As it is an engineering blog it is only appropriate to also include in it newest so-call financial engineering products and services especially when they are being peddled to broader audience and not just to specific IT/Fintech Astroturf.
One such product or rather concept is a concept of Bitcoin (moniker: BTC) that is being pushed as a form of digital crypto-money (cryptocurrency) supposedly with a novel/innovative 21st century characteristic namely: no bank or any concentrated dedicated intermediary needed.
Although you can read about Bitcoin in Wikipedia and still I encourage you to do so, you will find there a bunch of obfuscations, simplifications and lots of tautologies, Astroturf hype and particular interests, peddled there and elsewhere like on a the Bitcoin Foundation website [I will include some links later in the post] it is of utmost importance to cut through most of this promotional bullshit only misleading newcomers to the subject as to what primarily Bitcoin is all about and what and whose interest it really serves.
Before we call Bitcoin a form of money or currency, let examine in a simplified way what money really is and what it does?
Bitcoin as Money.
In short, as considered by some general monetary theory [a theory of money] “generic” money supposes to have at least three functions.
[1.1] First, money functions as a symbolic means of a payment of dues, taxes, tolls, interest on loans, etc., and, [1.2] second as a symbol of a permanent, universal exchange commodity, facilitating the large-scale trade and, [1.3] third as an abstract instrument of storing of value, and hence enabler of effective accumulation of wealth and creation of capital.
As you will find out later in this post I argue that these are three quite different, abstract ideas of money historically forced upon society and sanctioned under the government-run or inspired financial system. At this point I must hence recuse myself from endorsing any general monetary theory or monetary system you may overhear in business MSM, which for me is just a bunch of arbitrary goal seeking policy package under guise of some dubious claims of economic relevance. Much more on why it is the case, I have included in a footnote to this post.
But that aside, if Bitcoin was to be a digital substitute or alternative to money it must perform all those three functions above.
To satisfy the first condition [1.1] BTC would have to be “accepted” by market players [most of all, by existing financial/banking system in a form of some currency exchange rates or by complete takeover by BTC and re-denominating all the money derivatives (securities) from fiat money representation (USD, EUR, etc., into BTC)] and governmental structures that regulate economy and society and hence for over last decade we saw massive and relentless promotion of BTC by so-called Bitcoin Industry gurus and in last years even by Wall Street and its funded Fintech Unicorns/Startups making it even more suspicious since BTC supposed to be a antiestablishment money.
To satisfy the second condition [1.2] of becoming a universal exchange commodity BTC must be tangible [as any commodity] in a similar way as physical gold bar is tangible i.e. if you are holding it in your hands nobody else does. The today’s common currencies being fiat currencies like Dollar, Euro, Yen etc., created by arbitrary declaration of issuing agency [often government] and under the faith and credit of this agency or designated one [like FED in the US], are made tangible by issuing [National Bank/Designee] notes that become tangible by assigning to them a unique ID number as well as by tangibility of its paper form loaded with special security features i.e. if you are holding a specific dollar note in your hands nobody else does if it is genuine.
The issue of money tangibility, by design of BTC being purely digital and not having any physical tangibility as paper does, was addressed [for simplicity of description directed solely toward the newcomers, potential users and not experts] by generating unit of money as represented by a [globally unique] tangible ID number/signature, of a digital “coin”, or token uniquely defined within the coinbase assigned to a user account[see “Bitcoin Mining” paragraph below for more].
A block [a transaction block that contains a record of transfer of a bitcoin token or its fractions], a part of block chain, itself is identified by so-called “digital bitmap” of its unique signature [a series or a chain of binary hashes], a signature that cannot be easily [in fact very hard] directly generated, forged or guessed but could efficiently be verified as genuine part of a Bitcoin blockchain [and not forged block, with forged transactions and token transfers] , via examining certain standard structure of its “signature” [of so-called blockchain “Proof of Work” algorithm based on recursive hashing, next block hash contains previous block hash and its own hash, hashed together] a specific collective network implementation of BTC infrastructure.
BTC infrastructure is a voluntary network of BTC “Proof of Work” verification nodes that can be run by anyone [potentially millions of independent people] and hence supposedly keeping system honest, hard to corrupt or subvert not because of some tech-security advancements [although they are implemented] but by the fact of a potential theft ROI ratio calculation i.e. it supposedly is simply not worth to cheat when one can get their Bitcoins (by “mining” them) much cheaper that rigging the whole BTC infrastructure.
To simplify, you “own” a Bitcoin unit a token (or BTC2 or BTC100 etc.,) when you “own” a section(s) blockchain of distributed over the network of Bitcoin nodes, proving that fact of your ownership of a member of a coinbase user account [BTC monetary base], current ownership as of last network timestamp since a record of you “acquiring” it has been stored in the blockchain.
In fact against the ominous claims of “dark web” sort of secrecy, in contrast to existing financial system which is not transparent at all, BTC infrastructure and Bitcoin itself can be compared to an in a sense, an open public accounting ledger where all the BTC transactions can be traced [as exiting and genuine] and owners identified not by their physical names or addresses but by their unique digital signatures.
Of course the specific mapping between physical identity of a person and BTC ledger identity and content of transaction is closely protected, based on very heavy TCP/IP Session-Security technology [HTTPS and others], VPN technology and most of all Private-Public key encryption technology with huge encryption keys length of even 2048 or more bits, in many reincarnations practically uncrackable even by NSA.
To satisfy the third condition [1.3] of BTC becoming abstract instrument of storing of value, BTC original design is doing and can do very little. While it can be accumulated easily since it is theoretically devoid of backing by any third-party agency and unlike fiat money “notes” or “bills” cannot be “exchanged” or replaced if damaged and unlike gold that short of nuclear blast does not disintegrate and only is weakly weathering or decays, BTC can be “lost forever” in many ways leaving us penniless (bitcoinless) and causing overall money supply constrain forcing a deflationary trend.
Loosing it or Stability of the BTC and its Monetary Base.
How? Simple. If you store the BTC wealth in your digital wallet device, if you lose access (password etc.,) to it you lose your “fortune”, if device fails [hardware/software failure] you lose your “fortune”, if BTC nodes network is down [>50% of nodes] you lose your “fortune” at least temporarily and may be permanently if those nodes that maintain the common BTC ledger with your entries are eliminated destroyed by a nuke blast or by sheer will of mass hacking attack and instead are replaced by others unable or unwilling to redo “Proof of Work”;
You also may lose you BTC fortune as for ordinary market reasons, as any other currency may lose their relative value [gold coin is different since it always retains absolute value as an industrial commodity], If transaction rate within the BTC infrastructure drops below certain level due to removal of BTC access to the economic activities via collapse of POS that accept BTC [switching to other competing “cryptocoins” and/or abandoning BTC due to excessive “hacking” or due to some new legal framework] and/or that combined with a capital flight via BTC exchanges (and their subsequent collapse as it already happened) causing all the liquidity to evaporate, you loose your “fortune” since by design there is no FED to inject liquidity into the system which makes the bitcoin exchange rate extremely volatile (90+% exchange rate swings vs. fiat money are likely and will continue for a long time due to minute market cap of so far merely $30-$50 billions worldwide that can be easily manipulated [realize the FX transaction volume is several $ trillions a day]) and hence it makes BTC a poor choice even for short to medium term currency hedging against value destroying central banks’ policies all over the globe. In fact BTC is no a place to hide unless you bet very, very long-term for high reward and even higher risk.
This particular issue of unreliability of storing value in BTC is considered the most critical and threatening future of BTC hence it drew much attention of the Crypto-Digital-Coin community at large. The however the brainy gurus of the BTC community could not come up with anything else to solve the issue but to betray Bitcoin “revolution” and moved into some pseudo-bitcoin solutions that undermined the principle and foundation, innovative character of BTC and its advantages.
A Slew of Bitcoin Fixes or Zoo of Cryptocoins Unleashed.
Here are some of the ideas that amount to introducing stripped BTC sort of coins with many different arbitrary features/limits that suppose fix this or that Bitcoin deficiencies like litecoin and more of cryptocoin zoo; here is the list [already old]:
Many of those new “coins” are designed specifically to have some so-called “advantages” over the BTC likes fast or unlimited mining, fast coin verification and other improvement of scalability and reducing latency of the transitions etc., but in all cases it is underlain by intention to appropriate as much coins of given type as possible and then promote their usage to wider audience and “monetize the “effort” via crypto/fiat exchanges where newcomers may acquire particular coin.
Due to the short format of this writing, I will not address those issues/deficiencies of specific cryptocoins but only mention the general categories of those severe deviations from BTC orthodoxy.
Money supply or BTC Coinbase Mining.
However, first I would like to address the issue how to acquire bitcoins according to the BTC money system design namely in Three ways: One, to buy it at a BTC/fiat currency exchanges and/or two via transaction of selling something for Bitcoins, and Three via Bitcoin mining.
What’s Bitcoin mining?
The word mining here is used as an analogy to gold based money system in which monetary base (the amount of gold minted into coins) increase yearly via physical engineering, mining for gold from which gold coins of certain “value” can be minted.
In a very simple terms BTC mining is a possibility of reward to those who run “Proof Of Work” verification services on BTC infrastructure network, a sort of compensation for their work and costs they endured while being critical but otherwise unpaid participants in BTC network. But here is a catch.
The “mining” for Bitcoin however not an easy task but a is a cut-throat competition business demanding from miners recent superfast/super expensive hardware most on dedicated Graphics Processing cards [CUDA compatible GP cards may cost up to $10,000] with already hardcoded specific functions/operators to speed up the “mining” process which is technically called finding a “nonce’ but practically it is ultra fast guessing of certain ID [a nonce that when hashed with existing block hash produces result at or below arbitrary “difficulty” level that is periodically tightened by BTC rules] that would satisfy certain criteria for creation of new block in a blockchain and rewarded by so-called coinbase transaction, a transaction creating new bitcoins. [ arbitrary number of BTC12.5 per block in current BTC implementation].
At the time of this writing, most of the BTC coinbase [arbitrarily limited to about 21 millions BTC monetary base] has been generated and hence more and more cost of mining will start exceeding the potential reward and hence practical capping of the BTC monetary base, much below its nominal maximum and hence increasing deflationary pressures and driving the value of BTC higher and higher “forever” unless abandoned by users or outlawed by government.
Theory vs. Reality of BTC as Viable Cryptocurrency.
To satisfy the first condition [1.1] of viable cryptocurrency [a symbolic means of a payment of dues, taxes, tolls, interest on loans, etc.,] few cryptocoin interests (starting with BTC) and foundations have been created with main task to become lobbyists for certain legislature allowing/accepting this or that cryptocurrencies as a legal tender within the state doing business with government i.e. pay fees, credits, taxes, government contracting etc.,
In other words cryptocurrency foundations and their lobbyists are trying to embed BTC into state financial structures and by that creating a pent-up demand for it and perhaps prevent future abandonment.
To achieve that, an aim of those lobbyists has become to adjust cryptocurrency node network software applications (verification services and other services and implementations) to follow existing and future laws and government regulations [including criminal, securities, banking laws etc.,] that one way or another injects government agencies and their superior prerogatives into the cryptocurrency’s ecology and hence they advocate in fact betrayal of the fundamental principle of independence of cryptocurrencies such as BTC from government and making them more like so-called old and well-known virtual money (like SDRs) used by central bankers for decades or just digital money used by commercial banks.
To satisfy the second condition [1.2] of viable cryptocurrency all those cryptocurrency foundations and their technical teams trying to increase scalability of the cryptocurrency [also BTC] infrastructure and reduce dramatically transaction latency that in case of BTC infrastructure may be currently minutes to hours, unacceptable for governments, most financial institutions or even retail outfits.
However, what remedy they proposed within IT realm was to manipulate or increase the size of the block in the blockchain, [more transaction units per block (update: it was not implemented as of yet)] by changing original BTC specs that were the foundation of BTC technology and were specifically aimed by its virtual creator(s) [Satoshi Nakamoto et. al] to keep small hence making the BTC infrastructure more democratic and independent by having millions of small nodes [such a regular people laptop based nodes] instead of few huge concentrated nodes able to process very large block sizes without much latency using superfast [laser] network connections and supercomputer technology in the “Proof Of Work” processing deployed on huge IT services clouds.
And hence this solution would call for massive dependency of BTC infrastructure on behemoth IT corporations, [oligopolies such as Google, Amazon etc.,] which would virtually assume practical control over the cryptocurrency against direct wishes of the creators and opposed vehemently by Bitcoin community at large.
The other, rather non-technical remedy for network latency those gurus came up with, was a third-party backing of the BTC transaction to expedite the processing. Such as requiring of bank Credit Card “backing” of any BTC transaction just in case verification of BTC failed and customer left business establishment or a direct fiat currency parallel transaction with a third-party that assumes the risk in case when transaction could not go through for whatever reason network failure or a fraud.
For example a bitcoin holder would sign-up with a BTC exchange so anytime customer thinks he is using Bitcoin, the BTC exchange pays with fiat currency [dollars etc.,] for the bill using current exchange rate. Of course it is not a solution to latency and volume surges but just a cheating and actually decreasing BTC liquidity instead of increasing it. It is nothing but an obvious and blatant bridge of the fundamental principle of Bitcoin money system namely no third-party mediation allowed as a critical innovative feature.
To satisfy the third condition [1.3] of viable cryptocurrency i.e. ability to store value, cryptocurrency gurus did not unfortunately come up with anything revolutionary but again attacked foundation of bitcoin technology.
Already being hit by fraud, hacking that resulted in people losing their bitcoins as well as losing them due to failures of smartphones like combustion fires or crashes of other devices carrying the BTCs, a high cry was heard in the bitcoin community to get those lost BTCs back no matter what.
Some pseudo-bitcoin implementation have been proposed allowing for alternation, reversing or editing of a blockchain recorded transaction ledger to give people’s money back when for example item they ordered did not fit and by that completely destroying innate integrity of the entire BTC cryptocurrency, that handles the situation well in an original form by “buying back” the item with different bitcoins. In case item was not delivered i.e. money stolen the remedy is the same as in any case of theft a legal avenue and/or legal arbitrage covered by the seller.
What we call a convenience of purchase, is a third party, a big bank backers of credit card companies who provide direct opportunity to claim online theft outside the legal system and they finance the refunds only to entice people to enter quite unsecured online shopping much more actually insecure than BTC.
To pretend to mitigate threat of loss of BTC those cryptocurrency geniuses “re-invented” oldest thing in the banking history namely BTC deposit accounts [not to confuse with coinbase accounts] with some backing, and no not FDIC insured as a yet, the cryptocurrency lobbyists seems to be working hard on it.
So it suppose to work like this.. you know, somewhat insured deposit so you can get theoretically a refund on failed transaction and do not lose BTC cash not all of it at least. If it is not a basic banking, I do not know what it is and I am sure Satoshi Nakamoto et. al. consider it a disgrace to the true purpose of original bitcoin idea.
What’s worse is that those BTC “banks” actually are committing all the sins of the established fiat currency banks, namely they are doing fractional banking. They make money of your bitcoins vial short-term (overnight) “virtual” lending them for profit or just covert them to fiat and gambling on Wall Street leaving people, like in any banking system, to lose their shirts in case of a bank run. And while BTC supporters would argue that it is not possible with bitcoins as long as BTC is recognized as a collateral, lending in other cryptocurrencies or fiat money is possible.
And hence having a BTC deposit account like handing over cash to a thief before he asked, for it is nothing but a repudiation of BTC technology and democratic independent ideology of Peoples’ Money behind it.
Unfortunately the format of this writing does not allow to address broader issues that impact the BTC infrastructure such a security considerations like security of the hash algorithms used or pseudorandom number generators which are critical for encryption, bitcoins rely upon, all proven to be infiltrated if not hacked by NSA specifically and IC at large.
The case of FBI demanding Apple Inc., to create back door for iPhones while NSA has already developed and deployed exploit of iOS years before allowing for BTC wallet hacking in variety of ways, speaks volumes.
Also a real threat of taking over of BTC infrastructure by CIA or NSA without anyone noticing it is high and may have already happened. Also apparent TOR hacking by IC does not bode well for the truly independent Bitcoin.
So what to make of Bitcoin?
I hope that what I wrote about Bitcoin is not taken as trying to bury the Bitcoin project by pointing out all the deficiencies of current implementations but rather I hope reader understood my intention to save it from all those opportunists and ”digital charlatans” who want to make it into something Bitcoin is not, namely not a part of current banking system based on debt in a form of fiat money, that benefit only those small special interests who run it.
In fact, whether or not group of creators of bitcoin outright desired it, an independent, viable alternative to current monetary system, BTC infrastructure implementation is supposed to provide support for people’s money, a measurable token of the people’s hard work, an open honest verifiable accounting ledger of their own claims on share of labor and material resources available with community, a small to medium community, a system free of useless and counterproductive money derivatives that funnel the capital resources away from mainstream economy into dead-end financial world of delusion and opulence intimately harmful for the society at large as numerous historical examples indicate. And for that bitcoin is almost perfect.
Unfortunately, the great idea of Bitcoin attracted too many sleazy, dark characters, greedy Wall Street types, SV VC speculators, big bank cronies fueled by FED’s near ZIRP policies aching to make a buck and flee leaving carnage and now they unfortunately, at least capital-wise, dominate Bitcoin space.
There seems to be only a small group of enthusiasts mostly IT guys, amateurs who still believe in a communal nature of this project. Although sadly a dominant role of the Bitcoin Foundation [similar to Ethereum Foundation] and its infighting and conflicts bring gruesome reality to the fore, a reality of elbowing for position within industry and anticipated profit regardless of the original objective of Bitcoin money system as egalitarian project that suppose to be controlled by the community.
The sprawling BTC exchanges in Asia and elsewhere set up only to circumvent the restrictions of financial system and conceal transactions related to shadow or criminal activity of capital transfers or tax evasion does only harm to the entire Bitcoin project and recent attempt to register BTC ETF is one of those harmful speculative initiatives that despite claims of being a vehicle of increasing BTC investment, would do nothing but distort or destroy the Bitcoin idea in addition to those attempts to make Bitcoin what it is not, as I presented above in this short post.
As I see it, bitcoin original project is a valuable one as people’s money or labor unit token open community accounting ledger or just one of many blockchain technology implementations, such a community contracting, community record keeping, publishing, voting/self-governing and other small to medium scale implementations such as blockchain based small to medium scale community media and people’s network [may be a People’s Digital Square or something] and hence most things that go under the name BTC these days I cannot recommend as it is an abomination of the original bitcoin idea as I read it.
Of course if you are interested only in betting and speculation Bitcoins/Altcoins/Litecoins or Ethereum etc., are as good as anything meaning when betting, house always wins so buy the Bitcoin house or loose the shirt.
Bitcoin as People’s Money: Myth vs. Reality.
Below please find my Top Ten Reasons why the currently advertised Bitcoin [BTC] implementation may not be a viable 21st Century Peoples’ Money?
- Unclear origin and identity of creators defies a notion of transparency claimed.
- While mathematically Bitcoin supply is limited already most nominal bitcoins have been mined and reportedly 50% nominal value in hands of two entities only and 70% in hands of 1000 entities only defies a notion of equitable distribution of wealth in bitcoin units, resembles structure of market manipulation (similar for FED fiat market) or Ponzi scheme of early entries scamming later entries.
- Current Bitcoin software implementation/network implementation defies the stated principle of transparency and autonomy of the transactions while in fact all Bitcoin servers as well as Bitcoin exchange servers implementations so far require some kind of third party authentication or authority established, mostly for reason of security, efficiency or expediency of Bitcoin transfer in order to avoid increasing network latency.
- Bitcoin deposit accounts are fee based and hence defy stated notion of nearly cost-free Bitcoin currency system and transfers and practically became purely notional and fractional. While Bitcoin deposit accounts supposedly designed to prevent theft or loss of Bitcoins residing on user devices due to their hacking or physical destruction and unrecoverability, in fact they became a “paper” bitcoins and like notional “paper” gold certificates where there is not enough gold for redemption of entire notional value in physical gold at one time, there is not enough bitcoins (capital) within given institution/Bitcoin Exchange for redemption their of entire notional value of bitcoin deposits and the fractionality of those bitcoin financial services only grows and often has led to collapse of the financial institutions that provided them in the past due to insider fraud, hacking etc.,. as they are based on nothing but a confidence scheme. So in fact you are not holding Bitcoins but a deposit certificate for bitcoins, an old banking arrangement backed by fiat money, not 21st century innovation.
- The corruptibility of the Bitcoin network itself is of big concern. Taking over 50%+ of all active at given time, Bitcoin transactions processing nodes (“Proof of Work” Processing Nodes), and hence enabling those who control 50%+ nodes to legally steal Bitcoins, has already been documented. Although it is at this point still technically costly it may likely provide avenue for disruption or hijacking Bitcoin exchanges and prevent transfers.
- Worrying machinations of Bitcoin foundation and conflict of interests of its members defies stated notion of wider Bitcoin democratic community setting the rules and instead special interest seem to control Bitcoin standard specifications.
- Severe problems with Bitcoin network latency and reaching adequate SLA levels and transaction speed dramatically dependent of the volume, which is slowly increasing while practical usability of the system collapses. A proposed remedy to it such as increasing of the size of the block in the blockchain prefers concentrated processing power and reduction of number of Bitcoin processing nodes, a possibility of differing transaction speeds, higher for capital rich players and slower for grunts and by that defies Bitcoin stated egalitarian principle and dangerously concentrates the power of few over BTC infrastructure.
- A sleuth of new competing digital currencies some openly backed or run by competing global financial institutions and banks with huge capital and political connections to government, all in the background of unsettled legal framework and hence a potential huge tax or even criminal liability. All that defying spirit of Bitcoin as defined by its creator(s).
- Huge volatility of bitcoin markets and repeated lack of adequate liquidity of bitcoin as an asset due to hoarding Bitcoins by investors [a form of Bitcoin Mercantilism] treating it as a hedge for currencies like Dollar, Yen, Yuan or Euro and not interested in building BTC infrastructure and transacting with Bitcoins as a currency, paying bills, invoices etc., but only as temporary speculative store of value waiting for fiat currency collapse. Again all that defies the bitcoin notion of near zero-cost, interest free peoples’ circulating currency alternative holding value against government-run insane fiat money printing, free of financialization schemes such a attempts for Bitcoin BTC ETF.
- Massive, shadowy, agressive Bitcoin Astroturf supported by misinformation, obfuscation and propaganda hype [ a financial apocalypse is coming, buy BTC, loud claims] recently peddled not only by an alternative business media outlets that usually peddle Silver/Gold commodity investments [ Gold is real Money incessant theme] but also from business MSM which more and more give time and credence to the Bitcoin after more and more Bitcoin egalitarian principles, practices and ideas are gutted in latest implementation of BTC infrastructure and/or more Wall Street speculators take BTC portfolio positions. It is always suspicious when a clear target of Bitcoin revolution seems to join in BTC praising choir.
A Footnote: Contemplating if the very idea of Peoples’ Money is even possible.
Ever wonder if money is really a necessary ingredient of the economy? Is money really necessary for economic development and material reproduction process in which so-called mainstream economy is engaged?
Did you ever wonder how the money is connected to economic activities and if widely propagated statements like “money is a blood of the economy and financial system is a nervous system of the economy” makes any sense at all despite as such being taught in Ivy league Business schools?
Have you ever wondered: is money really even needed and if yes, who needs it and why?
Despite massive propaganda of money we are being bombarded with from the time of infancy and although with difficulty usually grasped practical meaning of money (not theoretical one we are talking about here) between age of 8 and 12 and always in context of a “give & take” symbolic token concept of balanced relationship i.e. shedding infantile narcissism, egoism and egotism [at least some shed it, perhaps except some US presidents I know].
Can you imagine that human beings, genetically exactly the same like we are today, out of all twelve thousands years of development of human agrarian and later industrial and technological/informational civilization, most of that time 99% of people did OK without money, which concept they could not even fathom as completely useless and irrelevant to their daily lives.
Only about six thousand years ago a modern concept of dedicated hard money, [gold/silver money] was invented, a concept that was practically unknown before while relative advanced economies developed and successfully operated in and around large, up to half a million people cities.
What even more interesting is that while hard money implementation existed it has not been widely adopted and periodically disappeared from the economic realm completely and up to even early XX century many indigenous or remote tribes and mountain villages did not use money at all and acquired it only as necessary item to interact with so-called civilized world.
The question is why money was introduced in the first place especially that world communities have been doing OK without it or using it in a marginal role. So what function money is really aimed to play within the economy?
And here we are getting to a real purpose of any monetary theory namely to find and justify or even impose relevance of money to economy by some arbitrary monetary authorities trying to devise or even concoct connection between money functions, its characteristics and hard-core economic performance [GDP,GDI, employment, inflation, national income, etc.,] measured by some arbitrary means, not surprisingly, also in terms of money.
In fact many economists in the past questioned this seeming, presented as rock solid, intertwining bond between money an economy and hence they questioned efficacy of any monetary theory, treating so–called monetary policies as purely political showmanship to manipulate the public as well as overall economic activity for the benefit of vested interests represented by monetary authority itself. [In the US Big banks, owners of Federal Reserve System of Regional Banks]
Hence any monetary theory postulates [and propagandizes] those connections of money to economic development and reproduction process, without any empirical proof and is predominantly engaged, using hopelessly inadequate, narrowly designed, unrealistic or blatantly wrong theoretical economic models supposedly proving its own apriori assumed postulates in a circular argument of sophists.
In other words monetary theory is a theory that tries to justify introduction, or imposing money over the socioeconomic realm to fulfill, some unclear or undeclared functions, supposedly vital for modern economy and hence by that any monetary theory turns into a tool of promoters and apologists for established financial system (system of money and its derivatives) as of supposedly critical importance to the mainstream economy that in fact existed, operated and thrived without it for thousands of years.
And here we come to those, mentioned before in the post, three basic functions of money which by themselves explain whom, so much peddled promoted money and financial system, really serves most, because it is not “we the people” and/or an economic system based on consumer-producer markets that dealt successfully without money for millennia.
[1.1], as symbolic means of a payment of dues, taxes, tolls, interest on loans, etc., money serves not to further economy but to support sociopolitical arrangements in the “legal” framework like the very functioning of government, judiciary that set up economic rules, regulates economic activities and controls productive forces and by that allowing for collection of non-economic fee, levies, tolls, rents etc., any government local authority sectioned dues in a concise compact monetary form instead of inconvenient collection in kind (chickens, wheat etc.,).
In other words this particular function of money [1.1] is to benefit authority and enable appropriation of the economic surplus in a monetary form and in fact potentially subduing economic activities. This function of money serves administrative rulers to detriment of producers of mainstream economic outcomes.
Let examine now another fundamental function of money i.e., [1.2] as a symbol of a permanent, universal exchange commodity, facilitating the large-scale trade.
This very function of money by itself creates [de-facto by decree of authority of adopting money], nonexistent before, [money-based] commodity exchange markets, empowering them to dominate and in many cases destroy original consumer-producer markets.
How this is happening? Simple. First, in hands of producers are goods, retaining their ultimate purpose and are valued by consumers during producer-consumer market transaction as it has a use-value embodied in its character[carrot, hammer etc.,].
Those goods in hands of producers [not commodities yet] only become commodities in hands of specialized traders [market makers] who in a market valuation process strip goods from their original characteristics and perceive them as valuable only as much as their trade may potentially bring a profit [exchange value = 0 when profit potential = 0], in this case money profit on commodities that are locally abundant and perhaps scarce in some remote locations to which compact, common money can easily be brought to or acquired there via commodity sale.
In other words this particular function of money creates new social caste [has profound social impact], a caste of traders [exchange market makers and money/financial specialists] concentrated and “licensed by authorities” as members of monopolistic guilds of trade since they are not toiling the fields or produce anything as other guild’s members do for needs local community at large.
And one of the very new and critical effects of these functions of money is creating ability for effective accumulation of wealth in terms of money [later in advanced form called capital] as a compact representation of aggregated profit from multitude of trades.
A direct consequence of this very function of money was creating and necessitating of the first historical financial system since the money created at given locations had to be recognized as such and assigned appropriate predictable value (approximately common value expressed in other basic commodities such as salt etc.,) assigned to it in remote locations often even being outside jurisdiction of local authorities.
And hence this very function of many contributed to a political need for “peaceful” economic relation ties among different authorities as a need for coordinating common legal/financial framework in which the money based exchange trade can proceed safely and profitably for those elites who engage on it.
Again as it is clearly indicated above, these functions of money were not primarily aimed at improving local economy per-se but to enhance wealth of the authorities and their courtiers administrators as well as specifically trade guilds that later transformed into financial/banking guilds when a concept of credit and debt emerged as direct consequence of financialization of economy via introduction of money and later its derivatives like securities.
And at last let’s examine another fundamental function of money [1.3] as an abstract instrument of storing of value, and hence enabler of the accumulation of wealth that leads directly to a necessity of banking services, establishment of deposit accounts, checking, savings accounts, storing income in a form of money that have been coming from government appropriations [taxes, fees, leases etc.,] from the people and overall economic output as well as from local and remote trade profits from commodity exchange markets under given jurisdiction.
But most of all this [1.3] function of money not only allowed but forced rampant social inequality of people’s wealth gave rise to aristocracy, oligarchy or tyranny rule [without money, unheard of before in history] since value stored in money [like gold/silver coins] could be preserved long-term, inherited form generation and hence with introduction a compound interest concept turning stored money value in to a modern capital, generating profit directly from investments.
As it is clear from the above analysis about money, monetary/financial system is in reality not an integral party of the local economy but a parasitic, constraining, even suffocating agent disrupting, shaping social and economic body for benefit of ruling authorities, governments, state bureaucracy and the affiliated castes or classes that enable appropriation of economic outcome of the labor of entire society in few hands under threat of violence, some religious/ideological/patriotic confidence schemes or extortion rackets placed within so-called legal or regulatory framework.
In conclusion, circulating money [hard, fiat, virtual or crypto] does not as much serve mainstream economies [very inefficiently and costly to society if at all] nor provide convenience for the people [who can easily do without it] or any tangible benefit to society at large but is desperately needed and necessary for the ruling elites to maintain and expand their control over the population using their minions and bureaucrats who propagandize, implement and thrust the harsh rule of money as a negotiating agent into often intimate human social relations, even making socially acceptable our, main or supplemental, expression of love, caring, sharing in some monetary terms, completely alien to our human feelings and commitments.
Money is not a creation of human community at large because of supposedly innate need for it nor it is some necessary, modern element assisting in the community development in economic or cultural realm, not at all. Instead it is pure creation of ruling elites, vital for their very existence and their material support as well as an effective tool of control and appropriations (theft) of economic outcomes of the aggregated labor and material resources of the society.
We are living in reality of political, economic, even ideological/religious and propaganda regime deeply shaped by money an hence it is close to impossible to communicate to the people hard, unequivocal fact that money itself is an artifact of a political regime, superfluous, useless and destructive element of our society and it is better eradicated from our minds, hearts and from our social relationships within family and community.
In such a context talking about current Bitcoin implementation (not an idea of blockchain itself) as a new people’s money, run autonomously by Bitcoin community engagement (established volunteer BTC infrastructure) independent of any third party or authority is nothing but an oxymoron, an impossible feat, a sells pitch to gullible people who are being handed over a fallacy of a solution to the legitimate problem of monetary manipulation by the US/Global government/monetary authority that is diluting value of people hard-earned money.
It is because Bitcoin supporters and its aggressive Astroturf with libertarian leanings, refuse to admit an inconvenient truth that fundamental role of money, by default, is being a tool of profit and control used by some authority, be it government or private/corporate authority, allowing them almost complete financial control and to “legally” take a cut or outright steal from value of people’s labor and their life-giving material as well as spiritual resources, an silent injustice that makes majority of people envied, conflicting and atomized, alienated from community in a rat race for monetary panacea for a disease of communal disrespect, social alienation and/or abandonment.
And for that also, as any kind of money, Bitcoin is not and may not be a cure.
CFTC joined the fray:
Bitcoin foundation Website:
Ethereum foundation Website:[ Ethereum is an outcrop of Bitcoin trying to address the issue of network latency, hard limit of money supply [coinbase] while introduces market driven transaction fees over the blockchain network among other “new” features and by that violates the Bitcoin concept of BTC network support by volunteer community and not by paid (market driven] servicers.
WHO OWNS BITCOINS?
An example of Bitcoin propaganda pushers Astroturf in alternative business media.
And even as reported in MSM???
Bitcoin Transactions can be monitored by government?!!!!!!!!!!!!!!! namely by IRS and FBI!!!!!!!!!
No more privacy with cryptocurrencies?
Below there is a link to another apologetic post with an infantile comparison of BTC et al., to beanie babies “boom’!!! and unsolicited attempt to deny that BTC is a scam on that particular ridiculous basis while peddling of familiar apocalyptic vision of current monetary system/economic system imminent collapse . Also author grossly misuses a statistical tendency of larger network being more “useful” [calling it more “valuable” in strangely dollar units, without defining what “value” he means] pushes so-called “Metcalfe’s Law” as supposedly having anything to do with a value of BTC at al., which is a pure conjecture, especially if BTC et al., remains “voluntary” competing cryptocurrency not imposed on the population by government or corporate monopoly. There are even more fundamental issues [of valuation of the network] with so-called Metcalfe’s Law as stated on Wikipedia Page:
In addition to the difficulty of quantifying the “value” of a network, the mathematical justification for Metcalfe’s law measures only the potential number of contacts, i.e., the technological side of a network. However the social utility of a network depends upon the number of nodes in contact. If there are language barriers or other reasons why large parts of a network are not in contact with other parts then the effect may be smaller.
Metcalfe’s law assumes that the value of each node n is of equal benefit. If this is not the case, for example because the one fax machines serves 50 workers, the second half of that, the third one third, and so on, then the relative value of an additional connection decreases. Likewise, in social networks, if users that join later use the network less than early adopters, then the benefit of each additional user may lessen, making the overall network less efficient if costs per users are fixed.
Stealing bitcoins: It already happened in Japan and Hong Kong:
Crisis of Bitcoin monetary base and conflicts in the Bitcoin Foundation:
Ethereum Classic Infrastructure fighting for independence from Ethereum Foundation, maintaining blockchain integrity [immutability, fungibility, and the sanctity of the ledger], fee free transactions, stable coinbase and community control via democratic means and transparency [hard fork split already occurred on 08/01/2017].
We believe in a decentralized, censorship-resistant, permission-less blockchain. We believe in the original vision of Ethereum as a world computer that cannot be shut down, running irreversible smart contracts. We believe in a strong separation of concerns, where system forks of the codebase are only possible when fixing protocol level vulnerabilities, bugs, or providing functionality upgrades. We believe in the original intent of building and maintaining a censorship-resistant, trustless and immutable development platform