Bitcoin’s People Problem

emma-goldman-anarchist“I insist that it is not the handful of parasites [of capitalism and the state], but the mass itself is responsible for this horrible state of affairs. It clings to its masters, loves the whip, and is the first to cry Crucify! the moment a protesting voice is raised against the sacredness of capitalistic authority or any other decayed institution. Yet how long would authority and private property exist, if not for the willingness of the mass to become soldiers, policemen, jailers, and hangmen. The Socialist demagogues know that as well as I, but they maintain the myth of the virtues of the majority, because their very scheme of life means the perpetuation of power. And how could the latter be acquired without numbers? Yes, power, authority, coercion, and dependence rest on the mass, but never freedom, never the free unfoldment of the individual, never the birth of a free society.”   –Emma Goldman

Bitcoin’s People Problem

Bitcoin has a very serious problem, and it has nothing to do with the technology of bitcoin–it has to do with the stupidity and ignorance of the common people. Everyday I hear from the common man the same damn foolish straw-man arguments for why bitcoin cannot work. Again, and again I hear:

“But how does it work?”

“Who controls it?”

“What if it fails, or the governments stop it?”

“There’s nothing backing it–it’s not even real money!”

And my personal favorite, “Bitcoin is dead

Stupidity is a poor excuse for failing to understand how technology and money works, but alas, we are in a world ran by a union of morons, commanded by sociopathic capitalists and politicians. Those who believe in the demise of digital currencies are the same sniveling cowards who cannot see past their own avarice and callowness to ever accomplish something great–they simply want to punch the clown each day, satisfied at the safety of being commanded by another. They are cowards happy to obey governments and laws that can only be defined as illegal and tyrannical.

These are the fools who would pled that the bitcoin’s cause can never succeed. They do not understanding the purpose of bitcoin is the struggle against the system as it is. The fools bitch of being ripped off by banks, and then offer hollow stares when told of what bitcoin can do. They demand to be told how bitcoin works, without a damn clue how fiat works. The only problem that bitcoin has is that stupid people do not want to be free and independent–they demand to be ruled and governed, and to drag us all down with their sad need to be controlled.

These clowns tell me of how pleasurable life is on their knees, and how they are allowed so many of the scraps from the table of Empire! That a life of looking towards the ground is not only a great pleasure, but one of deep honor! These people love their duty to their God of the state, and their masters of capitalism. They will offer any excuse to justify the needs of their master, any reason to qualify the barbarism they execute daily. There is nothing that the state can do that the slaves cannot create a justification for. If these are the very idiots that we must rely upon to help us create our change, I must animate the seriousness of the dilemma in which we have been caught. We shall never succeed if we believe these people will welcome the liberation from Plato’s Cave.

A Confederacy of Dunces

There is a whole union of morons parading about the world as the false champions of justice, dragging innocent dead bodies behind them. How they scream their idiocy from the tops of their lungs:

orewell-1984“War is Peace!

Freedom is Slavery!

Ignorance is Strength!”

See their foolishness for exactly what it is, and let the crimes and injustices which they have taken part in speak directly to what they are. Understand with every fiber of your being that the enemy is not some nameless, faceless army of destruction; but the people in your community that tell you, “This is just the way things must be.”

These are the people that are gleefully celebrate the manufactured democracy of two-party totalitarianism. They are slaves to all of the trinkets they have collected through debt, they militantly pay taxes which are used to create illegal wars, and they demand that the law be respected at all cost–beyond that of even the law itself. They thinking nothing of the meaning of the law; only to obey.

If we are to build a new world, one that is free from the constant transgressions of corrupt states and their allies, we must insist on labeling the slaves for what they are: stupid, weak-willed cowards who would rather have temporary safety, than true liberty.

Forget them and press forward!

Let them stay at their bullshit jobs, where they can ever so happily be paid pennies for their own voluntary enslavement. Let the fools believe their masters of capitalism and the state would ever-so-kindly give them justice; and let them cry tears of shame when they realize the shall never receive it. We have no need for those kind of people to help us build a new and better world.

To Fight the Fascists

Our republic die a sad and quiet death long ago; swept under the rug and ignored by the media and public like all of crimes of the state. We are little more than the aftermath of total liquidation of democracy; the world manifested after the crushing of constitutional rule by weighty corporate hands. From the coast of the Mediterranean, the to the tip of the Arctic circle, and back to the peaks of Patagonia; every nation across the globe has been crippled under the weight of international fascism–the true face of transglobal capitalism. This happened before our generation, are we are the ones that have been left to clean up the travesty of the 20th century, and the bold-faced lies the inept generation before us insist upon being the truth.

Resistance would be nearly-impossible if it were not for the internet, crypto, and bitcoin. Despite the international terrorism that has presented itself under the banner of ‘freedom and democracy for all’ we know the truth for what it is. We need little more than to watch the videos of the aftermath of their drone bombings, extrajudicial killings by police, and politicians who voice their contempt for the very laws that create the throne they sit upon. Their world is slowly and surely slipping away from their grasp of power with each new piece of technology we have. They no longer control our media, communications, or economy–we will move away from them as we build our better world here, preparing to chop off their fat-fingered hands for when they interlope into the land of digital sovereign.

The battle of bitcoin is not for the hearts and minds of the people of the world today, but of the generations of tomorrow. Everyday more of the older generation who are suspicious of the internet are dying off and dwindling in numbers, while droves of brilliant young people from all around the globe find refuge in the internet, away from the tyranny of life as slaves under state capitalism. Great ideas take time to build, as if great rumblings of thunder before the lightning strike of revolution.

The Truth About Bitcoin

bitcoin-revolutionThe simple matter of the facts is that bitcoin is a both a better payment system, a superior form of money, and the most powerful mode of economic resistance that world has ever seen. Lies, fear-mongering, and doubt all sort themselves out with enough time–and time is on our side. Bitcoin is barely 6 years old, and really only 4 years of that has it had any commercial application. Over the next 4 years the myth of fiat money will show itself for exactly what it is: a myth.

People are pissed off about the general illegalism, corruption, and graft that is the norm for banking and government cultures alike, and frankly there is little that can be done about it. Institutions of justice time and time again have proven themselves to be corrupt to the core, with no interest in defending the rights of the common people, or respect the laws as they stand. Due to the cozy relationships banksters have developed with governments from greasing the palms of politicians, they are given special treatment so they may operate outside of the law with impunity. If we are ever to reestablish the rule of constitutional law over our governments we must demand that people understand that our republic was lost to the very people who take oaths to protect it.

The considerable amount of lies, stupidity, and idiocy spouted by the trolls and detractors will come to bear the truth of their nature over time. Their lies about bitcoin, governments, and the ‘dangers’ of independent money are out in public for everyone to see, and to act as a testament against them in the coming years. Their words will be as bankrupt and hollow as their money; and people will seek for themselves the truth of what bitcoin and digital currencies can do. If people want to discover how to liberate themselves from an economy ran by gangsters in banksuits, and fascist masquerading as politicians, and it is simply a matter of time before they discover that for themselves. As for everyone else; they can keep their chains and I’ll take my liberty.

Next: Class Consciousness of The Digital Age

Gresham’s Law and Bitcoin

Over the last few years there have been a number of papers and blog post on Gresham’s law and bitcoin. Most of these have rudely proclaimed that bitcoin will die because of Gresham’s law–ironically, it will be fiat currencies that will die because of that law, not bitcoin. This is because the real value of fiat money is always going to be lower than the real utility value of bitcoin. As the illusion of fiat money is exposed for what it is, the value of bitcoin compared to it will continue to go higher, and higher.

Gresham’s Law, Real and Nominal Values

Gresham’s law dictates that bad money will drive out the good due. This is due to the fact that ‘bad money’ is overvalued so you want to use it; while good money is undervalued, so you want to save it. Thus, consumers will get more bang for the buck using the inferior money, and will benefit from hoarding the superior money.

Let me elaborate in an example using a $100 bill and a 1oz Gold Double Eagle $20 coin. In terms of the recognition of value, the $100 has a higher nominal value than the $20 coin. However, one would be an idiot to spend the $20 gold coin on $20 worth of goods, as the gold coin’s commodity value worth well over $1000. This is why we don’t see $20 gold coins floating around–people have ‘horde’ them up so those coins are no longer in the money supply.

This is what is meant by the saying of Gresham’s law: bad money drives out the good. Please see difference my post The Legal Politics of Money for more details on the difference between nominal value (valor impositus) and real commodity value (bonitas intrinseca).

In contemporary society, we have a hard time understanding that ‘money’ is really just a catch-all term for ‘object of exchange value.’ Really anything can be money–gold, bushel of wheat, salt, seashells, etc.–what is important about money is that it is an equal and standard measure. Because governments have historically fix fiat money’s value to something (in the case of the 1oz gold coin, it was $20, as that was the rate that the FED honored from 1913 to 1933–1oz of gold was = $20) it creates two values: real and nominal.

This means ALL money has two values–a real commodity value, and a nominal value. The commodity value is the worth of the object that the money is made of; such as the gold the coin is made from, or the paper that a dollar bill is printed on, or the electrical energy that is spent on mining bitcoins. This commodity value will always be independent of the nominal money value of money.

Historically, governments always ‘pegged’ the nominal value of government money to the commodity value of gold or silver. Today however, because dollars are not pegged to anything and are free-floating, the value of dollars are decided by the market alone; just like bitcoin. Dollars today are only and explicitly nominal values–as the paper they are printed on is just that–paper that has no commodity value other than being legal tender. People can assess those two values (nominal vs. commodity) against one another and decide for themselves what is more advantageous. That which is seen as ‘bad money’ is spent, and the ‘good money’ is saved for a later date when its value has increased. The ‘demand’ for money is called liquidity preference, as the demand of each monetary unit and it total value is also affected by how liquid it is, and how willing people are to accept it.

double eagle gold coinIn short:

$20 double eagle gold coin; nominal value = $20

$100 bill; nominal value = $100

These are the values that these monies have because of the nominal, set values by the government.

$20 double eagle gold coin; real commodity value = around $1200 because of the 1oz of gold it contains

$100 bill; real commodity value = Around $0.13 per bill to produced because it is just fancy cotton.

Money has two independent values : the nominal value, or the set price that the government will value that money at; and the real commodity value–the price that money has because of its own intrinsic commodity value. This is why dimes made before 1964 have vanish from the supply–as the silver they are made out of is worth at least $1, thus it becomes a better option to spend zinc dimes (post-1964) that are worthless than $0.10 per coin, vs. spending dimes that are worth more than $0.10.

The Value of Fiat Money

peso-to-dollarFiat money by definition has no intrinsic value. The only the value that fiat money has is the threat of legal force if someone refuses it. This is why the value of fiat money is directly tied to the legitimacy of the governments that issue those currencies. Right now, we are seeing a collapse of the Argentina peso (again), which is due to the government’s refusal to pay it debts. This in turn has lead to a crisis in confidence of the monetary stability of the peso, which has caused for a self-fulfilling prophecy of people and investors fleeing the peso.

As people dump the peso for other options (mostly dollars due to exorbitant privilege), the value of the peso goes into free fall because there is far too much supply and not enough demand. This causes for the value of the peso to plummet, and people want to get rid of their peso as fast as possible for something that can hold value. This can be commodities, cars, property, foreign currency, or anything that can help them store value and not quickly evaporate under the 56% inflation they are currently facing.  As this process builds, one of two things happens:

1. The value of the peso collapse far enough for supply and demand to meet, and the value will start to stabilize, abated after losing a signification amount of it’s value.

2. The peso is continually dumped, the value will go into almost total free fall, and hyperinflation will ensue.

It is important to understand that hyperinflation is linked to a dramatic rise in the velocity of money, as people are trying to transact with that money almost immediately, as people want to get what their money is worth, and not lose 50% of their purchasing power. Furthermore, this problem then tends to be exacerbated by government printing more money to try to deal with price increases, which further expands the money supply of a market that is already oversupplied with a money no one wants.  For more details on how hyperinflation and velocity of money operate together, please see this page.

Working Towards the True Value of Bitcoin

When we look at bitcoin from the lens of Gresham’s Law it is rather impossible to determine if bitcoin is overvalued or undervalued; as by definition, whatever the market price is today is the real value. Due to bitcoin’s total elasticity, the value of bitcoin can theoretically fluctuate from millions of dollars in a matter of minutes, with little changing in the market other than perception. If we look closely, there are several indicators which we can use to see if bitcoin is undervalued or overvalued. Some of these indicators are the transaction volume, the cost of bitcoin mining, the number of market participants, and the bitcoin day’s destroyed metric.

The transaction volume can act as an indicator of the equilibrium of the bitcoin market. We can assume that generally if the value of bitcoin is overvalued, more people will spend their bitcoin than fiat; wheras if bitcoin is undervalued, people would rather spend fiat than bitcoin. However, both miners, and bitcoin based business both need to sell bitcoin for fiat to pay their bills–which in the case of the price dropping precipitously, these buisness would need to dump even more bitcoin, which would accelerate the drop in price. This can lead to dynamic disequilibrium, which is essentially when the market has lost its collective mind, and the euphoria or panic of the digital herd dictates the market and creates a self-fulfilling prophecy that is totally unrelated to the commodity value of bitcoin. What can be seen in any situation of disequilibrium is the velocity of bitcoin is much higher than the norm.

Velocity Adjustment of Bitcoin

If bitcoin is undervalued, than transaction volume will continue to drop, tightening the money supply until equilibrium price has been met. If bitcoin is overvalued, then the supply cannot meet the demand, and the price will rise until equilibrium is met.

The value of bitcoin pulled between the social value of the network at the current time (short-term), verses the total electrical expenditure that has been spent to create the bitcoin supply today (long-term). This creates a moving target for what the ‘true value’ of bitcoin is. The higher the velocity compared to the historic gross average velocity of bitcoin, the greater the chance of bitcoin’s price being in disequilibrium. The lower the velocity compared to the historic norm, greater the equilibrium there is.

The fixed supply of bitcoin ensures that the only way to adjust the monetary value of bitcoin is through exchange. When the price is undervalued or overvalued, the transaction ratio compared to the norm will be much greater.

Conclusion

When comparing digital currencies and fiat currencies directly against one another, it is quite clear that digital currencies are very undervalued at this time. There is a clear limit on the number of bitcoins that can be forged, they are backed by the real electrical energy that is expended on bitcoin mining, and there is a huge amounts of VC capital going into building the bitcoin ecosystem. This is no different from the expenditures that go into mining operations for gold, silver, platinum, or fossil fuels. Furthermore, bitcoin and other digital currencies are digital natives, living in the realm of the internet; which is the largest and fastest growing economy in the world. Goverments and their fiat money will always be interlopers in the transglobal internet. Chained to the states they are from, with the slow, inefficent, and backwards idea that state-based fiat money work will in a transglobal economy, they will succumb to the creative destruction of bitcoin. When looking back on 2015 from the vantage point of 2025, it will seem laughable that digital currencies didn’t immediately usurp fiat money. We simply need to look to the history of the failure of fiat currencies to understand that it is not a question of if they will fail, but when.

The issues of the financial crisis of 2008 were never addressed, which has made the entire financial economy today into one huge moral hazard. This empire of paper will topple soon, and it is refreshing to know that in that process, we will be able to take back our financial power, and strike at the very heart of state-capitalism.

Next: The Transaction Cost of Bitcoin

Theory of Digital Currencies

It is obvious to me and many of my peers that contemporary models of economics simply do not apply to the brave new world that we are entering into.  With the advent non-state currencies that are based upon decentralized, federated protocols that are guaranteed by cryptography, math, and privacy, we need a new economic paradigm to move forward. In this blog I will attempt to build a theory of digital currencies that can explain their functions and rise within a global economic system of state-based currencies.

Ultimately, it is my hope to thoroughly explain on a economic level the failures of state-based currencies, and the solutions that digital currencies offer. It is also my hope to start a philosophical dialog about economic liberty, what it means in the world of today, and what sort of moral, ethical, and societal expectation come with economic freedom. It is my hope that this will help explain the horrible distorting mechanism of state involvement in economies that entirely destroys the concept of a free market and replaces it with some notion of national socialism.

Please feel free to leave respectful comments and critiques on any theory that I may present in this blog.