Thursday, December 12, 2013

How Many Divisions Does the Algorithm Have?

By Bionic Mosquito

My second post on bitcoin.  First, a reminder from the first:

My view in a nutshell: I support a free market in money, credit, currency and banking.  If you think I write something counter to that in this post, you are mistaken; re-read the first sentence.

I took some time to consider the various issues raised by bitcoin before I wrote the first post.  It has been almost two weeks since then.  It seems about time to write a second. 

You will likely recognize the title of this post.  It is a slight modification of a line Stalin used regarding the power of the Catholic Church and the Pope.

I find fault in many of the defenses of bitcoin – for example the idea that it can succeed as an alternative currency and still ensure complete privacy.  I have read people who brag that they can buy anything on the internet with bitcoins.  Maybe so…but where do they have the package delivered?  Or that they can even buy airplane tickets with bitcoin.  In whose name was the ticket issued?

How are users of bitcoin dealing with the tax ramifications?  Sure, one might take comfort in the anonymity of the whole thing.  But those data storage centers in Utah aren’t for nothing.  Is it certain that, from the date of your last use of bitcoins, the statute of limitations on tax fraud will expire before the government figures out the code?

But all of this is peripheral.  I guess this is the bottom line for me about bitcoin: if the state wants to crush it, it will crush it.

Does this mean I hold no hope for a more decentralized world?  Certainly not – I think decentralization is quite likely, if not inevitable.  I have often pointed out concrete examples – the former USSR, Yugoslavia, and Czechoslovakia, each one broken into several pieces.  The struggle to hold the EU together is another bit of evidence as to the difficulty the elite are having in further centralization.

The internet is a big part of the reason that I believe the decentralization will continue.  But if this is true, why not bitcoin – a child of the internet if ever there was one?

The control over money and credit is the single most important tool that the elite have in order to maintain control (although I can make an argument for education, also).  By elite, I don’t mean politicians or bankers.  I mean the people that the politicians and bankers work for – knowingly or not.

The elite will give up on much (take a step back, as the Daily Bell sometimes suggests) before they give up on control over money and credit.  I have written that it seems likely to me that they will even allow for sovereign defaults – real, no kidding defaults – if this allows the faith in regulatory democracy to continue for a longer time.  They will even allow some forms of political decentralization if this allows them to maintain overall control.

And control is the end.  Not wealth.  They have untold wealth – it is the control that allows this.

But if market money wins?  What do they have? Is it only coincidence that the century of virtually world-wide central banking coincides with the century of regulatory democracy and continuous war resulting in the closest thing to world government that has been achieved in recorded history?

The state, as tool for the elite, will crush bitcoin if this is so desired – and the only reason I see that it won’t be crushed is if the elite want to co-opt bitcoin.

Does this mean I believe the state is omnipotent?  Omniscient?  Omnipresent?  No, certainly not.  But it does not have to be these things.  A few very public hangings will suffice.

How did the state crush Swiss private banking?  The US government made very public examples of a handful of individuals and institutions - and guess what?  An entire industry came to heel.

Does the state have to be total in its destruction to achieve its ends?  Does a herd of elephants?  If I hear a herd of elephants charging my way, do I stay put in the comfort and certainty that not 100% of living things in the path of this devastation will die?  Do I not seek the storm cellar on approach of a tornado, even though not all in its path will be thrown into oblivion?

Does this mean that, through force the state will always come out on top?  No.  But the state is on top for now, and will be for the foreseeable future.  Too many people still have faith in the system.  Eventually enough will lose faith, and this will lead to a loss of power. All states require this faith by the people in the state, else the state cannot survive – why do you think they spend so much effort on propaganda?

The state is delivering the goods, so the masses continue to support the state. Eventually, too few independent will not be able to support the too many dependent via coercive state transfers.  That is likely when the faith will crumble.

Control over money and credit is the key tool of the elite.  They have demonstrated that they are not shy about using every possible means to maintain control.  There are not enough people ready to withdraw their consent from being controlled. 

But the numbers increase daily.  It just doesn’t strike me that today is the day.

This is my most fundamental criticism about bitcoin.

The above originally appeared at Bionic Mosquito.


  1. For what it is worth, herein lies my main concern with bitcoin.
    When thieves steal my wealth in gold,private property,and/or currency, be they from the state(IRS,FED,cops,lawyers,etc....) or the private sector(hubcap stealers), there is always a way to exact revenge or possibly to even recoup your wealth..........however slight your chance..
    When your bitcoin is jacked by some 18 year-old computer nerd out of chance.

  2. Cashless society: A huge threat to our freedom

    Econgularity, shorthand for economic singularity, is an ugly word I created to describe an unfortunate approaching moment in time when our current technological snooping prowess, the ease of big data manipulation and our sprint to a cashless economy will converge. This will happen in such a way as to permit governments to exercise incredibly powerful control over all human behavior.

    While this may sound like a paranoid doomsday scenario to some, as a real world finance professional, I believe that this scenario is not only eminently possible, but most of the technology is already available — albeit not yet fully marshaled — to frighteningly make it reality.
    Technological advances have led to the creation of algorithms that can instantaneously review financial transactions, determining the nature, location and even the appropriateness of a purchase decision. These have been freely used by credit- and debit-card companies.

    If current government trends continue, a cashless economy could thus very well lead to an econgularity. Imagine a future in which soon, a government staff member could suspect an individual of some misconduct, or perhaps deem that person's politics or speech unacceptable. It would take just a few keystrokes to order all financial institutions to decline any withdrawal or payment from that individual and to transfer any deposits or payments of that person to the government, or at least freeze any access to funds. Perhaps this would need to be reviewed by a secret court that would approve 99.7 percent of all requests, but would provide a veneer of due process. It is fair to think that the targeted individual might starve to death. This could be insured by cutting off access to the payment system of anyone suspected of helping the targeted individual.

    1. This possible direction--that the state could, with a few keystrokes, make one into a "non-person", unable to transact in any way--is perhaps the most disturbing and frightening possibility I have seen, and one that has not been discussed much. And as with "no fly" lists, it could applied accidentally against many. Orwellian in the extreme.

  3. OLDTHINK. Karl Denninger is a more flexible thinker. He points out today that the state does not have the power to crush even Google. Oh, they could send in armed agents, pull the plugs and arrest the principals, but what happens next? Ten percent of the people in America lose their email accounts and/or contact lists. The transaction cost of finding anything on the Internet expands. Gigabytes of stored information on G drives disappears. Tens of millions of people, businesses, doctors, lawyers and investment professionals are seriously inconvenienced or downright shutdown and their local Congressman is the cause. GDP actually declines the next quarter. Keep in mind, shows that they could not keep the plumbing working without the people of Google co-operating.

    Now imagine the BTC economy grows. Soon a small but significant portion of e-commerce is transacted in BTC. Any govt can shutdown its citizens and businesses from using BTC, but at a cost. China (or Singapore, London, Moscow) puts up a sign BTC gladly accepted here and gathers all the business turned down by the US. People watch Moscow businessmen buying the penthouses in high rises while they can;t afford a condo on the lowest floor.

    1. Perhaps my writing was not clear enough. I don't suggest bitcoin will disappear. I suggest the government will write laws and regulations meant to bring activities conducted in such manners fully under the tax and reporting regime. To not do so will place users in an outlaw position.

      Any above-board e-commerce site and internet-related company will work within the law, else they too will be targeted.

      Will the state catch them all? No, but they don't have to. They just have to make public examples of those that they catch. Just like they did with the Swiss bankers.

      You may scream "OLDTHINK." What is oldthink about a government keeping its minions under its heel, with the full help of the banking industry and internet providers.

      Only yesterday, all the internet providers were turning over all data about all users to the NSA. It is oldthink to believe they will not be so co-opted on this?

    2. " I guess this is the bottom line for me about bitcoin: if the state wants to crush it, it will crush it."

      I repeat, the state cannot crush even Google,. Google's cooperation was cowardice, misapprehension of the seriousness of the states actions, or a combination of both. Google hurt itself and the entire US domestic Internet business sector. I am seeing a huge fall off in foreign customers interested in purchasing email accounts, cloud storage and web hosting from US entities. Why give a copy of everything to the US government? They may have poor security (likely) so it ends up in the hands of your competitors, they may have corrupt employees (you never get a say in who the government hires) so your secrets may be sold, they may charge you for violating US laws that you have no democratic say in crafting, etc.

  4. Just a point on the tax issue; for tax "fraud", there is no statute of limitations in the US.