Wednesday, February 5, 2014

Yves Smith: Bitcoiners are Just Lab Rats for the Banksters

Yves Smith argues that Bitcoin actually plays into the hands of the central bankers:
Many [Bitcoin enthusiasts] clearly relish the idea of launching a currency outside the control of central banks (plus this beats Cryptonomicon in geekery).

If you believe the hype, you’ve been had. As Izabella Kaminska of the Financial Times tells us, you all are really just doing free/underpaid R&D for central banks, since you are debugging and building legitimacy for one of their fond projects, making currencies digital and getting rid of cash altogether.

I had wondered about the complacency of Fed and SEC officials in Senate Banking Committee hearings on Bitcoin last year.


As Kaminska explains (boldface mine):
Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…

Bitcoin has helped to de-stigmatise the concept of a cashless society by generating the perception that digital cash can be as private and anonymous as good old fashioned banknotes. It’s also provided a useful test-run of a digital system that can now be adopted universally by almost any pre-existing value system.

This is important because, in the current economic climate, the introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible [background hereherehereand here], it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.

Consequently, anyone who believes Bitcoin is a threat to fiat currency misunderstands the economic context. Above all, they fail to understand that had central banks had the means to deploy e-money earlier on, the crisis could have been much more successfully dealt with.

Among the key factors that prevented them from doing so were very probable public hostility to any attempt to ban outright cash, the difficulty of implementing and explaining such a transition to the public, the inability to test-run the system before it was deployed.

Last and not least, they would have been concerned about displacing conventional banks from their traditional deposit-taking role, and in so doing inadvertently worsening the liquidity crisis and financial panic before improving it…

Almost of all of these prohibitive factors have, however, by now been overcome:

1) Digital currency now follows in the footsteps of a “disruptive” anti-establishment digital movement perceived to be highly accommodating to the black market and all those who would ordinarily have feared an outright cash ban. This makes it exponentially easier to roll out. Bitcoin has done the bulk of the educating.

2) What was once viewed as a potentially oppressive government conspiracy to rid the public of its privacy can be communicated as being progressive and innovative as a result.

3) Banks have been given more than five years to prove their economic worth and have failed to do so. If they haven’t done so by now, they probably never will, meaning there’s unlikely to be a huge economic penalty associated with undermining them on the deposit front or in transforming them slowly into fully-funded fund managers.

4) The open-ledger system which solves the digital double-spending problem has been robustly tested. Flaws, weaknesses and bugs have been understood, accounted for, and resolved.
The balance of the article describes how the central bank digital currency would be launched, and Kazmina finds a plan developed by Miles Kimball of the University of Michigan to be thorough and viable.

Oh, and why would Bitcoin, um, central bank digital currency make it viable to implement negative interest rates? Kaminska tells us:
…the greater the negative interest rate, the greater the incentive to hold alternative coins. The greater the incentive to hold alternative coins ,the greater the incentive to produce them. The greater the incentive to produce them, the greater the chances of oversupply and collapse. The more sizeable the collapse, the more desirable the managed official e-money system ultimately becomes in comparison.

Either way, the key point with official e-money is that the hoarding incentives which would be generated by a negative interest rate policy can in this way be directed to private asset markets (which are not state guaranteed, and thus not safe for investors) rather than to state-guaranteed banknotes, which are guaranteed and preferable to anything negative yielding or risky (in a way that undermines the stimulative effects of negative interest rate policy).
So all these tales … of how liberating and democratic Bitcoin will be are almost certain to prove to be precisely the reverse. Hang onto your real world wallet.
The head of Signature Bank – Scott Shay – raised these same issues last month on CNBC:

(Via Zero Hedge)


  1. Smith and Kaminska's arguments are absurd on their face.

    1. Bitcoin has no central control point. If the goal of central banking is to centralize power over the money supply, bitcoin accomplishes the exact opposite. Bitcoin makes it possible to wire wealth internationally with out an banks being involved at all. That's a hell of a way to undermine your own business model.

    2. Fiat money is already almost entirely digital. The amount of cash in circulation is minuscule compared to the total money supply. Further, if the goal is a cashless society, they would have to ban gold and silver too. In a world without cash, people would simply revert to using physical specie for anonymous in-person transactions.

    3. The bitcoin source code is open source - meaning anyone can read it or modify it for their own purposes. No one controls or owns the bitcoin software or network. Again, if the goal is to centralize power, this accomplishes the exact opposite effect. There is no centralized control over bitcoin at all.

    So why would CENTRAL banks be in the business of creating a virtual money that completely does way with the need for central banks?

    1. LOL. I don't think you get it. The banksters aren't going to use your silly bitcoins--just bitcoins tracking system.

    2. You mean they want to move way from a system that has locked in identities for each account owner, along with tracking each and every transaction, toward a system that is quasi-anonymous?

      Do you think before you speak?

    3. @ Anonymous February 5, 2014 at 12:49 PM

      You're naive in thinking that they can track bitcoins that don't want to be tracked.

  2. Cash as a method of payment has fallen from 86% in 1950 to less than 7% of all transactions in 2010. Currently mortgages and rent in most cases can no longer be made in the form of check, cashier checks, or cash, but are required to be made as a direct withdrawal from ones bank account. There is a concerted effort to make war on all forms of exchange which do not comply with the Federal Reserves complete control of commerce.

    In my opinion the Federal Reserve is going to use a cyber attack as cover to go to a closely monitored digital currency with biometric authentication as a way of controlling the population. People who believe in bitcoin are being lead down the primrose path by DARPA and dark apperachicks within the federal government who actually control what we call the internet.

    What will bitcoin believers do when, not if the feds restrict or blackout the internet, cry softly in a darkened room that its just not fair?

    1. @Anonymous February 5, 2014 at 1:40 PM

      Bitcoin money is data/information. You cannot restrict the flow of information. If "they" were to somehow shut down the internet "they" would be hung in the town square because they will have shut down the global economy and commerce will grind to a halt.

      At any rate, google the term "mesh networks".

  3. Yes, it's naive to think that BTC's that don't want to be tracked can be tracked... Unless someone has the use of say, a massive data gathering and information processing center.

    What a bunch of dumb fucking idiots.

    1. @ Anonymous February 5, 2014 at 2:24 PM

      Your ignorance is embarrassing. Listen to the following presentation to hear just one way that bitcoins can be made totally anonymous through "off-chain" transactions:

    2. @ Anonymous February 5, 2014 at 2:24 PM

      Actually, let me apologize. Your ignorance is not embarrassing, it is your assumption of knowledge about this subject is what is embarrassing. Your ignorance is perfectly understandable. You have obviously not studied this technology from every conceivable angle like I have for the past two and half years. It is a complicated subject. Fortunately, the tools are being developed to make it "dummy proof" for the masses. Of course, at that time, the value will be much higher as the mass adoption begins.

  4. Seriously!? You want me to listen to a fucking lecture?! Give me a link to a white paper, don't waste my time!!!

    Here's a newsflash for you Buttcoin Badger: NSA can track every transaction. Anything going into or out of an anonymity service can be tracked, and marked as ILLEGAL.

    Anything not traceable to a miner can be marked ILLEGAL.

    THEY can decide which Buttcoins are LEGAL or NOT LEGAL.

    Game, set, match. You Buttcoin buttboys are doing their work of creating a completely controllable, one world digital currency FOR them. Stupid, stupid stupid!

    1. You've proven my point. You're too lazy to do your own research. Fortunately, no one is forcing you to use bitcoin. Good luck.

    2. Anonymous, could you please explain the mechanics of how a central repository of "known bad" bitcoins would work? Do you envision this being some service that runs on top of Bitcoin that people are compelled to use, or do do you see it as a fundamental change to the Bitcoin protocol so it's built in? I ask because those are the only two options and each has its significant problems.

      What do you mean by "not traceable to a miner," since all bitcoins are mined?

  5. Don't bother even trying to get through to Honey Badger about shitcoins. It's useless. You would think with all the supposed riches he's made from it he would be spending his time jetting across the world or sailing in his many yachts all from buying shitcoins when they were $20 ... but nope he comes on here to defend something that can't be defended. a volatile piece of fiat crap called shitcoins. Hope you sold all when they were up at $1200 because they'll be worthless soon enough. GOLD is the way to go. My kids even know what gold is...I could walk the city right now and ask 100 people what shitcoins are and they wouldn't have a clue. stick with something tangible not some computer crap that'll be gone or taken over by the guv'ment. gold has stood the test of time. shitcoins are the Pet Rock of today.