Friday, December 6, 2013

Why Gov ♥ Bitcoins

By Gonzala Lira

I’m finishing up a novel, a piece of speculative fiction in a genre you could call “economic-thriller”. 


The Mark of the Beast?
In the book, the dollar crashes in a hyperinflationary fire (natch), replaced by a new currency called the american. The exchange rate at the time of the changeover is $1,000 equals ₳1. To illustrate its purchasing power, ₳1 buys you a candy bar. 

However, americans don’t exist as physical currency. There are no “american bills” like there are dollar bills, and no coins either. Instead, americans are a fully digital currency: They exist in the ether. You need a card—be it a credit card, debit card, or EBT card—to spend americans. And to receive americans, either from employers, customers, government, etc., you need a “central account” which is tethered to your Social Security number. 


The rationale for these measures is convenience—but the implication is, no one can earn, save or spend money without the government being aware of exactly what you are doing. 


Since the government can easily access all your spending and earning of americans, no one can launder money, or evade taxes, or even so much as fail to pay all their bills on time. Law-makers and politicians and pundits say it’s no big deal that the government will know everything about the citizen’s finances, because, “If you’re not doing anything wrong, you’ve got nothing to hide! If you’re paying all your bills and your taxes and your loans, you got nothing to worry about!


Another feature of this virtual currency: With americans, you can never again be late with your bills. Payments you have to make are automatically deducted from your central account. And if you take out a loan for whatever purpose, not only is that information in your central account, but your ability to spend money is automatically prioritized: Taxes get paid first, followed by private loans, then bills, then food, then “etc.” 


In the novel, law-makers use this compulsory “compliance” as a selling point for the american. “Think of the convenience! No more worrying about paying your bills—your bills are all paid for you!


However, if you don’t have enough money for “etc.”—entertainment, booze, an ice-cream sundae with the kids, what have you—you don’t get any. And if after paying off your loans and bills there isn’t enough left over for food—then no food for you. Ditto with bills: No money for electricity, or water, or heat? Then no electricity, or water, or heat for you. And if perchance you can’t fully pay off your loans, then you are declared in “non-compliance”. And if you can’t pay off your taxes, then you are charged as being in “criminal non-compliance”—and then woe is you. 


In the language of the novel, it is a “fully-compliant currency”—and it forces the people to be “fully-compliant citizens” of the dictates of the government and the banksters. 


This is of course a fiction I invented for my upcoming novel—but I couldn’t help notice how lawmakers and banks are all of a sudden getting on the bitcoin bandwagon. 


For something that was supposed to be a threat to the established order, which is what bitcoin and the other cryptocurrencies promised to be, the established order sure seems to be happy with it: The U.S. Senate hearings on bitcoins were pretty much of a success for bitcoins, and banks are starting to throw nothing but love in bitcoin’s direction. The mainstream media isn’t putting down bitcoins, as it did a few years back. 


In short, and unlike what a lot of cryptocurrency proselytizers have been saying—that the powers that be would be againstbitcoins—the establishment seems to be fully in favor—or at least accepting—of bitcoins. 


Makes you go Hmm . . ., now doesn’t it?


Me, I've already explained here and here why I think that bitcoins are in a bubble, and why bitcoins and other cryptocurrencies will never be currencies per se, only an asset class. My thinking is, cryptocurrencies represent a new class of assets whose value is highly unstable so long as they are not actually tethered to some good or service people both need to buy and have to sell. Until that day happens, cryptocurrencies are nothing but speculative investments that can plummet to zero at a moment’s notice. 


However, thinking about cryptocurrencies from the point of view of the Federal Reserve, or a senator on the Banking Committee, or a trader at a bank’s prop desk, cryptocurrencies such as bitcoin have a lot of advantages—they’re not something to be dismissed out of hand. 


All of bitcoin’s benefits to the establishment revolve around its blockchain. 


In simple terms, a blockchain is a registry of all transactions carried out in bitcoins. Thus is resolved the problem of double-spending one particular bitcoin: It can’t be done (at least in theory) due to the blockchain. 


But the blockchain is in fact a register—a trail—of bitcoins. So it’s a relative cinch to piece together each and every transaction of any particular wallet in the bitcoin universe. And since exchanges need detailed personal information about a bitcoin user in order to comply with money-laundering laws before issuing a new user with a wallet, the government or other interested parties could determine what any one particular person has been doing in the bitcoin marketplace. 


In other words: Imagine that the government knew each and every cent you earned and spent, without a single exception.


Since the government can easily access all your spending and earning of americans, no one can launder money, or evade taxes, or even so much as fail to pay all their bills on time. Law-makers and politicians and pundits say it’s no big deal that the government will know everything about the citizen’s finances, because, “If you’re not doing anything wrong, you’ve got nothing to hide! If you’re paying all your bills and your taxes and your loans, you got nothing to worry about!


Another feature of this virtual currency: With americans, you can never again be late with your bills. Payments you have to make are automatically deducted from your central account. And if you take out a loan for whatever purpose, not only is that information in your central account, but your ability to spend money is automatically prioritized: Taxes get paid first, followed by private loans, then bills, then food, then “etc.” 


In the novel, law-makers use this compulsory “compliance” as a selling point for the american. “Think of the convenience! No more worrying about paying your bills—your bills are all paid for you!


However, if you don’t have enough money for “etc.”—entertainment, booze, an ice-cream sundae with the kids, what have you—you don’t get any. And if after paying off your loans and bills there isn’t enough left over for food—then no food for you. Ditto with bills: No money for electricity, or water, or heat? Then no electricity, or water, or heat for you. And if perchance you can’t fully pay off your loans, then you are declared in “non-compliance”. And if you can’t pay off your taxes, then you are charged as being in “criminal non-compliance”—and then woe is you. 


In the language of the novel, it is a “fully-compliant currency”—and it forces the people to be “fully-compliant citizens” of the dictates of the government and the banksters. 


This is of course a fiction I invented for my upcoming novel—but I couldn’t help notice how lawmakers and banks are all of a sudden getting on the bitcoin bandwagon. 


Read the rest here.

19 comments:

  1. An interesting point that Mr. Lira brings up is that of the weakness of the blockchain itself.

    I never really thought about the notion of government taking control of the blockchain itself, which yields them in total control. We always hear about the "decentralized" nature of Bitcoin, but the actual blockchain itself seems vulnerable.

    I was also fascinated by a link someone posted yesterday in one of the comment sections here showing a core(and ongoing) developer of Bitcoin describing on camera how Bitcoin must work with government (slighting "Ron Paul" advocates in the same breath) if it is going to succeed.

    Those are really ominous signs in my mind.

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    Replies
    1. The government does not have the computing power to take over the blockchain. That is what is meant by "decentralization". Next question?

      Delete
    2. Well, you never really address my second comment about the core developer of Bitcoin admitting to working with government, but I'll take you up on your offer to explain Blockchain security to me as you seem knowledgeable.

      "The government does not have the computing power to take over the blockchain."

      I'm really doubting that statement. If you are thinking "raw computing power", I would agree with you.

      Instead, let's look at things a little differently:

      Say I'm a government strategist, I not only have vast computing resources at hand(assuming Utah gets water, :)), but more importantly I have numerous talented software engineers at my disposal because I currently have almost unlimited resources(printed up dollars) to hire them and though they are talented with software, maybe they haven't done a "Goodwill Hunting" routine and realize the evil they might do working for gov't.

      Now, what is stopping me with my arsenal of resources to actively attack Bitcoins nodes via a virus? You see what I'm getting at?

      I don't have to have "massive computing power", I can literally devote my resources to infecting the nodes...which there is HUGE precedent for in other areas. (botnet's all over the place, right? that's how DDOS attacks work!)

      I can sit silently, building my corrupted nodes, pick the right large transaction and use my network to build a fork in the chain and the computing power of the nodes to attack/overcome the legitimate branch, like outlined by Khan's academy-and destroy confidence in the network(while making myself rich):

      https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-security-of-transaction-block-chains

      For fun I went over to check blockchain.info to see how many nodes were currently working. 1,240 at the time I'm typing this, with all their IP addresses conveniently listed:

      https://blockchain.info/connected-nodes

      1240 computers is all running the whole show? That isn't even a big project for an entity like the gov't in terms of writing a virus to do such a thing. Even further, what's stopping someone from simply doing a DDOS attack on the whole node system?(obviously it's much more profitable to simply infect many of the servers)

      I don't know man, all this talk about government being unable to stop Bitcoin seems too self assured to me, AND BELIEVE ME, I would love to see something like Bitcoin take hold.


      Delete
    3. Governments can definitely cause temporary damage, maybe even fatal damage, but the likelihood diminishes everyday as the network grows. "Writing a virus to infect the nodes" is not as simple as it sounds. 1,240 nodes are just those that were connected at that given moment when you checked. Thousands of nodes are constantly entering and leaving the network at any given time so, in reality, there are many more nodes that support the network. In the event an attack was detected, tens of thousands of users would immediately fire up their nodes to support the network.

      Remember too that bitcoin's supporters are a dedicated army of the best and the brightest technologists that are building this network. Many of them are moles inside the existing power structures. Do you think they can't effect counter-attacks of their own?

      Delete
    4. Gotta be honest with you HB, your response doesn't really make me feel confident in Bitcoin's infrastructure currently.

      You are talking about people that were able to sabotage Iran's nuclear centrifuges with software...

      Regardless, I hope for the sake of you and late adopters that my concerns are over blown...I really hope you are right.

      Delete
    5. One other quick note, if a block chain resolves in 10 minutes, how would the network defend a node take over as outlined above, by enacting as you say "tens of thousands of users", if they only had 10 minutes to do so?

      Also, how did you find out how many active(but offline) node are in existence? Thanks.

      Delete
  2. So which is it Robert? Bitcoin will fail because the Gov. will make it fail, or its their favorite thing ever? Got to pick a side I reckon.

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    Replies
    1. I have pointed out all along that Bitcoin users are easy to track. That's why I will have Sarah Meiklejohn,Computer Scientist and professor at the Univ. of California-San Diego, discussing her analysis of Bitcoin and why it is far from anonymous, on RWS next week.

      It will fail precisely because government loves it, it tracks all trasactions and it is a trap for anyone who thinks otherwise (See; Ross Ulbricht). Sounds like a failure to me.

      Delete
    2. OK, so it fails because it is traceable and the Gov. loves that...fine. But that invalidates your earlier criticism that it would fail because the Gov. would squeeze the exchanges, which they wouldn't if they love the track-ability.

      Seems like your just moving arguments again because your previous one has not materialized.

      Delete
    3. Ignorance abounds. The bitcoins can be tracked but the owners of those bitcoins can't unless they voluntarily or accidentally tie their identity to those coins. Privacy is easy to achieve for those who know how. Next, Ross Ulbricht was not exposed by his bitcoins, he was exposed by other means and simple detective work. Bitcoins where not his downfall.

      Delete
    4. @AnonymousDecember 6, 2013 at 12:57 PM

      Please be serious. Do you think the gvt is going to give a transaction edge to Bitcoin over bankster credit cards, of course, they are not! This does not mean the gvt doesn't like the tracking features.

      You sound like a guy with a stethoscope stuck up his ass, who thinks that's the only use for a stethoscope.

      Delete
  3. @Honey BadgerDecember 6, 2013 at 1:15 PM

    You wrote, “bitcoins can be tracked but the owners of those bitcoins can't unless they voluntarily or accidentally tie their identity to those coins. Privacy is easy to achieve for those who know how.

    Most people will not know how to achieve that privacy before they get into bitcoin. And once they do, and decide they want privacy, it might well be impossible to achieve.

    And as to Ross Ulbricht not being given away by his own bitcoins, I don’t believe that the FBI has explicitly stated how he was caught. Have they? If so, and if clearly he was not traced by his bitcoins, please post link. Thank you.

    GL

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    Replies
    1. @Gonzalo:

      You wrote, "Most people will not know how to achieve that privacy before they get into bitcoin. And once they do, and decide they want privacy, it might well be impossible to achieve. "

      One you understand how bitcoin works you can clean your coins very easily. Google "CoinJoin", "SharedSend", "DarkWallet", "Cryptocurrency Exchanges", and then use some deductive reasoning.

      In regards to Ross Ulbricht:

      When you understand the bitcoin protocol you will understand that it is irrelevant how Russ was "caught". What matters is learning how to practice effective "operational security" with your bitcoins. This can be done with a little bit of knowledge that is available for free on the internet. All it takes is some objective research before coming to a conclusion.

      Delete
    2. One more term you can Google: "Plausible Deniability".

      Delete
  4. gov't is trying hard to dissuade people from purchasing gold it seems............


    There Is Too Little Gold in the West
    The history of gold's flight to the developing world
    by Alasdair Macleod
    Friday, December 6, 2013, 12:53 AM
    Since those events in April, someone has been supplying the market with significant quantities of gold to keep the price down. We know it is not Arab gold, because I have discovered through interviewing a director of a major Swiss refiner that Arab gold is being recast from LBMA specification bars into one-kilo .9999 bars, which has become the new Asian standard. Arab gold does not appear to be being sold, only recast, and anyway, it is only a small part of their overall wealth. We also know from our long-term analysis that any European gold bullion is relatively small in quantity and tightly held. There can only be one source for this gold, and that is the central banks.

    I discovered that there was a discrepancy in the Bank of England’s custodial gold of up to 1,300 tonnes between the date of its last Annual Report (28th February) and mid-June, when a lower figure was given out to the public on the Bank’s website. This fits in well with the additional amount of gold needed to manage the price between those months. Furthermore, the Finnish Central Bank recently admitted that all its gold held at the Bank of England was “invested” – i.e., sold – and further added that the practice “was common for central banks.”

    Bearing in mind Veneroso’s conclusion in 2002 that there must be 10,000-15,000 tonnes out on lease and loan from the central banks at that time, one could imagine that this figure has increased significantly. Officially, the signatories of the Central Bank Gold Agreement, plus the U.S. and U.K. own 20,393 tonnes. A number of other central banks are likely to have been persuaded to “invest” their gold, but this is bound to exclude Russia, China, the Central Asian states, Iran, and Venezuela. Taking these holders out (amounting to about 3,000 tonnes) leaves a balance of 8,401 tonnes for all the rest. If we further assume that half of that has been deposited in London, New York, or Zurich and leased out, that means the total gold leased and available for leasing since 2002 is about 12,000 tonnes. And once that has gone, there is no monetary gold left for the purpose of price suppression.

    Could this have disappeared since 2002 at an average rate of 1,000 tonnes per annum? Quite possibly, in which case, the central banks are very close to losing all control over the gold price.


    http://www.peakprosperity.com/blog/83626/there-too-little-gold-west

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  5. Bitcoin is not easy to track. The only way to find identifying information about who owns a wallet is if that person expressly publishes that information publicly. Wallets can be hosted anonymously on third party web sites. Bitcoins can be tumbled with other users' coins. New wallet technology is scheduled to go live in 2014 that will allow for trust-less mixing of coins and complete obfuscation of wallet ownership, making completely anonymous untrackable transactions possible.

    Bitcoin is going to have complete transaction anonymity shortly. It already enjoys substantial quasi-anonymity.

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  6. I clearly remember the earlier theme was that BTC would fail because governments would crush it. There would be no place you could exchange BTC for dollars or Euro, etc. This article is full of misconceptions: there is no requirement to provide personal information to create a wallet, only when exchanging BTC for dollars; payments cannot automatically be deducted from your central account, that is the fictional cyber currency, BTC has no central account.

    Governments would like to keep a lid on or control BTC but they might find thamselves in the bind of the People's Republic. If the BTC economy grows, more and more people purchase things with it - what government would turn down all that potential business? China would like to turn off the Internet yet the Net brings great progress and prosperity. Who is going to turn down the fortune in sales - directed to some other country - if the BTC economy expands - as it is currently.

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  7. Libertarians hate BTC. It's like in a world of coupe cars someone proposed a convertible. The thinkers think: will that sell, will the increase in sun exposure outweigh the decreased security at stop lights, will more chill in winter obviate more warmth in summer.

    Why not let people freely decide. Some will buy convertibles , some will want a coupe and some will just stick with what they know and feel safe with - but people's preferences will win out i n a freee society.

    If you want to point out some danger, like it is highly volatile and experimental, good, But to say it is a doomed project on doctrinal grounds, I don;t buy it.

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  8. I hear that prostitution is also illegal in that park.

    Freedom means freedom for all.

    She doesn't even look like she needs braces, although she can use a tooth whitener.

    ReplyDelete