Saturday, March 1, 2014

"Bitcoin has likely stopped being a great experiment, in libertarian terms anyway"

By Anthony Wile

Up until Friday, there were reports that the Mt. Gox bitcoin exchange in Tokyo was going to survive in some form. Maybe it would be bought, or the hack, if there was one, would be tracked, or perhaps it was merely a matter of accounting and any bitcoin loss would be accounted for.
But on Friday came the news that Mt. Gox had filed for bankruptcy protection while officials say that 850,000 bitcoins, worth several hundred million dollars, were not where they should be. Seemingly gone, in other words.
Meanwhile, the Washington Post reports that New York-based SecondMarket is setting up a new bitcoin exchange venture.
The head of SecondMarket is Barry Silbert, and here's something from a LinkedIn bio:
Barry Silbert is the Founder and CEO of SecondMarket, a platform that enables private companies and investment funds to more efficiently raise capital and provide liquidity to their stakeholders by simplifying complex transaction workflows, streamlining investor onboarding and verifying that investors are accredited.
SecondMarket has received numerous accolades in recent years including being named by the World Economic Forum as a Technology Pioneer and has received honors from Forbes, Fast Company, Deloitte and other organizations. Barry has received several individual honors including being named Entrepreneur of the Year by Ernst & Young and Crain's, and being selected to Fortune's prestigious "40 Under 40" list.
Prior to founding SecondMarket in 2004, Barry was an investment banker at Houlihan Lokey and graduated with honors from the Goizueta Business School of Emory University, and holds Series 7, 24 and 63 licenses.
Silbert is basically in the business of providing liquidity to "private companies" and their investors – especially those that want to buy or sell shares or to take advantage of liquidity in various securities that are not traded in the traditional sense. Bitcoin is that kind of asset -- non "public" ... but there is demand for it, or at least there has been.
A feedback below the Washington Post article provides us with additional insights.
So basically this is what used to be called the "curb exchange" where anything that couldn't be bought or sold out in the regulated market, or traded by major institutions with reputations at stake, was pushed by hustlers, let the buyer beware.
Now you have to understand that bitcoins are NOT going away, any more than CDOs MBS, or interest rate swaps were killed by the housing crisis. It's just going to be moved away from the chaotic antics of the techno-rubes, and brought where the looting can be done in a organized and protected fashion.
Bitcoins WILL go mainstream, at least to a degree, but it won't look anything at all like it's creators futuristic visions.
It is interesting that Silbert steps forward at the same time as Mt. Gox deflates. Metaphorically speaking, Wall Street begins its embrace of bitcoin as the fanboys retreat. Was Mt. Gox taken down by the "feds"? The timing once again seems a bit neat. Was Mt. Gox not what it appeared to be from the beginning? Or if there was deliberate criminality, was the timing of what could be a law-enforcement takedown coordinated in some sense?
Yes, once again, the whole thing reads like a script out of a Hollywood movie. And we shall see how much more progress bitcoin makes and whether it becomes "anointed" as a chosen global currency. That would raise our suspicions even further.
Enter bitcoin forums and you will find many opinionated players banging on about their determination to continue this great experiment. But bitcoin has likely stopped being a great experiment, in libertarian terms anyway. This was already predicted at The Daily Bell last December in an interview you can see here:


  1. What Anthony Wile doesn't understand is that Bitcoin itself cannot be regulated. It exits in two worlds: the regulated world and the unregulated world. When you interact with regulated businesses/exchanges you will, of course have to comply with their regulations. But the moment you withdraw your coins (like withdrawing cash from a bank) you can do with them as you please - and as anonymously as you please.

  2. Honey, I can do that with cash or gold as well.

    1. Anon 9:27 - With Cash, that is untrue. The serial # gives you away to the Fed no matter what you do. Also, with both cash and Gold you are stuck in analog world. With Bitcoin you are allowed into the digital universe and global. So it does have some advantages.

    2. @ Anon 11:08 - What?? Does the Fed record the serial numbers on dollar bills I receive as change from a retail store, which dollars I can then hand to a guy on a street corner for some drugs? What are you smoking? It is precisely the analog world that gives me this anonymity. It's that wonderful digital public block chain log that puts me at risk. Don't get me wrong, I love digital, for most things, but analog is not completely worthless. Cash in a paper bag is about as anonymous as one can get.

    3. @ Anonymous March 1, 2014 at 9:27 PM

      Until you try and make payments across distance without third-party interference. Also, look how hard it is for Germany to get their gold back from the U.S. who were supposedly holding it for "safekeeping".

  3. exchanges are not like banks in the sense we know them nowadays

    as such they will always be the weak point of bitcoin

    unless bitcoin exchanging and price discovery is also fully decentralised bitcoin is dead

    quite simply because anywhere you put your cash that is not under your matress can and will be stolen by the bankers - they are akin to a bank setting up shop in the old west, waiting for everyone to deposit their gold in their shiny new safe and then when it is full having their mates rob it

    if it looks like they can try again in the same location they will do so else they will move to another town and rob another group of people

    exchanges are popular quite simply because the owners of the exchange know, bottom line, that if it ever looks like they can't earn any more money (or enough of it) via fees and margins they can always just steal everything and move to another digital town - a web site is not after all that difficult to set up - far easier even than opening a new bank in a new town and probably far cheaper

    bitcoin protocol lacks the intrinsic incorporation of price discovery

    consequently it will always be exposed to thieves


    1. Bitcoin doesn't need exchange businesses for price discovery. A perfect example is other banned commodities like drugs. There is no central exchange but yet price is communicated throughout the ecosystem from thousands and thousands of individual exchanges.

    2. Yes, but the price of drugs is based on their subjective value as consumable, pleasurable commodities. The price of bitcoin, like any non-commodity money, is based only on what the last person paid for them for use solely as a transfer mechanism or medium of exchange, and when you greatly diminish the ability to exchange an asset whose only value is based on exchange, you don't have much left. You can't smoke a bitcoin. And if you also cannot exchange it on an exchange, but only via craiglist or finding someone willing to accept it for a cup of coffee, with no exchanges to help discover the price, you don't have much left.

    3. @ Alan Andersen March 2, 2014 at 2:35 AM

      Valid points for sure but for governments to do any kind of significant damage they would all globally have to suppress bitcoin jointly and equally. Otherwise, capital and talent will flow to those jurisdictions that are more welcoming. This creates interesting game theory where jurisdictions are likely to end up competing for this capital and talent or risk being left behind economically.

      There is also significant potential for bitcoin to be used as a "hawala" type settlement mechanism for international remittances. Hawala, in its current form, already exists outside of Big Brother approval.

      Lastly, one could easily see nation states demanding trade and debt settlement in bitcoin since the blockchain is the only public ledger that cannot be falsified and transactions cannot be reversed. Nation states would no longer have to trust the balance sheets of their trade partners.

      I could easily see countries like Germany move into bitcoin and out of gold for their reserves since they've learned first-hand how hard it is to protect and regain their gold from supposed allies like the United States.