for stock buybacks and the 1%’s phony rentier FIRE economy.
Neoliberalism and austerity have created and kept the world’s largest (and least democratic) macro-economy – the Eurozone – the most fundamentally unstable: it IS the global weak point in 2017.
Their spree of free money – which has only ballooned real estate prices and stock markets, while the mainstream media celebrate anemic 1.5% growth year after year, turning an ignorant eye to the unemployment crisis AMID labor code rollbacks AND THE decrease in purchasing power caused by the “printing” of more money – has a price, and it is about to be paid.
To put it quite simply: If the ECB’s Mario Draghi says this October, as he is expected by many to do, that Quantitative Easing will start to be tapered off…bitcoin has won.
Because I am a socialist, I am certain about what will transpire:
As soon as the high finance 1%-ers are no longer being given “free money” by QE…they will go back to doing what they did before open-ended, unlimited bond-buying: squeezing the Eurozone’s bond markets. Lacking any sort of socialist solidarity, at the mere mention of “tapering” in October, German bond rates will creep up to just 2-3%. And then France’s will rise a couple points higher, and then Spain at Italy will be back at the unsustainable 7%, and that’s when investors smell blood and want to pave the way for the Troika like in Greece. That’s where we were in 2012 and QE started.
Well, guess what? Absolutely nothing has been fixed since 2012! Why? Capitalist, and not socialist, management of the economy. What did you expect would happen, that capitalism got religion and would start doing the right thing?!
Again, instead of improving the “real economy”, bailouts and QE have done nothing for the world inhabited by the 99%.
Therefore, when the crisis hits, money is going to flood into the safe (or just “safer”) haven of cryptocurrency. Take that to the bank. Or rather take it out of the bank.
And here’s the thing: If Draghi postpones “tapering” – and the new Chinese exchange and spectacular booming of bitcoin since April make it more likely – the Eurozone is simply postponing their crisis a few more months. That’s just capitalism: Marx proved it lurches from one crisis to the next, with inequality increasing each time.
You can’t print money forever.
What many fail to realize is that the reason bitcoins exist is EXACTLY BECAUSE of this fiscal charade, which began around 1980 and which crashed in the Great Recession.
There is a reason why some now-underground Japanese tech-head waited until October 2008 to unveil his White Paper on bitcoins/block chain: it was the height of the great crash. He wanted maximum impact, reaching minds finally cracked open by the latest, inevitable, deadly crash in Western capitalism.
Secretly embedded in the very first block of bitcoin code – Block Zero – was this: A London Times front page with the headline: “Chancellor on Brink of Second Bailout for Banks”.
Wake up!
Too many think that we non-economists/non-government officials are too stupid to get economics – we do. Bit coiners aren’t all holding PhD in mathematics, and way too many have been swayed by adolescent American libertarianism instead of solid, sweating, vibrant, Socialism, but we know what the hell has been going on for nearly 4 decades. Everybody does, in fact.
And we are pissed.
And that’s why they created bitcoin. And that’s why I’m investing and you should too. Giving a dollar to them is one less in the hands of the high finance psychos who let grandmas die on gurneys in the hallways of public hospitals gutted by austerity.
If I lose it: to hell with it. It’s a donation to the cause.
But I’m going to get my money back (I sure need it): Most of the world has not yet realized that bitcoin rests upon a technological advancement (quantum computing) combined with a revolutionary philosophy (block chain). Bitcoin is simply block chain applied to the financial sphere.
Block chain is the big deal – NOT bitcoins. It will be applied to many other fields and revolutionize countless areas. Indeed, this IS the dot-com boom: block chain is going to change the world like the internet did.
We are only just seeing the results today.
Watch this space – there are simply too many astoundingly positive aspects for open-minded left-wingers when it comes to block chains and bitcoins, yet nobody is talking about it yet.
Buy in – hold.
Bitcoins will be your bailout.
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. His work has appeared in various journals, magazines and websites, as well as on radio and television. He can be reached on Facebook.
Thank you for your thoughts and comments on Bitcoin & Europe in the months ahead.
Cheers!
QS
Nice Ramin. Just a few comments here.
ICO is not “International Coin Offering,” but rather Initial Coin Offering. There are many that exclude either China or the US from their offerings.
The fear of ICO’s is overblown. Yes there are hundreds that are pumps and dumps but then there are the few that are building the business of the future and truly changing how we do things. If people fall for pump and dump, we do not necessarily need regulation, but rather education. Regulation makes people dumb.
Quote: “So pushing unregulated bitcoin usage in wealthy countries should be encouraged, because then bitcoins can function as an effective way to redistribute wealth. Bitcoins can be an amazing pro-socialist and anti-imperialist tool, but I don’t have much space for that here.”
That is correct in my view. Yet, it can be the dream of capital creation in poor and wealthy countries. We’re saying these days that cryptos, rather than using the old capitalist/socialist type tags, we talk of ‘incentivising’ the community, immaterial of the political beliefs or landscapes. We are taking a very huge step into the future.
China is doing a good thing and good things will come from that. No country wants to lose their shirt. They gave their exchanges and their ICO’s fair time to self-regulate, and very few did. So, bam, down comes the hammer. If we can remain adults in the room with cryptos, we will never ever need regulation. This to me is the litmus test of our maturity as humankind.
Btw, Bitcoin is backed by POW, which is proof of work. When I write again next month on these issues, I’ll go a little bit into the backing, because these are technical terms.
Nicely done overall. Nice connections with the rest of the economic sphere.
Amarynth I admire you totally from your last writing, and look forward to your next.
In this spirit, allow me to chuckle at the two ways of looking at things that you and Ramzin manifest here so well.
Your comment:
Contrast this with Ramzin’s observation:
When it comes to systems that can be gamed to present false indicators, then it’s the gaming that will make people dumb, not the regulation that forces gaming to become transparent. That’s really all that any regulation is for, to prevent a system from being gamed. It’s for regulating weights and measures – which is completely the world that currency inhabits.
Perhaps the blockchain can make external regulation obsolete, perhaps not. I think we shall see.
Just a libertarian-socialist thought for you :)
In jest “When it comes to systems that can be gamed to present false indicators, then it’s the gaming that will make people dumb, not the regulation that forces gaming to become transparent. That’s really all that any regulation is for, to prevent a system from being gamed.”
Uhm, is that what the Central Bank has been trying to do all these years (grins), And then also to abuse another old quote – who will regulate the regulators.
I’m speaking of Bitcoin specifically here .. the nature of the technology is such that it does not need regulation in my anarcho capitalist view. Of course, all the governments in the world will disagree with me and if I don’t cave in, they may violently disagree. Bitcoin itself is self-regulating and ‘trustless’ because of the Blockchain technology.
We can analize the retraction in the Bitcoin market specifically over the past two weeks, and figure who made the price drop .. the Chinese protectionist regulation, or Jamie Dimon’s rantings. Dimon got laughed out of the house and in general, taken to the woodshed and schooled as to who exactly needed bail-outs, and who exactly gets fined for fraudulent practice, and it was not Bitcoin. . It was really the regulation, and that is what is going to make the price rise again. All that the Chinese were doing, was to protect their currency. This should tell us that Bitcoin had become a threat to the currency if they need to protect it. But then again, what I’ve read is that there is disagreement among the regulators in China and that is what we’ve seen looking at the various press releases. We’ve seen the PBOC make one statement, and other regulators make other statements. What is very clear is that this is not the end of the story. They will get their elections over and done with, and will change their stance on crypto currencies. Alas, not enough space here for this discussion. People forget how many times the Chinese regulators have tried to regulate Bitcoin already. The thing is Bitcoin was not banned at this time, but rather trading out into other currencies, i.e., a true protectionist measure. The everyday Chinese has not stopped buying and trading and so on. They’re just using other means.
Watch this space. Bitcoin is going to become a settlement vehicle between countries in the future.
Dear Mr Mazaheri
as much as I value your political analysis, I’m sorry I have to tell you: Here you have gone completely astray!
Before you waste more of your money I want to politely but also urgently advise you to read up on how our current monetary system really works. A good place to start is here:
bilbo.economicoutlook.net/blog/
and if you read German, also here:
makroskop.eu
Regards, PV
@ PV Thanks for this link, but it’s a blog full of quasi-informative posts evidently written for long-time readers.
Could you point us to specific posts in this blog (or elsewhere) that give a condensed account of MMT?
About the development of our current money system:
http://bilbo.economicoutlook.net/blog/?p=2562
_____
About bitcoin:
http://neweconomicperspectives.org/2013/12/fair-price-bitcoin-zero.html
Let me tell you in one sentence what bitcoin really is : It is a ponzi scheme.
The main issue with bitcoin is that it is not really a “coin”. It is by itself an investment and a product, it is not a mean of exchange. Yet people pretend it is or will be in the future.
The other major issue is that while it can be “mined” by anyone without restriction, it has no inherent value. In the past you could mine for gold by yourself, and gold was a form of money, but gold had inherent value by itself. It was gold, you know? Bitcoin on the other hand, is pretty much useless. It has no value other than the imaginary value people assign to it. The problem is that you can’t allow money to be created by kids on their gaming cards and buy real products with them for free. This is a retarded idea. Because bitcoin is useless, yet they want to trade it for real money and real goods. Someone is paying for that exchange, which is why it is a scam.
Also, you can’t pretend that bitcoin is useful because it solves the problem of internet money, because it does not, we already have internet currency around the world. Bitcoin serves no purpose other to deprive ignorant people from their hard earned money. The people who entered into the scam early while bitcoins were worth 1 or 2 dollars, are now multimillionairs while doing absolutely nothing. This is unsustainable.
Bitcoin and all other cryptocurrencies will never be legalized. They will also never be banned. They will just fade into obscurity once they crash and burn. It is inevitable and will happen once people wake up and stop investing on something totally useless. It is a bubble and a ponzi scheme. And like in all ponzi schemes, people who are invested into it defend it at all costs, until it comes down crushing.
Bitcoin: The way to the future or path to financial ruin?
The Associated PressPublished 2:42 p.m. ET Sept. 15, 2017 | Updated 3:03 p.m. ET Sept. 15, 2017
https://www.usatoday.com/story/money/markets/2017/09/15/bitcoin-way-future-path-financial-ruin/671030001/
Bitcoin, hailed in some quarters as the future of currency, is having a rough week, with a flurry of rumors that China will shut down exchanges and the head of a major U.S bank calling bitcoin a “fraud.”
Plummeting prices have again raised questions about the wisdom of owning it, if not its legitimacy.
What is bitcoin?
Bitcoin is a digital currency created and exchanged without the involvement of banks or governments. Transactions allow anonymity, which has made it popular with people who want to keep their financial activity, and their identities, private. The digital coins are created by so-called “miners”, who operate computer farms that verify other users’ transactions by solving complex mathematical puzzles. These miners receive bitcoin in exchange. Bitcoin can be converted to cash when deposited into accounts at prices set in online trading.
More: Bitcoin loses third of its value this month after 400% run-up in 2017
More: Chinese bitcoin exchange announces it is ending trading
More: China orders bitcoin exchanges to shut down, report says
The digital, or cryptocurrency, tumbled 15% Thursday to about $3,300 against the dollar. Bitcoin, which has had bouts of volatility in the past, has shed about a third of its value since Sept. 1. But it’s still up about $600 compared with last year at this time.
On the other hand there are optimistic news regarding cryptocurrencies:
Beyond Bitcoin:
New Currencies Are Killing Cash. These Are the Top 6.
September 17th, 2017
Welcome to the biggest investment opportunity of the 21st century.
It’s not a stock, it’s cryptocurrency.
I’m talking about Bitcoin, Ethereum, and other “altcoins.”
These new, digital currencies are skyrocketing in value and investors are catching on.
In less than a decade, Bitcoin has evolved from an almost worthless curiosity to a widely accepted currency that’s now worth thousands of dollars.
Ethereum, the new kid on the block, has soared from less than $1 in value to $400 in less than a year.
And that’s just the start.
More cryptocurrencies are coming. And our new report, “The Cryptocurrency Investor: How to Mint 21st Century Profits,” tells you everything you need to know about buying, selling, and investing in them.
It details exactly how Bitcoin works, how Ethereum has improved the process, and all of the new currencies that are coming down the pike.
Indeed, the world of cryptocurrencies is far bigger than Bitcoin. And our report covers every inch of it.
Fiat currency is dead.
The days of coin and paper money are over.
They’ve been replaced.
This is the future.
Cryptocurrencies can achieve everything that normal paper dollars can and more. They can be broken up and sold off in pieces. They can be transferred digitally from one person to another with no third party.
Better still, they’re not tied to any country or central banks, so they can’t be traced or devalued.
So, sign up for our free report and get a taste of this new phenomenon.
New money is the future. Don’t get left behind.
My personal opinion is that the World is heading toward a very uncertain financial system.
Uh, is this some attempt at disinformation?
There are so many problems with your comment, I’m not sure where to begin. But here goes: (1) Bitcoin already is a means of exchange. You can use it to buy stuff, today. (2) Your use of the phrase “inherent value” doesn’t work here, because quite obviously there are many forms of currency that have value. If you sincerely believe that all the bills in your wallet are truly worthless, i.e., have “no inherent value”, I would be happy to take them off your hands ;) (3) If you don’t see the difference between Bitcoin and “Internet money”, I can only conclude you haven’t studied the problem enough; (4) Bitcoin has already been legalized in many countries.
If I had a Bitcoin for every time someone told me Bitcoin was a ponzi, I would be happy. Usually if one asks, OK .. explain the ponzi, nobody can. TemplarGR, would you explain your statement please. Where is the ponzi? All I see is breakthrough technology.
“Considering that China’s decision came at the same time as JP Morgan Chase’s Jamie Dimon (America’s favorite banker) declared bitcoin to be a “fraud”, dropping the price further, you have to wonder if they all aren’t in it together?”
…Dunno about China, but the ‘word’ in the crypto community is Dimon ‘talked down’ Bitcoin for one reason: to crash it so he could personally buy it up cheap. Apparently there were huge buy-ups from people linked to Dimon while it was low.
Yes. Here’s a little more on this:
If Jamie Dimon Hates It So Much, Why Is JPMorgan Buying Bitcoin In Europe?
http://www.zerohedge.com/news/2017-09-16/if-jamie-dimon-hates-it-so-much-then-why-jpmorgan-buying-bitcoin-europe
Dear Ramin,
Thanks much for a very informative article! Since it sounds like you plan to write more — which I look forward to reading — I’d like to offer a slight correction.
You write: “Most of the world has not yet realized that bitcoin rests upon a technological advancement (quantum computing) combined with a revolutionary philosophy (block chain).”
Strictly speaking, this is not right.
Cryptocurrencies do not presently make use of quantum computing. QC is a totally new technology under active research, with early prototypes becoming available this year. IBM, for example, offers Quantum Experience, which is a cloud-based service. The actual quantum processor lives in a cryogenic chamber in New York.
Bitcoin, by contrast, uses commercially available hardware, and communicates over the Internet. There is no hardware technology breakthrough behind Bitcoin, but this is a good thing, as it means you don’t need to be IBM to get involved. Apparently, a full Bitcoin node can even run on a Raspberry Pi.
The Quantum Computing angle is that since Snowden’s revelations, some people are concerned that the NSA has been working to try to develop a quantum processor capable of breaking encryption (the project was called “Penetrating Hard Targets”, and had/has an $80M budget. (There is also a side-story here about the SHA-256 algorithm used for security in Bitcoin, which just happens to have been developed by the NSA. However, there is no public evidence that SHA-256 has been compromised.)
The technological advancement behind Bitcoin is squarely in the domain of software and system design: the blockchain. This is a distributed ledger system invented by Nakamoto that makes it possible to conduct transactions between third parties and solves a number of different problems. Blockchain is both an algorithm and a design for a distributed system (i.e., a service running on thousands of computers all communicating via the Internet.) It’s not exactly a “revolutionary philosophy” insofar as it leverages a number of ideas about distributed systems that have been current for several decades now. Again, it uses commercially available hardware. Nothing esoteric.
Anyway, enough of this pedantic interlude. Looking forward to your articles, as always :)
That was not pedantic and actually good to state and get out of the way. No quantum computing, just very fast chips and processors which in itself is pushing innovation to new and faster computing technology. Quantum computing is a whole other story.
I don’t know if Bitcoin is a boon or a bane. However, when I see Establishment financial authorities (whether government or Big Banks) and the financial press attacking Bitcoin, I instinctively think either or both of two things: (1) they see Bitcoin as a threat to their own fiat money scams, and (2) they want to stage a bear raid so they can end up controlling Bitcoin and profiting more heavily from it than anyone else can. In other words, whatever their motive, these people are not interested in saying or doing anything to help anyone other than themselves.
I’m looking forward to your further discussions of Bitcoin, as I still do not know what to make of it. Thanks for this first article.
This is a completely sane article. I hadn’t realized that Ramzin Mazaheri understood the financial world so well. I’m impressed by the easy style here of of relating the technology to the current world – the best I’ve ever seen.
As the author states, the sticking point with Bitcoin right now is at the interface. The world is waiting for it to stop acting like a commodity, subject to ups and downs, and to start acting like a currency, with a relatively predictable price in terms of other currencies.
Yes it’s an investment now, but not everyone is trying to make – and risk losing – a lot of money on investments. Some people can generate income, and simply want a stable currency to convert their daily work into, and with which to build their lives and provision for the future.
I think I agree with every word he wrote in this piece. An utterly sane, true and useful article.
No one should be dismissing Bitcoin as a “ponzi scheme” or a “fraud” as Jamie Dimon recently called it. If you do, then you are a fool.
In reality, Bitcoin might be able to prevent the next major war. If it becomes big enough, and if it overcomes the endless attacks that Bitcoin’s enemies are throwing at it in a blatant attempt to slow it down long enough for their own plans to come to fruition.
Those are two very big “IF’s”, and nothing is guaranteed. But Bitcoin is one of the tools, one of the weapons we have in our arsenal. It was invented for this very reason, to provide a very useful alternative to the traditional central banking FIAT scams.
So please, do support Bitcoin with all your heart. It may or may not succeed in the end, but if it achieves its true fate, then it will deal a blow to our enemies and taken “all the way” it could theoretically hamper the Empire’s ability to fund their wars. So do not take it with a grain of salt, but maybe at-least take it with a grain of hope. Do not lose hope, because sometimes it is all we have left. If we lose hope then we are done.
recommended: https://www.youtube.com/watch?v=_zNv8c2mvMQ
Blockchains and the crypto craze
The cryptocurrency craze seems to have taken a dive in recent weeks since the Chinese authorities clamped down on speculation in the bitcoin market. The history of financial markets is littered with asset price bubbles, from tulips in the early-1600s to more recent examples, such as internet stocks in the late-1990s and US house prices before 2008. This looks like another. The ascent of the virtual currency bitcoin, which recently neared $5,000 and has risen about 350% this year, has now turned round, dropping back to $3000, if still hugely above its initial start. But it may be heading for a reckoning now.
Bitcoin aims at reducing transaction costs in internet payments and completely eliminating the need for financial intermediaries ie banks. But so far its main use has been for speculation. So is bitcoin, the digital currency that operates on the internet, just a speculative scam, another Ponzi-scheme, or is there more to the rise of all these cryptocurrencies, as they are called?
Money in modern capitalism is no longer just a commodity like gold but instead is a ‘fiat currency’, either in coin or notes, or now mostly in credits in banks. Such fiat currencies are accepted because they are printed and backed by governments and central banks and subject to regulation and ‘fiat’. The vast majority of fiat money is no longer in coin or notes but in deposits or claims on banks. In the UK, notes and coin are just 2.1% of the £2.2 trillion total money supply.
The driver of bitcoin and other rival crypto currencies has been the internet and growth of internet-based trading and transactions. The internet has generated a requirement for low-cost, anonymous and rapidly verifiable transactions to be used for online barter and fast settling money has emerged as a consequence.
Cryptocurrencies aim to eliminate the need for financial intermediaries by offering direct peer-to-peer (P2P) online payments. The main technological innovation behind cryptocurrencies has been the blockchain, a ‘ledger’ containing all transactions for every single unit of currency. It differs from existing (physical or digital) ledgers in that it is decentralized, i.e., there is no central authority verifying the validity of transactions. Instead, it employs verification based on cryptographic proof, where various members of the network verify “blocks” of transactions approximately every 10 minutes. The incentive for this is compensation in the form of newly “minted” cryptocurrency for the first member to provide the verification.
By far the most widely known cryptocurrency is bitcoin, conceived by an anonymous and mysterious programmer Satoshi Nakamoto just nine years ago. Bitcoin is not localized to a particular region or country, nor is it intended for use in a particular virtual economy. Because of its decentralized nature, its circulation is largely beyond the reach of direct regulation or monetary policy and oversight that has traditionally been enforced in some manner with localized private monies and e-money.
The blockchain’s main innovation is a public transaction record of integrity without central authority. Blockchain technology offers everyone the opportunity to participate in secure contracts over time, but without being able to avoid a record of what was agreed at that time. So a blockchain is a transaction database based on a mutual distributed cryptographic ledger shared among all in a system. Fraud is prevented through block validation. The blockchain does not require a central authority or trusted third party to coordinate interactions or validate transactions. A full copy of the blockchain contains every transaction ever executed, making information on the value belonging to every active address (account) accessible at any point in history.
Now for technology enthusiasts and also for those who want to build a world out of the control of state machines and regulatory authorities, this all sounds exciting. Maybe communities and people can make transactions without the diktats of corrupt governments and control their incomes and wealth away from the authorities – it might even be the embryo of a post-capitalist world without states.
But is this new technology of blockchains and cryptocurrencies really going to offer such a utopian new world? Like any technology it depends on whether it reduces labour time and raises the productivity of things and services (use values) or, under capitalism, whether it will be another weapon for increasing value and surplus-value. Can technology in of itself, even a technology that apparently is outside the control of any company or government, really break people free from the law of value?
I think not. For a start, bitcoin is limited to people with internet connections. That means billions are excluded from the process, even though mobile banking has grown in the villages and towns of ‘emerging economies’. So far it is almost impossible to buy anything much with bitcoin. Globally, bitcoin transactions are at about three per second compared to Visa credit at 9000 a second. And setting up a ‘wallet’ to conduct transactions in bitcoin on the internet is still a difficult procedure.
More decisively, the question is whether bitcoin actually meets the criteria for money in modern economies. Money serves three functions under capitalism, where things and services are produced as commodities to sell on a market. Money has to be accepted as a medium of exchange. It must be a unit of account with a fair degree of stability so that we can compare the costs of goods and services over time and between merchants. And it should also be a store of value that stays reasonably stable over time. If hyperinflation or spiralling deflation sets in, then a national currency soon loses its role as ‘trust’ in the currency disappears. There are many examples in history of a national currency being replaced by another or by gold (even cigarettes) when ‘trust’ in its stability is lost.
The issue of trust is brought to a head with bitcoin as it relies on “miners”, or members that contribute computational power to solve a complex cryptographic problem and verify the transactions that have occurred over a short period of time (10 minutes). These transactions are then published as a block, and the miner who had first published the proof receives a reward (currently 25 bitcoins). The maximum block size is 1MB, which corresponds to approximately seven transactions per second. In order to ensure that blocks are published approximately every 10 minutes, the network automatically adjusts the difficulty of the cryptographic problem to be solved.
Bitcoin mining requires specialized equipment, as well as substantial electricity costs and miners thus have to balance their technology and energy investment. That means increasingly bitcoin could only work as alternative replacement global currency if miners became large operations. And that means large companies down the road, ones in the hands of capitalist entities, who may well eventually be able to control the bitcoin market. Also if bitcoin were to become as viable tender to pay tax to government, it would then require some form of price relationship with the existing fiat money supply. So governments will still be there.
Indeed, the most startling obstacle to bitcoin or any other cryptocurrency taking over is the energy consumption involved. Bitcoin mining is already consuming energy for computer power more than the annual consumption of Ireland. Temperatures near computer miner centres have rocketed. Maybe this heat could be ecologically used but the non-profitability of such energy recycling may well ‘block’ such blockchain expansion.
Capitalism is not ignoring blockchain technology. Indeed, like every other innovation, it seeks to bring it under its control. Mutual distributed ledgers (MDLs) in blockchain technology provide an electronic public transaction record of integrity without central ownership. The ability to have a globally available, verifiable and untamperable source of data provides anyone wishing to provide trusted third-party services, i.e., most financial services firms, the ability to do so cheaply and robustly. Indeed, that is the road that large banks and other financial institutions are going for. They are much more interested in developing blockchain technology to save costs and control internet transactions.
As one critic of blockchain points out: “First, we’re not convinced blockchain can ever be successfully delinked from a coupon or token pay-off component without compromising the security of the system. Second, we’re not convinced the economics of blockchain work out for anything but a few high-intensity use cases. Third, blockchain is always going to be more expensive than a central clearer because a multiple of agents have to do the processing job rather than just one, which makes it a premium clearing service — especially if delinked from an equity coupon — not a cheaper one.” Kaminska, I., 2015, “On the potential of closed system blockchains,” FT Alphaville.
All this suggests that blockchain technology will be incorporated into the drive for value not need if it becomes widely applied. Cryptocurrencies will become part of cryptofinance, not the medium of a new world of free and autonomous transactions. More probably, bitcoin and other cryptocurrencies will remain on the micro-periphery of the spectrum of digital moneys, just as Esperanto has done as a universal global language against the might of imperialist English, Spanish and Chinese.
But the crypto craze may well continue for a while longer, along with the spiraling international stock and bond markets globally, as capital searches for higher returns from financial speculation.
Mark
Agree with your view 100%. I don’t see any significant benefits of Bitcoin over silver/gold and see significant risks and limitations:
– It requires an internet connection and a trustworthy exchange
– Extremely unstable, hence quite useless for normal business operations which require predictable cash flow
– Exchanges are relatively easy targets for governments
– The internet/VPNs can be switched off by governments in extreme situations
– There may be vulnerabilities in the protocol which no one but experts can understand
– Quantum computing could crack the security as well
I’m sticking with silver and gold, thank you very much. Ponzi investors, knock yourselves out.
I think that Ethereum’s soon to be banning of mining is a smart move. Mining is a scam and limits further tech development because the vested interests (i.e. Chinese miners making $5k a day) have zero to gain and much to lose if changes are implemented.
That said I don’t invest in any blockchain “yet”. I will but here are my criteria. First it must be geographically limited and second it must outlaw inflation (the cruellest and most hidden tax).
1) Look at Spain for an example. You have Basque and Catalan vying for independence but will still be under the Euro. They are trading one colonisation (in their eyes) Madrid for another that they don’t see or ignore (Berlin & Brussels).
To be independent try offering a “Basque-Coin” or “Catalan-Coin”. All transactions with the local government and any participating businesses would be done in it. To transfer the money to Euros (or any other currency) you have to go through official channels. This prevents Soros style speculative attacks on your blockchain currency. If you don’t control your currency you are NOT independent. Period. Full stop!
2) Milton Friedman (I know it is heresy to socialists to quote him but he was right more than wrong) said to eliminate inflation you limit the growth of the money supply to the growth rate in the economy (about 3% a year). Some years you’d have a little inflation and others a little deflation but by and large it smooths out. Of course no government ever wants to implement that because then they can’t inflate their way out of debt which they do ALL the time. In blockchain that would be easy to achieve.
When those 2 conditions are met then it will be truly revolutionary and I will buy in. Until then no thanks.
Generally good article but it really takes years to study crypto currencies to get an idea of the implications.
Some comments:
„I got turned on to crypto while searching about China’s new gold-yuan-oil exchange, which is a crippling blow to the domination of the dollar and the “exorbitant privilege” of the US to finance their deficits“
Several nations have recently abandoned the petro-dollar and the speed of the $ collapse is increasing. This creates a huge vacuum in the monetary realm, sucking the crypto-sphere into the various economies.
Plus here is a real thirst for yields in the old economy, that has only grown over the past years. Markets are rigged and manipulated. The crypto space is not to this degree and it is delivering opportunities that are desperately needed to start a new growth economy.
“For many years the nascent South Korea criminalized sending capital out of the country…and this forced domestic investment is how South Korea got to be a top 10 global economy. Whereas African nations, for example, whose leaders hold their money in Switzerland…they have achieved undemocratic but superbly capitalist results.”
Well, wrong. I lived in Asia and in Africa and the difference in development is directly proportional to the difference in skills and willingness to work. It’s a cultural issue almost 100%. Blaming Switz as a tax haven again is really not good journalism – again omitting the predominant US and UK controlled tax havens. For years it has been impossible to launder money through Switz now.
The Swiss spirit though is still alive which is why the canton of Zug has already become a major crypto hub (see ‚crypto Valley‘) as is Singapoore.
Then…
“There is only one genuine problem: how to regulate the interface between the bitcoin and fiat/paper worlds.
It is not difficult: bitcoins simply must be declared and taxed. Voila”
So, because taxation just must happen … because how would governments (especially in the west) otherwise be able to fund their endless wars and other criminal projects? Or were you thinking along the line of well managed infrastructure development?
Yes, you should declare Cryptos in tax reports. However, big difference is that government can tax you on them but they can’t directly withdraw this tax as they can now from bank accounts. They need your consent to part with your coins. Small detail but important shift of power.
“95% of all these new ICOs can already be done with Ethereum.”
You really need to get into some of these ICOs and start reading their white papers and looking at who are the people behind them. Though many ICOs will fail for sure, as will many crypto currencies, a lot make much sense and will turn into a real multi billion economy, as did Google, Apple, Microsoft, Facebook, etc. the dot-com boom.
Difference is that during the dot-com boom the profiteers were mostly angel investors and VEs; today, every average nerd can partake in this new economic boom.
„The day when bitcoins replace all currently-accepted forms of stored wealth – paper money, gold, silver, Monet paintings – is roughly the year 2525“
Well, the day when emails replaced all then accepted forms of written communication … happened faster than your grandmother would have dreamt. Better get accustomed to think along the lines of years and decades, especially with a fiat currency system globally in severe crisis.
China – and no other country yet – has „banned“ Bitcoin nor even ICOs. Get this out of your head! Crypto currencies are most likely an invention or co-invention of the Powers that Be and you can see that through how they want to steer them and paint them as ‚opposition‘ to their old financial system, while cryptos are built up behind the scenes as good ol’ controlled opposition.
There are many examples for this happening like Russian central bank warning about Bitcoin and a little later the Moscow and St. Petersburg Stock Exchange announcing that they will list Bitcoin; Jamie Dimon condemning Bitcoin and a few days later the European branch of JP Morgan buying massive amounts of Bitcoin.
What China and others are doing is controlling the speed of growth and adaption to keep the prices from exploding too fast, allowing the new system to develop in a test bed for which the old powers are not responsible – which however they will infiltrate and attempt to take over when the time comes.
Assuming the above scenario is somehow correct, this doesn’t leave the average Joe without options and opportunities for making a fortune and also helping the various liberty movements.
It is simply an evolutionary step as was/is the internet. Created as a control web, it also became a powerful tool of liberation for the masses.
China and other nations will use Bitcoin for international settlement (yes, read that correctly). And they need to buy those Bitcoin from individual hodlers to be able to do this. So, while at one point nations and corporations will control Bitcoin, they still need to pay the community for developing this system and for growing the new financial infrastructure to usable levels. Because of the nature of cryptos, TPTB can not steal this wealth and labor. They can trick you into selling your assets cheaply, but in most cases confiscating is much less feasible as it is now with cash, bank accounts, real estate, etc.
All has to change to stay the same. Maybe. But perhaps the old struggle between the 1% and ‚the people‘ just shifts to a new level with all the opportunities and traps.
I posted this in another thread, but it’s germane to this one too.
Central Banks fire warning shot over cryptos:
http://www.zerohedge.com/news/2017-09-18/pboc-researcher-china-should-start-its-own-sovereign-digital-currency-soon-possible
Bonus: Cryptocurrency scene from the series Mr. Robot
https://youtu.be/ONHLZ1dnKLI
Invisible money that you have no control over.
They take paper money and give you something they cannot even define in plain language.
Doesn’t make sense to me.
Re: ” I got turned on to crypto while searching about China’s new gold-yuan-oil exchange, which is a crippling blow to the domination of the dollar and the “exorbitant privilege” of the US to finance their deficits.”
The Gold-Backed-Oil-Yuan Futures Contract Myth
10-15-17
Originally published on Bullionstar.com
On September 1, 2017, the Nikkei Asian Review published an article titled, “China sees new world order with oil benchmark backed by gold”, written by Damon Evans. Just below the headline in the introduction it states, “China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry”. Not long after the Nikkei piece was released “the story” was widely copied in sensational analyses throughout the gold space. However, “the story”, as presented by Nikkei, doesn’t make sense at all. Allow me to share my 2 cents in addition to what I shared previously on the Daily Coin.
All the rumours and analyses on gold, oil and yuan that are making rounds now in the blogosphere are based on the Nikkei article. But the Nikkei article itself contains zero official sources. Basically, the whole story has been invented by Damon Evans. So, let’s start addressing the claims made in the Nikkei piece. [emphasis added]
https://seekingalpha.com/article/4113561-gold-backed-oil-yuan-futures-contract-myth?app=1&uprof=45&isDirectRoadblock=false