On Bitcoin

In this article I will try to look at Bitcoin through 4 aspects and compare it with similar existing occurences.

Abstract:

1. Technology behind it - where I compare it with Morse code.

2. High valuation of Bitcoin - where I compare it with Pokemon/Baseball cards.

3. Influence on people - where I compare it with comunism, nacism, goldbuggery and phenomenon of usefull idiots.

4. Practical consequences that can have - where I compare it with Holocaust or Great Depression.

Technology behind it

Bitcoin is Morse code of money. That thought striked me while I was reading Code by Charles Petzold. While not directly related to my theme here, he points out that in order to communicate we have multiple available options (voice, written word, Morse code). While Morse code is inferior tech to voice and writen word, it can be usefull for some funny edge cases like if you want to communicate at night with your friend that lives near you without disturbing anyone else.

The same is with Bitcoin and crypto in general - Inferior technology for every day use case given existing alternatives, but good in some special circumstances like when being trapped in an island with autocrat that wants to take your money.

What is money and why Bitcoin fails as money?

I consider money as the third most important human institution ever created after language and free market price system.

Being able to easely exchange it for any other commodity or service is what constitutes money. Money is a evolutionary institution - because money was initially the most saleable commodity of all commodities out there in a barter economy. Actors in barter exchanges eventually realize that they can more easily execute such exchanges if they hold stocks of comodities that are greatly desired by other members of the trading community. Eventually this process reveals the one good which is the most saleable.

Hayek:

it would be more helpful … if “money” were an adjective describing a property which different things could possess to varying degrees

If we translate this into coding language he makes the claim that money is a role one thing can possess. Let’s call it moneyness. And we can have various algoritms that implement that role - some are bad and slow, some are good and fast.

So the feature that money has the most and that other goods don’t have in that degree is availabilty yield. When one holds a stock of money, one has something available, waiting to perform its ultimate service of exchanging for non-money goods and services. In this article Horwitz introduces the concept - degrees of moneyness:

What can be said is that financial assets have degrees of “moneyness” about them, and that different financial assets can be placed along a moneyness continuum.

Bitcoin has several problems that puts him at the bottom on the scale of moneyness:

1. high exchange fees
2. can do just limited numbers of transactions (<4.6 per second)
3. it’s a copy of the rigid gold standard which caused the Great Depression

High valuation of Bitcoin

Bitcoin should be looked upon as rare asset like Pokemon cards whose price can skyrocket because of it’s rarity and mistique around that. But being in a league with Pokemon cards is not a fair comparison. Pokemons, because it attributed to socialization, where somewhat usefull, Bitcoin is not usefull at all.

Influence on people

What is behind recent Bitcoin high demand is a perfect hype of ignorance and ideology. It is fueled mostly by two groups of people:

• Tech austrian crackpots. They are former internet austrians and goldbugs who are now using silicon valley aura as disquise. Austrian school of economics become popular after the great recession among normies.

• The second group are regular programmers, who are practitioners by default. They don’t understand what money is and are not interested in theory and history of money. Because they lack knowledge and interest in subject, they try to compensate that by talking about some frivoulous tech implementation details they find interesting like blockchain, proof of work, tokens etc. They are like those programmers who can not comprehend the big picture in the codebase.

Practical consequences that can have

How long can this last and what will be consequences?

Quite a lot. Since what determines price of everything is our own subjective beliefs. History has thought as that beliefs can last millenia and that they are mostly wrong. Delusions are normal state of things through history. There is no point to list you all unrational delusions in the past 500 years. No point to tell you about Salem witches trials just 300 years ago, bloody religious wars in Europe, holocaust, communism. Those people seriously believed in their ideas and more importantly they believed in that for many centuries. The disasterous efects it can have if suddenly becomes legal tender can be comapared with Great Depression or Holocaust.

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