Rumors of Bitcoin’s Death Are Greatly Exaggerated
According to the Bitcoin Obituary Page, Bitcoin died 379 times between 2010-2019 of an astonishing array of causes. The number is undoubtedly understated since it is based on a limited sample of obituaries. Despite the glee with which the corpses of Bitcoin are contemplated, however, cryptocurrency thrives because it continues to fill the human need for privacy and financial control.
Also read: A Sea Change to Crypto Hits America, Again
The Antifragile Bitcoin
The structure of crypto is robust. The economist Nassim Taleb developed the concept of “antifragility” in his book “Antifragile: Things That Gain from Disorder.” Taleb distinguished the concept from resiliency. Antifragile things “benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty … Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
Crypto on a blockchain is viewed as antifragile. In a 2018 blog post on Medium, Taleb explained why. Central banks that are “a perfect monoculture” that all operate under the same centralized model, whereas Bitcoin works in a “distributed” or decentralized manner. Taleb cited Friedrich Hayek’s defense of decentralization, which rested on the superiority of distributed knowledge. Taleb commented, “Well, it looks like we do not even need that thing called knowledge for things to work well. Nor do we need individual rationality. All we need is structure.”
The blockchain structure has no owner, no centralized authority, no need to deal with a trusted third party. The freedom from third parties gives Bitcoin a marked advantage over other private currencies, like gold. “Banks control the custodian game and governments control banks … So Bitcoin has a huge advantage over gold in transactions: clearance does not require a specific custodian. No government can control what code you have in your head.”
The distributed control of “the crowd” not only sidesteps centralized authority, it also offers the diverse innovation by which Bitcoin improves by being tested. Decentralization is its antifragility. Overconfidence would be a mistake, however. Powerful and highly motivated enemies want to destroy free-market crypto, and they should not be underestimated.
How to Kill Crypto
The state and a tech attack by bad actors are the two greatest threats to free-market crypto. The latter is the least worrisome, however. The Bitcoin blockchain is close to unhackable, and innovative development can address other technical problems that arise. By contrast, the state knows where you live, and there is sometimes no escape.
An April 24, 2018 paper by Morgen Peck in the MIT Technology Review is entitled “Let’s Destroy Bitcoin.” Option one in doing so is labeled “Government takeover” and refers to creating a national digital currency. Peck envisions a dystopian future in which taxes are paid through “an algorithm” that “automatically makes a withdrawal from your electronic wallet, in a currency called Fedcoin.” Fedcoin is a digital currency that is issued by central banks with the blockchain administered by the state or institutions under its authority.
Peck sketches the Fedcoin system. “Each bank is responsible for a chunk of addresses on the blockchain. When new transactions come through, the bank validates them in a new block and sends it to the Fed. The Fed then acts as the final arbiter, checking the entries and unifying the blocks into a master version of the blockchain that it makes public.”
To access the system, a person needs to prove their identity and establish a wallet with the Federal Reserve or an approved financial institution. At first, Fedcoins could be purchased for cash; when people become comfortable with the new currency, however, the coins can replace cash entirely. The cashless society would allow the state to tax and impose monetary policy more efficiently. New coins could be minted at will, for example. Blacklists could exclude objectionable people and organizations from participating in the only authorized financial system.
Fedcoin would kill Satoshi Nakamoto’s vision of a private, decentralized currency through which individuals become self-bankers. Or would it?
Can the State Destroy Bitcoin?
For one thing, an effective ban on free-market crypto would require a worldwide effort that would be very difficult to coordinate. National responses to crypto vary widely. Several nations ban crypto, while others rush to embrace it as a money-making proposition. Users tend to shift their money over to the friendly venues. Global attempts to control crypto would resemble a whack-a-mole game.
For another thing, although the state can hunt down miners or users, it cannot destroy an idea. And this is what lies at Bitcoin’s core — an idea, a protocol — a well-known idea and an easily duplicated protocol. Even if Satoshi’s whitepaper had been censored in 2008, the technology could not have been suppressed. At most, it could have been delayed. When crypto inevitably did emerge, it would have an immediate advantage because coding is faster and more adaptive than legislation.
Perversely, a common consequence of censorship or bans has been to strengthen the target, not to eliminate it. There are several reasons. Outlawing things and activities often lends them a cachet or a thrill. Meanwhile, illegality usually hikes the price of an item — drugs, for example — but the item continues to be readily available. Some contraband — drugs, for example — can become more available because they are so profitable that merchants flood into the market.
Saifedean Ammous, author of “The Bitcoin Standard: The Decentralized Alternative to Central Banking,” is among those who believe attempts at suppression encourage free-market crypto. “People think that if a government were to pass a law that bans Bitcoin,” Ammous explained, “then Bitcoin goes away and they get to laugh at us and that’s the end of the story. I think it’s actually the other way around.” A ban would increase public awareness of two realities: if users are willing to risk imprisonment, then crypto must be valuable and useful; and the state is at war with financial freedom. Both insights favor crypto.
Even the severe and showcased punishment of crypto users does not necessarily discourage whatever illegal activity the state presents as justification. Ross Ulbricht —creator of the darknet marketplace, the Silk Road — is a case in point. Arrested in 2013, Ulbricht was eventually sentenced to a double life term in prison with no possibility of parole. And yet, darknets persist. The attempt at suppression of targeted offenders can backlash by making the freedom of crypto more attractive and accelerating the conversion of wealth from physical assets into digital ones.
A state’s best chance to monopolize digital currencies is a three-pronged attack.
1) Issue its own digital currency that competes vigorously by offering legal advantages to users while retaining some practical advantages of the free-market ones, such as speed of transfer.
2) Constantly demonize private cryptos as high-risk vehicles of crime and immorality. Instead of blatant censorship, the state runs a propaganda campaign.
3) Then ban or strictly regulate private crypto. Free-market crypto would become black market and so justify an ever-tightening grip by the state.
“The way for them to kill Bitcoin is for them … to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin,” according to Ammous. “Or, at least, they need to try.” Actually, the state only needs to convince people that free-market crypto is dangerous and state-issue is a safe replacement, whether or not it is true. In short, a money monopoly = safety and morality; freedom=risk and turpitude.
The state needs to convince people fast because the economy is running out of time. The “everything-bubble” — a large and simultaneous bubble in a variety of asset categories — is stretched to breaking, and the center cannot hold. A new currency and payment system could give the banks an air of efficiency and progress, while buying time for the state.
Ammous is correct. The state needs “to try” to recreate crypto as a vehicle of state power. The attempt may succeed temporarily and to some degree, but state-issued crypto will ultimately fail because it no longer benefits the users. If it did, state crypto would not require the force of law. As merely one example: the Bitcoin blockchain is designed to distribute power across a peer-to-peer system that does not allow an authority to rewrite the rules arbitrarily. This is an essential check on the system’s integrity. If a centralized authority controls the blockchain, however, it becomes a database that serves the interests of the state. The blockchain loses its free-market “use value,” which is the private and convenient transfer of money over distance. Instead, the blockchain and its coins acquire a “use disvalue,” which is their cost in terms of surveillance and taxes, including inflation.
Rumors of Bitcoin’s death are exaggerated, but they should not be ignored. Knowing how to sidestep a danger means knowing what and where it is.
Op-ed disclaimer: This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.
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