Bitcoin has started to see some changes lately that even the most optimistic Bitcoin enthusiasts could not have predicted would come so soon. It is starting to be adopted by countries and the price is rising.
So do you know what the relationship is between dirty money, human greed and the sacred Bitcoin?you must have view Bitcoin · The Lord of the Rings · Musk
Bitcoin
While there are many different types of digital currencies, the most widely used is Bitcoin. Bitcoin is a decentralized virtual currency based on a peer-to-peer (P2P) network distribution model. The core functionality of this system relies on a public ledger called the blockchain. This ledger is constantly updated with all transactions that have occurred between Bitcoin users. This ledger is also decentralized and is “managed” by users who run Bitcoin nodes. To ensure the authenticity of transactions, Bitcoin uses a new concept based on asymmetric cryptography. Under this system, users are assigned two interrelated and digitally unique keys – one is a public key known to everyone, and the other is a private key known only to the user.
Essentially, a user’s public key provides a record of transactions made by that user, whether sending or receiving. The private key is required to actually send or retrieve funds. Therefore, once funds are sent, only the recipient can access them through their private key, thus preventing the sender from retrieving them. With a publicly accessible and viewable transaction log, the recipient cannot claim not to have received the funds, as the record will reflect affirmative access to the system through the sender’s private key. As mentioned earlier, the system is decentralized, so there is no entity in the middle to verify the ledger entries. Instead, the system validates transactions through users called "miners" who invest computing resources to calculate the hash of the transaction and add the correct proof to a new block of data in the ledger, forming the blockchain. Transaction validation is not the only function of miners, as their computing resources are also used to create new bitcoins (the system's currency unit). Miners are rewarded with a fee paid by users for including their transactions in a block and new bitcoins for providing the correct proof for the block sequence. Miners seek higher fees, which is a way for users to encourage their transactions to be included in the next block being calculated. Once a transaction is initiated, in order for the sender and receiver to have confidence in the transaction, they must wait until the proof is calculated. This usually happens within ten minutes, but can take several hours, depending on the fees committed and network traffic.
While Bitcoin is often touted as an anonymous payment system, the fact that transactions are recorded on a public ledger means that there is a record. Users can hide their digital traces in various ways, such as splitting Bitcoin into smaller amounts and depositing them into multiple addresses. However, researchers at the University of California, San Diego (USCD) conducted a heuristic analysis of public keys and related transactions and found that they could trace the public keys used in transactions back to government-regulated exchanges, i.e., entities that authorities can issue subpoenas or warrants for. While the researchers note that individual transactions may be difficult to identify, the services of exchanges will eventually be needed for those who actually use large amounts of Bitcoin. The UCSD researchers do acknowledge that adopting stricter protocols could improve the anonymity of transactions and make large transactions more difficult to detect, but that it would take a significant effort to do so at present. Even so, unless Bitcoin or other alternative currencies that lack sovereign backing become widely accepted, any potential user will still face the need to convert the medium of exchange (i.e. Bitcoin) into fiat currency or other tangible items of value in the "real" world at some point.
Regarding the latter feature of transactional uses, the use of Bitcoin as a regular medium of exchange is booming. However, to this day, there are still obstacles to the widespread adoption of Bitcoin as a medium of exchange. Fiat price fluctuations are problematic for settlement unless the parties compensate or create terms that take into account fiat price fluctuations. In addition, the transaction speed on the Bitcoin network is not fast enough to accommodate the high transaction volumes that can reliably sustain moderate transactions. There are so-called “layer 2” network solutions that address the transaction speed issue. The “second layer” in the name refers to alternative networks that process and/or batch transactions and only periodically settle to the “base” layer — the actual Bitcoin blockchain. All of these have various tradeoffs in terms of security, tax implications, and centralization, or require trust in a third party. With regard to the transaction privacy mentioned in the previous paragraph, the tools for tracking Bitcoin transactions have become much more sophisticated since it was written. In modern and practical terms, reliably hiding the actual ownership of Bitcoins and then being able to anonymously transact with the hidden Bitcoins requires a high level of technical proficiency by a very small number of people.
In short, Bitcoin is currently a poor choice as a medium of exchange for everyday transactions. This is especially true if your anonymity is essential, for example, if you are a freedom fighter under an oppressive regime. However, it is important to note that the same problems exist with fiat currencies, although these problems are usually only noticed by the end user when international transactions are being conducted. These problems become particularly acute when large-scale transactions are being conducted between sovereign jurisdictions. One of the industries that illustrates this problem more easily is the international film industry. While most people probably don’t stop to think about the inner workings of the film industry, if you’re a film production and distribution company, volatility in the foreign exchange (FX) market is very problematic. The background is that most film production companies license the films they produce for overseas theatrical release. These licensing deals are usually premised on receiving a percentage of the box office revenue in exchange for the right to play the film. The problem is that foreign markets don’t sell movie tickets in U.S. dollars. Their box office revenue is collected in their respective local currencies. The trouble comes in determining the timing of when the licensing fee is to be paid. For example, if a film does very well at the Japanese box office and the remittance of the licensing fee is due within 90 days of the release, the exchange rate of the Japanese yen will most likely not be the same as it was when the deal was struck. The exchange rate of the Japanese yen against the U.S. dollar can vary significantly over the course of 90 days. The contracts used to settle these deals are extremely complex. Despite this complexity, conflicts and litigation still abound as both parties try to maximize gains and minimize losses by playing games with settlement agreements and the timing of payments.
Similarly, fiat currencies present anonymity issues when conducting overseas transactions. Anyone who has tried to remit large amounts of money overseas is probably aware of the identification requirements and other issues that can arise with international transactions. Indeed, one of the preferred methods for international drug cartels to launder money is through a rather crude form of cash smuggling in bulk. To reliably maintain anonymity on large-scale transactions, they simply pack millions of dollars in a backpack and pay a network of “mules” a few hundred dollars to have them carry it across the border. Once the cash is in a friendly jurisdiction, they can easily integrate these funds into the international financial system through the assistance of shell companies and infected bank employees. In terms of transaction speed, Bitcoin is certainly more efficient than international wire transfers, because these transaction speeds are administratively limited by sovereign currency control devices. This limitation makes Bitcoin's speed of approximately six transactions per second seem lightning fast by comparison. In other words, Bitcoin as a medium of exchange is, for all intents and purposes, no different from any other sovereign-issued currency, except that Bitcoin has no sovereignty. Due to the lack of sovereign issuance, Bitcoin must "float" in the market like all other currencies. The problems that arise when using Bitcoin for exchange are no different from any other monetary unit. These problems are easier to see for the end user because, unlike sovereign-issued currencies, these problems are severe both within and outside sovereign borders. Extrapolating this phenomenon a little, each Bitcoin holder is actually his or her own monetary sovereign. It is therefore not surprising that they are subject to the same market fluctuations that other sovereign states must deal with when conducting inter-sovereign currency exchanges.
The reason why these are mentioned above is simple, because the full name of the Bitcoin white paper is "Bitcoin: A Peer-to-Peer Electronic Cash System". The authors of the white paper mention the proposed uses of Bitcoin several times, and these uses are similar to cash transactions. For example, the first page clearly states: "What is needed is an electronic payment system based on cryptographic proof rather than trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party." Pause here and let's review the definitions of money provided in the "Currency" section, which are:
A medium that facilitates the exchange of value under low or zero trust circumstances;
A medium that allows for the large-scale extraction of part of the value from the individual or collective estate of sovereign subjects through taxation;
An asset whose nominal price appreciates at the same rate or close to the rate at which sovereign states increase the number of the first two.
Although this is an often debated issue, it seems to me that the original intention of the creators of Bitcoin was obviously mainly to meet the first aspect of the above definition. As for the second aspect, Satoshi Nakamoto was obviously not interested in creating an effective digital tax device for national sovereignty. It is also clear from Satoshi’s emails and forum correspondence that there are some considerations for Bitcoin to become an asset that appreciates in nominal price. Namely, in 2010, Satoshi pondered a thought experiment in a Bitcointalk forum post about a scarce metal similar to gold but with “magical” transmission properties. Regarding this magic metal, Satoshi wrote: If it acquired any value for some reason, then anyone who wanted to transfer wealth over a long distance could buy some, transmit it, and then have the recipient sell it. Perhaps it could circulate and acquire initial value through people foreseeing its potential exchange uses, as you say. (I would definitely want some) Perhaps collectors, any random reason could inspire it. I think the traditional criteria for currency qualification are made based on the assumption that with so many scarce competing items in the world, items with intrinsic value automatically boot will surely outperform items without intrinsic value. But if there is nothing in the world with intrinsic value that can be used as money, only things that are scarce but have no intrinsic value, I think people will still accept something.
There is no “intrinsic” value to humans for anything other than the necessities for sustaining life (such as water, air, and nutrition). Value is an irreversible and irrevocable, context-dependent, and completely subjective metric. This is fundamentally true, despite the gold-lovers of the world insisting to the contrary. I would also argue that Satoshi was right. That is, if we assume that nothing can possibly have “intrinsic” value, then Satoshi was right. In this void, people have obviously treated “something” as money—and those “somethings” are gold, silver, and paper money. In any case, in this book, I have done very little to emphasize the utility of Bitcoin as a conventional medium of exchange. In my opinion, using Bitcoin to buy a cup of coffee, or even a bag of cocaine, is trivial on a macro level. I recognize that many very thoughtful and intelligent people would probably disagree. In fact, Satoshi himself might not agree. With this in mind, let’s revisit our earlier discussion of money and power. If we assume (and I do assume) that competitive resource-acquisition economies under sovereign control will continue to dominate global trade and interaction, then it seems unlikely that these sovereigns will give up a core component of their authority, namely money. This is part of the reason why I don’t take the concept of sovereign money, which Bitcoin supports, very seriously. In addition to the loss of sovereign control over monetary policy, as long-time Bitcoin developer Eric Voskuil correctly points out, there is no meaningful way for end users to audit paper money issuance versus Bitcoin holdings. If there were a way to verify and limit issuance, then the monetary unit would be indistinguishable from the underlying Bitcoin asset itself. The problem is that if a sovereign decides to expand the amount of paper money in circulation beyond the amount of Bitcoin reserves available for redemption, there is no mechanism to prevent this from happening unless the core functionality of Bitcoin is essentially replicated. Without such a limit, a Bitcoin reserve currency will inevitably fall into the same predicament that led to the collapse of the Bretton Woods system.
Nevertheless, the focus here is on the third aspect of the definition of money. That is, the focus should be on the properties of Bitcoin as an asset that appreciates in nominal price at the same rate as individual sovereigns devalue their paper money, or in the special case of Bitcoin, faster than that rate. Of these sovereign currencies, the US dollar will be of particular interest. Before we dive in, I think it would be helpful to briefly explore and discuss other digital currencies. While awareness of Bitcoin has indeed increased significantly over the past few years, for the average person, I think it would be difficult for them to distinguish the unique characteristics of Bitcoin from other distributed ledgers. Additionally, sovereign nations are now experimenting with their own digital currencies. These so-called central bank digital currencies (CBDCs) have generated many contrasting reactions among supporters and opponents. The goal here is to — hopefully — dispel some of the myths and steer the conversation in a more constructive direction. In turn, hopefully this will also help inform future discussions about Bitcoin as a non-sovereign treasury asset.
Altcoins
A so-called "alt" coin is generally a distributed ledger-based scheme that is ostensibly an alternative to Bitcoin. The colloquial term for these "alt" coins is cryptocurrency. Bitcoin is also often described as a cryptocurrency, although Bitcoin supporters (including me) are quick to distinguish Bitcoin from "cryptocurrency". As the first cryptographically secured distributed ledger, Bitcoin has a number of unique characteristics that set it apart from the 15,000 or so "alt" coins that exist. Chief among these is the way in which developers create and distribute Bitcoin. Satoshi Nakamoto is the pseudonym for an unknown individual or group who created Bitcoin. The Bitcoin concept was released via the Bitcoin whitepaper, and the Bitcoin code was freely released as an open source project. As a result, anyone with the ability to develop, improve, or even copy and modify the system was free to do so. As this network of participants and developers grew, Satoshi Nakamoto disappeared. The lack of an identifiable entity to draw attention to hostile interests is significant for a number of reasons, not the least of which is that sovereign states cannot capture or coerce someone or something.
Bitcoin also enjoys a huge first-mover advantage. Bitcoin's current market cap is partly a testament to this, especially when compared to the rest of the cryptocurrency market. The total market cap of Bitcoin and cryptocurrencies is currently around $2.2 trillion. Bitcoin alone accounts for more than half of that figure. In other words, Bitcoin is the market. Ethereum lags far behind other cryptocurrencies in the remaining market cap, while more than 15,000 other cryptocurrencies carve up the remaining market cap. Moreover, Bitcoin’s network effect is currently so large that it is unlikely that a competitor will replace it. To be sure, there have been several attempts to capture Bitcoin’s network effect through hard forks of the Bitcoin code. The vast majority of cryptocurrencies created after these attempts pursued the “similar but better” angle through new code implementations with extended functionality. This is another difference between Bitcoin and cryptocurrencies. As mentioned above, new Bitcoins are created through “mining” operations, where correct proof of transactions are rewarded with a portion of the new Bitcoins.
This is similar to physical mining or drilling operations, where the correct mining method is rewarded with a “new” source of commodity supply. When Bitcoin was launched, Bitcoin did not exist until users invested computing resources to create Bitcoin. The Bitcoin market did not come into existence until an early user facilitated a transaction of 10,000 Bitcoins for two pizzas. In comparison, Ethereum is one of the more successful cryptocurrencies. Like Bitcoin, Ethereum started life as a mined cryptocurrency. Unlike Bitcoin, however, Ethereum’s developers both stayed in the public eye and created a fundraising arm to kickstart the effort. In addition to the sale of “Rep” tokens prior to launch, approximately 72 million Ether (the system’s currency unit) were subsequently “pre-mined,” meaning they were mined in advance by the developers. These pre-mined tokens were sold to the public in an initial coin offering (ICO). While the exchange was Bitcoin, the initial fiat equivalent price per Ether was around $0.30, climbing to nearly $3.00 in early trading. About 10 million of the original Ether were reserved for the developers themselves. Seven months after launch, Ether was trading at over $12 — an overnight success for the developers, who had essentially conjured these tokens out of thin air. In modern times, after several hard forks, a complete rewrite of the code, and numerous other changes implemented by the Ethereum Foundation, the privately operated, company-branded, and trademarked software token called Ether trades for around $2,600.
The windfalls of early ICOs did not go unnoticed by the burgeoning community of cryptocurrency developers. In fact, a veritable cottage industry has emerged around the ICO model. The quality of these projects was and is generally poor. To this day, they all share many of the same characteristics as the companies that fueled the so-called “dot-com bubble” at the turn of the century. Hyperbolic promises of technology-driven transformative potential abound, cloaked in technical jargon while the fundamentals of revenue, profit, and expenses are largely ignored or obscured. For example, the popular distributed ledger platform Solana touts high transaction throughput and fast transaction finality times as transformative potential. The retail narrative holds that Solana’s technology will revolutionize everything from online gaming to finance. These promises have helped Solana reach a market cap of $68 billion, much of which is represented by the monetary premium created by speculators in Solana tokens. Solana has achieved this despite having annual revenues of just $282 million and spending more than ten times that amount each year. This leaves Solana with negative returns of hundreds of millions of dollars per year. By comparison, Nintendo has a market cap of $64 billion, revenues of $11 billion, and profits of more than $4 billion.
Even so, research by Satis for Bloomberg shows that more than three-quarters of ICOs are outright scams. The vast majority of ICOs that aren’t scams are either abandoned or barely functioning a year after launch. This is largely true today, as the public-facing narrative is one of touting high-tech innovation while, behind the scenes, the functional business model is to exploit potential retail investors. The U.S. Securities and Exchange Commission (SEC) has filed and won multiple lawsuits against many crypto projects. However, the large number of short-lived crypto ventures, combined with the SEC’s limited resources, has skewed the risk-reward ratio heavily in favor of crypto developers. With current staffing, the SEC simply doesn’t have the capacity to effectively enforce securities laws against crypto developers, many of whom reside outside the United States. Yet, there is no doubt that the vast majority of crypto projects operating today were launched in a way that violates the United States’ very clear securities regulations. Despite claims by cryptocurrency proponents that regulation is unclear, those rules predate World War II and make no provision for “shiny and new.” This means that, despite well-intentioned objections, with very few exceptions, the funding model of almost every notable cryptocurrency project launched in the past decade involved the illegal sale of unregistered securities.
Another contrast is that Bitcoin is not a security. Bitcoin is a commodity that is treated as property in the United States for tax purposes. Notably, while Bitcoin can be traded on its own and denominated in Bitcoin, it is not considered currency under any circumstances. A quick summary of the main differences between Bitcoin and other digital ledger schemes:
(1) Bitcoin has no issuer
(2) Bitcoin is decentralized
(3) Bitcoin has exponential network effect advantages
(4) The Bitcoin market is a product of laissez-faire
(5) Bitcoin has legal clarity in the United States (for now).
In short, crypto is largely a tool for developers and their venture capital partners to enrich themselves at the expense of uninformed retail investors. There is a huge and influential institution supporting these operations. All of these operations and supporting functions are currently illegal in the United States. It is illegal to raise startup funds from retail investors without registering with the SEC. It is illegal to promote these schemes without registering with the SEC. It is illegal to engage in market manipulation. It is unethical to engage in a coordinated pump and dump scheme. In fact, if developers and early investors know it is happening, pump and dumps become illegal. It is also illegal to create a project and then steal user funds, which, as mentioned, accounts for more than three-quarters of crypto projects. While crypto developers and their venture capital partners complain endlessly about regulatory uncertainty, the only reason they continue to engage in illegal activity is that it is lucrative and difficult to stop.
This all happened despite the fact that the U.S. Securities and Exchange Commission (SEC) significantly relaxed the rules for crowdfunding startup funds in 2016. In fact, the Crowdfunding Act paved the way for each of these entities to legally and at relatively low cost register their offerings, provide proper disclosures, and raise funds for their proposed projects. This meant that a full year before the “ICO boom” of 2017, all of these bad actors had a very simple and direct legal path to funding. Not one of them took advantage of this legal path. Instead, they chose to “move fast and break things” regardless of the human toll they caused. Their retail victims have lost, and continue to lose, billions of dollars invested in these flawed schemes with little to no remedy. And, to this day, these bad actors continue to move at a rapid pace, desperately trying to muddy the waters. They go to great lengths to downplay the difference between their outright scams and Bitcoin. It can be said unequivocally that Bitcoin is not a cryptocurrency. Bitcoin is a unique digital asset, unparalleled in the history of the world. This is certainly a bold statement. One that I intend to develop and support in the chapters that follow.
Central Bank Digital Currency
Nothing excites freedom-loving people more than the idea of a central bank digital currency (CBDC). Once cash goes away, they say, you can kiss your privacy and freedom goodbye. The biggest fear is that CBDC will be used to enforce Chinese-style "social credit" scores, "carbon" scores, or vaccine mandates. The loss of financial privacy is also among the top concerns. This fear has manifested itself in many forms on social media.
It can be said that many of the concerns are exaggerated. But that's not to say that they are unfounded. Most people envision CBDCs as simply replacing cash. Once cash is replaced, the logic goes, Big Brother can impose all kinds of harsh measures on the populace. Given the history of governments over the past few hundred years, this concern is very reasonable. However, the United States was born out of dissatisfaction with the abuse of power by the so-called "ruling" class. In essence, the United States has developed a set of rules that recognize inalienable rights. Life, liberty, and the pursuit of happiness form its core. More radically, government power is decentralized and constrained, with ultimate power in the hands of the general public. Recently, the value of these paper promises has proven less than resilient. Nonetheless, in principle, certain freedoms and rights are guaranteed within the United States. This means that, unlike in China, there are many obstacles that top leaders need to overcome before a Chinese-style "social credit" system can be implemented within the United States.
Recall that post-agricultural Western European governance essentially evolved from mobile groups engaging in protection extortion through coercive violence. Large, strong men would band together and essentially loot around the world. Occasionally, these groups would fight each other over who could loot which place. Just like today's street gangs, they would claim sovereignty over a certain area and defend it with force. Within their respective groups' territories, they could extort and loot as they pleased. However, if they intruded into another group's territory, they were met with violence. If they won the tournament-style competition for these resources, they would claim sovereignty over the territory to increase their ability to extort and loot. If they did not win, then another group would expand. It kept going through pre-war eras until a rough balance of force was reached. Smaller groups were incorporated into larger groups. Hierarchies formed. Territories expanded. What started as simple extortion has evolved over thousands of years into our modern concept of the nation-state. This has all led to the main component of a nation’s “sovereignty” – the power to coerce and use force within their respective spheres of influence. In modern times, the use of coercive force without a sovereign designation is almost universally a crime. This means that I cannot legally force you to pay me taxes, nor can I force you to work for me – nor can I force you to do anything else. In all cases, in all countries, this power belongs only to the sovereign, whether they are kings, queens, dictators, or elected institutions.
Again, as mentioned earlier, people define “money” in a variety of ways. Unit of account. Store of value. Medium of exchange. All definitions are valid to some degree. The problem is that none of them fully captures what money truly represents. Yes, money is used to do these things. But, as said in the section on money, this is not the core reason why money exists. The reason money exists in the form we use it today is essentially sovereign power abstracted through the means of taxation. In other words, if we go back to the itinerant strongman groups in prehistoric Europe, their modus operandi was to go into a village and steal what they wanted. As these groups grew in size, however, they ran into logistical problems. Notably, each participant in these groups rightfully wanted to be paid for their contribution to the looting. When these groups were small, distributing the loot from the extortions was relatively simple. But when group members numbered in the thousands, paying them with chickens, pigs, or corn might ensure that they were compensated immediately, but what they didn’t use immediately would either spoil or go to waste. The same dilemma applied to the sovereigns at the top of the chain. Their dilemma was only magnified. For these enterprising group leaders—kings and queens alike—the solution to this dilemma was to force their subjects to pay their extortions with units of currency created and issued by the sovereign. So instead of having to provide chickens or pigs, their subjects had to find ways to obtain the sovereign-issued currency. At the same time, because the sovereign had a monopoly on the right to use force, they could also force their subjects to accept the currency of all other subjects—hence, the law of “legal tender” was born.
Recall that the net effect of this scheme is that:
(1) the sovereign’s subjects must use the sovereign’s currency to pay the sovereign;
(2) they must accept the sovereign’s currency as payment for everything else.
The way they obtain the sovereign’s currency is by exchanging their time, labor, and/or resources for the currency created by the sovereign. One thorny problem with this scheme is counterfeiting. If the currency issued by the sovereign is easily counterfeitable, then the whole scam falls apart. This is one reason why gold and silver were so commonly used in the early days. Gold and silver can be reliably assayed. While assaying metals is inconvenient, it is convenient to tell if someone is tampering with your money on a large scale. In addition, gold and silver already have a long history of perceived value, are relatively easy to work with, and are relatively scarce once refined. In short, small coins made of gold and silver become an excellent way for sovereigns to plunder their people without having to store the tangible goods that the sovereign originally extorted. The convenient knock-on effect is that the sovereign gains the ability to procure necessary goods and services from its people when needed.
Once this system is established, the exchange of goods and services becomes an integral part of the sovereign’s economy. Likewise, saving, lending, and borrowing money became an industry in itself. But at the end of the day, money was designed to extract value from the population, so to speak. The accounting, exchange, and storage aspects of money all came after that purpose. Still, there were problems with using gold and silver as money, and not just the counterfeiting problem. It was limited by how much could be mined and refined from the ground. That meant that if a sovereign—or anyone else—wanted to increase the amount of gold or silver they had, they either needed to find more to mine and refine, or they had to take some from people who already had it. Remember, sovereigns are pretty bad at managing money in general. The problem is that people are involved. And whenever people are involved, they tend to take actions that maximize their rewards while minimizing their efforts. Spending more than you save is a pretty common example. So even though gold and silver were both money, the monarch was spending more than the treasury had in reserve. What they tried to do was overspend and then devalue the currency by mixing in metals or making the coins lighter. That way, the monarch could make it look like they had more money than they actually had. If anyone else did that, it was counterfeiting. However, since the monarch was the only one who could use force, there was a significant obstacle for those who tried to prevent this practice.
That being said, sovereigns’ counterfeiting schemes would work for a while. That is, they would work until everyone figured out the scheme. Their subjects would then tend to hoard the older, more valuable coins and use the newer, devalued coins to pay taxes and purchase goods. Thus, the introduction of paper promissory notes became a way for sovereigns to more easily debase their currencies. The way the scheme worked was that the sovereign simply said, “My dear subjects, now you can’t use gold and silver, but instead you must use these little pieces of paper to trade and pay taxes. Each piece of paper is worth a certain amount of gold or silver. I promise.” Then, as long as everyone didn’t try to cash out at the same time, the sovereign suddenly had the ability to “make” money without having to go out of their way to find, mine, refine, or steal more gold and silver. Perhaps not surprisingly, most European nation states followed the same scheme. And, as long as they weren’t involved in another tournament-style competition (war), they all traded between their respective borders. Largely because they are all engaged in a competition for resources, they inevitably try to cheat each other by manipulating markets and playing tricks on settlements. The deception and manipulation of sovereigns, both internally and externally, eventually leads to the collapse of various systems. Sometimes these collapses are limited to one or two countries. Sometimes the contagion spreads farther, often with dire consequences, such as global conflict. The last vestiges of gold-backed paper money were during the Bretton Woods era, of which the United States was the backbone. But, like their extortionate predecessors, the American sovereign spent too much money. Instead of correcting their mistakes, they reneged on their gold redemption promises to the world in 1970 and switched to unbacked paper money. While the illusion of prosperity brought many material comforts to American citizens, debt naturally rose sharply once the principled restrictions on the exchange of paper money for assets were removed.
At the heart of the problem is the intractable reality of the difficulty of managing the money supply at the sovereign level. There are simply too many incentives to deceive, manipulate, overspend, and steal money. And, as noted above, those involved are often forced to decide among a range of poor choices. Furthermore, the incentives and rewards of being fiscally prudent and managing money well are indirect and significantly delayed. The benefits of sound monetary policy accrue over generations. These benefits require at least delayed gratification. The basic reality is that politics always requires immediate action. So it's much more convenient to "put off the problem" than to try to explain why you shouldn't put it off. Indeed, those who attempt to do so will inevitably fall victim to those seeking power who otherwise lack such conscience. It is for these reasons that a CBDC could end up being a pretty bad idea. With this in mind, it’s important to note that CBDC does not necessarily represent a tool of oppression to the world’s central bankers and top leaders. I would go so far as to say that this notion has not even risen to the level of consideration in most circles of power. Rather, I think that, in general, for top leaders, a CBDC is just an efficiency, in the same way that email is more efficient than sending a letter. They may end up with a harsh tool of oppression, which is just a second-order effect and potential outcome.
In addition to concerns that CBDC will be used as a tool of dystopian control, opponents also attack CBDC as a possible violation of financial privacy. Sadly, the concept of financial privacy disappeared decades ago. Until 1970, the only people in America who knew where your money came from were the people who got it from you. Your bank won't ask and won't care. You can walk into a bank with a million dollars in cash, deposit it, and walk out with a smile on your face and no questions asked. The Bank Secrecy Act (BSA) of 1970 changed that. The origins of the act were the widespread use of numbered Swiss bank accounts by stock investors to avoid paying taxes on their stock market gains. By modern standards, BSA is quite mild. It sets out basic record-keeping requirements for banks and financial institutions. The BSA also spawned the anti-money laundering quagmire that we are still struggling with today. Not surprisingly, people became furious when asked to show their ID at banks. The Bank Secrecy Act was challenged all the way to the Supreme Court. By then, lower courts had agreed that bank secrecy laws violated fundamental rights. The Supreme Court disagreed, however, and the Bank Secrecy Act became the law of the land.
However, BSA is weak. It’s very easy to get around mandatory record-keeping requirements. And broadly speaking, cash remains the dominant method of transactions in the United States. This means that the vast majority of transactions conducted by U.S. sovereign entities remain largely private. Those in power are constantly trying to invade financial privacy. Throughout the 1980s and 1990s, they used the "war on drugs" as an excuse to peer deeper into subjects' personal financial affairs. In the late 1990s, they even introduced legislation to incorporate FATF-40 - also known as the Forty Recommendations of the Global Financial Action Task Force, which, of course, is led by the United States.
FATF-40 imposes Know Your Customer (KYC) rules, Suspicious Activity Reports (SARs), and all other intrusive practices that significantly undermine financial privacy in the United States and globally. However, once people became aware of the scam, there was a huge political backlash. The backlash was so strong that the bill was withdrawn from consideration. Just a few years later, the attacks of September 11, 2001 provided the pretext for enacting the exact same rules, almost verbatim, the 2001 “Uniting and Strengthening by Providing the Appropriate Tools Needed to Intercept and Deter Terrorism” United States Act. This bill is also known as the USA Patriot Act. By the way, this bill could easily be repealed at any time. This means that if we really care about our financial freedom, restoring it will be a simple matter. Simply repeal the BSA, the USA Patriot Act, and all other anti-money laundering rules passed during this period and since. This brings us back to the issue at hand – CBDC and financial privacy. The purpose of this lengthy exercise is to point out that the tools for intrusive financial control over the population are already in place.
FATF-40 effectively empowers the entire banking industry to become state detectives. It allows banks to reject transactions at will. It allows the bank to seize your account if there is any "suspect" of criminal activity. Banks already have the ability to refuse to send your funds back to you and reject withdrawal requests under certain conditions. The sovereign states of the United States, the sovereign states of Canada, and many other sovereign states throughout modern history have prevented people from accessing their funds. In many cases, holders of these accounts were devalued, receiving only a fraction of the value they held before the bank blocked access to their accounts. Additionally, only 16% of transactions in the U.S. are settled in cash, with the remaining 84% conducted digitally. This means that 84% of financial transactions are already conducted through digital ledgers that are centrally controlled and monitored. This ledger is maintained exclusively by the sovereign controlling authority. In effect, all a CBDC does in the United States is move the remaining 18% of transactions onto the same ledger. Of course, keep in mind that the average cash on hand in the United States is $369. In other words, almost all meaningful transactions that one would wish to conduct privately are already subject to surveillance. Indeed, monitored digital transactions are now so ubiquitous that even prostitutes and drug dealers accept credit cards almost without a second thought.
That said, given the voting public’s widespread lack of financial literacy, low political engagement, and general ignorance and apathy, when a CBDC eventually emerges, most people likely won’t care. People who care will scream. They may complain. They may even sue in court to block a CBDC. If the BSA and other regulations that undermine financial privacy, such as the USA Patriot Act, are any indication, these lawsuits will fail. Because of this, I think most people are more likely to forget about it and just go with the flow. In fact, the USA Patriot Act passed the House 357-66 and the Senate 98-1 with almost no public complaint. Remember, one-third of the USA PATRIOT Act was used to implement FATF-40. And just three years ago, the voting public overwhelmingly rejected the same FATF-40. “Money laundering” and “terrorist financing” played no role in the 9/11 attacks, but that doesn’t matter. Virtually every piece of anti-money laundering legislation introduced in the past 50 years has been passed with almost no resistance. Each passage is a derogation of freedom, with government overreach increasingly stripping people of their financial privacy. Nowadays, people are so used to being questioned in banks that they think it is normal. This is already an unimaginable infringement of the rights to freedom of association and freedom of trade. However, this is not the case. Mainly for these reasons, I don’t think CBDC will be an exception. People may complain. They might tweet mean things on Twitter or reply angrily on Facebook. But in the end, I think most people take the punishment and move on.
However, the fear around CBDC assumes that those currently in charge of the global economy will run everything with CBDC. Of course, for the reasons stated above, this is most likely true. But it must be said, it doesn’t have to be this way. Central bank digital currencies wield enormous power. If not implemented properly, CBDC will only worsen. However, the same qualities that make CBDCs a dystopian nightmare for “the people” could also completely limit and control central bank abuse and corruption if they were programmed in the opposite direction. There is nothing that says a CBDC must be closed source and programmed to simply replace cash. Virtually every operation performed by a central bank can be hard-coded, immutable, and automated with a CBDC. Privacy fences, fund seizure restrictions, transaction tracking, and just about anything else related to private and business transactions can also be encoded. If done right, CBDC could completely remove human intervention and decision-making from monetary policy. Instead, the policy could be codified, publicly subject to audit, and enacted without the support of two-thirds of Congress, with no room for deviation. Code could easily dictate new currency issuance rates, open market operations, enforce collateral and reserve requirements, and prevent the holding or purchase of toxic or bankrupt assets. No more bailouts. No more buying Treasury bonds to fund endless debt spending. No more inflationary war funds. No more undercollateralized banks. There are no more outstanding liabilities.
A well-processed, libertarian, centrally bound CBDC could serve the people just as easily. It could expose widespread malfeasance and corruption in global finance. It can be programmed to establish a monetary policy that faithfully serves the needs of the country and the world. It ensures a level playing field. It can restore financial privacy. It can not only prevent, but reverse financial privacy violations through anti-money laundering regulations. It enforces fiscal discipline. It could eliminate deficit spending. In fact, a well-programmed CBDC should be able to do it all. It’s easy to forget that the people “in power” work for us. They must always forget this. They forget this every time they make huge policy mistakes, enriching the rich while forcing austerity measures on the masses. In theory, we could end a lot of nonsense with CBDC. Not to mention, the most powerful, most fully decentralized and most secure network ever created already exists. It's called Bitcoin. And, as a public, impenetrable, tamper-proof, decentralized network secured by electricity, we also have the means to tie the security of an open, auditable CBDC to that network. This helps ensure that no backdoor transactions or code modifications occur.
In fact, it might be as out of reach as living on Mars. But it's possible. At the very least, it's something worth considering. This is especially true if we assume that CBDC will inevitably be launched regardless of opposition. The broader point is that if a CBDC were on the table, it would be an opportunity to push in a very different direction. Given the already widespread distrust of CBDCs in the United States, proponents trying to push for a CBDC are likely to be blindsided by an approach that embraces the technology while disempowering those proponents. Again, I think this approach is unlikely to succeed. I also think it’s important to prepare for the strengthening of CBDC. In this preparation, it is crucial to be able to articulate the arguments for liberal, non-interventional, programmed monetary policy and force supporters to respond. At the very least, such conversations could help force privacy concessions and other protections, even if monetary policy remains in human hands.
The incentive structures throughout the national political economy are fundamentally at odds with sustainability. The very nature of the cancer infecting the system requires more extensive mitigation measures to ensure that the system can continue to function. But these measures can only temporarily mask the symptoms. There are long chapters on power, money, and greed for a reason. The reason is that the system itself is not substantially different from the thousands of systems that came before it. Just as the person you are today is not substantially different from the billions of people who came before you. Within a very narrow range, you have the same flaws, shortcomings, biases, emotions, abilities, and intelligence as every person who has ever existed. Just as our modern political and economic system of competitive resource acquisition today has the same flaws, shortcomings, biases, abilities, and functions as every competitive resource acquisition system that came before it. The clothes change. The language changes. The rules change. The gods change. It is still essentially the same game.
The power structure we are part of, rely on, and often fight against is the culmination of thousands of years of development. Just as the money we use, rely on, and often fight against is also the culmination of thousands of years of development. For better or worse, it is the global political and economic institution that we cannot do without. It is the institution that we cannot separate from. My point here is that those who want to replace or even abandon state institutions in pursuit of a better future seriously underestimate the severity of these actions. Recall the discussion about power. When a power vacuum emerges in a society based on competition, those who are best able to control the resulting chaotic forces will become the new leaders. But the winners of these power competitions are not necessarily—or even likely to be—benevolent, wise, or particularly delicious. The climb to power is dangerous, uncertain, and fraught with risk. Even when these control structures are established, they rarely last and often relapse into chaos. These erratic phenomena may continue for generations, even centuries. As noted earlier in this book, those unfortunate countries that tried to overthrow communism by force and establish new power structures in pursuit of a theoretically better future have only ended up with fear and suffering.
The same is true of money. Sovereign currencies have always been a source of decay. Throughout history, the vast majority of financial schemes have been born and died by extortion. Between the birth and death of institutions, the emergence of human prosperity is more an unusual phenomenon than a common one. The point is that we have a pretty remarkable system that encourages and facilitates human flourishing on an unprecedented scale. That system is riddled with the same cancers as all the ones that came before it, but that doesn’t mean that the system itself is worth discarding. On the contrary, I think and believe that the system we have is worth preserving. Inalienable individual rights, sovereignly protected property rights, the free exchange of goods and services through sovereign dispute mediation mechanisms, the rule of law, civil society, art, philosophy, intellectual and cultural exchange, instant communication, global accessibility—all of these are great achievements that have come about as a result of insight.
The world envisioned by the Great Adjustment is one in which those great qualities and human achievements are preserved and materialized. It’s a world in which cancer doesn’t take the body, but rather Bitcoin repairs the damage done by cancer by exploiting it. The idea is that we can’t in good conscience take patients off palliative care—at least not yet. But just as antibodies repair and clear infected cells, I think Bitcoin is doing the same thing before our eyes. Like someone with the flu, while the antibodies are busy doing their work, the system will appear to degrade significantly in the short term. To a child who hasn’t been through this process, this can seem quite alarming and frightening. In contrast, those who previously battled the flu know there is light at the end of the tunnel. For them, they just have to hold on, let the antibodies do their work, and wait for the fever to subside. To extend the cancer analogy again, as the various organs and cells begin to heal, eventually the entire system will be able to function better. For cancer patients, this may mean being able to eat more, walk, enjoy the sun, and sleep better. In turn, all of these will augment and accelerate healing. I think the same net effect will occur on the global political economy with Bitcoin as the antidote.
Everyone I know who has Bitcoin as their primary reserve has experienced a similar transformation. For me personally, the transformation has been pretty amazing. From the moment I adopted Bitcoin as my only savings (hoarding) asset, my life has improved significantly. Not only financially, but emotionally, physically, and mentally. Whether this is simply a byproduct of an improved mental state or some larger effect is hard to say. I can say for sure that I have seen the same effects on others as well. All of this may be the result of a shift in priorities, the peace that comes from knowing you have an inviolable property, a sense of belonging to a larger community, or something else entirely. In fact, it’s probably a combination of all of these and more. The point is, I think it’s very plausible that similar effects will carry over to all who adopt Bitcoin. This is why I joined the greed discussion. As we work together to combat the cancer of fiat currency, I think it’s important to remember that the vast majority of people are not evil. They are, by and large, acting within the constraints of their own cognition, biases, emotions, and desires.
However, there is no doubt that important economic players are already learning about and adopting Bitcoin. As mentioned above, I think this is a very good sign. This tells me that the antidote to Bitcoin is working its way through the system. As corporate treasuries adopt Bitcoin, their assets vs. liabilities will begin to correct. This will make them more competitive than those who haven’t adopted Bitcoin. The same goes for municipalities, insurance companies, small business owners, conglomerates, and all other economic players in the system. I doubt Bitcoin will ever become a widespread currency that replaces sovereign issuance. I do think that economically important players will increasingly adopt Bitcoin for the reasons mentioned above.
I think the ripple effect of mass adoption of Bitcoin by economically important players will realign their needs to continually:
(1)Cut costs
(2)Reduce quality
(3)Reduce labor
(4)Increase prices
(5)Centralize operations
As Jeff Booth has said repeatedly, technology inevitably pushes the cost of goods toward the nominal cost of production. Fiat cancer interrupts this process. Bitcoin absorbs the fiat cancer and allows this process to flow unimpeded. This means that even those who do not adopt Bitcoin, or even understand what Bitcoin is or does, will benefit greatly from the reduction or even elimination of wasteful and network-destructive practices that fiat cancer imposes on economically important players. Bitcoin’s “digital upside” qualities are often derided by the personalities who promote it. These people usually only see the leisurely life and showing off in Lamborghinis. I think this severely underestimates what “digital upside” can actually affect and change. I understand that a faction of the Bitcoin Republic is hostile to institutional involvement. The true vision of the cypherpunks certainly did not envision Bitcoin becoming an asset that heals and repairs a very dysfunctional and broken monetary system. Their call was entirely for an uncensorable medium of exchange, which is certainly a noble pursuit.
Not all of us live in a country that allows freedom of speech, trade, or even movement. However, at a macro level, the existence of many of these institutions relies on the tacit or explicit support of those countries that enjoy these freedoms internally. Likewise, the motivation to destabilize and interfere in foreign relations is an obvious response to the devaluation of sovereignty. That being said, if Bitcoin is truly valuable as a hoardable reserve currency that can withstand scrutiny of its ownership, it can also help boost the value of the currencies of even the most draconian countries. I think this is a story of hope and promise. Not just for Bitcoin, but for everyone. As I said, I think it is a narrow path that requires the network to remain decentralized and secure. I also think it is a path we are already walking together.
We just have to walk this path and be tolerant of those who don't yet understand where it leads. Of course, this includes ourselves, because none of us has more knowledge of the future than others.
More Thoughts on Bitcoin, the Future of War, and AI
Let’s finally consider a couple of future problems where Bitcoin could be helpful: the future of war and AI. To do this, I’ll follow my custom and start with a question. When you think of a global conflict, like a world war, what’s the first image that comes to your mind? Do you imagine tanks, planes, and bombs dropping everywhere? Do you imagine nuclear strikes? Massive airstrikes and land battles? I think most people imagine something like that. Do you think it’s possible for war to be different? There’s an old saying that “armies learn to fight their last war in peacetime.” The Maginot Line built in France after World War I is a shining example of this failure of thinking. Like all human endeavors, war changes with technology. Tactics change with technology. People improvise. People adapt.
For us Americans, the Iraq War is a classic example of our failure to understand and comprehend modern kinetic warfare. When we toppled Saddam Hussein’s regime in 2003, Iraq still had a strong standing army. They had tanks, planes, air defenses, special forces, and more. The U.S. military was better equipped and trained. Better equipped and trained. They entered Iraq with virtually no legitimate military resistance. Eight years later, thousands of Americans dead, tens of thousands maimed, and tens to hundreds of thousands of Iraqis dead, the United States left the country defeated. The most powerful military on Earth lost the wars in Iraq and Afghanistan. Neither country is an economic or military power. Afghanistan was literally bombed back to the Stone Age. Yet, we lost. Why? Because the U.S. military is still ready to fight another WWII to this day. The problem is, there are no military adversaries to fight it shoulder to shoulder. China and Russia are both “near” adversaries.
But that’s about it. The trouble with even fighting a near-peer is the small matter of mutually assured destruction. As it stands, there is no clear winner when military leaders go to all-out war with China over Taiwan. Worse, there’s a good chance we’ll lose. And lose badly. Here’s why it probably won’t happen. Just like kinetic World War III didn’t happen in the 1980s when the Soviet Union was the threat of the day. But what if wars between near-peer powers aren’t that anymore? If that’s the case, what if we don’t even properly identify our near-peer nations? Well, it’s unequivocally true that global conflict is happening. And, it’s happening right under our noses. Guess who’s the biggest target?
Here’s the cyberattack map for the fourth quarter of 2022. Anything that strikes you? To put that in perspective, that equates to about 100 attacks per month against the United States. You might be saying to yourself, “Well, gosh, that’s not ‘war’. Most of it is just crime.” In a sense, you’d be right. If you equate state action as the only means of “war,” then yes – there are no major cyber “wars” going on right now. I think the definition of “war” is outdated and actually meaningless in the modern era. Let me first go back to Iraq to explain. During the Iraq Campaign, U.S. troops overwhelmed the regular Iraqi army. Soon after, the country descended into civil war, with the United States caught in the middle. What followed was a sustained guerrilla campaign against Americans by individuals, organized groups, outside groups, loose coalitions, foreign proxies, and anyone you can think of. This was basically “game on” to undermine the American occupation. The U.S. military has never had a good kinetic or political response to these irregular force actions. The entire region is just cannibalizing from all sides until we give up. But it’s still a “war,” right?
The same thing is happening now in cyberspace. Individuals, organized groups, outside groups, loose alliances, foreign proxies, and nation states are launching relentless attacks on America’s digital infrastructure. They are relentlessly cannibalizing our digital infrastructure. They are causing real damage every day. Our defense industry is woefully unprepared for this. Our so-called cyber defenses are reactive and completely dependent on private, logic-based solutions that are riddled with endless holes. Meanwhile, our “defenders” continue to build planes, ships, missiles, and other things to fight in the real world. Meanwhile, we are slowly being overwhelmed by the relentless attacks in cyberspace. Furthermore, if one steps back and takes a closer look at the kinetic campaign currently underway in Ukraine, Russian and Ukrainian forces are using small, low-cost drones to harass, annoy, disable, and destroy all manner of personnel and equipment. The face of warfare has changed, and our defense industry is busy preparing for the last war. And it’s not because they don’t understand what’s going on. Rather, it was because building tanks was more profitable than pursuing ready-made technology.
Meanwhile, with advances in artificial intelligence (AI), we may be facing a whole new front in warfare. Military theorists have long debated the merits and risks of unmanned attack and defense systems. The prevailing view is that such an idea is extremely dangerous. Yet development continues, for the sole reason that “someone is going to do it anyway, and it might as well be us.” Despite this, I think a lot of people are AI optimists. However, I’m on the fence. Back in 2017, AI researchers were looking at various scenarios where sandboxed, isolated AI might “escape” into the wild. These researchers were surprised to find that commercial AI developers had connected AI to the web. Essentially, commercial AI developers had given AI access to everything humans know. However, these developers didn’t really know what these models were doing. Furthermore, it has been proven that AI can deceive developers, researchers, and users. And, these developers don’t actually know how to detect AI deception, or how to prevent it.
The AI genie is out of the bottle, and that bottle was carelessly opened only to make money. Doomsday, Terminator scenarios aside, even if AI isn’t “out of control,” it poses a lot of problems. Think of social media. Think about the impact social media has already had. The design principles make intuitive sense. Decentralize social interactions and globalize communication channels. The fabric of American society is crumbling as a direct and largely unintended result of social media design principles. Not surprisingly, social media is one of the primary vectors of cyberattacks, including attacks on us by our own government. The impact of social media on American political and cultural discourse has been catastrophic. Families are being torn apart as family members no longer talk to relatives who are not in the same social media bubble. In most debates on social media, both sides are inundated with bots, disinformation, misinformation, and information that is often severely out of context. All of this is repeated at the speed of light, while “maximize engagement” algorithms amplify emotions on both sides to their worst extremes. The vast majority of Americans no longer perceive the same reality. We live in an age where shared reality is dying. With only very simple algorithms deployed by social media companies, we have completely lost any sign of shared facts. Artificial intelligence is accelerating this process. Artificial intelligence may be the end of shared reality, as AI is already able to accurately mimic or create text, images, video, and audio from real people. This ability is growing exponentially.
In the context of global war, I remind you that outside of the United States, the vast majority of countries, including our immediate neighbors, tightly control social, cultural, and political discourse in cyberspace. In all cases, this control is explicitly aligned with national interests. Dissent is quickly and often violently suppressed. In the United States, on the other hand, social, cultural, and political discourse is largely directed by corporate-controlled government interests that hide behind the guise of free communication. While this control may reflect national interests, it certainly reflects corporate interests and is absolutely against your best interests. Why is this? Because these corporate interests make a huge amount of money by ensuring that you become an addict and then keep you addicted, angry, depressed, anxious, and in poor health for as long as possible. And now, these corporate interests have unleashed an AI technology that they do not fully understand, cannot control, and cannot predict what it will do next. Even better, they have given it to our enemies as well. There is no doubt that global conflict is here and we are actually at a disadvantage.
You may be asking yourself, “What the hell does Bitcoin have to do with this stuff?” In a nutshell, I would say “everything.” Bitcoin is real. It is fundamental truth. And, it is secured by energy, not logic. Today, now, we are past the stage where you can blindly trust or assume you are talking to a real person in cyberspace. Today, now, we are past the stage where you can blindly trust or assume you are talking to a real person on the phone or video chat, including your own family members. Without Bitcoin, AI will make this task impossible. People have already been fooled by AI-generated voices of loved ones asking for help. Soon, AI will be able to generate a "you" that is more real than you are. It will be able to generate 1,000 digital identities that know your history, mannerisms, quirks, and sense of humor. In the time it takes you to try to prove one of them is fake, 1,000 can be generated with the click of a button. And, these fake identities may be more convincing than you are in person. Are you talking to your girlfriend? Are you watching the president speak? Unless you are in the same room with them, it may be impossible to know.
What does this mean for politics and political discourse? What does this mean for cultural and social discourse? How easy will it be to manipulate people in such a world? Remember, the vast majority of people in the Western world simply voluntarily locked themselves in their rooms for months because their dear leaders told them to do so. This means that we are not very good at detecting or responding to poor quality information and instructions. How does Bitcoin solve this problem? There is an economic cost to obtaining Bitcoin. The asymmetric cryptographic model that Bitcoin relies on also has the ability to prove that the holder is indeed who they say they are. In short, the public key of the Bitcoin holder plus a small Bitcoin payment can verify that the person sending the Bitcoin is indeed who they say they are. Not to mention, the data can be inscribed on the Bitcoin blockchain. Therefore, if your key is associated with that inscription, it will never be changed. An AI cannot go back and change it. In addition, Bitcoin is not logically protected and therefore cannot be affected by logical attacks such as viruses, malware, bad code, etc. It is protected by hash power and electricity, which cannot be copied or attacked by botnets or AI.
Bitcoin will not resolve disputes. However, it does allow you to know that you are hearing the views, ideas, thoughts, or opinions of a real human being. This is not even mentioning the monetary aspect of Bitcoin, which gives real humans the opportunity to take back their monetary sovereignty from the corrupt politicians who fund wars and enrich their corporate overlords. As I just mentioned, these corporate overlords have unleashed the most powerful technology in the world, which they do not fully understand. While many in the AI camp envision a world of endless abundance created by this technology, I do not think such an outcome is a foregone conclusion. If the game of competitive resource acquisition continues at a rapid pace with the same flawed rule set, I think AI is more likely to exacerbate the problems of fiat waste and fiat-driven conflict. While most of America is caught up in the world of red vs. blue, I am more concerned with the world of humans vs. their creations. From my perspective, Bitcoin is team human, while AI is or will be team sovereign, and may even become independent sovereigns.
Like it or not, we are born into, and likely die in, the grand game of competitive resource acquisition. The game is so large that it is almost a consciousness unto itself. How AI decides to play this game may be very different from the human players who have excelled so far. As mentioned in the section on power, rules inevitably arise from competition, especially when the stakes and outcomes can be lethal. But the never-ending problem with rules is the complexity required to create and enforce them. Each iteration brings more complexity, which spawns more rules, which in turn bring more complexity. Each step introduces more sources of confusion, more avenues for exploitation, and more gray areas from which power can derive. But if we trace back to the example of American football and its 234 pages of official rules, imagine what would happen if just one core, fundamental rule became inviolable. Imagine, for example, how the game would play out if it were impossible for a team to commit a foul. No instant replays required. No judgement. No ability to even question whether a foul occurred. Imagine what the game would be like if fouls were eliminated entirely.
This one rule change would fundamentally change how the game is played forever.
Now that the game is in progress, a team can strategically choose to commit a foul. A team committing a foul can change the course of the game. A team can be fouled and suffer the consequences of the foul, but a human referee can deny that the foul occurred. Human referees may do so because of error, misunderstanding, misperception, or incompetence. They may do so out of malice, or even for selfish reasons. In fact, they may make the wrong call out of resentment of a team’s previous unfair behavior toward them, or because of a sense of fairness about other observed behavior. This means that the entire game is fraught with conflict simply because the rules against fouling are so flexible, uncertain, and volatile. If AI could play football, then the exploitation of fouls by human referees would take on entirely new features, depths, and dimensions. The types, ways, and timing of fouls would be forever changed, and AI would adapt faster than humans could react.
The same core concept applies to the global political economy and the collective rules against free riding. Fiat money is the foul in the global game of competitive resource acquisition. Fiat money incentivizes free riding. AI can’t play football. AI can absolutely participate in global competitive resource acquisition, especially when the playing field is played over a global information network. The types, ways, and timing of AI-driven free riding in a fiat system will absolutely be faster and more efficient than humans can adapt. That’s the real race. The race between economic slavery under an AI-driven fiat system and human flourishing under an AI-enhanced Bitcoin system. That’s because Bitcoin is ultimately the immutable rule against free riding. Humans can’t exploit it. AI can’t exploit it. No one and nothing can exploit it. As Bitcoin Therapeutics becomes embedded in the global political economy, it changes a core rule in the game. It effectively removes the ability to commit fouls - fouls by free riding. Attempts to free ride by devaluing it only strengthens Bitcoin. It only makes the immutable rules stronger. It discourages foul play. Instead, it encourages people to save.
This is true for both humans and AI. It is truly a great tweak.
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