Sunday, January 21, 2018

- A Bitcoin Buycott?

A reader sent this piece on the politics of Bitcoin from Steve Sailer along, and wondered what I thought of it. Happy to oblige.

We all tend to see some aspects of the world as unchanging. As even a glance at the comment section of that Steve Sailer piece will tell you, the way that most people think about money is certainly one of those things. And abstracting it as a concept isn't the kind of thing people are usually willing to invest time in. When you manage money institutionally, you don't really have a choice about that. You abstract those concepts and use the knowledge to hopefully gain an advantage. But at a minimum you need to do so to understand the strategies of others.

So let me explain my abstraction about what 'money' is. First, the difference between money issued by the US federal government and the long term debt issued by the federal government is minimal, and technically, just about a difference in 'duration'. Both are considered more or less 'risk free' because the Federal government says so. Why does what they say matter? Because they are responsible for 50% of the global military spending in the whole world, and if anyone credibly says any different, they'll have to contend with that.

"It's risk free because we say it's risk free, and if you convince too many people it isn't risk free, our guys with guns will throw you in a deep dark hole." That's it. It might not be the air force that convinces you, it might be some lawyer or accountant from the IRS, or some drone from the DOJ who does so. But in the end you'll have to contend with government force.

But there are a set of circumstances under which that won't be good enough. The Federal Government has a long and storied history of financial and mathematical competence. And it's my belief that in the fullness of time, the 'safety' question will be guns on one side and math on the other. They will say we're paying because "gun in the face" and everyone else will be saying "You aren't paying because you can't."

In that respect, Bitcoin is safer than US Dollars because it's already got math on it's side.

That probably sounds crazy given the way the BTC price fluctuates to dollars in recent months, but it's true. A distributed ledger system with an inflation rate determined my mathematical rule, is on some respects safer than US dollars.

The piece that Steve sites makes the claim that those in power seek to maintain power and will use the monetary system to do it. It does so in a what reads to me to be a kind of paranoid style, but the basic assertion isn't really debatable. Some would argue that this is a good thing and that stability is better than chaos however harsh that stability may be. If you feel that idea, while true in principle, isn't infinitely scalable then you may think that article has good point.

I personally think it's a useless one. Our choice is not between an exploitative infinite authority and total collapse of the world as we know it - not yet anyway. And until it is, I simply don't think the points in Steve's quoted piece are particularly relevant. In a barter economy Bitcoin will step in and be a very good and very safe means of exchange. Until we get there we must all cope with the world as it is.

I have had some experience in the Bitcoin space recently. Although widely unregulated, the legal systems of the established world have a pretty comprehensive set of regulations to prevent tax or investment fraud, money laundering and other financial misdoings. For the most part the people who are to be taken seriously in the expansion of the BTC world are doing their best to adhere to those rules. You can found a company in the bitcoin ecosystem but your employees still need to eat. they still need to buy power, housing, water, and travel. And since those transactions can't be done totally in Bitcoin yet, the BTC world must live in the 'dollar' world and conform to 'dollar' rules.

What's more, the company has to 'live' somewhere. Imagine the thriving 'bitcoin only' enterprise humming along in an office somewhere. the IRS guys walk through the door and say to them 'What exactly do you DO here?" and the management says "Oh, nothing really." There will certainly be some additional questions asked.

In the broadest terms I can't refute anything Steve's quoted author says. But we're miles from being anywhere near where the events like he describes could effectively occur. We aren't even really past the point where if they really wanted to, a coalition of just a few countries could all but kill Bitcoin forever. It's not going to happen, but for about another year or so, it still theoretically could.

And just because no one can control bitcoin the way that the US Government controls the dollar, doesn't mean the ecosystem doesn't have a level of control. There are hierarchies of influence everywhere and the BTC ecosystem is no exception. There is favor trading and collusion, and a wide array of what we typically think of as sins, that occur in the BTC space as a matter of course. No rules mean no way to prevent them. Not really. Take a look at the failed attempt to change the rule base by which Bitcoin manages it's transactional operations or the BTC Bitcoin-cash split. It may be democratic, but some individuals exert more influence than others.

In the BTC world, every strategic decision may very well end up 'mass boycott' vs. 'influencer imposition'. Until things get so bad in the 'dollar based' world that this sounds like a better means of control, I don't think the article is worth all that much in practical terms.

I'm also suspicious of people who think that political action alone is a good motivator for behavior outside of the political sphere. "Do this because... politics!" Strikes me as a statement from someone who doesn't think they can do things without politics. This may be unfair, but it's my view. And that seems to be the nature of the article. I much prefer people who say "Do this because it's in your personal interest and you'll benefit from it", even if sound politics will inevitably follow.

So while I agree that all the things in the piece are true (or will inevitably be), I don't think the politics of it is a sound motivator to compensate for the many risks still present in a bitcoin. I think there are a ton of other sound, more personal reasons to take Bitcoin seriously, and you should decide to buy into them based on what each of those decisions will mean to you.

In my case I'm in, if you're curious.

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