52:36/ 118 words
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Greg Johnson, Matt Parrott, and Michael Polignano talk about Bitcoin currency. Topics include:
- What are Bitcoins?
- Is Bitcoin deflationary?
- The potential for other digital fiat currencies
- Bitcoin vs. Social Credit (see Greg Johnson, “Money for Nothing“)
- The Ezra Pound: a hypothetical digital fiat currency that realizes Social Credit aims
- What is the likely effect of Bitcoin on central banking?
- What are the potential consequences of Bitcoin for the New Right?
- Can a global currency promote local, tribal autonomy?
- The intellectual bankruptcy of the Left
- The danger of Right-wing Caesarism to the New Right
13 Comments
If allowed to flourish, Bitcoin would progressively exterminate sovereign States worldwide on a permanent basis by robbing them of their ability to tax people through taxation and inflation, and precipitate the coming of an anarcho-capitalistic, cyberpunk world dreamed by sci-fi writers such as Neal Stephenson — no money, no army.
Such perspectives sound fantastic, but a bit too idyllic to me. Do you really think States will accept to become irrelevant, when they have stuck around for so long?
While outlawing the Internet is not a perspective to consider without laughing, there are many tools remaining. One of them, not often considered by the Bitcoin community, is to launch a rival “Internet currency” with massive institutional support, and without, probably, its deflationary and closed aspect. The masses will embrace it, and Bitcoin will remain forever the currency of outlaws and shady people.
So, Bitcoin is a fascinating concept (those who don’t think this way probably don’t understand it), but it may not be a good long-term investment for the speculators among us.
Deviance,
The BitCoin Bullish response to that is that even a competing currency which they controlled would be their undoing, as it would still preclude their taxation, inflation, and seizure of wealth which the current monetary system facilitates.
It would be sort of like iTunes, with the labels only grudgingly agreeing to the paltry royalties after their monopoly had been thoroughly rounded and their business model existentially threatened.
I don’t think the “no money, no army” thing is accurate. I think that’s an economic reductionist position which is only accurate in the West: where everything’s been reduced to economics.
If anything, I don’t see this as being especially disruptive for most of the world. Governing oligarchies will still have the force and influence necessary to maintain control, except those which exclusively base their power on financial manipulation. I see it as being only moderately disruptive in Latin America, Eastern Europe, East Asia, and the Muslim World . . . places with natural and obvious traditional groups of one sort or another poised to lead the masses despite lacking the power to bribe or blackmail.
It’s not correct to believe that, in the current system, the government is dependent on tax money to fund itself. Tax monies are destroyed by the Treasury, upon their arrival. Tax monies are not reissued by the Treasury. When the Treasury needs money to fund itself, it sells treasuries.
The powers that be derive their power from usury. They take something like 45% of output each year, or the difference between GDP and income. It matters not whether it’s done over the internet, over the phone, or in the woods.
Usury creates a deflationary environment in that there is always less money than debt. Because there is less money than debt, some businesses have to fail, and capacity must always be underutilized. Gold and bitcoins are deflationary in that they are not mined at the rate of economic growth. If there isn’t enough money, the economy will not run at full capacity, just as if there aren’t enough tickets, the train can’t be full of passengers.
One type of deflation, then, is the result of economic sabotage; the other is just kind of dumb and unnecessary.
If Bitcoin can remain beyond the reach of the tentatacles of governmnent and central bankers, I shall continue to use it, more often and in larger quantities, as a fast, convenient, low-cost means of transferring value over long distances and across borders. Its primary value to me would be its ability to safeguard privacy. It would seem an excellent complement to gold.
I do not share Dr. Johnson’s fear of deflation, so long as willing buyers and sellers are free to use whatever medium of exchange they voluntarily agree upon, thereby subjecting Bitcoin to market discipline and allowing it to succeed or fail in competition with other currencies (including gold and silver) based on its ability to fulfull legitimate needs.
In a strictly arithmetic sense – if my understanding of its basic concept is correct – Bitcoin cannot deflate. Its algorithms do limit its rate of inflation and eventually fix its supply. Also, each coin is divisible down to 8 decimal points IIRC. As with any currency, owners can save their coins, removing them for shorter or longer times from active circulation, until they choose to spend or convert their coins, but no single coercive entity, such as a central bank, can arbitrarily remove them from existence. Of course Bitcoin’s value as measured against goods and services fluctuates, owing more to other economic factors, such as the deepening global crisis, than to changes in the quantity of currency units.
Deflation means that the value of money rises relative to commodities. Since bitcoins are limited to 21 million, if they became the currency of choice, their value would increase relative to commodities which can grow in number. So that would be deflationary. Of course that would only be a problem if Bitcoin became the only currency, and specifically if Bitcoin became the currency in which loans were denominated.
Greg,
I think all parties agree that the BitCoin algorithm is integrally deflationary, but there are some arguments that this situation may not be synonymous with historical deflationary crises. For starters, the fully digital nature of the currency ensures that a “grapes of wrath” scenario where there’s literally not enough cash to go around is unlikely to be as acute. A man with one single BitCoin has 100,000,000 “satoshis”, and the consensus appears to be that the algorithm can be tweaked to enhance divisibility even further with minimal network disruption.
Furthermore, there’s a difference between algorithmic deflation and central banking deflation. The economic grief that comes with either inflation or deflation don’t come so much from one or the other, but from the consequences for those who had not anticipated one or the other. If I agree to pay you $20 to mow my lawn next week, then I’m hosed if there’s unexpected deflation and you’re hosed if there’s unexpected inflation because the agreement was made with a shared expectation about the future value of $20.
It’s the expectation about the direction, not the direction itself.
After all, loans can be made at negative interest if deflation is expected by all parties in a free market to continue at a predictable pace.
Ultimately, I depart from social credit theorists in believing that central banks are integrally incapable of creating wealth or helping the economy at all. They can distort wealth by shifting it from one faction or another, or borrowing against one generation in favor of another. They can destroy wealth by creating uncertainty or misallocation of resources. But they’re sort of like the 90’s music industry, parasitic monopolists who imagine themselves patriarchs and stewards of the system they control. Music industry execs were integrally incapable of creating artistic value, and the atrophy of that industry has not resulted in an atrophy of creative output (no real increase, either, admittedly).
Matt Parrott in blockquotes:
In fact, negative REAL interest rates are a very common occurrence at the highest levels of finance, such as borrowing from the Fed discount window, or when they accept a negtaive rate of return for safety, such as when people moved into the Swiss franc in fear of massive inflation in the West, in general, and America, in particular.
Structural issues:
One, Dr. Johnson hits on an issue addressed by Carroll Quigley, the metahistorian, who spoke of the importance of deflationary policies from a banker’s perspective; they love it.
Two, Bitcoin has been granted approval to start a bank in France. It’s legal, it’s live, and it’s growing in acceptance.
Three, Bitcoins went up in value as Spaniards are fleeing the expected expropriation of their banking deposits. It will be exciting to see the Bitcoin cross if Bloomberg updates its terminals to acknowledge what Bitcoin seems to be.
From the perspective of settlement of international trade, it’s the digital equivalent of gold. Fixed in quantity, it is much less amenable to market manipulation that gold has become, particularly with the “paper gold” ETF’s.
It’s look likes the stalking horse for the new transnational currency regime, formally developing into the new external dollar/yen/euro,/whatever, giving rise to two currencies; one national, and largely digital, and the other transnational, and totally digital.
It looks like the possible foundation of a new reserve currency.
Look at the recent papers done on it from the ECB. They really have so few grounds to attack it, they are left to condemn it with faint praise. Indeed, it would seem to fulfill the IMF’s SDR dreams beautifully.
I liked Matt’s comment at the end about the “New Right,” as it were, being more accurate in its predictions than anyone else. I think there is considerable evidence for this. Back in the 1990s, while the rest of America was celebrating the “holiday from history,” thinkers on the Right both there and in Europe were predicting that the future was going to be defined by a conflict with Islam. And going back to the 1990s, when everyone else was rejoicing in the economic bubble of the latter part of the decade, thinking that it would last forever, and into the 2000s, people on the Right were predicting an imminent financial crisis unprecedented since the 1930s. During the 1990s I also recall New Rightists asserting that there would be a resurgence of Russian nationalism, whereas the idea that was in vogue in the popular consciousness was that, at best, Russia was going to become a sort of imitation of the U.S., or else devolve into Third World oblivion. So, yes, just in the last 20 years of my experience with the “true Right” we’ve seen that our ideas have helped us make predictions that came closer to the mark than anyone else’s.
Timely. Anthony Migchels sums it up nicely here:
http://realcurrencies.wordpress.com/2013/03/29/bitcoin-blessing-or-a-trap/
You guys did a tremendous job of outlining the potential of digital currencies, but I feel like something is being overlooked. Because of the nature of usury, wealth ends up at the top. The folks who create the money already own the factors of production, in a very real way. They have for some time.
http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html
Excerpt:
“When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.”
Mine as many bitcoins as you like, but so long as they do not have the potential to make demands of the global goods-producing machine, they matter little. Like gold, these tokens can only be spoken of in relation to actual currency, which bears the characteristic of being useful in registering a demand on the system. Greg called the tokens a commodity. That sounds right. If the bankers who own the thousands of transnationals which make modern life possible begin accepting bitcoins to their own detriment, then bitcoins will be useful in destroying the Great Satan.
The same sort of thing is true for the Golden Dawn proposal. They can print and issue money, but the factors which make modern life possible largely exist elsewhere. Greg said that the “people in Greece will start trading with that currency”. This again gives the impression that the modern economy is one in which people produce things and trade them with others. This is not accurate. The vast majority of people produce nothing and largely exist to consume things, thus enabling the global goods-producing machine to continue producing.
All of this is to say that we’ve largely lost our cultural inheritance, as Douglas might describe it. At some point, we’ll have to admit that we’ll need to rebuild from scratch. If we want to take our machines back from the bad guys, we’ll have to build new machines, thus obviating any need for taking back the machines.
One thing I meant to ask Matt about is the whole idea of “mining” Bitcoins by having one’s computer grinding away in the background solving puzzles. Is there any reason for this? Or is it just the expression of some sort of labor theory of value? Why not just deposit a certain number of coins in the wallet of every new Bitcoin participant?
Greg,
The problem of creating scarcity is solved by BitCoin through requiring the nodes to do unnecessary “homework”, with the early adopters having had (and arguably continuing to have) an unfair advantage over later adopters. The problem with your proposition is that you’re either vulnerable to smurfing (one guy creating thousands of new wallets) or to a compromise of the network’s anonymity (one of its cardinal advantages in attracting participants and ensuring fault tolerance).
This is all very speculative, but I suppose that an algorithm more aligned with your “social justice” motives might be one which rewards “Pounds” for somebody deciphering some garbled speaking or scanned text (like a captcha). That way, the finite resource would be human thinking rather than some scoundrel with a bunch of graphics cards rigged up in his basement. Presuming a bunch of old books could be dumped into the system, all that “work” could result in the digitization of large volumes of information.
One thing I meant to ask Matt about is the whole idea of “mining” Bitcoins by having one’s computer grinding away in the background solving puzzles. Is there any reason for this?
“Mining” is the procedure by which counterfeiting, forgery and double spending are prevented. It is integral to the function of bitcoin. A counterfeiter would have to have more computing power than the mining network (around 60 Terahashes / sec) in order to forge a transaction. It is not makework for the purpose of dishing out bitcoins.
In the short term, this correlation is my concern:
http://imgur.com/VeGYExV
These charts provide a lot of insight into the bitcoin economy
http://blockchain.info/charts
US Government Seeks to Regulate [Large] Bitcoin Transactions Under Anti-Money Laundering Rules
http://siliconangle.com/blog/2013/03/25/us-government-seeks-to-regulate-bitcoin-transactions-under-anti-money-laundering-rules/
Bitcoins $/second transaction volume is currently ~6% of Paypal’s volume. Of course Paypal is tiny in comparison to major card companies, somewhere below 5% of their volume.