Why Bitcoin will not Save Us

Bitcoin, and the new and upcoming Z-cash, will not solve the economic problems of the world. In fact, embedded within their structures are many, if not more, of the problems they claim to solve.

One should not misunderstand me. I am aware of the present currency degeneration endemic to the economies of the planet. I am also aware that many would claim the problem is our fractional reserve banking systems, which create loans -- and concurrently debt from those loans -- with money the bankers do not have. 

In theory, a banker with $100 in his vault can make loans up to $1000 or whatever multiple his country sets as the standard. This is allowed because in practice the depositors will not all cash out at once, and so the ruse is safe. Bankers are allowed to create cash and, more importantly, debt, out of nothing. 

Critics counter that, in our theoretical situation, $1000 of debt has been created, when only $100 exists, making ultimate repayment impossible. More loans and more debt have to be created to repay earlier loans in order to keep the system running. On a larger scale, every dollar -- or whatever fiat currency is used -- is backed by the creation of debits in the ledgers of central banks. Society ends up creating greater debt to pay off earlier debt. Since one cannot pay off debt with an instrument of more debt, ultimately the system will eventually collapse. 

Sounds like an airtight case for conviction of fraud! A grand Ponzi scheme?! Doesn't it? 

While the system does sound crooked -- and it may be -- its critics never acknowledge that there is a counterpoise to this equation: The Velocity of Money. One dollar can move through several hands creating levels of wealth, well above the debt incurred at its creation, before it returns back, soiled and abused, to the hated banker. Some children spend their dollars to buy some candy. The store owner uses those dollars to buy some paint. The paint store owner uses those dollars to buy advertising. The advertising agent uses those dollars to buy a car.

If the banker creates debt, then the velocity of money creates wealth. Ideally, these should balance out for the system to run honestly. We would do well not to oversimplify the critical analysis of our banking system, lest we run into an error parallel to that of Karl Marx, whose reductions led him to believe that all profit was theft of labor.

What bankers do have is the benefit of creation ex nihilo. The candy store owner has to procure chocolate. The paint shop owner has to procure paint. The car maker has to procure steel. The banker merely has to check some documents, approve a loan, and check off some spaces in his ledger -- or today, some spaces in his accounting programs. Bankers seem to have an advantage that others do not.

Or do they?

The writer creates his stories out of nothing. Talk show hosts bring no physical item to the table. Service workers produce nothing but labor.

What bankers do have, which cannot be denied, is that they are on the first floor of this economic pyramid, and supposedly are guaranteed a profit. However, banks do collapse from time to time, so even this advantage might only be confined to the largest banking houses. Hence the anger tossed at the legendary Rothschilds -- whose wealth is far more legendary than real -- or the Rockefellers, or the Federal Reserve.

While I acknowledge that these high end banking establishments seem to have an inside lock on the financial system -- almost certainly more than they should be allowed to have -- it does not follow that computer currencies would be in improvement.

Do They Offer Anonymity?

Bitcoin promised a degree of anonymity. It has been used to fund criminal enterprises, like the Silk Road on the darknet. But think about it! How anonymous can it be if one is required to log in to the internet to make a purchase, and have the item delivered to you? A drug purchase with cash requires only some bills, and enough wisdom to avoid a police sting. A purchase on the darknet leaves an electronic trail, and requires a delivery address. One may not like being held hostage to Federal Reserve notes, but they are fungible. Bitcoins require internet access, often with a device owned by, and traceable to, the purchaser. 

If you trust anonymizing software, think again. The famously anonymous Tor browser was compromised a long time ago.

To make a truly anonymous purchase, one would have to buy a used computer from Craigslist, purchased from the seller in person with cash, set it up with Linux, have all mac addresses changed regularly, turn off geolocation, set up a Virtual Private Network, ideally run through a proxy, and only use a wi-fi hotspot. Compromise at any of those points voids your anonymity.

What a nightmare that is. Use of that computer for any other purpose, such as reading email, would expose one. Coming back too often to a restaurant with free wi-fi would arouse suspicion, and would certainly geolocate one, probably leaving a nice snapshot in their video system.

Finally, the whole process requires a pickup. A delivery. The system has you at the pickup point. When the FBI took down Silk Road, a lot of delivery addresses surely popped up, if not from the central Silk Road computers, then from the secondary sellers who used Silk Road. How is any of this an improvement over cash? It is only making life easier for the Feds. Thousands of users taken down all at once on a disk drive.

To avoid the problems of Bitcoin, Z-cash is the new system which promises to plug any holes in anonymity. 

Sounds good! But...

We're still faced with the problem of delivery! And frankly, still stuck on the internet, where every transaction, no matter how anonymous, leaves electronic tracks. 

Worse yet, the founders of Z-cash have allotted themselves 10% of all Z cash units minted. 10% of all the currency they created out of nothing. Forget the Rothchilds, now this is real chutzpah!

Zcash's monetary base will be the same as Bitcoin's -- 21 million Zcash currency units (ZEC, or ⓩ) will be mined over time. 10% of that reward will be distributed to the stakeholders in the Zcash Company -- founders, investors, employees, and advisors. We call this the “Founders Reward”. -- Z Cash, Funding

Now, if Zcash replaces Bitcoin, who is to say that another group does not invent another algorithm? X-coins, and so on. E-currency wars will degrade their values. E-currencies are ultimately fiat currency, and one would be crazy to see them as an improvement.

Do They Offer Safety?

Bitcoin accounts have already been hacked, which means that one's wealth can be evaporated in less time than in takes to burn a dollar bill. If one thinks the government cannot sneak in, think again! Governments hire topnotch hackers. If all else fails, they can arrest the software creator and force him to give up the source code, under some legal threat. 

Some of Zcash's creators are Israeli. All it will take is for one Hamas operative to use Zcash, and how long do you think it will take for Mossad to wring out the source code from those contributors? What makes you think they are not required to install back doors by the Israeli or American government or both? What makes you think they would admit to it?

Despite what the boosters say, if the government wants to trace you, they will find a way to trace you.

Do you really want to trust your wealth to some electronic algorithms of comp sci geeks? Particularly, since they might have installed back doors? Do you want to rely on any system that requires high end computers to make a purchase? Do you want to use any system that leaves electronic fingerprints traceable all over the planet, which can be compromised at the slightest mistake? Finally, do you really feel that programmers barely out of college are intrinsically more honest than bankers as middlemen?

If not, then you are aware that electronic currencies are a false hope. They will deliver speed and convenience, no doubt; but the fungible anonymity of cash remains supreme. Ultimately, we will be forced to go cashless; but it will be effected by governments seeking greater control, not geeks offering a faux liberté. The geeks are just useful idiots preparing society for the switch. They will be co-opted in due time. The final decision will come from government coercion. E-currencies in the hands of government, which is where they will eventually end up, will be the ultimate tyranny.

The problem of our economic systems remains the honesty of those in charge of it. Switching from "dishonest bankers" to "algorithm geeks" will not get rid of the problem, only modify it. I am not in love with the Federal Reserve, but I am not crazy enough to think some programmers from MIT are an improvement. Neither system is agreeable, since they will ultimately be subject to ever more totalitarian government intrusions.

If I might assert a solution, it was one offered in Scripture. Every seven years, debt was canceled out during a Sabbatical year. Crazy as it seems, it prevented the accumulation of massive debt. In the 19th century it was common in the USA to limit mortgages to seven years. It has the advantage of forcing people to be honest. Removal of ever-increasing debt burdens would keep inflation low. Prices would stabilize. Needless speculation, while not removed, would be kept in check. This is a better, though quaint, solution. Sadly, only a blood-soaked collapse of society may restore people to their senses.

Mike Konrad is the pen name of an American who is neither Jewish, Latin, nor Arab. He runs a website, http://latinarabia.com, where he discusses the subculture of Arabs in Latin America. He wishes his Spanish were better.

Bitcoin, and the new and upcoming Z-cash, will not solve the economic problems of the world. In fact, embedded within their structures are many, if not more, of the problems they claim to solve.

One should not misunderstand me. I am aware of the present currency degeneration endemic to the economies of the planet. I am also aware that many would claim the problem is our fractional reserve banking systems, which create loans -- and concurrently debt from those loans -- with money the bankers do not have. 

In theory, a banker with $100 in his vault can make loans up to $1000 or whatever multiple his country sets as the standard. This is allowed because in practice the depositors will not all cash out at once, and so the ruse is safe. Bankers are allowed to create cash and, more importantly, debt, out of nothing. 

Critics counter that, in our theoretical situation, $1000 of debt has been created, when only $100 exists, making ultimate repayment impossible. More loans and more debt have to be created to repay earlier loans in order to keep the system running. On a larger scale, every dollar -- or whatever fiat currency is used -- is backed by the creation of debits in the ledgers of central banks. Society ends up creating greater debt to pay off earlier debt. Since one cannot pay off debt with an instrument of more debt, ultimately the system will eventually collapse. 

Sounds like an airtight case for conviction of fraud! A grand Ponzi scheme?! Doesn't it? 

While the system does sound crooked -- and it may be -- its critics never acknowledge that there is a counterpoise to this equation: The Velocity of Money. One dollar can move through several hands creating levels of wealth, well above the debt incurred at its creation, before it returns back, soiled and abused, to the hated banker. Some children spend their dollars to buy some candy. The store owner uses those dollars to buy some paint. The paint store owner uses those dollars to buy advertising. The advertising agent uses those dollars to buy a car.

If the banker creates debt, then the velocity of money creates wealth. Ideally, these should balance out for the system to run honestly. We would do well not to oversimplify the critical analysis of our banking system, lest we run into an error parallel to that of Karl Marx, whose reductions led him to believe that all profit was theft of labor.

What bankers do have is the benefit of creation ex nihilo. The candy store owner has to procure chocolate. The paint shop owner has to procure paint. The car maker has to procure steel. The banker merely has to check some documents, approve a loan, and check off some spaces in his ledger -- or today, some spaces in his accounting programs. Bankers seem to have an advantage that others do not.

Or do they?

The writer creates his stories out of nothing. Talk show hosts bring no physical item to the table. Service workers produce nothing but labor.

What bankers do have, which cannot be denied, is that they are on the first floor of this economic pyramid, and supposedly are guaranteed a profit. However, banks do collapse from time to time, so even this advantage might only be confined to the largest banking houses. Hence the anger tossed at the legendary Rothschilds -- whose wealth is far more legendary than real -- or the Rockefellers, or the Federal Reserve.

While I acknowledge that these high end banking establishments seem to have an inside lock on the financial system -- almost certainly more than they should be allowed to have -- it does not follow that computer currencies would be in improvement.

Do They Offer Anonymity?

Bitcoin promised a degree of anonymity. It has been used to fund criminal enterprises, like the Silk Road on the darknet. But think about it! How anonymous can it be if one is required to log in to the internet to make a purchase, and have the item delivered to you? A drug purchase with cash requires only some bills, and enough wisdom to avoid a police sting. A purchase on the darknet leaves an electronic trail, and requires a delivery address. One may not like being held hostage to Federal Reserve notes, but they are fungible. Bitcoins require internet access, often with a device owned by, and traceable to, the purchaser. 

If you trust anonymizing software, think again. The famously anonymous Tor browser was compromised a long time ago.

To make a truly anonymous purchase, one would have to buy a used computer from Craigslist, purchased from the seller in person with cash, set it up with Linux, have all mac addresses changed regularly, turn off geolocation, set up a Virtual Private Network, ideally run through a proxy, and only use a wi-fi hotspot. Compromise at any of those points voids your anonymity.

What a nightmare that is. Use of that computer for any other purpose, such as reading email, would expose one. Coming back too often to a restaurant with free wi-fi would arouse suspicion, and would certainly geolocate one, probably leaving a nice snapshot in their video system.

Finally, the whole process requires a pickup. A delivery. The system has you at the pickup point. When the FBI took down Silk Road, a lot of delivery addresses surely popped up, if not from the central Silk Road computers, then from the secondary sellers who used Silk Road. How is any of this an improvement over cash? It is only making life easier for the Feds. Thousands of users taken down all at once on a disk drive.

To avoid the problems of Bitcoin, Z-cash is the new system which promises to plug any holes in anonymity. 

Sounds good! But...

We're still faced with the problem of delivery! And frankly, still stuck on the internet, where every transaction, no matter how anonymous, leaves electronic tracks. 

Worse yet, the founders of Z-cash have allotted themselves 10% of all Z cash units minted. 10% of all the currency they created out of nothing. Forget the Rothchilds, now this is real chutzpah!

Zcash's monetary base will be the same as Bitcoin's -- 21 million Zcash currency units (ZEC, or ⓩ) will be mined over time. 10% of that reward will be distributed to the stakeholders in the Zcash Company -- founders, investors, employees, and advisors. We call this the “Founders Reward”. -- Z Cash, Funding

Now, if Zcash replaces Bitcoin, who is to say that another group does not invent another algorithm? X-coins, and so on. E-currency wars will degrade their values. E-currencies are ultimately fiat currency, and one would be crazy to see them as an improvement.

Do They Offer Safety?

Bitcoin accounts have already been hacked, which means that one's wealth can be evaporated in less time than in takes to burn a dollar bill. If one thinks the government cannot sneak in, think again! Governments hire topnotch hackers. If all else fails, they can arrest the software creator and force him to give up the source code, under some legal threat. 

Some of Zcash's creators are Israeli. All it will take is for one Hamas operative to use Zcash, and how long do you think it will take for Mossad to wring out the source code from those contributors? What makes you think they are not required to install back doors by the Israeli or American government or both? What makes you think they would admit to it?

Despite what the boosters say, if the government wants to trace you, they will find a way to trace you.

Do you really want to trust your wealth to some electronic algorithms of comp sci geeks? Particularly, since they might have installed back doors? Do you want to rely on any system that requires high end computers to make a purchase? Do you want to use any system that leaves electronic fingerprints traceable all over the planet, which can be compromised at the slightest mistake? Finally, do you really feel that programmers barely out of college are intrinsically more honest than bankers as middlemen?

If not, then you are aware that electronic currencies are a false hope. They will deliver speed and convenience, no doubt; but the fungible anonymity of cash remains supreme. Ultimately, we will be forced to go cashless; but it will be effected by governments seeking greater control, not geeks offering a faux liberté. The geeks are just useful idiots preparing society for the switch. They will be co-opted in due time. The final decision will come from government coercion. E-currencies in the hands of government, which is where they will eventually end up, will be the ultimate tyranny.

The problem of our economic systems remains the honesty of those in charge of it. Switching from "dishonest bankers" to "algorithm geeks" will not get rid of the problem, only modify it. I am not in love with the Federal Reserve, but I am not crazy enough to think some programmers from MIT are an improvement. Neither system is agreeable, since they will ultimately be subject to ever more totalitarian government intrusions.

If I might assert a solution, it was one offered in Scripture. Every seven years, debt was canceled out during a Sabbatical year. Crazy as it seems, it prevented the accumulation of massive debt. In the 19th century it was common in the USA to limit mortgages to seven years. It has the advantage of forcing people to be honest. Removal of ever-increasing debt burdens would keep inflation low. Prices would stabilize. Needless speculation, while not removed, would be kept in check. This is a better, though quaint, solution. Sadly, only a blood-soaked collapse of society may restore people to their senses.

Mike Konrad is the pen name of an American who is neither Jewish, Latin, nor Arab. He runs a website, http://latinarabia.com, where he discusses the subculture of Arabs in Latin America. He wishes his Spanish were better.