Bitcoin as a Political Tool
This write up had been long overdue. I started scribbling many times and stopped because of inherent financial risk and speculative nature of bitcoin. But my Linkedin wall is full of posts about it. Corporations are opening their blockchain labs. Novices to executives are aware of it.
On March 11, next month; SEC will make decision on Bitcoin ETF. Irrespective of the outcome, there will be more chatter about it in coming days. It is worth pointing out the absolute experimentational nature of bitcoin and the fact that any speculator can lose a huge sum of money. If you are still with me, read on.
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Above is the picture of Genesis block. The first block (or block zero) of the bitcoin blockchain. Satoshi Nakamoto, the unknown inventor, had created a custom program to make this. The message inserted in this block taken from the headline of a UK newspaper ‘The Times’. The 3 Jan 2009 copy of The Times has become a collector’s item because of this.
Bitcoin was publically announced on 8 January. Also that’s when the second block was mined. It is important to understand the announcement date and time for above message. It wasn’t inserted to mark the release date.
As a political ideology Libertarianism encompasses the whole spectrum from socialists to capitalists to anarchists. All factions have their molded flavor to justify their agenda. But common theme to all is autonomy and freedom.
Bitcoin has libertarian roots. Idea of issuing a currency free from the possibility of manipulation and control from state actors in not new. Why Bitcoin succeeded is not an easy question to answer. Internet, Globalization, Personal Computers, Open Source are some factors. They made possible that the idea spread easily and allowed multiple people with varying backgrounds to get involved.
Not only Bitcoins are free from central control. They are also limited in number.
There will only be 21 million bitcoins.
Deflation vs Inflation
Inflation is a hidden tax. But is it a necessary evil? There are varying opinions on deflation being the cause of recessions. Irrespective, central banks print more money to combat recessions. All fiat (paper based) currencies are inflationary. Venezuela is the latest country to get into massive troubles because of high inflation (officially 800% in 2016). What this mean is that someone’s earnings must go up by 800% in a year to maintain same living standards. But biggest harm is not on the future earnings but on the accumulated capital. Most people holding money in bank accounts lose in such situations. Which is majority of poor people. Well, most poor people would simply hold cash and will get hit the hardest by inflation.
So is deflation the right answer? Not so simple. Since value of money is increasing with time (deflating) i.e. cost of goods will go down as compared to the currency. This would lead people to hold onto the money for as long as possible; resulting in less spending and hence less economic activity. Lending and investing activities will reduce. This also limits a state’s ability to respond to a sudden situation. With fiat a state has infinite supply of money, which is not necessarily a good thing (circles).
Choosing between deflation and inflation is not black and white. They both have pros and cons at extreme. Bitcoin by design is deflationary. More than money, that makes it a commodity like precious metals. And gold has been a store of value since as long as history is known.
Who holds gold? Central banks..
Getting Past the State Controls
A free society should be able to take moral sides in disagreement to the ruler. We are getting into the murky side now. By nature political systems are self preserving echo chambers. An internal dissent is often not tolerated. In democratic societies there are whistleblower laws. But we have multiple examples in leading democracies where such situations were handled with utmost ruthlessness and secrecy.
Snowden Defence Fund
Wikileaks Public Donation Address
In the recent example, Venezuelan government is cracking on bitcoin miners. Also, Venezuelans are buying bitcoins in record numbers.
The Dark Side
Bitcoin has been linked to drugs, weapons, ransomware, child pornography. Its electronic nature and untraceability (it is pseudonymous but can be anonymized by tumblers and other schemes) makes it medium of choice for criminally minded.
Bitcoin as of 2017 is money. But it is more than just money. At its core is a strong ideology and purpose to provide an alternative to people against rogue state monetary policies and excessive control. It has come a long way from being ridiculed to get legislations passed in less than a decade.
As bitcoin gain more ground and get integrated with existing financial and state systems, its wider effects should be evaluated with utmost scrutiny to contain and prepare for any misuse.
Bitcoin certainly counters power towards people but like all great inventions it has potential to cause harm too. A wider perspective, further to finance towards it is needed