Some reading for subscribers over the holiday break. I first published this article in 2018, the tricentenery of Law's scheme. The lessons for today's credit bubble are instructive...
Wow! Great Article. Have to read again to trace initiation to failure of Law scheme. As an aside, I sense that the BitCoin hysteria is just another addition to our current fiat demise, i.e., an unknown or contrived Satoshi generates swap of soon to die fiat for an entity having no store of value and no sensible means of use but generating a speculative frenzy. Who invented Satoshi? They (whoever that is) cleverly attached Block Chain to the Bitcoin scheme, Block Chain being a very useful concept for electronically accounting for anything and everything in the future. Block Chain then lends an air of authenticity to BitCoin, which has no value and no physical existence and is not tied to physical wealth nor resources in any conceivable manner. When this BitCoin scheme pops it will be the Ponzi of all Ponzi's. All inventions of value are tied to real/natural resources and this never changes.
Before Blockchain, and since, there are other electronic transaction systems. File lock and record lock are key elements. Blockchain is just one good way to execute and store such locks across many sets of 'books'.
When we book a holiday online, we can almost watch the locks on hotel rooms, flights, tour guides and so on executing, while all are locked inside our credit card transaction. It's all nested together. Same with trading stocks and moving money.
Point is, these various electronic locks don't actually need Blockchain, though many nowadays use features of that distributed ledger idea behind Bitcoin. It then becomes semantics, how we define these concepts.
And unless we somehow agree to adhere to just one rather peculiar semantic perspective, it's been perfectly clear all the time to everybody involved - to all of the world's Blockchain programmers for example- what is really going on with Bitcoin. It's also called tulips.
Crypto functions, with its required semantics, to obscure recognition of situations regarding money or credit.
And as it happens, the US use of it as a delaying strategy is now becoming definitive. This alone will set Bitcoin's apparent $ value through 2024, as Bitcoin has - through this increasing semantic embrace - recently become entirely a political derivative.
The question is, can today's US political system develop and support the required semantics in time? If money defined as enforcable debt fails, for example? How far is it today from Washington to New York?
I don't own BTC and probably never will. However it's important that we consider their arguments so that we are not simply being as dogmatic as the BTC advocates.
Gold has value because people ascribe value to it in the form of exchanging currency for physical. Gold itself has no intrinsic value. You can't eat it. It has some limited industrial use but nothing equal to it's current value.
BRC has value because people ascribe value to it and are willing to exchange currency for it. BTC itself has no intrinsic value, itself being little more than a identifier tracked in a ledger.
Part of Gold "value" is that it is rare and expensive to extract and refine. Likewise, BTC is rare (even more rare than Gold will the total number of BTC possible being 21 million (of course each of those 21 million "coins" is subdivisible by 100,000,000). Just like Gold, each BTC is expensive to mine
"BitCoin, which has no value and no physical existence and is not tied to physical wealth nor resources in any conceivable manner"
Every word in the above quote can also be ascribed to Gold (except of course that Gold has physical existence which the BTC folks would characterize as a disadvantage over BTC (ie it's very heavy and difficult to move and secure)). The BTC side would argue that Gold only has value because of it's history and peoples habit of belief conditioned by that history but they would deny any intrinsic power in that history.
Gold is held in vaults by public and private entities. The great controversy about how much gold resides at Fort Knox tells us that the fact that Gold is physical does not mean we know who possesses it of if that which is claimed to be in possession is actually there. The BTC folks will argue that with BTC, the history of every single Satoshi is traceable in the BlockChain - Last time I read, the BlockChain is 600 gigabytes encoding around 130 million transactions.
I want to repeat, I don't own BTC and don't plan to ever own any. But we cant be dogmatic, we must think through all the arguments carefully and come to clear understanding of where the flaw in BTC arguments resides not for the purpose of persuading BTC advocates but for our own peace of mind regarding the validity of our understandings.
Now I want to try my hand at arguments against BTC.
1) BTC depends on miners and nodes to maintain and validate the blockchain ledger (proof of work). This is the consensus model that BTC advocates say replaces the need for institutional trust. But is this true ? New versions of the BTC protocal do get released, that means all the working nodes eventually have to consent and adopt the latest "version". I don't know how that works but we can be certain that some players in the space have more influence than others. Is this "transparency"....we don't even know who invented the whole thing????
2) When the last coin is mined in 2040, the entire system will change over to charging fees payable to the miners. I think this may already be happening, but I am not knowledgable enough to understand how the economic incentives will work to either cause consolidation in the number of miners or expansion and how this will impact the whole consensus arrangement. I heard that whomever can control 50% of the blockchain processing (mining) can control it's future. I'm sure advocates will tell me that is impossible - like herding cats...but how would I ever know.
3) BTC depends completely on the existence of a large, complex economic framework called the internet which in turn rests on a gigantic pile of industry and knowledge (semiconductors, telcos, computing). How resilient is all this really ? We could go back to the stone age and my Gold would still be my gold defended with a obsidian pointed spear perhaps, but the gold would still be there. Highly unlikely scenario but not impossible and there are degrees of collapse.
4) Watching BTC over the last few days in USD terms it certainly behaves like a levered bet correlated to the S&P 500.
5) An entire "derivative" industry is growing up around BTC. Most players don't seem to trade BC directly, they are trading other coins, through other intermediary exchanges and structures that are linked back to BTC through "stable coins" or other proxies. Has anyone tried to follow the innumerable BTC traders with youtube channels....the jargon is incredibly dense and the strategies often seem opaque to me. My basic instinct is when "opportunities" are presented, that are complex, the complexity is a measure of the probablility that the proposal is a vehicle for cheating you.
I agree, since following Alasdair and others over the last couple of years, I find myself continually asking the question 'what is money'? If all the arguments are considered and discussed, everyones baseline level of understanding should improve.
I doubt that crypto currency penetration in the adult population is sufficient to be such a serious problem. There are foolish opportunities to satisfy every taste, however.
It seems to be currently being exposed by the attempt by the US treasuries supposed backing by Tether, forcefully being supported by the likes of Howard Lutnick, Trump's nominee for Commercial Secretary; this is merely an attempt to enable continued purchase of USTs, failing rapidly, by (effectively) fiatised BTC. Roger Ver's 'The hijacking of Bitcoin' examines this in detail. Undoubtedly Satashoma's concept was honourable imo - a private and rapid incorruptible payment system but this has been corrupted (or hijacked').
I remember it well. I still have the email, amongst others, from Goldmoney. The emails used to come in around 8pm on a Thursday and I so looked forward to them. I did remark to you, under my breath, about it at the time because I found it so heavy going, having to go back over bits of it over and over. I was still reading it at midnight and when I eventually reach the end I did think to myself, how on earth does he do it. Well, here we are 6 years on and I'm still a avid fan. Hopefully it will be a bit easier reading than last time now that I understand you better. All the best 🥃
Edit Note: Correction to my earlier comment. I no longer have the article that I said I did. I no longer have access to it on the Goldmoney site and that's a pity. I had saved many of the "insights" because they were brilliant (well I thought they were anyway).
Excellent article, thanks. Do you see any connection between John Law's activities and Michael Saylor's idea that stable coins and bitcoin could offer an expansion of Treasury debt as well as an ability to repay it?
A Law onto his own...pie in the Skye...beware of Scots bearing gifts and wearing skirts! As well as of Professors of Moral Philosophy morphing into Political Econo-mists. The veiling mists of Phynance now lurking thicker than ever in the swamps of Foggy Bottom and the Piper leading all merrily astray for the grand finale...Credulity, the ultimate Weapon of Mass Distraction...Extraordinary Popular Delusions and The Madness of the Crowds: it takes a Scot to suss out another one.
Wow! Great Article. Have to read again to trace initiation to failure of Law scheme. As an aside, I sense that the BitCoin hysteria is just another addition to our current fiat demise, i.e., an unknown or contrived Satoshi generates swap of soon to die fiat for an entity having no store of value and no sensible means of use but generating a speculative frenzy. Who invented Satoshi? They (whoever that is) cleverly attached Block Chain to the Bitcoin scheme, Block Chain being a very useful concept for electronically accounting for anything and everything in the future. Block Chain then lends an air of authenticity to BitCoin, which has no value and no physical existence and is not tied to physical wealth nor resources in any conceivable manner. When this BitCoin scheme pops it will be the Ponzi of all Ponzi's. All inventions of value are tied to real/natural resources and this never changes.
Before Blockchain, and since, there are other electronic transaction systems. File lock and record lock are key elements. Blockchain is just one good way to execute and store such locks across many sets of 'books'.
When we book a holiday online, we can almost watch the locks on hotel rooms, flights, tour guides and so on executing, while all are locked inside our credit card transaction. It's all nested together. Same with trading stocks and moving money.
Point is, these various electronic locks don't actually need Blockchain, though many nowadays use features of that distributed ledger idea behind Bitcoin. It then becomes semantics, how we define these concepts.
And unless we somehow agree to adhere to just one rather peculiar semantic perspective, it's been perfectly clear all the time to everybody involved - to all of the world's Blockchain programmers for example- what is really going on with Bitcoin. It's also called tulips.
Crypto functions, with its required semantics, to obscure recognition of situations regarding money or credit.
And as it happens, the US use of it as a delaying strategy is now becoming definitive. This alone will set Bitcoin's apparent $ value through 2024, as Bitcoin has - through this increasing semantic embrace - recently become entirely a political derivative.
The question is, can today's US political system develop and support the required semantics in time? If money defined as enforcable debt fails, for example? How far is it today from Washington to New York?
Gold is money.
I don't own BTC and probably never will. However it's important that we consider their arguments so that we are not simply being as dogmatic as the BTC advocates.
Gold has value because people ascribe value to it in the form of exchanging currency for physical. Gold itself has no intrinsic value. You can't eat it. It has some limited industrial use but nothing equal to it's current value.
BRC has value because people ascribe value to it and are willing to exchange currency for it. BTC itself has no intrinsic value, itself being little more than a identifier tracked in a ledger.
Part of Gold "value" is that it is rare and expensive to extract and refine. Likewise, BTC is rare (even more rare than Gold will the total number of BTC possible being 21 million (of course each of those 21 million "coins" is subdivisible by 100,000,000). Just like Gold, each BTC is expensive to mine
"BitCoin, which has no value and no physical existence and is not tied to physical wealth nor resources in any conceivable manner"
Every word in the above quote can also be ascribed to Gold (except of course that Gold has physical existence which the BTC folks would characterize as a disadvantage over BTC (ie it's very heavy and difficult to move and secure)). The BTC side would argue that Gold only has value because of it's history and peoples habit of belief conditioned by that history but they would deny any intrinsic power in that history.
Gold is held in vaults by public and private entities. The great controversy about how much gold resides at Fort Knox tells us that the fact that Gold is physical does not mean we know who possesses it of if that which is claimed to be in possession is actually there. The BTC folks will argue that with BTC, the history of every single Satoshi is traceable in the BlockChain - Last time I read, the BlockChain is 600 gigabytes encoding around 130 million transactions.
I want to repeat, I don't own BTC and don't plan to ever own any. But we cant be dogmatic, we must think through all the arguments carefully and come to clear understanding of where the flaw in BTC arguments resides not for the purpose of persuading BTC advocates but for our own peace of mind regarding the validity of our understandings.
Now I want to try my hand at arguments against BTC.
1) BTC depends on miners and nodes to maintain and validate the blockchain ledger (proof of work). This is the consensus model that BTC advocates say replaces the need for institutional trust. But is this true ? New versions of the BTC protocal do get released, that means all the working nodes eventually have to consent and adopt the latest "version". I don't know how that works but we can be certain that some players in the space have more influence than others. Is this "transparency"....we don't even know who invented the whole thing????
2) When the last coin is mined in 2040, the entire system will change over to charging fees payable to the miners. I think this may already be happening, but I am not knowledgable enough to understand how the economic incentives will work to either cause consolidation in the number of miners or expansion and how this will impact the whole consensus arrangement. I heard that whomever can control 50% of the blockchain processing (mining) can control it's future. I'm sure advocates will tell me that is impossible - like herding cats...but how would I ever know.
3) BTC depends completely on the existence of a large, complex economic framework called the internet which in turn rests on a gigantic pile of industry and knowledge (semiconductors, telcos, computing). How resilient is all this really ? We could go back to the stone age and my Gold would still be my gold defended with a obsidian pointed spear perhaps, but the gold would still be there. Highly unlikely scenario but not impossible and there are degrees of collapse.
4) Watching BTC over the last few days in USD terms it certainly behaves like a levered bet correlated to the S&P 500.
5) An entire "derivative" industry is growing up around BTC. Most players don't seem to trade BC directly, they are trading other coins, through other intermediary exchanges and structures that are linked back to BTC through "stable coins" or other proxies. Has anyone tried to follow the innumerable BTC traders with youtube channels....the jargon is incredibly dense and the strategies often seem opaque to me. My basic instinct is when "opportunities" are presented, that are complex, the complexity is a measure of the probablility that the proposal is a vehicle for cheating you.
Bitcoin is entirely semantics, where gold is entirely physical.
Even tulips were actually far more physical than Bitcoin.
I agree, since following Alasdair and others over the last couple of years, I find myself continually asking the question 'what is money'? If all the arguments are considered and discussed, everyones baseline level of understanding should improve.
I doubt that crypto currency penetration in the adult population is sufficient to be such a serious problem. There are foolish opportunities to satisfy every taste, however.
It seems to be currently being exposed by the attempt by the US treasuries supposed backing by Tether, forcefully being supported by the likes of Howard Lutnick, Trump's nominee for Commercial Secretary; this is merely an attempt to enable continued purchase of USTs, failing rapidly, by (effectively) fiatised BTC. Roger Ver's 'The hijacking of Bitcoin' examines this in detail. Undoubtedly Satashoma's concept was honourable imo - a private and rapid incorruptible payment system but this has been corrupted (or hijacked').
How incredibly is to repeat the same mistakes over and over again.
Satoshi for all good purposes is a shadow (invention) the BitCoin is invisible for all purposes.
Sam BankManFree shows us a lesson not too long ago and the world is asking for more opium.
Thank you Alister for another great lesson on sanity.
Let’s stay grounded.
I remember it well. I still have the email, amongst others, from Goldmoney. The emails used to come in around 8pm on a Thursday and I so looked forward to them. I did remark to you, under my breath, about it at the time because I found it so heavy going, having to go back over bits of it over and over. I was still reading it at midnight and when I eventually reach the end I did think to myself, how on earth does he do it. Well, here we are 6 years on and I'm still a avid fan. Hopefully it will be a bit easier reading than last time now that I understand you better. All the best 🥃
Edit Note: Correction to my earlier comment. I no longer have the article that I said I did. I no longer have access to it on the Goldmoney site and that's a pity. I had saved many of the "insights" because they were brilliant (well I thought they were anyway).
Excellent article, thanks. Do you see any connection between John Law's activities and Michael Saylor's idea that stable coins and bitcoin could offer an expansion of Treasury debt as well as an ability to repay it?
Thank you Alasdair.
A Law onto his own...pie in the Skye...beware of Scots bearing gifts and wearing skirts! As well as of Professors of Moral Philosophy morphing into Political Econo-mists. The veiling mists of Phynance now lurking thicker than ever in the swamps of Foggy Bottom and the Piper leading all merrily astray for the grand finale...Credulity, the ultimate Weapon of Mass Distraction...Extraordinary Popular Delusions and The Madness of the Crowds: it takes a Scot to suss out another one.
"Do ye not know some spot
Where mortals weep no more?
Nope. No Hope! Abandon ship et sauve qui peut.
oi Regi - you iz back- wotcha - you is poet and we all know it.
Eloquent as ever Reginald even though you do call a kilt a skirt😜
Thanks for re-sharing a very interesting article and analysis, Happy Christmas Alasdair.
Thanks. And to you!
Fantastic essay and required reading for anyone with that nagging feeling that something is awry but can’t quite put their finger on it.
A great article Alasdair. It is heavy going and will require a few more readings.
A very merry Christmas and a happy prosperous New Year to you and yours.
Lang may yer lum reek!
Thanks and happy Christmas to you too!