The development and direction of technology, like other human creations, is always subject to the beliefs and the ideological influences of its creators.
Millions currently enduring Windows 10, for example, can confirm that an ideology which wants to own the user and spy on their lives – while depending upon a copyright monopoly to lock the market down – puts a low priority on pleasing them.
Then there is Bitcoin and the various “crypto-currencies”, which are also software creations. Rooted in the financial crisis of 2008 and the great Ron Paul “End the Fed” movement, initially the ideology behind it all was quite libertarian and well informed about the evils of central banking and fiat currency.
Since then, the budding industry has been full of enthusiasm, energy, and innovation – as it always is in boom times. That hardcore zeal, though shaken, was not shattered even through several Bitcoin mini-busts including a loss of over 80% in just three days during 2013.
Many followers however, instead of becoming the all-in, hard-money, Ron-Paulian gold bugs that users of the old “e-gold” system were, have been sidetracked. Financially speaking, their foundation of trust has been built upon the shifting consensus of their fellow Bitcoiners – instead of the basic unchangeable elements of nature as created from the very beginning:
“The LORD God planted a garden eastward in Eden, and there He put the man whom He had formed…. Now a river went out of Eden to water the garden, and from there it parted and …there is gold. And the gold of that land is good.” – Genesis 2
Completely unlike precious metals, Bitcoin is not unchangeable at all. It is, in effect, democratic – and that is the biggest problem.
Origins and Changes
Originally designed by a mathematical mystery man (with holdings now worth $10bn+), Bitcoin is constantly maintained by a small “priesthood” of key open-source software developers.
New “coins” are generated by complex computing calculations that are supposed to resemble the difficulty of mining gold or silver.
Unlike precious metals, the exact maximum amount of Bitcoins is known and fixed in advance (thus far) at around 21 million.
Calculating the cryptographic keys to unlock each “coin” is a task that gets even harder the closer to the 21 million mark it gets. Less, that is, the estimated 20% that have been lost forever…
That task and everything else is managed through a decentralized shared register or ledger called the Blockchain, which is updated, cross-checked and verified by a huge number of “miners” with nests of high powered computing devices across the world. Bitcoins are then stored, received and spent using Bitcoin addresses generated within software “wallets” on phones, tablets, and computers – or with online third parties – while transactions are linked in to, recorded and verified by the ever-growing Blockchain.
Now that Bitcoin has grown, there are many power hungry newcomers – and not just the inevitable state-sponsored infiltrators.
Chinese heavyweight “miners” are far more accommodating to state interests than average Bitcoiners; while institutional investors, if not direct state/central bank actors, are alarmed at financial bubbles elsewhere and looking for a way into the next one.
These new influences, plus some existing interests, are using external legalities and the internal Bitcoin democratic process to pull up the ladder on smaller “miners” and players.
So far, they have had only limited success: “SegWit2x” is the abbreviation for one recent failed coup attempt of big players looking to split or “fork” the Bitcoin software – a process which, to succeed, must be accepted by a majority of miners.
One less harmful compromise (“SegWIt”) did succeed and was incorporated into Bitcoin when a majority began processing it.
But other forks or versions of Bitcoin have been pushed also: “Bitcoin Cash” after a brief bubble seems to be dying off (but who knows?); while “Bitcoin Classic” is yet another attempt to up the “block” or record processing size of the Blockchain.
Like “SegWit2x”, in the name of speed and convenience, this centralizes processing by handing a technical advantage to bigger miners.
So for now, it looks like Bitcoin proper still reigns.
But its rule is tenuous and far from being the “gold standard” that some fans try to claim.
And while Bitcoin Original may not allow inflation per se; the fact that anyone can issue un-backed crypto-coins under another or similar name; and that people keep throwing money at these “forks” or completely new “Initial Coin Offerings” (“ICO’s”); means that – in terms of “money” supply – all the inflation speculators want, they can have.
On top of this, that 21 million “limit” can be infinitely subdivided into units with no significant underlying change in actual value… i.e. zero – which when infinitely subdivided, still equals zero.
This is unlike a gold-backed paper currency in which, although it too can be almost infinitely subdivided, the actual physical amount and so the value of the underlying gold is equally diminished.
But in the present mania, this inflation remains concealed inside the crypto-currency bubble of newcomers pumping it up with new money, and so is not yet showing up as a massive decline in value.
All this being said, at the same time, there are some real benefits to Bitcoin or at least, blockchain technology:
Using this decentralized technology as a global, voluntary, co-operative (and for some in the middle, profitable) payment system is itself of great practical value – for the moment.
Just as long as the market is liquid and others are willing (for some reason) to exchange units of account on the Blockchain for currency or gold, then any competition for banks and established payment systems has to be a good thing.
Of course, to be actually worth anything, the bits and bytes would have to be tied inextricably to something valuable and physical – e.g. precious metals.
But that would require first, that the whole blockchain itself be owned or controlled in such a way that each digital unit was allocated to a physical unit of value. That, in turn, requires trusted depositories and warehouses acting as trusted escrow agents – unless a single blockchain owner is totally trusted to perform all these functions. In which case, there would be little benefit over the old e-currency operators like e-gold, Pecunix, or Goldmoney.
So it is all very well calling worthless digital transactions “trustless” and beyond the reach of governments; but when it comes to backing them with real-world physical objects of value, this presents the same attack surface as do all other financial assets.
So by all means make use of Bitcoin – and call it what you will, just don’t call it money… any more than fiat currency is real money. And which is worse anyway – managed fiat inflation that gradually whittles away value, or a roller coaster bubble that also eventually reverts to its intrinsic value of zero?
There are many practical and beneficial uses of Bitcoin as well as some other e-currencies at the present time. But the lack of intrinsic value is just one of several problems connected with Bitcoin and a philosophy of liberty.