January 2015 Journal
WORDS is a monthly journal of Bitcoin commentary. This issue collects the January 2015 writing in the WORDS archive. For the uninitiated, getting up to speed on Bitcoin can seem daunting. Content is scattered across the internet, in some cases behind paywalls, and content has been lost forever. Thatâs why we made this journal, to preserve and further the understanding of Bitcoin.
The Revolution of Bitcoin Banking
By BTCtheory
Posted January 5, 2015
One of the dirty secrets of the bitcoin world is that we are still in the 11th century of online exchange. Today bitcoiners are dealing with the classic issue that plagued humanity since at least the 7th century BC when the first piece of coinage were found. Coins, as all physical objects, are subject to physical theft, confiscation, swindling, fraud, and debauchment; but most of all, outright violence to seize it. These issues continue to this day; however there are apparatuses that as groups of people we can use to defend against such issues: Banks.
The Evolution of Banking
The remains of the London Mithraeum
Banks from their earliest origins have functioned quite autonomously of the state. Developing out of the rise of italian merchant class in Italy during the 11th century, banking evolved far beyond the meager protection of precious metals into financialization. I highly recommend reading Nick Szaboâs two essays, âOrigins of the Joint-Stock Companyâ and âThe Birth of Insuranceâ for an in-depth look how this process occurred.
At this time, lending and banking was not a concern of the SovereignâHe had the power of taxation, and warâthis was how he would raise funds if need be. However, war economies donât work if you are on the losing side, and this is where the english crown found itself at the conclusion of the Nine Yearâs War. England had been crippeled by france at the Battle of Beachy Head where the Royal Navy was decimated. William the III could not raise the funds at the time, and so he developed something very, very sneaky: The Bank of England. Of intersting note, this bank was built physically on top of a Roman temple of Mithrasâhow fitting.
As a private corporation, the BOE was given the sole power to issue bank notes in england on behalf of the crown. This allowed for lenders to give cash bullion to the bank, who could then give a loan based upon a promise of repayment from the Crown in the future. The Crown essentially invented war bonds to raise funds for the transformation of england into the naval superpower it would later become. And this was all thanks to the seditious revolution of banking.
Moving from a coinbased economy as the main mode of exchange, to a reserved-based note system, is what allowed for substantial economic development to occur in England in the generations after. This was specifically due to the technological development of new kinds of financialization which were never used before, which gave england a substantial economic advantage over other states.
Slowly and insidiously this version of banking took over the whole world! Using this system states could create money that did not exist yet; one could spend tomorrowâs promise of repayment today! A revolutionary development, but as we see today, when stretched beyond the limits of the markets, it can, and will create havoc.
Transitioning From a Coinbase Economy
Today in the bitcoin world, were are shuffling about our bitgold forged into coins from the process of bitcoin mining. You can read more about the production process of forging bitcoin in my previous post bitcoin as commodity money for a more detailed explanation of this process. While this does have many, many benefits over contemporary banking, fiat money, and governmental interference in economics; it also has substantial problemsâmainly incompetence. From the Gox fiasco, to the most recent Bitstamp compromise, it is the golden age of digital highway robbery, with the Black Barts of the digital age having the time of their lives.
Attempting to move from a coinbase economy to a fractional reserve one does have some appeal, but we all know how problematic, and antithetical this is to bitcoin. However, with the developments going on over at Blockstream, I think there is real hope to create something that will straddle the lines between a coinbased economy, and a fiat economy: transparent reserve banking.
Sidechains and Collateralization
Source: https://www.cryptocoinsnews.com/sidechains-bitcoin-2-0-revolution-highlights-reddit-ama/
The team over at Blockstream has assembled a âManhattan Projectâ scale of crypto experts to develop sidechains. The sidechain project is one to essentially be able to create a two-way peg between coins deposited, and the creation of new assets. There are two reason I believe this is such a critical development:
1) Using bitcoins deposited via sidechains a new assets can be created which would be more difficult to steal, and would allow some process of restitution in the case of theft, similar to what banks provide today.
2) Bitcoins can be used as collateral for a unique model of debt-financing as follows:
Bob deposits 10 BTC today with Alice Bank via sidechains. This creates a loan that is a fractional value of the bitcoin he deposited.
Today those 10 BTC are worth around $2700, and once deposited with Alice bank, this will make a loan that is leveraged 1:10. Alice Bank will now give Bob a lump sum of $27,000 to be repaid in the future. In order for bob to recover his 10 BTC, he will need to make payment of $275 each month for 100 months. Bob is free to pay back the the loan + the fixed interest early if he chooses to do so. Once the total of $27,500 is fully repaid Bob will âunlockâ his bitcoin from the sidechain. Bob now has his 10 BTC back.
What makes this so revolutionary is that it solves the impossible trinity problem that all central banks face. This allows for a natural equalization of the USD value of bitcoin to occur through debt-financing via bitcoin, fixed in dollars. If the value of bitcoin substantially increases beyond the initial $270 that Bobâs bitcoin is financed at over the next 100 months, he will have all the more motive to repay quicker to get his bitcoin back. If bob defaults, Alice Bank will be able to keep the 10 BTC for itself.
By treating bitcoin as property, a sidechain bank could use a fixed amount of bitcoin as collateral just like a how a home is used as the collateral in banking today.
The Next Generation of Bitcoin
If bitcoin is to advance itself beyond the wild west of digital finance, while remaining true to its core tenets we will need sidechains. This will allow for a revolution that will be similar to the scale and scope of the one William the III ushered in when he created the BOE. This will help bitcoiners resolve some of the security issues that have plagued the coin-based bitcoin economy, but more importantly, it will help financialize the bitcoin economy. By using bitcoin as an assest for debt-financing in fiat values, bitcoin banks will be able to create loans for people, while still remaining free from the hands of the stateâif they choose to do so.
As dangerous as this is to flirt with debt financing, I believe that sidechains offer a revolutionary way to financialize the bitcoin economy in a way that allows for those in the bitcoin economy to have their cake and eat it too.
â
Next: Bitcoin is Political
Bitcoinâs People Problem
By BTCtheory
Posted January 8, 2015
âI insist that it is not the handful of parasites [of capitalism and the state], but the mass itself is responsible for this horrible state of affairs. It clings to its masters, loves the whip, and is the first to cry Crucify! the moment a protesting voice is raised against the sacredness of capitalistic authority or any other decayed institution. Yet how long would authority and private property exist, if not for the willingness of the mass to become soldiers, policemen, jailers, and hangmen. The Socialist demagogues know that as well as I, but they maintain the myth of the virtues of the majority, because their very scheme of life means the perpetuation of power. And how could the latter be acquired without numbers? Yes, power, authority, coercion, and dependence rest on the mass, but never freedom, never the free unfoldment of the individual, never the birth of a free society.â âEmma Goldman
Bitcoin has a very serious problem, and it has nothing to do with the technology of bitcoinâit has to do with the stupidity and ignorance of the common people. Everyday I hear from the common man the same damn foolish straw-man arguments for why bitcoin cannot work. Again, and again I hear:
âBut how does it work?â
âWho controls it?â
âWhat if it fails, or the governments stop it?â
âThereâs nothing backing itâitâs not even real money!â
And my personal favorite, âBitcoin is deadâ
Stupidity is a poor excuse for failing to understand how technology and money works, but alas, we are in a world ran by a union of morons, commanded by sociopathic capitalists and politicians. Those who believe in the demise of digital currencies are the same sniveling cowards who cannot see past their own avarice and callowness to ever accomplish something greatâthey simply want to punch the clown each day, satisfied at the safety of being commanded by another. They are cowards happy to obey governments and laws that can only be defined as illegal and tyrannical.
These are the fools who would pled that the bitcoinâs cause can never succeed. They do not understanding the purpose of bitcoin is the struggle against the system as it is. The fools bitch of being ripped off by banks, and then offer hollow stares when told of what bitcoin can do. They demand to be told how bitcoin works, without a damn clue how fiat works. The only problem that bitcoin has is that stupid people do not want to be free and independentâthey demand to be ruled and governed, and to drag us all down with their sad need to be controlled.
These clowns tell me of how pleasurable life is on their knees, and how they are allowed so many of the scraps from the table of Empire! That a life of looking towards the ground is not only a great pleasure, but one of deep honor! These people love their duty to their God of the state, and their masters of capitalism. They will offer any excuse to justify the needs of their master, any reason to qualify the barbarism they execute daily. There is nothing that the state can do that the slaves cannot create a justification for. If these are the very idiots that we must rely upon to help us create our change, I must animate the seriousness of the dilemma in which we have been caught. We shall never succeed if we believe these people will welcome the liberation from Platoâs Cave.
A Confederacy of Dunces
There is a whole union of morons parading about the world as the false champions of justice, dragging innocent dead bodies behind them. How they scream their idiocy from the tops of their lungs:
âWar is Peace!
Freedom is Slavery!
Ignorance is Strength!â
See their foolishness for exactly what it is, and let the crimes and injustices which they have taken part in speak directly to what they are. Understand with every fiber of your being that the enemy is not some nameless, faceless army of destruction; but the people in your community that tell you, âThis is just the way things must be.â
These are the people that are gleefully celebrate the manufactured democracy of two-party totalitarianism. They are slaves to all of the trinkets they have collected through debt, they militantly pay taxes which are used to create illegal wars, and they demand that the law be respected at all costâbeyond that of even the law itself. They thinking nothing of the meaning of the law; only to obey.
If we are to build a new world, one that is free from the constant transgressions of corrupt states and their allies, we must insist on labeling the slaves for what they are: stupid, weak-willed cowards who would rather have temporary safety, than true liberty.
Forget them and press forward!
Let them stay at their bullshit jobs, where they can ever so happily be paid pennies for their own voluntary enslavement. Let the fools believe their masters of capitalism and the state would ever-so-kindly give them justice; and let them cry tears of shame when they realize the shall never receive it. We have no need for those kind of people to help us build a new and better world.
To Fight the Fascists
Our republic die a sad and quiet death long ago; swept under the rug and ignored by the media and public like all of crimes of the state. We are little more than the aftermath of total liquidation of democracy; the world manifested after the crushing of constitutional rule by weighty corporate hands. From the coast of the Mediterranean, the to the tip of the Arctic circle, and back to the peaks of Patagonia; every nation across the globe has been crippled under the weight of international fascismâthe true face of transglobal capitalism. This happened before our generation, are we are the ones that have been left to clean up the travesty of the 20th century, and the bold-faced lies the inept generation before us insist upon being the truth.
Resistance would be nearly-impossible if it were not for the internet, crypto, and bitcoin. Despite the international terrorism that has presented itself under the banner of âfreedom and democracy for allâ we know the truth for what it is. We need little more than to watch the videos of the aftermath of their drone bombings, extrajudicial killings by police, and politicians who voice their contempt for the very laws that create the throne they sit upon. Their world is slowly and surely slipping away from their grasp of power with each new piece of technology we have. They no longer control our media, communications, or economyâwe will move away from them as we build our better world here, preparing to chop off their fat-fingered hands for when they interlope into the land of digital sovereign.
The battle of bitcoin is not for the hearts and minds of the people of the world today, but of the generations of tomorrow. Everyday more of the older generation who are suspicious of the internet are dying off and dwindling in numbers, while droves of brilliant young people from all around the globe find refuge in the internet, away from the tyranny of life as slaves under state capitalism. Great ideas take time to build, as if great rumblings of thunder before the lightning strike of revolution.
The Truth About Bitcoin
The simple matter of the facts is that bitcoin is a both a better payment system, a superior form of money, and the most powerful mode of economic resistance that world has ever seen. Lies, fear-mongering, and doubt all sort themselves out with enough timeâand time is on our side. Bitcoin is barely 6 years old, and really only 4 years of that has it had any commercial application. Over the next 4 years the myth of fiat money will show itself for exactly what it is: a myth.
People are pissed off about the general illegalism, corruption, and graft that is the norm for banking and government cultures alike, and frankly there is little that can be done about it. Institutions of justice time and time again have proven themselves to be corrupt to the core, with no interest in defending the rights of the common people, or respect the laws as they stand. Due to the cozy relationships banksters have developed with governments from greasing the palms of politicians, they are given special treatment so they may operate outside of the law with impunity. If we are ever to reestablish the rule of constitutional law over our governments we must demand that people understand that our republic was lost to the very people who take oaths to protect it.
The considerable amount of lies, stupidity, and idiocy spouted by the trolls and detractors will come to bear the truth of their nature over time. Their lies about bitcoin, governments, and the âdangersâ of independent money are out in public for everyone to see, and to act as a testament against them in the coming years. Their words will be as bankrupt and hollow as their money; and people will seek for themselves the truth of what bitcoin and digital currencies can do. If people want to discover how to liberate themselves from an economy ran by gangsters in banksuits, and fascist masquerading as politicians, and it is simply a matter of time before they discover that for themselves. As for everyone else; they can keep their chains and Iâll take my liberty.
â
Next: Class Consciousness of The Digital Age
The Wolves in Sheepâs Clothing Canât Destroy or Disrupt Bitcoinâs Spread
By Beautyon
Posted January 9, 2015
When new game changing technology comes to market and people and institutions are hostile to it, you donât cave in to their fear.
You donât allow those hostile people to write laws to outlaw something or even regulate it, âbecauseâ.
If the people building the original browser thought this way, or the people writing Apache, all websites would be licensed today.
The people and institutions who are frightened by Bitcoin are not just regulators and government. Its the Crony Capitalists who smell death.
The Crony Capitalists do not want Bitcoin to exist. They will do anything to kill it, just like the MPAA RIAA wants to kill BitTorrent.
Just like the RIAA and the MPAA, the Crony Capitalists will fail to stop Bitcoin. They do not understand this, because they canât understand.
They fail to grasp what data is, and what it has already done to the way things are done on the entire earth. They are terrified.
They are terrified of a world where the illusion of control is removed. They are terrified of being removed from the centre.
No matter what they do, no matter what they say, no matter what they want, they will never control Bitcoin. Ever. In a million years.
Once the killer app emerges, and the loop is closed, there is nothing anyone can do to stop Bitcoin. It will then be musical chairs.
Furthermore, America is not the centre of the universe. No group from one country has the right to dominate the entire Bitcoin network.
They donât get to set the rules, define the specification, mandate changes, or compliance, or what the law should be globally.
The perception, definition, expectations and specification of Bitcoin is not the preserve of a single company or man.
The corruption of the Bitcoin network will not be allowed to stand. To those who think otherwise, your goose is cooked, stick a fork in it.
The gentle, reasonable sounding, dulcit tones of, âDonât worry, this wont hurt at allâ are instantly recognizable by anyone who is awake.
No one with two brain cells buys the âlight touch regulationâ lie. We know its a Trojan Horse, the thin end of the wedge and stepping stone.
If you want to have a regulated âCrypto Currencyâ of your own, download the Bitcoin source and launch it. Use your reputation to boost it.
You cannot take what does not belong to you, and force the entire globe to kow tow to your paranoia, lunacy, Crony Capitalism and evil.
These words are not unreasonable. What is unreasonable is thinking that you can control the future of billions of people, âbecauseâ.
Thankfully, the people who make the world what it is, the software developers, will not let this affront to decency pass.
Whether or not they are for Liberty, the distributed model is the most powerful and secure. This locks out the Statists by default.
The distributed exchanges, unregulated Bitcoin Wallets (yes, this is what they are trying to create; a class of software that is illegal)âŠ
and other new tools will be beyond the reach of any group of Statists, Crony Capitalist running dogs, bed wetters and anti human destroyers.
It is completely outrageous and utterly irrational that people think they have the right to control software developers. They donât.
I look forward to watching the negation of the influence of these puffed up people as Bitcoin spreads and resists their contamination.
Remember; all it takes is one developer to say ânoâ, for all their plans to be completely destroyed. RIAA/MPAA are the real world examples.
Bram Cohen, a single developer, has forever destroyed the business model of the entertainment industry as far as packaged discs go.
Bitcoin is no different to BitTorrent. It does not need explaining or ârepresentationâ for it to change everything. It just is. Thatâs it.
These wrong headed, behind the curve men will not even slow the adoption of Bitcoin. Even with the software we have today its too late.
There are 1,175,450,000 Android phones in the wild. 350,000 activated every day. When they all come with Blockchain pre-installed: GAME OVER
No single group of men can, or has the right to set the agenda for 1,175,450,000 Android Bitcoin users http://www.statisticbrain.com/android-phone-statistics/ âŠ
Innovation does not mean running to the State to get permission to invent new things or start new ventures.
Facebook, Twitter, Pinterest; none of these companies went to the State to âexplainâ what they are doing, they just DID IT.
Bitcoin is no different to Facebook or Twitter or Pinterest or Hotmail. You may not understand this re Bitcoin, and now, it doesnât matter.
You cant stop software. You cant stop free speech. You cant stop people developing and sharing. Your world of fear and cowardice is FINISHED
Your ideas of what is reasonable are not at all reasonable; they are absurd, violent, harmful and irrational. This is the plain truth.
Some might say that it is us that is not reasonable. Maybe so, but it is not us that is applying to use violence to force our ideas on men.
This is the fundamental difference between Statists and free men; free men do not want to force others to obey them. They are non violent.
The regulationistsas are the violent men, who want to control others, âbecauseâ. It is absolutely unethical, and this time, will 100% FAIL.
The regulationistas will falsely claim that widespread adoption will not happen without their corrupting touch. This is a lie.
Every other large internet service, Facebook, Twitter, email, spread without begging to the State in advance to âregulateâ it.
Be ready for the lies, mealy mouth doubletalk, fallacious arguments, nonsense and pure BS that they will use to sell their false world view.
Itâll come thick and fast. Theyâll use PR to cause hundreds of articles to be written to disseminate their viewpoint. They will still fail.
All the anti âpiracyâ campaigns, trailers, articles and laws in the world have not and cannot stop piracy. MPAA/RIAA failed miserably.
No amount of money on propaganda can stop Bitcoinâs spread. And the incentive to spread it is exponentially more powerful than moviez.
The world has changed. Bitcoinâs existence is proof of this if you even needed it after BitTiorrent. Your lies wonât work any more, Statists.
Buy the author a Westmalle Tripel and pork knuckle in appreciation of this epic, prescient tweet storm âŽ
How Bitcoin Mining Makes the World a Better Place
By Elaine Ou
Posted January 10, 2015
Where bitcoins are made
To mine a single bitcoin generates the same carbon footprint as burning 15.9 gallons of gasoline, and Bitcoin mining consumes $15 million worth of electricity every day. People have criticized Bitcoin for not being very green. We have massive data centers around the world with massive computational power, and theyâre doing nothing but non-stop hash functions.
On September 11, 2001, two towers full of people and data collapsed to the ground. The New York Stock Exchange, NASDAQ, NY Mercantile Exchange, and US bond markets all stopped trading for four days.
They had to close because the passwords to the nationâs wealth accounts vaporized with the managers who were working in the World Trade Center. Without access to the market-makersâ accounts, the exchanges couldnât open for trading.
The only way to recover a password is through brute force hash functions. This was a lot to ask of 2001 computational technology.
To save time, security experts called up distressed families to ask them for kidsâ names, petsâ names, ex-girlfriends, childhood best friends, anything that could potentially be used as part of a password. It was only with huge amounts of help that passwords were recovered in time to reopen markets the following week.
Today, none of that would be necessary. Thanks to advancements in Bitcoin mining technology, you can rent time on a Bitcoin cloud and hash out 10-character passwords in just a few hours.
We no longer need to worry about whether our families can access our accounts in event of an untimely death. New technology often appears deceptively useless.
[
See Also: The magic of mining âEconomist
Bitcoin as a Store of Value, Unit of Account, and Medium of Exchange
By Daniel Krawisz
Posted January 12, 2015
Some recent mumblings on CoinDesk on the idea of a cryptocurrency whose value is stabilized with a built-in prescription that manages its supply provoked me to write this article on why this is a vain dream. There is a common fallacy which says that price stability is required in order for a currency to function as a form of money. The way people use terms like store of value and unit of account presumes stability. However, I will show that in an unstable world, a stable currency is counterproductive and furthermore that an unstable currency serves the traditional purposes of money, to the extent that they can be meaningfully defined in unstable conditions.
First of all, it is impossible, long-term, to expect an algorithm to maintain the stability of a currency. There will always be money to be made by predicting the algorithmâs future effect on supply, and once people have learned to do so then the algorithm necessarily ceases to achieve its desired results. For someone who gains by anticipating such an algorithm is not producing something valuable that other people want to buy, so he must be gaining off of other investors, who are losing. That means other people holding the currency, which means that the currency cannot possibly be stableâeither it is dropping in price, or the supply is rapidly declining. (The outcome would depend on the details of the prescription.) This can continue until the market cap of the currency goes to zero. In order to succeed at manipulating the price to keep it stable, the prescription must never allow traders to adapt to it. It must continually be smarter than everyone else. This is not something anyone can reliably guarantee, especially a Bitcoin startup (if history is any guide). This is the same reason that attempts to create crypto-equities that track the price of gold or dollars and other things through protocols like ProtoShares and Mastercoin wonât work. It is also why the federal reserve is traditionally so secretive, why the chairman tries to talk without saying anything, and why his or her every move is so deeply scrutinized.
Stability is about as real as the fountain of youth, love potions, or perpetual motion machines. It is not to be found anywhere in the universe but for some reason people act as if such a thing could somehow exist. Prices reflect the availabilities of things that we actually can have, so maybe we should all stop searching for chimera of stability and accept that if the world is unstable, than prices ought to be unstable too. Otherwise prices could not serve the function of enabling people to coordinate the allocation of scarce resources.
Right now the world is deciding whether it wants Bitcoin to be its money. Thatâs kind of a big change, and itâs pretty reasonable that Bitcoin would be volatile. Will Bitcoin take over or will it drop to nothing? Fundamentally we donât know and the rapid changes in Bitcoinâs price reflect the confusion and self-doubt in the minds of real people trading it, and this is exactly what they should be doing because without price signals, there could be no Bitcoin adoption. Bitcoinâs exponential growth is a very strong signal, and if Bitcoin were stable, there would be no such signal. There would be no dedicated community of enthusiasts because no one would have any particular reason to want it to be adopted other than the company issuing it. And that company could not offer any value with its stable currency because it cannot unilaterally create liquidity, which is the fundamental thing that makes a currency useful.
What actually makes for a good store of value? The problem with this term is that it is a terrible metaphor. When we store a physical object, typically we shut it away from other people in another object, like a box or something. But what if I had a box that, like Tinkerbellâs magic, only existed if other people believed in it? Thatâs what a store of value is like. Value is not a physically real thing, like the box. It is an expectation about how much people want something. The whole idea of storing value is absurd. Itâs like some kind of dream logic. The only way that a good can âstore valueâ is if everyone wants it so badly that it will be snapped up even at a tiny discount.
This does not mean that anything can be a good store of value. Everyone could treat, say, plastic poker chips as a good store of value and they would only behave like one until people realized that they were easy to manufacture. But suppose there were another metal which had similar properties to gold: it was durable, rare and difficult to extract, and distinctive enough to be difficult to counterfeit. However, the state of our science was such that it was only just being identified by chemists. This new metal would certainly not have a stable value initially upon its discovery because it would take time for the world to learn about it, but it would be perfectly rational for the chemists who did understand it to buy up as much as they could until the rest of the world had got wind of it. Once this metalâs properties were understood by the whole population, then it really could âstore valueâ because everyone else would be using it for the same purpose.
Stability occurs (to the extent that it can happen at all) once everyone has not only learned of the favorable properties of the good but has learned that everyone else also knows of those properties. If I know that Bitcoin is both scarce and unforgeable, I may still be scared to put my money in it because I may fear that other people wonât treat it like a store of value. Furthermore, everyone could think this way at the same time, and the market therefore still behave fearfully. This is why people must be convinced that everyone else believes in Bitcoin too. People today are both coming to terms with Bitcoinâs properties and are confused about how much the rest of the market believes in them. Hence there is fear and volatility. Nonetheless, Bitcoin cannot be counterfeited and its supply is not likely to change, no matter what else happens in the future. This is the best that can be done, as far as engineering goes, to design something to be a store of value. The rest is up to everyone else, not the engineer. Thus, if Bitcoin is going to succeed, then itâs a good store of value.
Now, what about Bitcoin as a unit of account? Unlike store of value, this is actually a really good term, but unfortunately people do not take it literally. When people say unit of account, they seem to want something that will reliably measure wealth somehow, or that things can be priced in without having to be constantly updated. But these are just other ways of chasing the siren song of stability. Here too, if the world is changing then prices should be changing, and one can only imperfectly compare oneâs wealth at different times. Really, one can only compare different alternatives which would have taken place over the same time.
Yet there is a worthwhile definition of âunit of accountâ under these circumstances. It is very simple: a unit of account is something such that to gain it is considered to be profit and to lose it is considered to be loss. Anything can serve this function, but the reason we would especially want to use liquid goods as a unit of account is that when we are liquid we donât have to think too far into the future. Thus, acquiring a liquid good serves as a reasonable end point to any venture. When youâre sitting on a huge pile of cash, you know that youâll be fine for some time no matter what happens. Whereas if we were on a barter system with no highly liquid goods around, then one would have to think much further ahead in order to assess the success of a venture. Thus, thinking of profits and losses in terms gaining or losing a liquid good is essential to being able to divide the entire future into manageable tasksâas long as one is gaining that liquid good, one is doing things correctly. Of course, when things are changing so much that the money good itself might shift, then one has to pick which medium of account to use. So once again, Bitcoin is a great unit of accountâif itâs going to win. In that case everyone should be trying to get as much as possible of it right now, with the expectation of it being very liquid in the future.
Finally, what about Bitcoin as a medium of exchange? I donât think this function of Bitcoin is controversial. Of course Bitcoin is a good medium of exchange. My problem with this function of money is the way people treat it in relation to the others. People sometimes think that medium of exchange should be the primary function of money, as opposed to using it as a store of value. For example, this is an assumption behind Tim Swansonâs concern trolling about Bitcoin hoarding. However, it is impossible for a good to function as a medium of exchange unless there is already demand for it as a store of value. If Iâm going to give someone bitcoins in exchange for something, there has to be someone, somewhere, who wants bitcoins. And he has to want to store them, even if for only a short time because of everyone tried to spend their bitcoins immediately, that would drive the price down to zero. Furthermore, the more that people want to store bitcoins, and the higher goes its value, the more liquid bitcoins consequently become and the more trade they enable.
Thus, Bitcoin is the kind of money that works in an unstable world, which is the only kind that we know of, and it is a good store of value, unit of account, and medium of exchange, to the extent that these terms make sense amid great uncertainty. When people say âBitcoin isnât a good store of value or unit of accountâ what they really mean is âBitcoin isnât being adopted yetâ, which is not a valid complaint. Bitcoin has the right properties for the worldâs money, and the more the world comes to terms with this, the more stable it will become.
Bitcoin doesnât need a hard fork, it needs hard people.
By Pete Dushenski
Posted January 12, 2015
At this point it would seem that pretender-in-chief Gavin Andresen, he of poor and decrepit Bitcoin Foundation fame, has been sunk. While heâs still ringing alarm bells and shouting âthe sky is fallingâ at the top of his well-worn lungs, the water is rushing into the engine bay and he wonât have to suffer this indignity that much longer.
As youâll recall, his block size increase proposal was torpedoed right here, on these very pages, barely three months ago. The holy shyster himself, Gavin, commented directly on the article, three times!, for all the world to see. So to kick things off today, letâs take a walk down memory lane and look at a few of his arguments FUD for adding inflation to Bitcoin and how these were easily and effectively countered.i
First FUD:
Like everything else worth doing, Bitcoin is war. So ya, MP is actively fire-bombing the already-decimated Berlin that is Gavinâs house of cards. Yâknow, just to be sure.
La Serenissima, Bitcoinâs sovereign, has no choice but to unrelentingly dispose of any and all pretenders, frauds, and nihilists. We wouldnât be doing our jobs if we were led by the noses with pseudo-arguments.
What pseudo-arguments am I referring to? MP lists a few in this recent article and this one too:
I. âI agree a big discussion is necessary before changes are made, but we shouldnât act like a hard fork is somehow inherently an issue.â II. âIf the community canât hardfork today we could stop using bitcoin now and look for the better suited alt coin. If bitcoin canât fork-update it has no value.â III. I donât understand why anybody would be against a larger block. IV. Satoshi himself envisioned much larger blocks. V. The fork is needed because otherwise some people wonât be able to use Bitcoin. VI. This is a clerical issue, because block propagation and other considerations incentivize miners to keep blocks small anyway. The 1MB is just a hard limit getting in the way of things, the marketplace of miners should be allowed to fix block size as it seems appropriate. VII. The miners decide. VIII. âBy the time the hard fork rolls around, all miners (and wallets, and other bitcoin software) will have dormant code ready to switch over and start mining the new fork.â IX. âHard fork block size politics: do we want decentralized digital gold, or just another Visa? We want both. And thereâs no reason we canât have both.â
After listing these verbatim from reddit and the qntra comments section, MP entertainingly and logically skewers them all, one by one, with retorts such as:
II. Obviously Bitcoin âhas no valueâ to you. That is probably because you were expecting to defraud the faith others put in Bitcoin by inflating it. While itâs true that welfare states finance themselves that way currently, and in the process create the unwelcome and unwarranted impression in the heads of the nobodies in the street that their voice matters to any degree or is important in any manner, Bitcoin does not work that way. Bitcoin does not work that way intentionally, specifically and by design. So⊠yeah, pack it and get lost.
IV. Bitcoin is not a reflection of your hopes and aspirations, but a check on them. Bitcoin isnât here to make it easier for you to do what you want to do ; Bitcoin is here to make it trivial for others to prevent you from doing what you want to do every time thatâs stupid. The sooner you comprehend this fundamental difference between Bitcoin and âtechnologyâ especially in the ârevolutionary & innovativeâ subsense of that nonsense, the better, for you.
VII. Thereâs absolutely no difference between Keiserâs scamcoin and Gavinâs scam coin as far as the network is concerned : while oneâs a scammer that I humiliatingly defeated in the past whereas the other a scammer that I humiliatingly defeat in the future, this makes no difference for Bitcoin. As far as anyone will be able to perceive, miners simply left. [âŠ] Sll the holdings on the Bitcoin chain are accepted as valid on both Bitcoin and Gavincoin, but holdings on Gavincoin are rejected by Bitcoin. Consequently, everyone involved with the fork is writing options to everyone in Bitcoin, free of charge. That they have no ready way to finance these should be obvious, and consequently the grim prospects of the Gavin side of the fork should be just as obvious. At least, to people who understand economy to any degree.
VIII. The various gunk added to Bitcoin (past 0.6 or so) is currently only supported by the scam foundation Vessenes created back when nobody was looking, and everyoneâs been abandoning ever since.The actual Bitcoin Foundation is not supporting any of that.
IX. Yeah, yeah, youâre thinking âbut Bitcoin is decentralizedâ. Sure, itâs a decentralized implementation. But it is an implementation of a centralized concept. Bitcoin is universal money, and thatâs quite by definition central. Even if implemented in a decentralized manner, as all usable money always has to be implemented, it nevertheless is a centralized thing, by the very nature of what money has to be in order to be money. Now why marry to this an obligation thatâs burdensome on everyone and not really useful to anyone ?
Pretty good eh?
So yes, Bitcoin is war, and yes, war is hard and requires hard people in kind.iv It should be pretty clear based on the FUD and pseudo-argumentation that Gavin and his hoard are impossibly weak, while La Serenissima remains a force to be reckoned with.
Lest you think you now have a choice between the two sides and Iâm going to intreat you to âchoose wisely,â think again. Your strength is what dictates which side you end up on. Nothing more.
After all, what is the Internet if not Nature herself?
- Youâll note his derisive tone towards my exposĂ©. âYou called the emperor ânaked!â I donât like you anymore! Youâre not my favouriteââ©
- s/is/it
- This shouldnât be surprising in the slightest. Itâs Reddit!â©
- Hard people are those that are honourable enough to call a fraud a fraud. Like Taleb says, if you see a fraud and donât call him out, youâre also a fraud. This, in addition to persistence is what makes people âhard.ââ©
Antifragile Bitcoin
By BTCtheory
Posted January 16, 2015
Thieves love bitcoin. Why wouldnât they? Pseudo-anonymous digital cash that can easily be laundered, and taken while being personally physically secure from any sort of immedate counter-aggression. What more could a thief ask for? Not to mention that you can make off with much more than in any typical bank robbery, like the most recent bitstamp hack, where the bandits made off with around 19,000 BTC.
At first stealing bitcoin was pretty easyâhere is a list of several early hacks put together on bitcointalk. But you can see that over time it has been getting harder and harder to rob exchanges. Why is the good life of a crypto-thief going extinct?
Iâm sure that bitcoin thieves dress like this.
It is because crypto-thieves are putting themselves out of workâthey are helping solve the security issues of bitcoin! We can see this evolution over the course of the last few years with hacks becoming more sophisticated, detailed, and sneaky as the price of bitcoin grows, and the network expands to include more people. Now altcoins, with less savvy developers, and smaller exchanges which lack the same resources as major bitcoin exchanges are being targeted more frequently. This is occurring because the security infrastructure around smaller exchanges that cater to altcoins are less developed than bitcoin, so altcoins are being targeted more like the NXT hesit from BTER last year.
As the various altcoin ecosystems develops, they will either gain enough traction to exude the same antifragile properties of bitcoin, or drown under the weight of major attacks. Either way, the whole ecosystem evolves so that with weak coins die, and powerful ones survive. The same is true for exchanges as well; with each major attack or exploit that is carried out, a ton of money is stolen, but then the hole is then almost immediately fixed, or the exchange dies. This one-time âsecurity feeâ now raises the bar for all hackers; as the post-mortium analysis of what happened is generally shared with the whole ecosystem of exchanges. The more people try to exploit exchanges or the crypto-currencies themselves, the more flaws are found and fixed, making the system strong and harder to exploit in the future.
The Antifragile Nature of Bitcoin
Bitcoin is antifragile, meaning that the more you try to break it, the stronger it becomes. That is why the exchanges with horrible practices like Mt. Gox have died, or at least will be reanimated under much better security. This is not a fluke, but is how distributed networks function; as they are antifragile.
In fact, the only reason that bitcoin has even evolved to where it is today is because of its antifragle properties. No matter what has happenedâthe demise of the Silk Road, Mt. Gox, and almost 1/2 of major exchanges have failedâbitcoin is still here. Furthermore, bitcoin has not just remained, but security has improved dramatically both on the side of consumers, and exchanges in response to these catastrophes. Even the core protocal is getting more secure as more time and energy is spent developing bitcoin, with features likemultisig not even being introduced until 2011. I am sure after the most recent bitstamp heist there will be a post-mortem amongst the major exchanges to ensure a theift like this does not happen again.
This antifragility goes beyond just learning from mistakes, as the whole bitcoin ecosystem works offensively in response to such events. Major exchanges are not sitting around waiting to respond to a heist, they are innovating and developing to make themselves more secure and more difficult to steal bitcoins with each passing day. Coinbaseâs vault is a great example of this. When people started to complain that Coinbase could go the way of Gox, Coinbase responded with multisig vault, which means they couldnât even steal bitcoins stored there if they wanted to! Iâm not one for keeping coins with any service, but itâs good to know that such features are available for those who may not want to secure their own coins, or spend the extra bits on something like Trezor.
This kind of development in turn makes it easier for the average consumer or business to have confidence in bitcoin. This paired with already low economic barriers to entry to use bitcoin creates a payment system that is both more secure, and cheaper to use that any other payment system that has ever existed. Anyone with a computer can setup an webpage and sell something to people directly for bitcoin with much more ease, and less expense than any other payment system. This lower barrier to entry is also creates a greater degree of resiliency within the network, as it distributes the risk for the ecosystem among many actors, unlike centralized payment entities.
The price of bitcoin, which has taken a major hit in recent days, also works in an antifragile nature. Having made absurd gains over the last two years (for good reason), the market was overheated, and so a large sell-off started. Although this became a vomit-inducing ride for some noobs to the game, this was actually a good thing! Such an adjustment in price not only shook out speculators and capitalist of all kinds, but it allows for the price per bitcoin to become âreasonableâ to people who were looking to invest, but thought bitcoin was overvalued. This drop in price allowed for a whole new wave of folks to invest, which in turn distributed the network even more. As the price rises and falls, we will see this process happen over, and over again.
The Evolution of the Bitcoin Ecosystem
The advent of colored coins, multisig wallets, and properties contracts all seem like they will come to fruition in 2015, and are all going to bring forward a new boom in the bitcoin ecosystem. Again, it will be through a string of thefts, hacks, and exploits which will allow for service providers to improve themselves and allow for the network to get stronger. It is this process of creative destruction that allows for the demise of smaller weaker parts of the network which will allow for more evolved ones to take there place. I am confident that as we move into the coming years that service, security, and creative thefts will only get better, along with the security response to each event as well.
So this one is for the thieves, criminals and neer-do-wellers! Keep doing what you do best, it improves the security of the bitcoin network and ecosystem, and reward those for their unsolicited pen-testing services.
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Next: What is the intrinsic value of Bitcoin?