Bitcoin’s Wild Ride Shows The Truth: It Is Probably Worth Zero

The digital currency’s value depends on it becoming digital gold—or on criminals

There is no chance whatsoever that bitcoin can displace the dollar, for the simple reason that it is badly designed. Bitcoin can handle a pathetically small number of transactions, and uses an inordinate amount of electricity to do so, making it entirely unsuitable to replace ordinary money.

.. Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin. You wouldn’t want to be the person who spent 10,000 bitcoins on two pizzas in 2010, when a bitcoin was worth a fraction of a cent. Those bitcoins are now worth $40 million. But if no one spends bitcoin, it will never get established as a currency.

.. There are two somewhat less ambitious claims for bitcoin that could give it value.

  1. The first is that it is a limited form of money because of its usefulness for dealing illegal drugs and dodging capital controls.
  2. The second is that it is a form of digital gold: an insurance that will keep its value even if governments confiscate or inflate away the buying power of the currencies they issue.

In any currency, the money supply multiplied by how often it circulates equals

  • the price level times
  • the number of transactions.

For bitcoin we can estimate three of the four variables

.. Assume that all drug dealing moves online, that bitcoins circulate as rapidly as ordinary currencies and estimate a $120 billion-a-year market for illegal drugs, and the formula spits out an ultimate value of $571 for a single bitcoin. The more drugs traded, the higher the value, and the more bitcoin hoarded rather than spent, the higher the value.

.. On this basis the recent price of $3,950 is mostly speculation, and J.P. Morgan Chase & Co. Chief Executive James Dimon’s comparison to the 17th-century Dutch tulip mania is apt.
.. the potential to replace gold gives us some figures to work with. Thomson Reuters GFMS estimates there were 2,155 metric tons of gold held in exchange-traded funds. Switch all of that into bitcoin and it would justify a price of about $5,500 for the 17 million bitcoins currently outstanding.

Insurrectionist Civics in the Age of Mistrust

Ghanaians are so frustrated with politics that within his generation of young, internet-savvy guys, no one wanted to be associated with either of Ghana’s major political parties. In fact, the easiest way to lose credibility in the Ghanaian internet community was for someone to declare you a member of the NPP or the NDC, the two major political parties, because at that point, anything you say is assumed to be said purely to score political points.

.. Efo can’t even be seen being too friendly with politicians or prominent members of either party – he avoids even being in the same photographs with people who are closely associated with either major party.

.. Activists in Pakistan and India who collect information on corruption, reporting police or customs officials who ask for bribes, or taxi drivers who cheat passengers, using crowdmapping to document these patterns. Friends in Russia who use the internet to collect resources for people affected by natural disasters and provide relief that the government should be, but isn’t providing.

What these movements have in common is

  • the youth of their organizers,
  • their use of digital media to organize and promote, and
  • an insistence by their organizers that these efforts are not political.

.. the front runners – at least in terms of pundit attention – are people who aren’t politicians – Donald Trump, Dr. Ben Carson, Carly Fiorina – or who are at least very unusual politicians, like socialist Vermont representative Bernie Sanders

..  think we’re at a moment of very high mistrust, not just in government, but in large, powerful institutions as a whole. And I think if we want to revive our civic life, we need to think about a vision of civics that’s appropriate for an age of widespread mistrust.

.. Where trust remains high is in a set of nations that includes successful autocracies like UAE, Singapore and China, countries that have made an implicit deal with their citizens that economic advancement will come at the expense of constraints on democratic participation.

.. Hayes suggests that the most significant divide in US politics today is not between left and right but between “institutionalist” and “insurrectionist” approaches to civic life. Institutionalists believe we need to strengthen and rebuild the institutions that have brought us this far, while insurrectionists want to overthrow the power of those institutions and either build new ones in their place, or see whether we’re able to exist without these sorts of institutions.

.. At MIT, we’re in the midst of an entrepreneurship craze – you may be experiencing this at Syracuse as well. The coolest thing you can do as a college student is graduate – or leave before you graduate – and found a startup. The lamest thing you can do is join a large, established company – and large, established companies no longer mean IBM or Bank of America, they include Google.

.. There’s a strong sense that the way in which you can leave your mark on the universe is not through existing, powerful institutions but through small, nimble structures that haven’t yet had time to become calcified and bureaucratic.

.. Reverend King and the rest of the movement had to influence a government that was capable of passing these powerful and sweeping laws. I don’t have confidence that a march on Washington could have this effect today, that our Congress could pass reforms on this scale. And if we can’t march on Washington, where do we march?

.. The model pursued by the civil rights movement is one we still use today: elect the right people to office, and influence them so that they take action on the issues you care about. In other words, our power as citizens comes from influencing the institutions that govern our country. The NRA are institutionalists when they work to influence legislators to oppose any gun control, and the Human Rights Campaign are institutionalists when they work to bring equal marriage to the Supreme Court. Despite radically different points of view, their core methods are similar, and they both depend on confidence in these core civic institutions.

.. But change is lots harder for insurrectionists. If we decide that Congress no longer represents the will of the people – because members are so beholden to donors, because representatives now have to speak for 700,000 people rather than the 30,000 they spoke for when we founded the nation, because partisanship is so high that very little legislation gets passed, then any strategy that involves Congress – whether it’s elections, lobbying, letter-writing campaigns, sit-ins, or even marches – can’t accomplish major change.

.. And so, often, insurgents are revolutionaries. They have lost confidence in the possibility of making change through any existing institutions, so they wanted to smash them all and start again. That’s what we saw in Tunisia, in Egypt, in Libya, Syria, Yemen, Bahrain and Sudan, countries where cartoonish dictators had ruled for years and where every institution of the public and private sector was part of an unjust system. And when people rose up against those governments, we tended to root for the revolutionaries, because it seemed absurd and impossible that these corrupt institutions could be reformed or changed.

.. But it hasn’t gone so well for the countries of the Arab Spring.

.. In Egypt, we discovered an uncomfortable truth of revolutions – if you topple a powerful authority, the likely outcome is that whoever was next most powerful and organized will take power: in Egypt, it was first the Muslim Brotherhood, then the army, an institution that has demonstrated that it’s capable of the indignities and cruelties of the Mubarak regime.

.. Revolutions where we replace existing flawed institutions with new, different institutions are exceedingly rare.

.. many people involved with Occupy would argue that the movement had difficulty governing itself within encampments, never mind scaling the model of General Assembly to govern a city or a nation.

.. I’m seeing lots of examples of a third way, a form of civics that starts with a simple question: “What’s the most effective way I can be a civic actor?”

.. I’m deeply frustrated – ashamed, really – by US government surveillance of domestic and international users of the internet by the NSA, as revealed by Edward Snowden and the journalists who worked with him. But I don’t have a lot of confidence that either President Obama or this Congress will make more than cursory changes to our surveillance apparatus… and I’m not sure how I’d even verify that these changes took place, given the NSA’s track record of lying to Congress.

.. friends who work developing open source security software tell me that they have a very hard time flying in the United States due to frequent supplemental screenings.

.. So maybe surveillance doesn’t have you worried. Climate change should. But it’s been fascinating to watch entrepreneurs look for ways to make money and make change around alternative energy

.. We need to change the norms of our society so that black men and boys aren’t automatically viewed as potential threats.

.. There’s a tendency to dismiss online activism as slacktivism or clicktivism – and no doubt some is. But online activism can be very powerful as well, particularly when it comes to shaping norms.

.. iftheygunnedmedown was a campaign to call attention to the images used to portray Michael Brown after his death. Media outlets found Brown’s Facebook account and chose a picture where Brown was photographed from below, giving prominence to his height. Media

.. The Root found another Facebook photo in which Brown looks much less intimidating, and juxtaposed the two, asking “If they gunned me down, what picture would they use”,

.. how news media portrays a victim has influence on whether we see that victim as innocent or culpable. The campaign quickly became participatory with African Americans selecting pictures from their Facebook accounts that portrayed them at their most and least “acceptable”.

.. Many newspapers changed the image they used to depict Brown

.. iftheygunnedmedown is evidence that online campaigns can shape media more broadly, and perhaps shape norms.

.. Some of the most ambitious experiments in insurrectionism are trying to build a world without institutions at all

.. promoters of bitcoin hope that these distributed architectures could provide a powerful new way to govern legal contracts, eliminating the need for branches of government and judiciary

.. This month, Alabama announced they were closing 31 DMV offices across the state, including every one in counties where the population is 75% black. Black and white people have an equal right to vote in Alabama, but voting in Alabama is likely to be deeply inequitable.

.. “Monitoring” sounds passive, but it’s not – it’s a model for channeling mistrust to hold institutions responsible

.. They would follow police patrol cars and when officers got out to make an arrest, the Panthers – armed, openly carrying weapons they were licensed to own – would observe the arrest from a distance, making it clear to officers that they would intervene if they felt the person arresting was being harassed or abused, a practice they called “Policing the Police”.

How OpenTimestamps ‘Carbon Dated’ (almost) The Entire Internet With One Bitcoin Transaction

As we all know the Australian scammer Craig Wright produced a similar PGP message with a fake backdated PGP key. We know that key is a fake for a lot of reasons, including the fact that it doesn’t match the Wayback Machine’s Jan 2011 snapshot of bitcoin.org.

And yes, I signed that message with a different key too. But I have an explanation: you see, I stored all the Satoshi Nakamoto pseudonym stuff on a MicroSD card, which I lost in a tragic house fire right after Gavin visited the CIA. But you see, I actually had to delay the publication of Bitcoin a few months when I realised I needed to add smart contracts to it, and I just found a backup from that attempt. I uploaded it to the Internet Archive a few months prior to releasing Bitcoin:

By consistently timestamping all Internet Archive content, we make attacks like the above easy to detect. The OpenTimestamps proofs we’ve generated are traceable back to the Bitcoin blockchain, a widely witnessed data structure with timestamps that can’t be backdated. Even with a sysadmin’s help, the best the attacker could do is create a modified file that’s very suspiciously missing a timestamp that all other files have.

Bitcoin never resolved its constitutional crisis

At the same time Bitcoin startups were struggling last year, the community of Bitcoin developers was going through a controversy that I described at the time as a constitutional crisis. Bitcoin’s creator Satoshi Nakamoto initially designed the network to only process a few thousand transactions per hour. That was plenty when Bitcoin was in its infancy, but as Bitcoin grew more popular it started to be inadequate.

Increasing the network’s capacity isn’t difficult from a technical perspective, but proposals to address the problem encountered a lot of resistance from Bitcoin purists. They worried that boosting the network’s throughput would increase the amount of computing power required to participate in the peer-to-peer Bitcoin network, consolidating power in the hands of large companies. And, they said, this was exactly the kind of concentration of power Bitcoin was created to prevent.

.. This esoteric debate became increasingly bitter, splitting the Bitcoin community into two warring camps. Ultimately, neither side really won the argument. But because the Bitcoin network works by consensus, advocates of maintaining the status quo won by default. As a result, there have been only modest, incremental improvements to the network’s capacity. Bitcoin users have suffered from longer delays completing payments and higher fees.

At this point, there are no real prospects for making the kinds of significant changes that would be required for Bitcoin to become a mainstream payment network akin to Visa or MasterCard. Defenders of maintaining the limited capacity of the existing network have proposed technical workarounds that, they claim, would allow many more transactions without modifying the core Bitcoin software. But this technology is still in the experimental stages, and critics question whether it will ever work well enough.

.. The larger problem, though, is cultural rather than technological. “I think of the Bitcoin community as very political and ideological,” said Eli Dourado, a Bitcoin expert at the Mercatus Center at George Mason University. There’s now a deep rift in Bitcoin’s technical community, and people on one side of the rift are skeptical of making any significant changes to the software.

..  But another big advantage of Ethereum, Dourado argues, is the greater pragmatism of Ethereum’s developer community.

“The Ethereum community is driven a lot more by an engineering mindset,” Dourado said. “People say ‘let’s try it and see what we can do.’”

.. But Bitcoin’s most serious problem may have been something more basic: Nobody has figured out how to make the technology useful to ordinary people.

.. Bitcoin is far less significant than conventional cash. There is more than $1 trillion in $100 bills in circulation, and a large fraction of that cash is used for illicit activities. The Bitcoins in circulation, in contrast, are only worth about $10 billion.

.. The main thing people do with Bitcoins, Sirer told me, is buy it and hold onto it.