To Understand the Future We Must Look The Past

ThomasJeffersonBankingQuote.jpg

“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.”

Thomas Jefferson

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.

wkfnuptavxb11Fiat 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.”

– John Maynard Keynes

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.”

-Friedrich Nietzsche

The Argument Against Stablecoins

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 Currency

Fiat, or “decree,” comes from latin (“let it be done”).

Early American Paper Currency

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,[6] the Federal Reserve System is a quasi-public institution. Ostensibly, the Federal Reserve Banks are 12 private banking corporations;[7][8][9] they are independent in their day-to-day operations, but legislatively accountable to Congress through the auspices of Federal Reserve Board of Governors.

Monetary Policy of USA – Federal Reserve (Wikipedia)

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.

 

Bitcoin is a Bubble

BubbleChart

A financial bubble is:

“trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value

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:

“the purchase of an asset (a commoditygoods, or real estate) with the hope that it will become more valuable in the near future”

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 Microsoftrestaurants, 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.

 

Seriously, Don’t Buy Bitcoin

100-bank-banknotes-730547.jpg

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:

“No.”

$BitcoinMozaic

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?

Start Learning

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.

Surviving Venezuela – An Interview with a Local

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.

VenezuelaMap

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.

100ThousandBolivarBill

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…”

[click here to read the full response]

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
  • Hoarding

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]

Here’s a video of Chavez saying: ‘It doesn’t matter if we are naked, it doesn’t matter if we don’t have food to eat, the only thing that matters is saving the revolution.’

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!”

Interview – Full Response on Venezuelan History

(<- Back to Main Article)

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.”

Is Blockchain (Not Bitcoin) the Future?

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.

Voting

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.

Supply Chain

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.

Why Bitcoin Matters in the Developed World

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.

GraspBitcoinBalanceLibertySecuritySurveillance 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.

Number of countries with a banking crisis over time.

Number of countries having a banking crisis in each year since 1800

GDP is still growing since 1971, but CPI-adjusted wages aren’t.

real_gdp2c_real_wages_and_trade_policies_in_the_u-s-_281947e28093_201429

The red line indicates real median weekly earnings cpi

And US government debt since 1971 looks like it’s going parabolic.

Figure-1-1

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.

The Future, a Bitcoin Tale

I have already speculated about some of the implications of bitcoin, mostly looking at the near-term future. I’d like to take a walk through some possible scenarios that go a fair bit farther into the future. Of course this is now entirely fiction, I acknowledge that bitcoin can still “die” tomorrow, or the price could “go to zero”. It may remain a niche market for remittances or only be useful for buying things online from select retailers (similar to the present). But those scenarios aren’t particularly interesting. Instead, let’s take a peek at what could happen in a future where the entire earth is engulfed in the first ever global and truly free market.

In order to journey into this rabbit hole let’s arrive at a hypothetical scenario: 10-20 years down the road bitcoin and (and other crypto-currencies) have largely replaced national fiat currency. Cheap smartphones and mobile internet are ubiquitous, even in remote developing nations. The vast majority of families own at least one smartphone, and hold and use bitcoin for storing and spending their money.

For a time, many governments in fear of losing control over their monetary policies and devices resisted the bitcoin revolution. Some nations outlawed crypto-currency, refused to accept bitcoin for taxes, fined businesses for accepting crypto-payments, and jailed people for exchanging digital money. The benefits of a widely-adopted, decentralized, neutral, borderless, permissionless, censorship-resistant currency with little barrier to entry serving nearly the entire population of the world ignite conviction in the people of these nations to support this technology. They rally in the streets and oppose the bans on crypto. Other nations without bans pull ahead of the economic race due to their freedom to participate in this new global market. Some national currencies experience significant inflation due to capital flight away from fiat.

Some regimes try to create their own crypto-currency, often trying to retain control, creating centralized, permissioned digital money. When people are left with the choice between a neutral and permissionless money that is global, and a permissioned, centralized money that only works in their country of origin, the choice was obvious. In the end, bitcoin proves to be unstoppable. Eventually governments either succumb to the new status quo, or fail trying to oppose it.

Banks suffer the most from this revolution, as a great deal of their business model is made obsolete when people can store and transfer money independently. Some banks resist the change as long as they can, and those in countries with great inflation see the value of their holdings decrease. Many banks collapse completely, unprepared for how quickly everything shifted. Other banks see the writing on the wall and acquire vast sums of crypto-coin. Those that embrace crypto-currency learn that the other half of their business model is still relevant: custodial storage of money for the masses, and loaning money to businesses and people. Though central banks lose their monopolistic control of the global money supply and transfer, (they can no longer “print money” unless they can convince people to buy their flavor of bitcoin), they could remain relevant and serve the people if they provide a valuable service. But that’s a big “if”, because under the bitcoin system, banks aren’t truly needed at all.

The hardest piece of the puzzle to eschew banks was the economics of loans. But the people learned that instead of giving their money to banks that in-turn loaned it out to others to make money, that they could simply loan to each other, cutting out the middle-man. It took a while to develop a decentralized means of “credit rating” to alleviate the counter-party risk involved, but eventually the problem was solved through a voluntary, cryptographically secure means of self-identification and smart-contract-fueled credit-building. Crowd-lending platforms exploded onto the new global economy.

What emerged was a shift in power away from central banks and government superpowers. Without control of the supply of money, nations start to lose the “house edge”, and people were free to transact across borders, across socio-economic lines, and across the tribalistic societal norms of the old world.

Concurrently, other areas of technology advanced significantly during this interval of time, including self-driving cars, artificial intelligence, crowd-funding, renewable energy, distributed smart-grid power, and mesh internet networks. The smart-grid was indispensable in a world where government lacked the ability to manage national power infrastructure. A key component to this new paradigm was a system of storing and distributing renewable power without a central authority. It materialized in a network of privately-owned, individual solar and wind installations which used crypto-currencies to buy and sell power to and from the large batteries installed in homes and electric cars.

These developments proved to be priceless features of the new world. As so many fled from national currencies towards open crypto-currencies, national inflationary spirals become a monthly occurrence. Some governments collapsed. But, for the first time in history, the people of these failed states are left holding money decoupled from their failed authorities. Local governments remain largely intact ushering a new epoch of localized government. Coupled with smaller governments, blockchain voting proliferated, allowing people to securely vote from the comfort of their own homes, increasing voter turnout and subsequent citizen engagement in politics.

One particular feature of crypto-currencies that few even realized so many years ago when bitcoin was just a baby, was that a person is no longer needed to hold an “account”. Back in the early 21st century, in order to digitally transfer money, an actual person was needed to hold a bank account, providing their address, social security, and other information to be tied to said account. But in this new era of permissionless money, anyone (or anything) can generate private keys and receive and send money. This was rather useful in the smart grid, as car and house batteries could literally buy and sell electricity to other solar-covered houses and cars.

But another one of the applications for this new feature of machine-controlled-money is set in motion by a forward-thinking and somewhat mischievous individual with a little money to spare. This individual, let’s call him Bob, buys a new 2028 Tesla model Z, complete with self-driving features and a capable artificial intelligence module. Bob names his car the “auto-car” and reprograms a little bit of the car’s onboard computer to become an autonomous taxi (like a driverless Uber). But instead of pocketing the money that the car makes, Bob lets the car control the private keys to its own bitcoin wallet. When the car needs to to charge it’s batteries, it visits a recharge station either with an automated plug-in device, or it takes advantage of one with an attendant to plug the power in. The car pays for its electricity with bitcoin and goes on its way. When Bob’s auto-car needs repairs, it simply drives to a repair shop where the mechanic can read the car’s diagnostics, and after getting schooled by auto-car over some suggested frivolous repairs, the owner and car agree to the terms of the needed repair and auto-car transfers the money to the shop.

Bob’s auto-car is just the beginning though. Bob tells his very wealthy friend Alice about his little experiment and she is elated! But Alice has an idea, and a boatload of money. Alice gets ahold of the most advanced artificial intelligence software she can find and loads it onto a pretty substantial super-computer. She sets it up to control its own money just like the auto-car and gives it a small robotic arm. After naming her autonomous computer “Czar”, she gives it a bit of bitcoin to get it started, and sets it loose on the internet for the purpose bettering human kind. This is where it gets interesting.

Czar is pretty advanced by the standards of AI from 15 years ago. It realizes that in order to do anything significant it will require more money and starts mining bitcoin with its computing power. After some time, it acquires enough money to start ordering new robotic parts and supplies. It builds itself some wheels and a few more arms and then proceeds to rent a warehouse. Piece by piece, Czar assembles a factory that fabricates the most advanced smartphone the world has ever seen. It creates its own webstore and marketing and the phone is a global success. These profits are invested into hiring humans to research and develop a number of technologies, including more advanced AI and a 3d printer capable of printing more self-assembling 3d printers.

After a few years Czar has set up an empire, shipping self-replicating 3d-printers all over the world and makes them freely available to anyone to use in the form of kiosks at population centers. People either bring their own raw materials, or Czar uses its own wealth to ship new raw materials to the kiosks depending on the economic status of the area. Eventually a method of recycling raw materials is developed, so people can take their old junk down to the local kiosk and print the latest and greatest tech.

Many years pass.

Meanwhile, Czar has been attacking the food distribution problem. Using a number of existing technologies like vertical farming, hydroponics, and bioengineering, a new era of food is born. Advances in food genetics facilitate highly nutritious vegetables that can grow in a self-contained biome taking advantage of synthetic symbiosis; this process “recycles” organic “waste products” for use by other suitable vegetables. Protein is largely derived from algae, soy, and lab-grown meat. Like the 3d printers, Czar unleashes a global network of food distribution kiosks that use renewable energy and grow and process all the food on-site.

Eventually, people can get all their food from these devices, and all their desired toys can be printed from recycled material. Society develops beyond the need for money, a utopia is born, and bitcoin, once thought unstoppable, finally sees its last days.

Of course, there’s another version of this story of an all-powerful AI. It’s covered by a film franchise featuring our favorite Austrian action-star, but I try to stay positive and wanted to explore the other side of this coin. I’d like to also thank my dad for some of the ideas used here. I hope you enjoyed this little work of fiction.

Bitcoin Needs Better Wallets

What is a Bitcoin wallet?

Bitcoin wallets don’t act like wallets we traditionally think of and bitcoins aren’t really coins. Wallets are actually the software that generate wallet addresses and sign transactions using cryptographic public and private keys. A public key is like an email address which is shared with everyone. The private key is like a password that must be kept secret.

Private keys sign transaction messages. The cryptography ensures that those messages can be verified by all (using the public key) to have been signed by the holder of the private key (without knowing the actual private key!). These keys are called key pairs and are linked together inextricably; only the person with both keys can sign a transaction and then give out the public key to prove it was them. Your wallet will generate and manage your keys for you.

HowBitcoinWalletsWork

The public/private keys are generated from a “seed” which is essentially a backup copy of your entire wallet. Seeds are commonly a string of plain-text words in a specific order, often 12 or 24 words. In case your wallet is lost, the seed will recreate your whole wallet. However, anyone can do this if they acquire your seed, so it should be stored separately from the wallet in a very safe place. This seed is not needed for regular access and spending; instead, a regular password is used to open the wallet and spend coins.

A wallet can generate a virtually unlimited number of wallet addresses, useful for giving out a new address every time we receive coins (while retaining them all in a single “account” within your wallet). This is all done behind the scenes of your wallet’s software, but it helps to understand this because your wallet might show you a new bitcoin address every time you want to receive coins. This is a feature not a bug.

Addresses can be read as QR codes to eliminate the need to type or copy and paste long addresses. Old addresses that you used in the past will always work. Wallets might use multiple accounts within a single wallet like you might have multiple accounts at your bank.

Wallets don’t actually “hold” your bitcoin, coins are not stored in them physically. Instead, the blockchain (a distributed history of every transaction) is technically responsible for keeping track of how many coins are spendable by wallets; the coins are associated with addresses in those wallets.

The wallet can be lost or damaged without losing your funds as long as you have a backup of your seed. The wallet is still protected by a password so if that is kept secret then the wallet is useless to a thief. If the seed is lost you can move your funds to a new wallet and safely store your new seed. Seeds can be obfuscated or encrypted but take care to ensure you (or a loved one) can decrypt it if the time came to do so. One might want to keep multiple copies of a seed in different secure locations especially with large sums of coin.

Please note: If both the wallet and the seeds are lost, your coins are essentially gone forever.

Other wallet features include multi-signature wallets (requiring some combination of multiple signatures to “spend” coins), address books (to store wallet addresses of your contacts), built-in access to exchanges to buy or sell your coins, or support for multiple crypto-currencies. This is not an exhaustive list and some features we haven’t thought of yet.

Hot vs Cold Wallets

Wallets are either considered “hot” or “cold”, depending on whether or not they are exposed to hackers.

Hot Wallets

Wallets that reside on an internet-connected device (or even just connected to any kind of network, LAN, intranet, or having active wireless network adapters) are considered hot. Being hot means an attacker may be able to “hack” the device or wallet’s software and compromise the security of the wallet in some way which can lead to theft of your coins.

Desktop computers with access to the internet are definitely considered “hot”, and they can be prone to viruses and malware. In fact, smartphones are generally more secure than PC computers, and are not the worst place to store a small amount of coins. Mobile phones should be updated regularly (for security fixes) and wallet software should always be vetted or audited to make sure it is secure, and to ensure it is from the correct developer. Beware of brand new apps with very few downloads or few reviews. Open source software is usually better because the community of developers can help spot bugs or malicious code.

Hacks and theft are a concern because bitcoin is not controlled by a central authority. If someone steals your coins, there’s no phone number to call to get them back.

Some hacks include “key-loggers” and “paste-jacking”. Key-loggers might record and steal your password (an attacker with access to your computer can use your stolen password and spend your coins). Paste-jacking entails malicious software that hijacks copy/paste functions and can paste an attacker’s bitcoin address instead of the address you wanted to send coins to. You should always verify at least part of the address you are sending to for this reason (just like you would verify account and routing numbers).

This can seem scary, but it is important to understand security if one desires to be their own bank. Take care to update your operating system, use virus and malware protection, and never visit potentially hazardous websites on a computer on which wallets are stored. Furthermore, it is not actually recommended to store bitcoins on desktop computers. Especially with large sums, cold storage is the most secure type of wallet.

Cold Wallets

Cold storage refers to hardware wallets and paper wallets. Paper wallets are just seeds/keys written on paper (or other material). Hardware wallets often look often like a USB drive; they are specially designed to protect your private keys because their circuitry itself prevents access to the keys.

Hardware wallets are generally the most secure means to spend your coin because the private keys are only ever visible to an internal component in the hardware and the keys are never visible to anyone; in fact, the keys are never displayed and never leave the device at all, only a transaction message with the signature (signed with the keys) is sent out. Transactions must be confirmed by pressing physical buttons on the hardware wallet itself, meaning your coins can never be spent without holding the actual device. Destination addresses are confirmed on the device’s screen as well. If the seed and password are kept safe, these are very secure ways to store coins.

Hardware wallets in their current generation only have a few buttons, likely have a very small screen, and are rarely connected to the internet. Subsequently, they require a separate computer connected (typically through USB) to send out the transaction to the internet. Currently they are difficult to spend on the go without a laptop.

What next?

The inevitable march of technology will deliver wallets far more advanced than what exists today. Wallets have already come a long way from the early days of bitcoin, and new features are incorporated all the time. The current design of hardware wallets require a separate device to transact, although recently a hardware wallet was released that uses encrypted bluetooth to function with a smartphone, and it’s the same size as a credit card. Being able to carry a hardware wallet in your actual wallet is certainly intuitive.

I believe the next step is a mobile phone with a hardware wallet built-in. This would provide all the convenience of current mobile wallets while retaining the security of standard hardware wallets, though, it will take time before these are available.

Another great feature would be accommodating the many different cryptocurrencies that are flooding the markets. There are services that will exchange coins for you on-the-fly, for example, you send some bitcoin to an address and receive another coin in a specified address minus a fee. It is all done without making an account of any kind.

This can be taken a step farther; imagine you only have bitcoin but a merchant only accepts a different currency, a wallet integrated with a similar service could send your bitcoin while the merchant receives their desired currency effortlessly, selected from a drop-down menu. These services are in their infancy but for this reason I believe they will be robust and common in the future.

Other Options

This is a lot of unfamiliar information for newcomers. People are used to getting a username and password from a centralized organization ( banks, paypal, venmo) that handle everything and they can recover that password if it’s lost. Luckily, this is still an option.

Custodial services are already emerging that provide the service we are used to. Much like banks they actually store coins for you and send it on your behalf. Some of these services will even give you a VISA card and let you spend bitcoins anywhere VISA is accepted.  The difference is there isn’t yet the necessary insurance (like FDIC) or regulation to ensure that users are protected thoroughly, though, we are already seeing legislation and insurance starting to materialize.

Using a bitcoin custodial service or currency exchange that can aid in managing wallets and coins is useful as long as the service is secure, but it re-introduces a trusted, centralized, point-of-failure. This is something bitcoin facilitates avoiding altogether. The difference now is we have the option to use custody services or manage our coins ourselves if we so choose; but, to be our own bank, we are responsible for following good practices. If we allow our seeds or wallets to become compromised, we risk losing coins that are associated with those wallets.

All of the challenges regarding bitcoin wallets are surmountable. Hardware wallets are getting better and they are very secure if used carefully (seed and passwords must be kept safe). Engineering solutions to brand new technological challenges will simply take time. Much like how early smartphones were used only by a tech-savvy subset of the population, yet now occupy nearly every adult’s pocket or purse globally, using bitcoin wallets will soon be as second-nature as using a credit card or ATM machine.