No, Really, Bitcoin Is Not "Money": Debunking Yet Another Bitcoin Sermon

Another day and another Bitcoin boost, this one so irritating I've been inspired to negate virtually every line... At this stage, surely the only reason why anyone holding or mining Bitcoin would lure new buyers is to get their own Bitcoins out. Rational justifications don't bear scrutiny, so the boosters' pleas tend to be couched in semi-religious rants that only require you to believe - as an act of faith. But try watching the WeWork documentary without thinking about FTX... That doesn't mean I'm down on distributed ledger technology in general. DLT has its use-cases, but its deployment should be approached like any other tech project, not a cult.

Debunking another Bitcoin sermon

Bitcoin is not "money". At best it might be a means of settling a trade between two parties (A and B), so long as each of them has an absolutely certain way to exchange their Bitcoin immediately with another party (C and D) for the agreed value of their trade in fiat currency. That might be possible in certain institutional scenarios - although even institutions got caught up in FTX - but very risky as a retail payment method, mainly because the price is so volatile. 

Bitcoin does not remove counter-party risk. Ask Celsius or FTX customers. And it's futile to claim it removes counter-party risk between A and B in the above example, when that risk remains between A/C and B/D - not to mention the wider cryptoverse, as still being illustrated by the collapse of FTX. 

Bitcoin transactions do happen faster than many types of retail and other payment methods which are settled over one or more days, since each block of transactions is completed in 10 minutes. But speed itself does not make Bitcoin appropriate as a retail payment method (as opposed to a potential settlement mechanism, as mentioned above). 

Bitcoin does not have an absolutely "incorruptible history", which could only be judged in hindsight anyway. Even if it initially seemed unlikely that any one miner or group of miners could create a new branch or 'fork', rising energy costs and periodic reductions in rewards have been driving concentration among miners (explained further below).

While the Bitcoin protocol itself may be 'trustless', that's actually a shortcoming or 'externality' that others have struggled - and consistently failed - to solve, at greater and greater cost as the ecosystem has grown. Ironically, therefore, it is kind of true to suggest that Bitcoin "is an impenetrable fortress of validation" (yet) "trusted third parties are security holes". The point is that Bitcoin does not exist in a vacuum. [For some reason I'm reminded of the Lewis Grizzard book: "Don't bend over in the garden, granny, you know them taters got eyes."]

Again, to blame "centralised exchanges and custodians" as "destroying everything that makes Satoshi's invention great in the first place" is effectively conceding that Bitcoin is worthless in any 'currency' other than Bitcoin itself. In other words, for all other practical purposes Bitcoin is worthless without a way of exchanging or holding it; so if exchanges and custodians 'destroy everything great about Bitcoin' then it must be worthless.

It's obvious and goes without saying that Bitcoin "is not a company. It can't go bankrupt. It has no CEO that can be influenced, arrested, or corrupted." This is just gaslighting. The same can be said of the USD. The fact is that the Bitcoin protocol must have a way of interoperating with the rest of the world and that necessarily involves contact with third parties and other forms of value, at which point Bitcoin's supposedly utopian benefits suddenly become externalities that must be addressed before Bitcoin can be useful. Success in negotiating and regulating that real world interface explains the relative strength, lack of volatility and broad acceptance of the USD and other major fiat currencies, compared to Bitcoin.

Similarly, it's a bit bizarre to say that "Bitcoin's monetary policy is set in time, not by decree. It can't be changed. It can't be argued with. It is unrelated to demand, unrelated to energy usage, and independent from politics." Miners are rewarded in Bitcoin, so it becomes critical to know the cost of mining each Bitcoin, as it would not be worth mining them if the costs could not at least be covered. Currently, the cost of mining a Bitcoin is considered to average out at $17,000 depending on where the miner buys the vast amount of energy required to mine each 'block' (itself a source of significant political controversy). At time of writing the USD price of Bitcoin was $17,220.25 (and, oh look, as at mid-October there were 276,000 Bitcoin mining rigs that had never been installed). The Bitcoin protocol dictates that mining rewards halve periodically and, on current forecasts, in 2024. Yet the maximum 21 million Bitcoins isn't due to be mined until 2140... Given that the Bitcoin protocol only launched in 2009 that's an awful lot of time and opportunity for it to grind to a halt.

But, sure, if Bitcoiners can stoke demand, the USD price of Bitcoin will rise again and profits can be extracted. Or energy costs might fall, efficiencies improve and/or mining might decline to constrain supply in the face of constant demand. Such factors would explain why miners have borrowed during past Bitcoin market troughs. But that's also left miners and their lenders with $2.5bn in loans that are exposed to wider market contagion following the collapse of FTX...  

In other words, the purity of the Bitcoin protocol is actually vulnerable to: the misconduct of exchanges, custodians and decentralised finance (DeFi) providers (and resulting distrust), rising energy costs, limits on computing efficiency and over-borrowing by miners. 

Now comes the crescendo of the sermon, which involves repeating a few truths from above...

We've already seen that Bitcoin is CERTAINLY NOT "an answer to the moral failings of fiat money and our fiat monetary institutions". Indeed, I agree that "Crypto" as an industry "is a reincarnation of ... failing [fiat money] institutions, replacing the friendly faces of clean-shaven bankers with the shy smiles of unkempt teenagers." 

The point is that Bitcoins are not divisible from the Crypto industry, any more than a 10 pound note is divisible from the wider fiat financial system. It doesn't matter whether "Bitcoin is honest, fair, and truthful" on its own, since it is not used or useful in splendid isolation.

Perhaps other implementations of DLT that do not purport to be any form of payment method (or e-money or security) may be divisible from the Crypto industry; but equally we should not be fooled into thinking that they do not have their own externalities and challenges in integrating with the 'real' world. Their implementation should also be approached like any other tech project rather than merely requiring a cult-like belief in their intrinsic benefits.

Bitcoin is as much a victim of the "game of liquidity and purchasing power" as any other commodity, and in some ways more so. Only the financially strong miners have survived, and to the extent that we have any idea who or where they really are, they appear to be based in the world's largest totalitarian regime: 

Due to the cryptocurrency’s design focus on privacy, there is no indicator of how many new coins are created from which location – hence why the figures provided here look at PC processing power, and not Bitcoin themselves. In 2021, the world's top Bitcoin mining pools all came from China, with five pools being responsible for over half of the cryptocurrency's total hash. 

The final tout is a promise of personal sovereignty, much favoured by Trumpsters and the Brexidiot Alt Right: 

"If you don’t hold your own keys, you don’t hold bitcoin—but IOUs. If you don’t run your own node, you have no say in Bitcoin—you are beholden to someone else’s idea of Bitcoin. For bitcoin to be your money, you have to hold your own keys, and you have to verify with your own node." 

Of course, anyone not holding their own keys or running their own node should be worried by this statement. 

But even if you have the skill, time and resources to rush home and engage with the process of holding your own keys and operating your own node, we have already seen that this process will not magically deliver "deep stability and autonomy" or make you "a sovereign individual" anywhere outside the Bitcoin protocol itself. In fact, depending on the real world's view of your identity and circumstances it may mean you're excluded from the 'real' world altogether, like those caught up in the Hell that is FTX group or North Korean hackers.

So why would somebody write such an overblown puff piece tempting newbies to exchange their cold hard cash for Bitcoin?

Probably so that they and their Bitcoin buddies can cash theirs out.

This Year's Misadventures In The Cryptoverse

Looking back over the posts on these pages over the past few years (and my Twitter feed!), readers may wonder if I've focused on anything other than Britain's political woes. Fortunately, I've been distracted by numerous legal developments, covered extensively on The Fine Print, Keynotes, Ogier Leman's "Insights" pages, LinkedIn and, most recently, Mastodon. A prominent theme is commentary on attempts to introduce legal certainty and controls into the volatile world of cryptoassets, alas too late to avert the string of collapses that have peaked (so far) with FTX... Contagion still lurks and has crossed into traditional financial firms, including Australian pension funds. Two main thoughts leap out from the morass:

• Tech evangelists should stop pleading for ‘light touch regulation’ and explain any significant externalities associated with their technology which need to be addressed. There may be no ‘choke points’ within the energy guzzling Bitcoin protocol itself but consider the role of crypto-exchanges, wallet custodians and decentralised finance (DeFi) operators that enable lending, trading and so on: FTX demonstrated that greed and stupidity still lurks around crypto-tokens, so the tech still needs regulatory tools to guard against related human misconduct; and

• Similarly, the fact that major venture capital firms invested in FTX while receiving investments through FTX's trading arm - and their due diligence seems to have 'missed' the complete absence of ‘traditional’ governance/controls - raises questions about (a) potential tracing claims by FTX clients' assets into the VCs' funds; and (b) whether FTX was effectively an unincorporated association with an array of corporations designed to encourage the idea that it was a 'traditional' corporate group, such that the participants may have unlimited liability... 

The last point should also be considered by those proposing formal recognition of  'decentralised autonomous organisations' (DAOs) which also tend to involve related companies and other 'body corporates' for various purposes.
Well, at least that's off my chest.

Welcome To The Fediverse!

Now that both Facebook and Twitter have confirmed my hypothesis that Web 2.0 'Facilitators' (who solve your problems) could eventually be shunned as merely Institutions (who solve their own problems at your expense), I've finally embraced the fediverse - a network of independently hosted servers running open standard communication protocols. In my case, Mastodon, running on ActivityPub. 

Web 2.0 vs The Fediverse is a little like King Arthur stumbling across an anarcho-syndicalist commune.

And, hey, no advertising!

My research on where to base myself began with an excellent SCL Tea & Tech session with Neil Brown and Simon Forrester, followed by a review of Mastodon documentation, then a trip to the Join Mastodon page to find a hosted server that seemed like the right home and would have me and seems serious about maintenance and moderation... a process that really makes you think about what matters to you! 

Setting up was just as easy as setting up in any of the Web 2.0 social network services.

Trickier is finding whom to follow, and deciding how to curate your new online 'instance' - again an opportunity to think quite hard about what matters to you and how you want to communicate. I'm planning not to follow many people or post much until I've that figured out. Maybe I'll set up several different accounts, following different themes, just as I have separate blogs, email addresses, communication apps and Web 2.0 social media presences some of which may need to fall away...

How Many British Prime Ministers Will Be Sacrificed On The Altar of Brexit?

Cameron, May, Johnson, Truss, Sunak... the list goes on. I give Sunak a month. As detailed again and again in these pages, Reality will keep reaping its way through politicians who think that Britain can grow, let alone thrive, without free movement of goods, services, capital and labour between itself and its neighbours - who just happen to have clubbed together in the world's largest trade bloc.

Cameron baulked at even attempting Brexit. May stupidly thought she could trigger the process yet fudge the result. Johnson lied about the consequences of a deal that he secretly planned to renegotiate. Truss tried to magic her way out of the vicious economic spiral in the full glare of the financial markets spotlight; while Sunak is so pathetic as to find himself skewered by the dog-whistle promise that Britain will refuse to admit any refugees.

What the next candidate will offer the few remaining Tory faithful is anyone's guess, but unless he or she decides to join the Single Market & Customs Union, it will be another short stay in Number 10.

Who Will Rescue Britain?

When the renowned diplomat, Niccolo Machiavelli, wrote his "Letter to Lorenzo de' Medici" 500 years ago he considered Italy to be "divided...leaderless, lawless, beaten, plundered, broken and overrun, ruined in every way". Thanks to poor government amidst successive crises, Britain now ticks all these boxes. If any Prime Minister since Blair had even read Machiavelli's entreaty, then they can only have done so in order to break every rule in the book; and Johnson's successor is already bound to follow suit. Who will ride to the rescue - and when - is anybody's guess. Yet, like Italy 500 years ago, the time is right. If only the next leader will heed Machiavelli's advice...

The best illustration of how not to become 'World King' (as he infamously fancied himself) has been drawn by Boris Johnson. 

While a man of his education and alleged intellect should have read The Prince, it would not surprise me if it turned out - very ironically - that he claims he has but, in fact, has not. 

If Johnson has read The Prince, then perhaps he believes that, like so many others, those rules don't apply to him...

Machiavelli advocated that a good ruler should strive to appear wholly compassionate, loyal, humane, honest and religious, yet know how to occasionally act otherwise when required. He or she must adapt their chosen strategy or tactics to changes in fortune or 'luck'. A ruler must not seize or steal their subjects' property or women/men; or be seen as "changeable, superficial, effeminate, fearful or indecisive." The ruler's choice of ministers will immediately demonstrate to the country either "good sense or lack of it." Ministers should be intelligent people with permission to tell the ruler the truth, rather than flatterers. The ruler should build a reputation for 'meanness' rather than generosity:

"...if you're determined to have people think of you as generous, you'll have to be lavish in every possible way; naturally, a ruler who follows this policy will soon use up all the wealth to the point that, if wants to keep up his reputation, he'll have to impose special taxes and do everything a ruler can to raise cash. His people will start to hate him and no one will respect him now he has no money... his generosity will have damaged the majority and benefited only a few..."

Above all, "a ruler must avoid any behaviour that will lead to [their] being hated or held in contempt."

Did Johnson follow any of these principles?!

While he began his brief tenure as Prime Minister already flawed in ways that soon became glaringly apparent, Johnson's earlier political moves were at least promising. He rightly spotted that Ken Livingstone's woeful performance as Mayor of London presented a golden opportunity to quite as an MP and seek mayoral office of the nation's capital to garner popular support. He adapted his strategy to luck. Winning a second mayoral term was also key to emphasising that popularity; and breaking his promise not to run as an MP in the next available general election was something that Machiavelli also would have applauded, since he stipulated that there are times when keeping a promise is not important as breaking it in order to survive. 

Yet, we now know that Johnson is incapable of 'being good', let alone generally keeping his promises, or even affecting any of the qualities that Machiavelli advised. His three word slogans were all a cover for doing the opposite.

One need only consider his delay in managing Covid, serial philandering (even during his then wife's illness) and dishonesty over the likely effects of Brexit. 

His choice of advisers, ministers and unwillingness to sack them (too late, if at all) showed a complete lack of good sense. 

His dithering and repeated U-turns showed him to be changeable, superficial, effeminate, fearful and indecisive.

Even while Mayor of London, Johnson had literally been sowing the seeds of his eventual demise by becoming embroiled with Arcuri, allegedly helping himself (again?) to other people's women and money. And even if that were not in fact the case, Machiavelli would say it's the appearance that counts. 

Taking up with Carrie while married, trying to get her a public job, setting up a 'VIP lane' for Covid contracts, appointing cronies to the Lords and grasping at donors' money to refurbish his flat only cemented Johnson's snow-balling reputation for poor judgement and plundering his subjects' money.

Partying during lockdown in violation of his own rules while exhorting others to comply in the most dreadful circumstances was exactly the sort of behaviour that would lead to his being hated and held in contempt.

Indeed, ultimately, Johnson's lavish misuse of public money did in fact use up all the wealth to the point that he had to impose special taxes and do everything he could to raise cash. And his people did start to hate him and lose respect when he had no money, his generosity having damaged the majority and benefited only a few. 

In fact, Johnson's misconduct has amounted to such a gross violation of Machiavellian principles that one wonders if his rise to Prime Minister was not, ironically, the successful application of those very principles by some other head of state... 

But even Putin appears to have lost his touch.