Is it really bad for bitcoin?
You would likely have read about the huge twitter hack on Thursday targeting well known accounts, nearly all of them “blue ticks”. Jeff Bezos, Bill Gates and Elon Musk to name a few.
I take a rather different view. Bitcoin happens to be the currency of the internet age. No hacker or extortionist ever said this:
“I have hacked your account please make cheques payable to Hacker John”
“Please organise a shipment of gold bullion to our hideout at 396 Dense Undergrowth Driveway”
If you want immediate, fast and irreversible settlement you use bitcoin. Fiat money doesn’t belong to you and can be confiscated on any whim of the government.
Bitcoin is a true bearer asset. That’s the whole point and it will become increasingly obvious to people around the world as traditional money is stealthily taken from them in the the next round of inflation.
Remember the Somalian pirates? They demanded their ransoms in USD, it was the most liquid currency and the easiest to dispose of. Nobody claimed the dollar was a tool for evil, it just happened to be liquid and convenient. Well now the USD has been usurped as the choice of immediate and liquid currency. In this case the cause is not a good one, but the factors that make it useful here make it useful everywhere.
Another thing about bitcoin is just how visible it is. We can see from the blockchain that at the time of writing about 350 people had fallen for the scam and it had raised about 6.5 bitcoins, so US$60,000. Imagine hacking one of the largest social media networks in the world, in what is a real technical coup and only making $60k. Frankly, its embarrassing.
“The more you tighten your grip, Tarkin, the more star systems will slip through your fingers.”
Tarkin then blows up Leah’s home planet of Alderaan just to show he means business, but ultimately Leah is right. The moral of the story being it’s rather easy to out outmanoeuvre someone wishing to be all seeing and all powerful.
Here’s a rather more subtle example of an empire tightening its grip. In 1970 the United States approved the Bank Secrecy Act. This was the first iteration of the $10,000 cash reporting threshold. Any transaction or cumulative daily transaction in cash had to be reported, crucially though, this threshold was not index linked in the legislation (much like the creep of tax brackets). Throughout the 1970s the law was just ignored, it was challenged through the courts as unconstitutional, fifth amendment, etc. Ultimately, the Supreme Court decided it was legitimate and slowly the rebels fell into line.
Inflation adjusted, that $10,000 amount would now be $65,000 now, but it’s stuck at $10k and is now incredibly onerous and intrusive.
Anyone who has tried to open a bank account or run a finance business runs in to this kind of regulatory creep and not just the $10,000 rule of course. The US FATCA (Foreign Account Tax Compliance) regulation goes further. For anyone in the finance business who wants to trade in the US you must comply with FATCA, which is effectively reporting all details of non-resident Americans back to the US authorities.
According to the Australian parliament:
“The costs in Australia are estimated to be A$255 million for implementation, and A$22.7M for each year of maintenance. Over 10 years, this totals A$482.68M.With 77,000 resident US citizens (54% of whom are of dual citizenship) and known population of 24,003,100, the estimated implementation cost is A$6,270 per residing U.S. citizen”
So it has cost over half a billion dollars in Australia so far and much more in larger economies worldwide. If you are in the finance business, how often does the conversation turn to “do we bother with the US?”. It’s a genuine consideration now, their laws are so onerous, their industrial prison complex so frightening, perhaps best just to leave them to it.
It is no wonder then that digital currencies are booming. The leading digital US dollar known as USD Tether now has over $9 billion in circulation and it’s daily turnover dwarfs most stock exchanges. Many of those tether (rightly or wrongly) are not subject to the same oversight as currency in the banking system, there are zero reporting requirements. This makes them vastly more useful and it will make the empire tighten its grip even more over time.
That is likely to cause short term casualties but long term defeat for the US dollar. From recollection, the death star did a bit of damage before it went down for good.
While your favourite US stocks were roaring to an all time high, so was bitcoin’s difficulty. Bitcoin mining is a true technical arms race in terms of the speed of processors being used.
Difficulty works like this:
1. Bitcoin is computer code.
2. The computer code says that every block should take 10 minutes to produce
3. This allows all nodes around the world to synchronise
4. To produce a bitcoin block you need to solve a puzzle. The calculation is hard to do but easy to prove as correct when done
5. As more people try to mine bitcoin, the calculation is solved in less than 10 minutes
6. Every two weeks the code responds and makes the calculation more, or less, difficult. This maintains 10 minute block intervals.
It is an incredibly elegant solution to the problem faced by governments. The temptation to print money. In bitcoin, the harder you try to produce blocks (which rewards people with 6.25 bitcoin thereby growing the money supply) the harder it becomes to do.Like clockwork for 11 years it has adjusted every two weeks to maintain the integrity of the bitcoin money supply. Now difficulty stands at 17.3 x 10^12 some 9.5% higher than it was this time last week. It is a very large jump which may be related to the amount of hydroelectric power in China at the moment (because of the rain). This means bitcoin miners there are getting very cheap electricity 24/7.
When the rain stops, difficulty might fall back for a while. Blocks will remain 10 minutes apart and the money supply will be exactly as predictable as it has been for the last 11 years. If you’ve been waiting for artificial intelligence, I’m here to tell you it arrived in 2009.