Fear, Uncertainty and Doubt

The Wall Street Journal ran a story this morning about the fact that bitcoin is having its worst month in three years. The price has fallen 50% in USD since its peak in December and the FUD is everywhere. This is the Journal"s list:

1) SEC halts $600 million ICO.

2) Facebook bans bitcoin and ICO ads.

3) Threat of South Korean legislation.

4) The hacking of Coincheck and theft of $500 million in cryptocurrencies.

5) Tether (a cryptocurrency issued by a company of the same name) and Bitfinex were issued a subpoena in December.

Yep, that all looks bad. Do you want to know something? It always looks bad for bitcoin, and somehow bitcoin rebounds from every problem and it emerges stronger because of the battle testing it has gone through. In the words of Nassim Nicholas Taleb, bitcoin is antifragile.

The history of bitcoin is littered with crises, none bigger than the scandals that followed the arrest of the operator of the Silk Road website and the collapse of Mt. Gox, the bitcoin exchange that was responsible for 70% of the trading volume of bitcoin. Here is a prescient comment from an article titled Don't Panic issued by a prominent bitcoin backer in 2014 as the Mt. Gox storm swirled around bitcoin:

Every month or two, a new crisis emerges. Mt Gox dies and it’s going to destroy Bitcoin. China bans Bitcoin and it’s going to destroy Bitcoin. A mining pool gets too much hashing power and it’s going to destroy Bitcoin! Every so often a new supervillain jumps up from under a rock. Not long ago, Mike Hearn was going to destroy Bitcoin. with redlists and Then there was the legion of evil behind CoinValidation, who wants to track all Bitcoin users. Recently Ben Lawsky has emerged as the latest moustache-twirler out to destroy Bitcoin with his bitlicense superweapon.

The idea that anyone could ban Bitcoin is a joke.....

You know what’s going to destroy Bitcoin? Nothing, that’s what. Maybe a nuclear war or a giant meteor could do it, but not much else. The problem with Bitcoiners is that they think Bitcoin is fragile when it is really antifragile. It is no coincidence that Bitcoin keeps surviving every crisis. It survives because it is immortal.

Daniel Krawisz (2014)

Disclaimer: This is not investment advice.

Bitcoin's Killer App

So the blockchain is interesting, but not yet clear whether it is useful for anything. And investing in bitcoin still looks a lot less reasonable than investing in cold fusion.

Paul Krugman


The root problem with conventional currency is all the trust required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currency is full of breaches of that trust.

Satoshi Nakamoto


The first quote above comes from a Nobel laureate in economics while the second quote comes from the creator of bitcoin and the only one of the two who deserves a Nobel in economics.

Krugman thinks the blockchain does not yet serve any useful purpose. Satoshi understands that bitcoin's killer app is that it allows you to free yourself from the morally corrupt central bankers who can only be trusted to completely debase fiat currency. It really is that simple.

Sure, gold the metal cannot be debased, but it is still controlled by central banks and leaves you exposed to their machinations. The only thing that one can be sure of in the world of economics is that fiat currencies will fail. It is too easy to create them and central bankers just cannot help themselves. This constant printing of money from thin air creates incredible economic distortions, bubbles and inequality.  Central bankers are therefore, deliberately burning down our economic house. The goal now of the governments of the world is to lock people inside this burning building of fiat. Bitcoin is your way out. Heed Satoshi, not Krugman.

Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!

Censorship Resistance

 The internet enabled the free flow of information, terrifying those who wanted to control communication. Bitcoin enables the free flow of value, terrifying those who want to control your money.

Andreas Antonopoulous


It is no secret that free speech is under attack by western governments. Therefore, no one should be surprised that the U.S. government is contemplating nationalizing the 5G network, and shutting out the telecom companies.

It isn't as if the telecom companies haven't been giving the government everything it wants, but nationalization of an important network is more than a little disturbing. The ability to turn off the service of someone whose speech the government disapproves of is a rather serious threat to liberty. Of course, they claim that their involvement is to protect us from Chinese interlopers. I doubt they have much interest in protecting me. The bigger threat comes from the possibility that the government would use their control over the network to spy on their own citizens and squash speech they find offensive.

Here is what I love about the bitcoin community; censorship resistance is a driving force of the movement. We are not just talking about how secure the blockchain is or how distributed is the network of nodes, but these guys are launching and leasing satellites in case the terrestrial networks go down or become inaccessible. Famed VC and bitcoin proponent Tim Draper is launching a blockchain based satellite network, while Blockstream is working on leasing satellites to support bitcoin.

The bitcoin community is making massive investments in censorship resistance on many levels.

Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!

What Shocked Me Regarding Bitcoin

The most shocking thing about my deep dive into bitcoin was how much it changed my view of gold as money.

My initial thought regarding bitcoin is that it represented an inferior form of money relative to gold. Gold was immutable. Bitcoin was not. I didn't think that you could be sure of what bitcoin was going to be in ten years. In fact, bitcoin is a monetary construct created by man, and all manmade monetary constructs have been abused. Gold must be a better form of money than bitcoin.

I was wrong.

The discussion of money generally centers around three properties:

1) It is a unit of account. This means it is an accounting system for value.

2) Store of value (SOV)

3) Medium of Exchange (MOE)

I am going to drop in an excerpt from an email that I sent to some friends regarding an article that tried to make the point that gold was a better form of money than bitcoin because gold is immutable. From the email:
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Down the page we come to a paragraph where the author defines money in the way that just about everyone accepts as truth, but that I now believe is incorrect (I will italicize the author's words):

What is money? Going back to basic economics textbooks, money is a few different things — a medium of exchange, a unit of measure, and a store of value.

The author answers his question:

I would suggest that being a medium of exchange is not the foremost utility value of money, a store of value is.

IMO, this approach is incorrect. Money is a unit of account, an accounting system for value. SOV and MOE are how we use money. The accounting system is the thing and SOV and MOE are uses in the same way that a car is the thing and transportation is how we use it.

This distinction is important. 

We all know gold's impressive characteristics:

Inert

Jewelry usage initially

Only product (until bitcoin) produced not to be consumed

Rare

Difficult to debase because of the above two items

These characteristics helped to make gold money. However, the real reason gold became money is that it made the accounting system for value more difficult to defraud and easier to trust. Because gold has the above characteristics, we trusted it as the basis of the accounting system for value more than anything else that we could come up with....until now. The controversial leap that I am going to make here is that money didn't have value because it was backed by gold, but that gold was given great value (beyond its use as ornamentation) because it was chosen as the unit of account.

The author knocks out a couple of more points that most probably agree with, and they are points I have used to rationalize my own investment in gold:

Gold stores energy in a form that is indestructible. That is the key, right there, in a nutshell.

It is the only element with properties that make it completely immune to the forces of entropy. (author's emphasis)

gold is not just good money, it is the only form of money completely resistant to financial entropy. (author's emphasis)

Here is where the author errs. He confuses gold the metal and the accounting system for value that is based on gold. Gold the metal is not subject to entropy and decay, gold the accounting system for value is. 

Bitcoin's accounting system for value blows away the accounting system based on gold because it has completely done away with centralization (this is why the recent block size debate was so important) and it is audited real time. We always know where all of the bitcoins are. 

Gold is massively centralized and has been since the US accumulated 45% of all of the gold ever mined by 1945. Since that time, the world's central banks have worked overtime to destroy gold as an accounting system for value. They have done this through things like the London Gold Pool, the European central banks disgorging huge amounts of physical gold in the late 1990s through the early 2000s. Today, most gold is still held by banks as custodians (which are regulated and controlled by governments). We also see regular, massive, instantaneous liquidations of paper gold in the futures markets by central banks or their banking agents. This centralization of the gold market and the lack of trustworthiness of those at the center of the gold market has served to make investors fearful of using gold as money.

Gold was important and initially chosen as money because it allowed people to trust the books better than the alternatives of the day. To the extent you trust bitcoin's distributed nature and the cryptography, then bitcoin is a vastly superior accounting system for value and its use as a SOV and MOE will increase based on this superior accounting system. It will become money.

After I wrote the email above, I read the book Digital Gold by Nathanial Popper. It is an account of the early days of bitcoin. In the book, he profiles an Argentine entrepreneur by the name of Wences Casares who is now the CEO of Xapo, a cryptocurrency storage firm. The book recounts Casares' realization that the accounting system for value was the thing:

He saw that bitcoin's lack of any transparent intrinsic value didn't matter when looked at against the history of money. The reason gold itself had been used as money was not that it was valuable; it had become valuable because it was used as money. And it was used as money because it did what all good money did: it served as a sort of physical ledger on which society could keep track of who was owed what. Each piece of gold represented a slot on the ledger of all outstanding gold, which anyone could verify by checking the mass and the volume of the gold....

"What is value?" he would ask. "It is that it is the ledger." 

This is the only other explanation that I have seen that frames bitcoin's primacy as money in terms of its superiority as a unit of account. 

I think that most people who become bitcoin fans have an aha! moment. The above was mine.

Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!

Theresa May Bashes bitcoin!

Those who sell influence and those who pay the big graft bills have convened in Switzerland for their annual soiree where they can dine on $40 hot dogs and listen to stories about poor immigrants. They have also decided that it is time to take off the gloves and start bashing bitcoin.

While they have been busy terrorizing the financial world with free money printed from thin air that enriches them at the expense of savers, bitcoin quietly emerged and in 2017 exploded onto the scene. They now recognize it as the threat that it is to central banking and the governments who feed off it.

No surprise then that we get British PM Theresa May coming out with this:

Theresa May says she will look at bitcoin and other digital currencies “very seriously”. The Prime Minister is considering taking action against them, because she’s concerned about their popularity amongst criminals. (Source: The Independent)

This is the standard "bitcoin is just used by criminals and we need to keep everyone safe so we will make it difficult to use bitcoin." Part of the way that they will do this is through KYC/AML laws.

Now, some believe that this is a reasonable step for the government to take. It isn't. Nothing about KY/AML laws makes people safer. My guess is that it makes us much less safe.

These rules requiring identity papers keep billions around the world from accessing financial services.  This makes it impossible for them to escape poverty. This type of injustice creates the terrorists they say they want to protect us from. As usual, governments have it backwards. 

Actually, bitcoin isn't used by criminals so much as it is used by ordinary people to escape the criminal central bank system.  

Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets. You have to do your homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!

Emerging From the Rabbit Hole

Well, even I haven't been by the blog for quite some time, but I see that there are still some who seem to be checking in. I disappeared down the bitcoin rabbit hole and was pretty startled by what I discovered. In short, I think it is the real deal.

As such, I am going to spend some time here hashing out some thoughts, mostly on bitcoin, but will mention other interesting tidbits that come my way. The blog will now be more a stream of consciousness type of thing as opposed to a longer format publication. Hopefully it will be more regular as well.

Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets. You have to do your homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!