We are seeing growing discussion of a Universal Basic Income (UBI) in light of the automation revolution (i.e. “robots will take all of our jobs”), and at least one US presidential candidate is running on this platform. His name is Andrew Yang.
“The UBI he is proposing for the United States is a set of guaranteed payments of $1,000 per month, or $12,000 per year, to all U.S. citizens over the age of 18. Yes, that means you and everyone you know would get another $1,000/month every month from the U.S. government, no questions asked.”yang2020.com
Of course Yang has a FAQ on the linked page outlining counter-arguments to this entire post, so I would encourage you to read them and draw your own conclusions. We’ll use his proposal as a scenario with actual numbers we can explore.
And this certainly does sound appealing to Americans that are struggling to get by. However, because this is a nearly $4 Trillion in spending ($12,000/y * 308,000,000 Americans = $3,696,000,000) the taxes required to fund it are astronomical; so, any realistic implementation of this plan likely involves printing money to pay the bill anyway.
While Yang claims he can up with the money through taxation (among other measures), and his Value Added Tax proposal may be a good one regardless of whether or not we implement a UBI, $3.7 Trillion is no small price tag. That’s nearly 4 times the current budget deficit, nearly as large as our entire budget, and larger than our existing tax revenue all by itself; so we will explore both scenarios of “taxing the rich” or “printing money” to pay for our UBI, because it remains to be seen if we could raise the capital for such an inordinate annual expense in the first place.
Of course, we could not print money under a bitcoin-only economic system because it has a fixed supply schedule. There will only ever be at an absolute maximum of 21 million bitcoins. Printing money would never be possible in this extreme hypothetical if we are being honest with ourselves. We are nowhere near a hyper-bitcoinized economy, but if bitcoin really is a revolution of money, we should consider the full implications.
If Yang’s proposal is what we need to survive, and tax isn’t enough, then bitcoin could spell doom.
Giving everyone the same amount of money seems awesome in the short run, does absolutely nothing in the medium run, and is potentially destructive in the long run.
Let’s take a look at the potential effects of a UBI under each scenario:
1. INCREASE MONEY SUPPLY (print money)
In modern times we are constantly increasing the money supply, in various ways with different effects on the market. Most money supply expansion actually happens at individual corporate banks and at a governmental level with central banks through “credit expansion” or “fractional reserve banking,” where banks issue loans against reserves. The effects of increasing the money supply is that prices rise, and we measure and target the amount of price rise as “inflation”.
Bank credit expansion money is not evenly distributed like our UBI would be, the “new money” that is created at banks disproportionately goes exactly where you would assume, to those that take out the most credit. A great deal of this credit goes to real estate and other assets like stocks. The effect is seen in the rising prices of the real estate market and the stock market, and it is magnified by artificially low interest rates (like near-zero percent Fed funds rate we have experienced for the last decade).
This is why large amounts of money supply injection “saved” us from the 2008 financial crises as stock prices were falling, new money and liquidity entered the market supporting those prices.
But let’s consider now evenly distributing “new money” for our UBI.
In the short run, everyone takes their new $1,000 check and goes out to buy things/services. With a new supply of money flooding the market, prices rise by an equivalent amount due to increased demand for goods. Because we give everyone an equal amount of money, no one really benefits from this, except maybe for the first few people that go out and spend on the very first month of the program before the commensurate rise in prices takes hold as the market absorbs the increased demand for goods/services from the increased supply of money.
Now, this of course does not happen unilaterally across the market. Yang’s proposal specifies $1,000 for every American, every month. Giving a wealthy person an extra grand wouldn’t have much effect on their spending, as it comprises a much smaller percentage of their regular spending, a “drop in the bucket”. But $1,000 for someone living around the poverty line would account for a significant portion of their monthly spending.
Importantly, “poor people” don’t buy the same types of things as “rich people”. So what happens is the goods/services used most by lower income spenders see a relatively larger rise in prices, while again, the wealthier spenders see little effect.
There’s no real way around this, it’s basic supply and demand.
Let’s look at the other option that might be viable even if the ability to print money is removed altogether.
2. PROGRESSIVE TAXATION (tax the rich)
Remember, this would take multiple trillions of dollars, so it would not be very popular among “the rich”. Assuming that we could pass the legislation at all, or prevent a ‘diaspora’ of capital flight from heavy tax burden, is a tall order.
Essentially, the argument is that wealth disparity is far too great, the 1% (and the .1%) control such an inordinate amount of the wealth, that coupled with the coming robo-revolution, a select few control the means of production and no longer need human capital to produce goods/services. Jobs are “disappearing” and they may continue to do so at alarming rates over the coming years.
Now, I would argue it’s inflationary policies that are to blame for the predicament we’ve found ourselves in (the inordinate disparity extant today contributing to a quasi-feudalism with the “landowners” wielding too much power), but that’s a whole ‘nother thing so we will come back to that later.
Thus, our premise is that we essentially steal back some wealth from those that will be just fine. We take from the wealthiest among us for the greater good. They’ll be forced into a smaller mansion and have to sell one of their 4 yachts. Something like that. Keynesian economics teaches us that in some cases we use the “tax the rich” card, and I understand the sentiment here.
So we consider taking a great deal of money away from the rich, we give it to the poor, a modern day robin hood saves the day.
But, we fail to consider a number of things.
Firstly, our premise from the first section still largely applies, though we haven’t increased the money supply in aggregate, giving everyone at the poverty line a relatively large budget will likely increase their spending proportionately. But spending by the rich will decrease by a proportional amount. The effects of this are more complicated to understand, but for brevity let’s say that wealthy tend to invest more, and the poorer among us tend to buy basic necessities.
If we take this extremely narrow premise as a thought experiment what we see is that “basic necessities” increase in price, and “investment” decreases by a directly proportional amount. The effect again is that not much changes (poor see rising prices, rich see lower prices). However, the loss of investment is never seen, because it never comes to pass, though we may notice that assets prices (like stocks and high-end real estate for example) fall proportionally. But the businesses that might have expanded in an alternate future, new endeavors that could have been undertaken, are hidden from view. All we see is the new jobs created, and we miss what could have been.
There are so many factors to consider here, we should maybe take a step back and observe what is really happening. We are distorting the free market. We are trying to manipulate it to our will, and it’s doing everything it can to fight back.
The free market’s purpose is to identify efficiencies of production and trade, and to facilitate accurate price discovery. Sometimes we convince ourselves that we know better than the market, or that some “greater good” requires this manipulation, despite it’s costs (costs that are often hidden). But I’m not here to make those judgments. I’m simply here to attempt to identify the causes and effects of our actions, and to identify the limits of our knowledge of what those effects look like into the future.
Another factor proponents of a UBI pose is that it would create jobs by injecting money into the markets. But this is where costs are hidden or obscured behind half-truths. If we create a few million new jobs, we are doing this by diverting capital from current endeavors, no matter how we slice it. And prices will rise exacerbating the moving target of inflation and the problems they carry, which I argue is what got us here in the first place, requiring ever more wages to buy the same things. So we would need to keep increasing this from $1,000 over time to have the same effect, which would only further perpetuate the cycle. This is the same downward spiral of constantly raising the minimum wage, only we are now giving to everyone regardless of employment status.
These are rather complex macro and micro economic forces, and by no means am I claiming to be smarter than any economist or politician, these are after all simply my observations. Take them with a heavy grain of salt.
And, we haven’t addressed what to do about the disappearing jobs at all. Yang even admits during his appearance on the Joe Rogan Experience that the UBI by itself doesn’t treat the problem, only the symptoms of a larger problem he describes as: “fundamentally one of reconstituting means of structure, purpose, and fulfillment in people’s lives.” He goes on to say that using GDP growth as a “measure” of progress is misleading ourselves that we are, on average, enjoying commensurate increased prosperity. Personally, I agree with his assessment that using GDP is a poor measure of economic success, but his plan doesn’t address the problem, and is at the same time causing price distortions and influencing the allocation of capital.
Here’s another perspective.
We have seen many technological revolutions before. We have seen many people lose their jobs due to these revolutions, and I would never for a second imply that people should lose their jobs. Investment of time into an obsolete skill being wiped out by a new technology is a tragedy for those that have invested a lifetime on a now-obsolete skill.
Instead, I would point out that every one of these revolutions have left society as a whole much better off.
The industrial revolution saw immense increases of the standards of living, even for many that live near the poverty line. And many lost their now-obsolete jobs. But many years later we don’t question that we failed to “save the X industry.” We don’t shed a tear for the telephone operators put out of work by digital phone networks. Nobody pines for the poor horse buggy whip manufacturers that went out of business.
Of course the argument is that it is going to happen “too fast” for us to adapt. “This time it’s different”
That’s what the buggy-whip manufacturers said.
I might contest that increasing the standards of living “too fast” is a good thing. What’s difficult for us is the unknown, we fear it. What will the world look like when many of the menial jobs humans do today are obsolete? It would look like a world with less menial jobs in them. Where and how we create new jobs is certainly a very important.
That all being said there is a huge problem with wealth disparity in modern times, and it’s not that disparity simply exists, it’s that the system is so fundamentally flawed that it is concentrating power at the top at the expense of everyone else, instead of a rising tide lifting all boats. My position is that our inflationary practice is the real culprit for the increasing wealth disparity, propping up the big players while keeping down the “little guy” so we’ll explore bold claim next.
“The system of banking we have both equally and ever reprobated¹. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens…
…And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
¹ reprobated – express or feel disapproval of (ARCHAIC)
Even in 1816 it was obvious to Jefferson that central banking leads to powerful bankers with too much power over our monetary systems. He also identifies that inflating a currency “is but swindling futurity on a large scale,” meaning government printing money in the present is robbing from our future.
“History records that the money changers [bankers] have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance.”
– James Madison
Money can be separated into two types: easy money, and hard money.
Easy money is any monetary supply that can fluctuate. Fiat currencies are “easy” because the Federal Reserve alters the supply of money constantly. It’s easy to print more.
Hard money is that with a stable supply. Gold falls into this category due to it’s chemical properties preventing it from oxidizing or breaking down over long time periods, and the relatively stable rate at which it is mined and used.
Gold has a long track record of being good money, this is why banks still hold it in reserve despite not being on a gold standard. Gold is their insurance policy in case their fiat currency ever fails, they still have hard money.
Fiat currencies on the other hand have a history of steadily losing value over time and in way too many cases erupting in hyper-inflationary episodes. If you understood the devastation to the very fabric of a society that occurs in a nation with hyperinflation, that simple knowledge that it could even happen once in our history to a single nation would be enough argument against fiat currencies. The horrific truth of course is that hyperinflation happens every few years to a whole new country full of people that get to find out what it’s like when money itself collapses.
Modern fiat currencies aren’t backed by gold, even if gold remains in reserve vaults, because the supply of money is ever-inflated and manipulated, it has no bearing on the amount of gold in reserve. Because of this manipulation in the supply of money, the free market is skewed in favor of short term investments to beat inflation, rather than long-term sound investments in the future. We are encouraged to borrow money frivolously, due to easy loans of money created out of thin air.
John Marnard Keynes is the father of Keynesian economics, which generally advocates for “an active role for government intervention during recessions and depressions.” However, even Keynes understood the dangers of inflation through “debauching”, or devaluing currency by endlessly printing money:
“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. The various belligerent governments, unable or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.”
By devaluing money, governments steal from the future of their citizens for their own gain, and by Keynes’ account, “not one man in a million” could see the problem. The problem we fail to recognize is that the free market itself is distorted because the value of our money is distorted.
Therefore, the argument for bitcoin is simply an argument for a system of money with a stable supply, a system that is a good store of value, medium of exchange, and unit of account; and, it is an argument against bankers.
“Sometimes people don’t want to hear the truth because they don’t want their illusions destroyed.”
Stablecoins have begun flooding the crypto currency market; tied to “stable” assets (like $USD, €EUR, gold, etc.), they would in theory provide all of the good properties of bitcoin without any of the price volatility. But stablecoins are only as good as the asset they are tied to, and soundness of the method of tying them together.
Stablecoins attempt to track the value of an asset we currently recognize to be stable in value. But the “peg” to the stable asset has broken on these crypto currencies in the past, resulting in the price crashing.
Christopher Casper has an great read on stablecoins and their criticisms:
“Fiat-world examples of pegged assets form ‘an object lesson in why you don’t try to peg currencies: because you are unable to hold the peg any longer than you can afford to subsidize your differences of opinion with the market’.”
Stablecoins may be a stepping stone for some into the crypto-economy, but history warns us against letting a central entity control reserves or manipulation of the value of a monetary supply against the will of market forces. One might even argue this is falling into the very same trap of the current fiat system.
Fiat, or “decree,” comes from latin (“let it be done”).
I believe inflationary fiat currencies where monetary policy is decided by few individual humans is not a sound form of money:
Monetary policy in the US is determined and implemented by the US Federal Reserve System, commonly referred to as the Federal Reserve. Established in 1913 by the Federal Reserve Act to provide central banking functions, the Federal Reserve System is a quasi-public institution. Ostensibly, the Federal Reserve Banks are 12 private banking corporations; they are independent in their day-to-day operations, but legislatively accountable to Congress through the auspices of Federal Reserve Board of Governors.
These quasi-private entities literally manipulate our money by purchasing treasuries securities from the US, doctoring interest rates, and changing the reserve requirement. This alters the monetary base or money supply. Constant tinkering with the supply of money causes distortions in the free market’s ability to identify value; this incentivizes debt and short-term gains, instead of encouraging people to save money and think about the future.
The historically best forms of money were those that had a stable supply.
I believe bitcoin’s algorithmic monetary policy is the most sound form of money we have ever seen because the supply will mimic gold, which has proved to be the most sound form of money we have used for thousands of years. Bitcoin is of course more portable than gold, so it’s like gold but better.
Getting back to stablecoins, and if fiat currency is not sound money, then the question becomes what to make the coin stable against. If we try gold and we hold gold in reserves to back our stablecoin, we are in the exact situation we have now where a central party (a bank really) controls all the gold supply. The supply of the currency must be linked in a sound way, and this arrangement is ripe for abuse.
Bitcoin is decentralized and does not require a 3rd party to maintain it’s supply. But it’s price is not rational because of fear, uncertainty, doubt, and a serious lack of liquidity. If bitcoin became liquid, meaning it simply had more people using it to transact, the result is confidence negating the FUD. In this case it would prove itself a better store of value then any inflationary fiat currency or “stable” coin because of free-market forces.
Bitcoin’s supply cannot be manipulated (at least not without us knowing), so it’s supply will be the most stable thing ever used for money. In fact, it may be the reserve currency of all other crypto currencies, and it may become the first global, decentralized, free market, unit of account.
A financial bubble is:
Bitcoin fits this definition. Since you can’t spend it at every local business, use it to pay your taxes, and your landlord probably doesn’t accept it for rent (yet), bitcoin effectively has very little use for the average person, and therefore low intrinsic value. When it’s valuation skyrockets (like it did at the end of 2017), this is known as speculation, which is defined as:
But, if bitcoin were widely accepted, it would have a ton of value, the ability to exchange money with anyone anywhere. And, I think people are largely missing the fervor that is going on behind the scenes.
Every financial institution is looking at ways to make money off bitcoin. If you watch financial media, outlets now have entire segments devoted to crypto currencies. Across the globe banks, governments, and thousands of businesses and startups are all trying to figure out how to take advantage of this new tech. One payment processor plans to ship 100,000 POS units to facilitate crypto payments in businesses globally.
We are getting close to having a turn-key solution for businesses and individuals to use and accept bitcoin and other crypto currencies. For example, I could set your business up to accept NANO (another crypto currency) in less than 5 minutes, by downloading a wallet, writing down your seed, and visiting a web page that is already a free POS app. Provided you have a spare smartphone, tablet, or PC, this is at zero cost. This is trivial to do for bitcoin or any crypto.
Compared to previous overhauls of infrastructure like train tracks, paved roads, electricity lines, phone lines, or satellite communications, the costs to accept bitcoin are nonexistent.
One component is missing though…
The Public doesn’t Understand Bitcoin.
The mainstream media has been discussing bitcoin for nearly it’s entire existence, but you rarely hear them speak with even a hint of optimism. Instead we get: “bitcoin is dead, it’s a bubble, it’s for criminals, drugs, porn, and money laundering”.
The mainstream does not understand new technology. Have a look at their impression of the internet in 1994:
“The internet is a computer billboard.”
They fail to see all the potential; I was ten years old when this aired and I could have given you a much better answer than that.
Every year bitcoin doesn’t die. Every year the volatility declines. Every time, the price crashes to a higher price than it’s previous high. Every transaction for airline tickets at cheapair.com, electronics at newegg, home goods from overstock.com, games and apps from Microsoft, restaurants, millions in charitable donations, and more, legitimizes bitcoin and proves that the public perception is missing the big picture.
Bitcoin is a Bubble, Until it isn’t.
Sure, the usability could use a little refinement, but we know the fundamentals work. One of these days we are going to look around and see bitcoin accepted at as many places as apple-pay or paypal. This is where the network effect takes hold and propels the utility of bitcoin exponentially, because more and more people will be able to send money around the world to anyone at any time. At that point we’re not speculating anymore, the bubble isn’t a bubble, and bitcoin works like any other money or payment we use today.
I have known about bitcoin for nearly 10 years. I thought I understood what it was back then, but I completely missed the emergent nature of this technology. I thought it was for anonymous payments, nothing more. While that may be a feature we desire of our money, it turns out there are all these other emergent properties of bitcoin that will render it very useful in the future, and yet it’s not quite there yet.
“Should I buy?”
I often talk about bitcoin with people I know, and they ask me: “should I buy bitcoin?”, often without letting me finish my first sentence trying to explain why I think it will change the world. I’ve decided to start giving them a real answer:
You are not ready for bitcoin and it is not ready for you. Seriously, don’t buy any. Do you understand what it’s purpose is beyond “anonymous” money for the black market? Why you should never keep crypto on exchanges? How you should store your seeds? Are you okay with price volatility? Do you lack trust in your government to manage your monetary system? Or your bank?
If you have answered “no” to any of the above, don’t buy bitcoin.
“Do your own research. This is not financial advice. Never invest more than you are prepared to lose.”
It’s too early right now. The wallets aren’t ready for the mainstream. The volatility is too high to keep a large amount of your money in. Even the bitcoin network itself is not ready for the type of global transaction volume handled by credit cards today.
While these things are all improving all the time, we still aren’t ready for you. So where does that leave us?
My goal from writing is to persuade you. Not to buy bitcoin mind you, instead, to start learning about it. I truly believe that no matter what you and I do right now that bitcoin tech will alter our society in such a fundamental way, that we are still struggling to see what it will look like and it would be advantageous to everyone to understand it as that happens.
Also, there are ways to get bitcoin without buying it.
If you want to actually participate in the bitcoin network, all you have to do is download a free wallet app, write down your seed and store it safely, and then you can simply share your bitcoin address anywhere and anyone can send you money. When an opportunity comes along to accept bitcoin from someone in exchange for something, it will be as easy as a few taps on your phone.
You might accept it online for content you create, or at a yard sale. If I know you personally, I’d be happy to send you a small amount to play around with (don’t be shy!). You might setup a small mining rig and contribute to a mining pool and earn a bits of coins that way.
Bitcoin is like the internet, but for Money
The internet is a great analogy for bitcoin, they both evolve and scale as new features become necessary. They are decentralized and developed in open-source ad-hoc fashion. They connect people on opposite ends of the world. They should be completely open and neutral.
Like bitcoin, the early internet did not have widespread use in it’s early years, many people did not see the value. The majority didn’t wish to invest the time and money in buying modems and internet service, learning about email and web pages and networking. It was hard to use back then, web pages were constantly “under construction”. Of course today, it’s difficult to imagine life without it.
As a young person, my house was filled with computers, and I watched the internet unfold in front of my eyes. Though only in my early teens, I thought a lot about technology. As soon as I understood what the internet was and how it would scale, I knew that it would change the world.
I could identify certain features becoming available (I remember downloading a song for the first time and realizing that bandwidth scaling would allow us to move HD video around the world instantaneously eventually), but I couldn’t predict the prevalence of things like wikipedia or google and it’s plethora of free apps like google docs.
We can’t predict what the future will look like exactly because technology builds on itself and evolves as we discover new features and ways to solve problems. And that’s what bitcoin is, a global network of computer nerds innovating on money.
What excites me about crypto is the new things that it can do that our traditional money will never be able to accomplish (consider phone/fax VS the ‘net). These new features of money will open up all sorts of possibilities and we will build tools that utilize emergent properties of the new features of money found in bitcoin and other crypto currencies. On top of those tools we will build even more things that we couldn’t even imagine before the first set was built and working.
One random example is IOTA, a crypto currency with zero fees. They aim to engulf the “internet of things” in digital money. Allowing robots to pay each other sounds kind of weird, but one use-case is that this will enable the smart distributed power grid by allowing individual solar panels and individual batteries to exchange electricity and money, creating a vastly decentralized network of power generation and distribution. We’ve been trying to figure out how to decentralize our power grids for a long time, and this is a massive leap in the right direction, and would give birth to the internet of electric power.
And zero fees means you can pay fractions of a penny to use someone’s WiFi, or charge your phone. Other projects are aiming to allow us to share our computing power or hard disk space creating a distributed supercomputer accessible across the world. A new sharing economy can develop where we all benefit by sharing our unused resources, more resources are available when we need them, and compensation is all handled in the background for us automatically.
Why is it taking so long?
Bitcoin has been around for about 10 years. Despite that, I believe it is only really starting to creep into the public consciousness. And even there, it’s really only discussed as a speculative instrument, like a stock to be traded and profited from. The public aren’t yet talking about the benefits to our society this tech could bring.
I have already gone over some of the things holding bitcoin back, and I think the biggest factor is actually the technology itself. Software and hardware development takes time, but when it’s securing money, it needs to be solid. NASA can’t develop critical systems as fast as google can launch a new app, not because google has better engineers, but because NASA has very high standards for performance and reliability. In the same way, bitcoin first and foremost has to actually be secure. We can’t afford to mess this up, it’s too important to our entire global civilization.
And because bitcoin is on the open public internet, it’s open-source code, everything that happens on the network is known to everyone, and it secures many billions of dollars of wealth, if there was a way to successfully hack money from the network itself, someone would have done it (and we would all know). And because it’s open, it’s constantly under attack and evolving to become more secure.
After 10 years no one has hacked bitcoin, the tech works, but we have to build it in a way that’s easy to use while remaining secure (which takes a lot of time to do right). In the mean time there are many organizations working on ways to help merchants accept crypto-payments in different ways. Similarly, people are putting more and more money into bitcoin as the years go on, more people trusting it a little more, more people learning a little more about it. Subsequently is volatility decreasing as it becomes more liquid, useful, trusted, and understood. All the pieces are starting to come into place.
Bitcoin may not be ready for you yet, but when it is, you’ll know.
Life in Venezuela is Tragic.
Previously the wealthiest country in Latin America, and despite one of the world’s largest oil reserves, Venezuela has fallen into catastrophic economic despair. Rampant corruption and mismanagement has put the country in unimaginable crisis.
The bolivar, Venezuelan currency, is experiencing hyperinflation. Inflation is now over 80,000% (at the time of this writing) and is predicted to reach 1,000,000% by the end of 2018 [UPDATE: Dec 2018 1,200,000%]. Stacks of cash are required to buy anything because a few million bolivars are worth less than $1. Hyperinflation on this scale decimates life as we know it; people can’t save any money, can’t budget beyond a week, and struggle to purchase or even find food, toilet paper, and medicine.
The minimum wage for an entire month in Venezuela is less than $5. Nicolás Maduro, the current president has just raised that minimum wage by over 30 times, knocked more zeros off the currency, and is attempting to promote Venezuela’s national crypto currency called the Petro (so-named due to it’s value allegedly being tied to the price of a barrel of oil). Pegging the currency to oil sounds good on paper, but there’s little confidence in the government, the Petro, or that any of these measures help at all.
Storing Value in Bitcoin
Hyperinflation events have happened many times before, but for the first time in history, people have a open, border-less, and neutral monetary option decoupled from their failing government.
Despite bitcoin’s rather extreme volatility in price, the bolivar’s value is decreasing so rapidly that bitcoin’s price fluctuations are essentially negligible in comparison, and some Venezuelans have embraced bitcoin and other crypto currencies to store their value.
By exchanging their bolivars to bitcoins, they can escape from hyperinflation, keep their money from evaporating day-to-day, and accept international donations to buy food for hundreds of families (with plans to help and educate thousands more).
I argue that bitcoin will change the world. In this case, maybe it already has.
One of my Venezuelan contacts agreed to answer some questions about life in Venezuela and how bitcoin is helping him survive:
“Oh boy, it is already hard [for] some of us to understand what is going on, now imagine trying to explain it to a foreigner. I will try my best to give a plausible explanation of our situation so that at the end of this interview the reader have a solid knowledge of how the once richest country in South America became one of the poorest of the world in a economic catastrophe that could have been easily prevented and what are we doing in order to survive the worst crisis in our recent history.”
How has the situation become so bad in a democratic society?
“…Venezuelan political institutions were completely subjugated, media outlets were suppressed, and political activists were subject to numerous human rights violations…
…Maduro quickly filled the Supreme Court with loyalists and in March of 2017 ordered them to strip the National Assembly of all its powers…
…Maduro illegally called for an election to choose the members of a Constituent Assembly that will rewrite the constitution…
…Maduro has absolute control of all over the country at the cost of starving half of the population…
…TLDR; we elected a crazy lunatic as our president [Chaves], he destroyed our economy in his pursuit of total power, but he gave a lot of free stuff so people kept voting him for 13 years. Lunatic died and left someone more corrupt than him [Maduro]. Now he has destroyed what little’s left of our country…”
Life for Venezuelan citizens is hard to imagine for people in countries like the US. Could you describe what life is like there and why it’s so hard to meet even basic needs like food and supplies?
“We aren’t living, we are surviving. The day to day of the average Venezuelan consists in a series of fights to get through everything.
Want to go to work? Good luck with that! 95% of the public transport is collapsed due to a lack of spare parts.
Want to get government’s subsidized food? (The only food you can buy with your 2$ wage) Do an 8 hour line.
Want to protest for your miserable living conditions? The government sends you these bad boys so you won’t ever dare to do such a risky thing again:
This applies to everything.
And you would ask why it is so difficult to meet basic needs? Due to three major reasons:
- Expropriation on many key industries, [and] control of those companies [being] handed to people whose only achievement is to wear a red shirt
- Application of price controls, killing the incentive to produce
But this is where it gets funny. Contrary to what many first world socialists want you to believe, the hoarding wasn’t done by the ‘evil capitalist’s businessmen’, it was the government all along!
‘The PDVAL case refers to the discovery of thousands of tons of foodstuffs with an expiration date in Venezuela in mid-2010, imported by the government of Hugo Chávez under subsidies through the state company PDVAL’.
– [English google translation, original Spanish article here]
It turns out that starving us was always their plan.”
Compared to the US, the cost of goods in Venezuela is very low. If I sent you $5 of bitcoin, would it cover the cost of food for a week or more?
“Yes, that’s true. Right now 5$ could buy approximately:
- 1 kg of chicken
- 1 kg of rice
- 1 kg of pasta
- Various fruits and vegetables
With that amount of food you can ‘survive’ for like, one week.
Also exchanging bitcoin for Bolivar is super easy with websites like localbitcoins.com.
But [donation] is not a long term solution.”
The Venezuelan Dictatorship is promoting use of their own national crypto currency called the Petro, and it’s backed by oil. Wouldn’t this be a good thing for citizens because the price of oil shouldn’t hyper-inflate like the Bolivar?
“First the petro is a scam, to this date it doesn’t even exist.
It is a good idea? I would say yes. It’s actually a great idea; the issue is… it’s being implemented by communists that don’t believe in freedom. So it’s bound to fail.”
Are Bitcoin and other crypto currencies widespread there or is there potential for them to be? Do you think people there are willing to go through the hassle of learning about using bitcoin wallets and exchanging their money for a chance at storing their value?
“Crypto usage is very limited to very, very few businesses. A lot of people only know about crypto currencies because government propaganda of Petro, and let me tell you, their opinion is not very good. Mainly because the government’s handling of the Petro has been a complete disaster (Why doesn’t that surprise me?)
Good news is that crypto is very popular among the young Venezuelans (I among them), as it is the only way to gain access to a decent wage here. As the crisis gets worse Venezuelans that just can’t simply leave will have to resort to Bitcoin/altcoins to freely trade goods.
PayPal used to be popular as well but it has been lately closing Venezuelan accounts for some reason. Bastards, they probably left some family without their meal.”
Is bitcoin legal to use in Venezuela? If it were illegal do you think it would stop people from using it if bitcoin allowed them to secure food when they previously could not?
“Our legislation still doesn’t recognize Bitcoin and God I hope it never will. That would mean that the government plans to get their dirty hands on it, which they are probably thinking how to do it right now. Thanks to Bitcoin many Venezuelans are able to put food on their tables and for this government that is a capital crime.
If some day they made Bitcoin illegal it would have practically zero effect since it’s impossible to control Bitcoin, people would keep selling Bitcoin like they sell dollars every day.
Controls have never worked in the past, and they never will.”
Previously you gave me link to a wiki with information about how people can help the situation there. Is there anything specific you think would be most useful or any other ways that we might be able to help?
“Find an actual Venezuelan and offer him your help. There are hundreds of us in r/vzla that even 5$ would help to buy more food for a week.
I would also suggest that you spread the word between your relatives and friends about what’s happening in Venezuela, let them know why egalitarian ideologies are not desirable and only cause misery and despair wherever they are implemented.
Oh and if you come across someone defending the Venezuelan regime, please use all this information to make him shut up.”
Is there any hope for the future or anything else you want to add?
“For Venezuela to have a future in the first place the Maduro regime will have to be forcibly removed with violence because it is controlled by a perverse mixture of foreign interests and criminal interests that will not come out by peaceful means.
But who will do it?
We don’t have weapons to defend ourselves and the military is being permanently watched.
The US ‘empire’ still buys our oil, handing Maduro $ in cash to [fund] to his cronies. In fact they’re the only country that still pays for our oil. The oil we give to China and Russia is to pay for debts we have with them.
At this point only a humanitarian intervention would get Maduro out of power.
Will the International Community intervene in Venezuela to save our people?
We will see.
To end in a hopeful note, I think cryptocurrency is a truly awesome concept; it gives us more control over our money and there are no signs that the Bolivar will stop devaluing in the near future – so I’m very optimistic that adoption will grow and more business will start to accept crypto as payments.
Finally I would like to give thanks to the crypto community; you guys have been very kind to my people donating thousands of dollars for a noble cause. Your actions have made our world better 🙂 Thanks!”
How has the situation become so bad in a democratic society?
“In 1998 a man called Hugo Chávez won the elections. He promised to end corruption and took advantage of a generalized disappointment toward traditional parties and called for a Constituent Assembly to change the constitution to essentially give himself more power. The Venezuelans were so desperately needed for a change that they completely trusted Chavez, a charismatic ex-military that lead a failed coup against President Carlos Andrés Perez in 1992. He was jailed but later pardoned because the coup was very popular between the poorer sections of the society. He took advantage of this and ran a successful campaign promising to end poverty and bring prosperity for all.
While Chavez may have been correct in pointing out the corruption of the old politicians, he would continue many of its failed policies throughout his regime, amplifying their disastrous effects and implementing them in a tyrannical fashion.
Currency controls, expropriations, price controls, and the use of the state-owned oil company, PDVSA, to finance social spending programs were fixtures of Hugo Chavez’s socialist economic policy. The same vices of the past kept repeating, with the difference that Chavez was not a social democrat, he was a socialist Marxist.
In addition, Venezuelan political institutions were completely subjugated, media outlets were suppressed, and political activists were subject to numerous human rights violations under Chavez’s rule.
Fast forward to 2013, Chavez died of cancer; everyone was shocked because how repentine it was. I must say that I cried tears of joy, ‘’is finally over’’ I thought. How wrong I was.
Before his death, knowing he might not recover, he appointed Nicolas Maduro as his successor, and took a plane to treat his cancer in every communist’s favorite island: Cuba, where he died.
Presidential elections were scheduled for April 14th. Maduro surfing the wave of tears caused by the unexpected death of Chavez ‘’won’’ the elections with a narrow margin of 1.6%. The opposition demanded a recount and the National Electoral Council, controlled since 2005 by chavistas, said no because ‘’It would take too much work’’.
Chavistas were scared, and these results showed one thing: they have lost support of a important sector of the population, if they held another election they could lose. So they looked at one another and said ‘’well, we have two options: we could resign power to the opposition and risk being jailed for corruption and human right violations, or… we could become a full blown dictatorship like Cuba, we already control all government branches so it wouldn’t be that hard”.
Oil prices plummeted government can’t subsidize more food, and we came across the sad reality: there is no productive economic apparatus and we are importing 95% of the food we consume. Shortages first appeared in 2012 on products like chicken and milk but now they extended to all basic products.
In 2015 their fears were confirmed. The people had enough chavismo. The opposition gained the majority of the seats on the National Assembly, sufficient to call for a referendum to impeach Maduro. The Electoral National Council cancelled the referendum alleging ‘’fraud’’.
Chavismo’s days were numbered and they knew it.
Maduro quickly filled the Supreme Court with loyalists and in March of 2017 ordered them to strip the National Assembly of all its powers. Protests took place during six months and leaved hundreds of deaths, the majority of them were students that committed the crime of wanting a better future.
Maduro illegally called for an election to choose the members of a Constituent Assembly that will rewrite the constitution and has powers above of those of Maduro. The assembly was ‘’elected’’ and since the opposition did not participate in the election, it’s only filled with pro-government cronies.
We failed. Now Maduro has absolute control of all over the country at the cost of starving half of the population, the chances of him stepping down peacefully are very narrow. The majority of Venezuelans now vote with their feet, they just simply leave Venezuela.
TLDR; we elected a crazy lunatic as our president, he destroyed our economy in his pursuit of total power, but he gave a lot of free stuff so people kept voting him for 13 years. Lunatic died and left someone more corrupt than him. Now he has destroyed what little’s left of our country.
We are suffering the consequences of our bad choices.”
Recently, a lot of banks, companies, and other organizations have started pouring millions into “blockchain research”. That is, they are not investigating bitcoin or other currencies specifically, they are trying to find other problems that one of the core systems in bitcoin can solve.
Although, we will probably see banks and nations try to create their own crypto currencies and promote theirs instead of bitcoin, I would argue that people will likely choose not to use them. Nations and banks want to control their currency, control access, control policies, etc. So if they create a currency with these controls, only open to citizens, only accepted in their nation, it leaves us largely where we are today.
With the choice of the benefits of a decentralized system open to anyone, versus their authoritatively controlled centralized system which is only used by a single nation or region, I believe people will choose the former. If one doesn’t like the policies of bitcoin, they can use another decentralized crypto currency. If one likes the policies of their national crypto coin, they are free to use that, but if one doesn’t like the policies of their national coin, well, they can use a decentralized crypto currency. If nations create a decentralized, open system, that benefits all, people might just use that, but bitcoin is way ahead of the race.
Bitcoin’s Blockchain is Unique
Bitcoin has, by far, the largest number of users and the greatest amount of computing power contributing to its security of any other blockchain. Though hacks have stolen individual private keys and the associated coins, in 10 years, no one has been able to alter the bitcoin blockchain (change the transaction record) and simply award themselves billions of dollars. The incentive to do so is obvious. No one has been able to. Not because no one is trying, but because it’s damn near impossible.
The blockchain is a history of every transaction on the network, it’s stored on thousands of nodes across the world. It’s essentially impossible to modify the information contained therein because you have to convince thousands of other nodes to also change the history, and the entire history must be modified all at once.
In bitcoin, all of the transactions from the last 10 minutes get grouped into a block. This new block is cryptographically tied (mathematically linked) to all the blocks that preceded it. Each new block is tied to the history of the previous, and subsequently every block before it. This process creates an extremely secure chain of transaction blocks.
What that means is that if I, on my own node, go back and change any block before this block, the new block just added won’t correspond with the history. And if my information doesn’t agree with everyone else’s, all the other nodes will actually start disregarding my node (because they know I’m provably wrong), and I lose the chance to participate in the system.
This amounts to a history of information that if altered in any way is immediately obvious to everyone. In bitcoin, the blockchain is a fundamental pillar of the system, but it is not the only pillar. The system also employs game-theory to incentivize lots of completely independent people to try to mine blocks by offering them a reward for doing so.
Anyone can participate because the network is completely open. All you have to do is set your computer to start trying lots of math problems over and over and hope that you find the correct answer and are the first to mine a new block (in reality, you need specialized hardware or to participate in a “mining pool” to stand a chance of any kind of reward these days). And, since they have to complete many math problems before they can actually mine a block, and thousands of other computers are also trying to do so at the same time, the first person to mine the new block is randomized. Randomization is important in making sure no single actor is allowed to create all the blocks.
In 2018, a single mined block yields 12.5 bitcoin (BTC), worth over $80,000 USD at the time of this writing; every 10 minutes there’s a chance to mine another 12.5 BTC. The system of awarding coins to the miners makes everyone compete to mine the next block, and the time-consuming math problems required to do so helps randomize who gets to mine each block (and makes it difficult to generate lots of “correct” blocks). Remember, all the blocks are mathematically tied together, so changing one block means doing the math for all of the other ones after it also.
This game-theoretical competition model is the other pillar of this system, without which the history of bitcoin transactions would not be as secure.
What I’m trying to outline is that without the reward-incentive for mining blocks, competition to spend computing resources (and the electricity to power them), participation in the system is greatly diminished. Therefore, the security of the transaction history is not as robust. Less math is required to mine blocks. In other words, if only 5 people are trying to mine blocks, one might be able to influence some or all of those 5 people to put wrong information into the transaction history; this is much less the case when thousands of completely independent actors are all trying to participate. With only a few participants, it’s also much easier to control a large percentage of the computing power, which would centralize control over the system opening the door to abuse. These open networks need a lot of participation to achieve decentralization and security.
Applying the blockchain to a problem outside of cryptocurrencies means that the blockchain won’t be as effective as a secure history without some kind of incentive to create competition and participation in the network.
That is not to say that there aren’t other applications for the blockchain; instead, I simply wish to communicate why adding “blockchain” to a project doesn’t by itself create an “unchangeable” history.
Furthermore, blockchains take a lot of computing resources to run, and if decentralized and open protocols aren’t necessary to your application, in reality all you’ve done is create a very inefficient database system. It’s on the order of 1,000 times less efficient as traditional databases we use today, and that’s a huge waste of resources. Still, I believe we will see a few other use-cases for blockchain technology that take advantage of this “decentralization” feature, and make the use of computing resources worth it.
One of the applications I think stands to benefit the most from this technology is voting. Our current system of voting requires physically being present in person (to verify identity), at a specific location, at a specific time, to fill out a paper ballot. Overseas voters like military personnel are allowed mail-in paper votes. This allows us to “recount” the paper ballots when there is dispute, and it’s a relatively secure system, but certainly not perfect, and not impossible to change votes due to centralized points-of-failure (for example, consider a malicious person that controlled a voting station, or intercepted mail-in votes, and changed or falsified the votes after they have been cast). Furthermore, many people might have jobs that make it difficult to show up at the correct place and time; voter participation is pretty low, and this is often cited as a reason.
Of course, we have seen electronic voting systems become more common over the last decade, but we’ve also seen nearly insurmountable concern regarding the security of these devices. And one still needs to physically go to the machine to vote.
If we created a system where people could use cryptographic private keys to send their vote as a transaction on a blockchain, people could vote from anywhere and at any time during the voting window. Only the person with the private key linked to your identity can cast a vote for your identity. Everyone could verify how many votes go to each candidate, and that only one vote per identity was cast.
This system is not without issue. First off, we have to find a way to distribute private keys to each person; it’s rather doable, we do this with licences, social security cards, and other things. But we would have to keep the private keys completely confidential. If a private key is lost or stolen, we would need a way to reissue a new key (like getting a license reissued). Subsequently, we need a centralized authority to issue the keys, and that authority would need to only issue only one key for each one registered person in the voting district or nation. Another concern is private keys could be sold by people that value money over their vote’s voice. We would need a rather strict set of laws to punish anyone selling a key, and even more severe punishment for those hording the voting keys.
Regardless, I would argue that a blockchain voting system has the potential to be much more valuable than anything we have today. Most of the issues with this new system are already issues with our old system. Voting fraud, vote-buying, and ballot stuffing are already concerns in our modern world. What’s different under this system is that every vote cast could be verified by the entire network.
However, this creates a new problem. We either need to accept that everyone can see everyone else’s vote (which I don’t think is good), or, similar to the bitcoin pseudonymous system, we would need to keep the public from knowing who has which keys. Also, we need to jointly make sure the authorities know that only one valid private key has been issued to each eligible registered voter.
Incentive, while not as great as $80,000 every 10 minutes, would be that citizens and organizations sacrifice some computing power to contribute to the network for the purpose of helping ensure the votes are recorded correctly. We could easily reach a few thousand or so independent participants using their home computers to mine voting blocks for a few weeks during election season. Still, these are all non-trivial problems to solve, but the benefits of an “unchangeable” voting record, easily and instantly verifiable to all speaks for itself, so I predict we will see a lot of clamor for such a system in the coming years.
The other application of blockchain that we are seeing a lot of hype around is the supply chain. The idea is that it’s difficult to track the provenance of items in a supply chain. There is value in knowing that your clothes didn’t come from a sweatshop, your food was sourced from ethical or organic farmers, or your cell phone was built by people paid a reasonable wage, etc. The blockchain could be the “unchangeable history” of this supply chain.
I’m not completely convinced that this solves all the relevant problems. During a product’s creation and shipping life cycle, there are often many stages of storage, manufacture, and distribution along the way. Even if we find a way to incentivize miners to contribute to this supply-chain blockchain, and we create an “unchangeable” history of a product from “farm-to-table”, there is another key piece that is discussed far less.
An unchangeable history doesn’t matter if the information entered is incorrect.
Having a blockchain history is irrelevant if you can’t secure the information entered into it at every single point along the line of production. Of course, having the secure history is a key component in this concept, but I believe the much greater challenge is ensuring that each stage of product life cycle, like farmers in remote locations, production facilities in corrupt political environments, and so many other points along the way includes accurate provenance information. Ultimately we are attempting to apply this technology in a way that benefits the majority; we simply have to remember that this is no silver bullet.
Ownership and Real Estate
The transfer of ownership of a real estate property (which can be worth millions) from one owner to the next is actually relatively complex, and requires money, agents, authorities, accurate record keeping, lawyers, insurance, and more. This industry is rife for disruption. Unlike the supply-chain example, we do not need to rely on the accuracy of the information entered into a blockchain title-registry every time a house is bought or sold. Instead, real-estate titles (and really, the ownership of any asset) could be like owning a particular bitcoin. When transfer of ownership happens, the current owner can “spend” the title to another user, much like they spent a coin. The ownership of that title would then be associated with the new owner on the unchangeable blockchain.
There are already a number of different projects looking to tackle this problem so I won’t waste time getting into the specifics, you can feel free to do some research and look into yourself if you are interested. But, as I understand it, this is a relatively straight-forward problem to solve, it will benefit buyers and sellers, simplify fractional ownership, and eliminate a lot of waste.
A lot of what I have discussed thus far is use-cases in niche markets and the developing countries of the earth. However, bitcoin has value for citizens of the modern developed nations too, especially if some of the challenges that bitcoin faces today can be overcome.
Card payment transaction fees are hidden to buyers, but merchants can pay on average between 2-4% fees on common transactions, and flat fees are usually built into this pricing scheme which prevents micro-payments from being viable. Transaction fees on cryptocurrencies are zero, negligible, or they will be as scaling solutions develop. Micro-payments have never been a real option but they open up a plethora of market possibilities for art, music, entertainment, patreon-like fan-supported funding, and more.
Crypto-currencies are programmable, making them far more flexible than traditional payments. For example, crowdfunding and in many cases escrow no longer require a middle-man. New paradigms like streaming money, micro-loans, public charity wallets or public political wallets (where all transactions can be monitored by everyone), and so much more are made possible through bitcoin. I could speculate further, but it’s pretty difficult to see the future.
It’s simply too early to know what the next killer-app will be.
One of the aspects of crypto-currencies is absolute control over one’s money, meaning it can be stored in a number of ways and transferred anywhere to anyone at anytime. While you may think you control your money through online banking, you’d be wrong. Banks have the final say over what actually happens with your money.
Some banks have daily spending limits, even if you have the money they won’t let you use it. Your bank might have this policy and you may not even know until you go to make a large purchase. Banks and card companies have in many circumstances prevented purchases for completely legal items and services like medical marijuana, crypto-currencies, gambling, pornography, international purchases, or even donations to certain non-profit organizations. I can understand a company restricting its customers from gambling with the bank’s money using a credit card but we’ve seen all of this happen with debit cards; I don’t believe banks should tell me what I can legally purchase or where I can send my own money.
If you are a criminal the government can tell the banks to freeze your accounts, and few would argue that a negative. But, per the above, banks decide what payments to allow without a government order. If they disagree morally or politically with your transaction they can prevent it. This is terrible for people that live in corrupt political environments; attend the wrong protest or support the wrong political party and your money can disappear in the blink of an eye at the whim of a privately-held bank or by government decree. This isn’t the case in a country like the US, and I certainly hope it won’t be the case in the future. However, it’s an unfortunate reality elsewhere in the world, and I again warn against saying “it could never happen here”.
Services like paypal have even less oversight than banks. They’re famously known for freezing the funding of Wikileaks. While one might criticize their practice of exposing secrets of “national security”, I argue it’s an important “check” on our governments.
Money is a system of Surveillance.
Yes, criminals use bitcoin for it’s properties that obfuscate identity for the same reason they also use cash. We don’t outlaw or abandon cash simply because criminals use it. Criminals use all sorts of tools to commit crimes that we don’t ban. For example, they use cars to get away from police. These things also benefit the rest of society far more than a few criminals. Simply because a criminal uses something doesn’t make it inherently bad.
And for the rest of us, I think we have enough surveillance already. PRISM, CCTV, LPRs, etc. Why must every digital transaction be monitored? Cash is anonymous and that’s not an issue for anyone. For-profit institutions should not monitor and oversee every transaction we make digitally.
If you think “I’ve got nothing to fear so I have nothing to hide” is an argument you probably haven’t read Orwell’s 1984. I’ll outline some of the many reasons why the “nothing to hide” idea is misguided and why universal blanket surveillance is actually worse for innocent people than it is for any criminals. As an American who respects the ideals that this country was founded on, the Fourth Amendment to the Constitution grants that:
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause”
There is a balance between security and liberty, and the constitution dictates that we should be allowed privacy unless under suspicion through some manner of probable cause. But we now know this is not the case, the revelation that PRISM has been secretly spying on everyone for years without probable cause shows that the government doesn’t care about our fundamental right to privacy and they violate every citizen’s right without due process.
If we don’t defend our rights we risk losing them. And, under PRISM shouldn’t all crime cease? Of course, that’s not the case because criminals, especially the really bad ones, are extremely good at hiding. They use cash and secure communications; therefore, it’s only normal citizens that get spied on. In 2013 General Keith B. Alexander, the former director of the NSA, lied in testimony to Congress claiming 54 terrorist plots were prevented using data collected from PRISM, but later admitted it was only “1 or 2”.
Governments lie. And they hide a great deal from the populace. Why should the government be allowed to keep secrets while citizens are not? We know they do not always act in our best interest, and “transparency” of government is generally regarded as a good thing. If “nothing to hide” is a good argument, why did the founders of the US include this passage about privacy?
Regular people suffer because of data collection.
Innocent citizens with the same names as those on terrorist watch lists have been detained, deported or had other significant impact to their lives for doing nothing at all. Data collection helped Nazis persecute gay and Jewish people less than 100 years ago. Let’s hope the government doesn’t hear you making a joke that could be construed as a threat against your nation. My cat is named Isis (an Egyptian god), and my wife and I text about Isis all the time; I’m probably on all sorts of lists because I text about my cat. The result of a surveillance state is that people self-censor, and it decreases liberty.
This is the cost of alleged security.
Surveillance rarely catches terrorists, but it still harms everyone else. The TSA for example has a 95% failure rate to catch weapons or explosives, yet, at airports we are subjected to full “nude” body scans, blasted by either millimeter-wave or backscatter x-ray radiation, must remove our shoes and belts, we’re patted down, our belongings put on public display, etc. Some argue it’s worth it to protect against another 9/11, some say it’s “security theater”, but this is the balance between security and liberty to which I refer.
Bitcoin mitigates blanket surveillance.
While all the transactions on the blockchain are visible to everyone, owners of particular addresses are not intrinsically tied to a person’s identity like a bank account is. Furthermore, a single person can create thousands of addresses and move money between them at will, further obfuscating their spending. One might think this makes it harder to catch criminals too, but that is not the case. When law enforcement officials have probable cause and use due process to surveil a particular individual using warrants, device seizure, and deep chain analysis on particular bitcoin wallet addresses, they are extremely effective at revealing criminal activity. It’s much harder to do deep chain analysis on billions or trillions of addresses. And I argue, per the above, that this actually benefits society.
From 1984 to 1971
Fiat money, our current only-backed-by-government-reputation currency was truly created in 1971 when Richard Nixon took the US off of the gold-standard. In case your not aware, you used to be able to exchange dollars for precious metals, they were backed by gold and silver, but you can’t anymore, that is, not since 1971. This event is known as the The Nixon shock. It had some interesting effects, one being that it destroyed the Bretton-Woods system, putting an end to an era with virtually no banking crises.
GDP is still growing since 1971, but CPI-adjusted wages aren’t.
And US government debt since 1971 looks like it’s going parabolic.
I’m not an economist but looking at these three graphs together, and noting the 1971 date on all three, something doesn’t appear right. I’m not saying the US dollar is about to collapse, but who knows.
It appears to me that governments are inching towards a nanny-state, big brother, totalitarian surveillance paradigm. And the situation with governments and central banks strikes me as odd also.
As I understand it, governments “print” money by allowing central banks to create more money digitally. Banks and governments can buy their own stocks and bonds. While they do this they are inflating the currency and robbing you of purchasing power while at the same time filling their pockets. Then, banks loan money to borrowers and profit from the interest. Banks borrow YOUR money and loan it to others and profit from that interest (at 9%, 15%, or 24.99%) while they give you on average .08% in return.
I believe this situation contributes to the growing wealth disparity we are seeing in society. Banks control all digital transactions and make money off every digital transaction on the planet.
It’s an orgy of money and only those on top are getting off.
I’m not saying we should just drop the US dollar. But, maybe it’s beneficial that we also have a decentralized, neutral, and algorithmically deterministic monetary option. An option outside government and bank control. Maybe it’s time we had separation of money and state.