Category Archives: Politics

Review: Saifedean Ammous – The Bitcoin Standard

In ‘The Bitcoin Standard‘ author Saifedean Ammous takes its readers on a tantalising journey into the world of money. The goal of the journey is to explain why Bitcoin could be the next phase in mankind’s hunt for sound money. Sound money can be freely chosen by people on basis of market interaction and not by government imposition.

After some general characteristics of money Ammous gives a historic overview describing why over periods in time certain objects or materials could attain the status of money. Exogene factors (like the arrival of colonists  on the island of Yap where the indigenous population developed a money system with large, difficult to move stones) or through endogene factors (the Roman era where the caesars made fatal decisions about reducing the percentage of precious metals in coins) ultimately led to the dismise and disappearance of certain types of money.

Other types of money could thrive for long periods in time and history. They would keep their value and use as method of payment or financing transactions. An example is the Bezant, the currency from the Byzantium empire that functioned over a millennium as money. Ammous explains that the salability of money (money holds its value over time), store of value (the material of which money is made, does not degrade over time) and stock-to-flow ratio (money is difficult to reproduce and inflate) are essential keys to why money can become successful. Over time the most successful and valuable money has unarguably been gold. It  fits all above mentioned characteristics perfectly: it holds its value over time and does not degrade. Through mining new gold becomes available in relative small quantities to the total amount of gold stock, so the market never gets overflowed with gold.

In the 19th century new technologies in the field of telecommunications (telegraph) and transport (trains) became available and would lead to significant changes in the use of money. The 19th century ‘invention’ of the nation state, saw the rise of the central bank as the ‘bank of banks’ within a nation. Central banks became the collectors and preservers of the nation’s gold stock.

Central banks printed paper money that represented the value of the available gold reserves and they could deliver gold to the owner of a piece of paper money on request. Because this was common procedure among all nation states, international trade benefited: the amount of printed money was tied to a nation’s gold stock reserve and internationally it meant fixed rates for exchanging money among nations.

This period of this stable money system came to an end in 1914 when countries like the United Kingdom abandoned this golden standard. From now on the central banks could (and would) print money that had no direct correlation to the stock of gold. The paper money could no longer be redeemed by the central bank for the equivalent of gold. The downside of being able to print fiat (=trusted) money with no back up of sound money is that the fiat money tends to lose its value over time. Especially in the Interbellum (the period between the 2 world wars from 1918-1939) this would lead to disastrous situations where endlessly printing and devaluating money could completely ruin economies (most prominent example being the German economy in the late 1920’s – early 1930’s). Ammous signals another dangerous development, the nation state’s governments as an interventionist in the macro economic playing field. Mainly following the theories of John Maynard Keynes, governments and central banks made decisions about devaluation/ revaluation of their local currencies versus other currencies and intervened in local economics by inflating the quantity of money in the hope that the local economy would receive a push.

Ammous totally destroys the vision of Keynes in that respect. Keynes not only had no clue what would be the -long term- result of interventions and was completely in the dark about why certain economic phenomena (like recession) would occur. Ammous  turns instead to the Austrian school of economists for answers how an economy should work and how economic phenomena can be explained and dealt with.

As much of our society and economic thinking and acting by government institutions is still drenched in Keynesian thinking, the results of this have led again and again to disastrous situations for the citizens and entrepreneurs of nation states: government’s decisions have lead to dramatic consequences as recently as the 2008 financial crisis.

For Ammous, Bitcoin “offers the modern individual to opt out of the totalitarian […] Keynesian socialist states”.Our economic models have to be reinvented again and the invention of Bitcoin could in the opinion of Ammous substantially contribute to a new era where Bitcoin has the potential to  function as the new form of sound money: it is extremely well salable and scalable (1 Bitcoin can be subdivided in 100.000 satoshi), does not degenerate over time and its supply is capped at 21 million Bitcoin. Bitcoins are being mined like gold and the last Bitcoin is expected to be mined in 2140.  The ultimate catch is that production of Bitcoin is not in the hands of governments but is in the hands of the people. The development of Bitcoin was heavily ‘set in stone’ with its first release as Satoshi Nakomoto noted in 2009. Nakamoto is the anonymous inventor of Bitcoin, who after a few years of intensive development went on to other projects.  Since Bitcoin became operational, making fundamental changes are very difficult because they need the consensus of the Bitcoin community.

Ammous does a splendid job of explaining the delicate relationship between all parts and parties involved in the Bitcoin model, where miners are being rewarded with Bitcoin for their intensive processing work (largest computer network in the world) and nodes are necessary for the more straightforward process of updating the ledger with a batch of new transaction that is being conmpiled every 10 minutes and added to the ledger.

Along the road of explaining how Bitcoin could become the new standard in money, Ammous demonstrates very outspoken opinions, that leaves the reader sometimes with a hit-and-miss feeling. Some of these rants are amusing and recognisable. For example when Ammous describes government organisations that can only thrive by their powerful masters, creating layer on layer of worthless bureacracy leading to depression and anxiety by its mainly unskilled workers. Other rants, for example about the relationship between the downfall of our culture, music and art and the state of the economy I found less appealing as Ammous neglects all artistic work from the 20th century.

Ammous is a Bitcoin maximalist: he goes to great lengths to explain why Bitcoin probably will survive as the only valuable cryptocurrency in the long run. He is not extremely worried by security hacks of Bitcoin, a successful hack would automatically mean a collapse of its value and price, so from that perspective there is little incentive to hack Bitcoin.

All  later developed cryptocurrencies Ammous considers them merely copycats of the original, lacking the delicate balance found in the original of Bitcoin. As an example he mentions the Ethereum DAO hack, where the developers decided to intervene in the blockchain and rewrite the ledger, something that would have been impossible on the Bitcoin blockchain. In Ammous’ opinion the potential and practical use of blockchains without Bitcoin (or any crypto for that matter) is practically absent.

All in all ‘The Bitcoin Standard’ is a must read for anyone who is interested in if and how Bitcoin might change our way of thinking of money. It gave me new and interesting insights on the subject. Ammous concludes with a positive message with the prospect that humans can now finally be in charge of money creation themselves and economies run by real people instead of shady governments that act less and less as true representatives for the citizens of the nations.

 

Social media: to decentralise or not?

In recent days in Europe the media was all over the possible bans and restrictions on social media contributions. Most of the prominent social media outlets are run by big, centralized corporations like Facebook (included Instagram), Twitter and Google. There seems to be an ever increasing urge to weed out ‘hate speech’ and ‘fake news’ postings and comments. The big corporations have been acting accordingly and went forward vigorously not in the least place to align with local laws. The tightening rules have already led to many instances of Twitter users who have been confronted by their new or adjusted rules.

The situation concerning social media last week intensified as the German law regulating the limits of free speech on Internet  (NetzDG) asked Twitter to remove a message placed by Afd politician Beatrix von Storch. The French president Marcon went as far as to forbid the use of social media accounts during election times in order to stop the spread of fake news and hate speech. In the past such law proposals or actions were associated with regimes that put a hard stance on the freedom of speech but now even countries where the freedom of speech still looked to be intact come into the line of fire.

No matter how clear or detailed a nations constitution in respect to the limits of free speech, there will always be unclear situations. A complication is that lawful actions are always enticed against social media. Especially ‘fake news’ by mainstream media is hardly regulated, correction after complaints or decisions in court afterwards are being honoured.

The new situation from western governments towards social media is clearly dangerous for the freedom of speech in these countries. A decentralised blockchain can also offer a solution for a new type of social media. In such a scenario there would be no big central corporation like Facebook or Twitter who can operate along their guide lines to make their own interpretations of freedom of speech. There are no (supra)national governments that can dictate what information is within the terms of (supra)national laws.

The published social media information would be stored in a blockchain and would be available from the ‘Genesis’ block, the very first posting onto the latest additions, so all information ever published in the blockchain will always stay there.

There will be complications and challenges involved in such a scenario. Typical blockchain data as we know it, is mainly related to crypto currency like Bitcoin. The big challenge with crypto currency is to overcome the hurdle of ‘double spending’  which needs extensive security measures to be trustful and successful. The social media data needs to be trustful as the integrity of information is from an identified poster and published information can not be altered or removed. It is however obviously that it needs another level of security than compared to financial transactions. The data being generated with social media can get quite overwhelming quantitively  (number of publications)  and is intensive (images, sound and video). From a perspective of usability there would be a need for a multi layered, scalable system where most recent data can be served to its users instantly, as where older data can be retrieved from full network nodes operating in the background. This situation is similar to the Bitcoin blockchain where now attempts are made to discriminate between the ‘store of value’ aspect versus the ‘transaction’ aspect.

There needs to be an incentive for all involved to keep processing and storing the data. Social media like Facebook and Twitter might be experienced from an user standpoint considered as ‘free of use’. Yet there is a business model behind the activities, like targeted advertising and marketing: the user becomes the product. This business model would need to be translated into  an equivalent in a decentralised world. Social media blockchain based platform Steem offers an alternative business and hopefully viable model.

Finally there is the issue of anonymity versus the real identity of the poster on social media. Operating on social media as a identifiable ‘real’ person has its benefits because it will lead to users better taking responsibility of their postings. Whenever the poster can operate (somewhat) anonymously there will be a greater sense of freedom to  express or even publish false information. That is where the dilemma of non-destroyablity of information in the blockchain comes into play. If information is false or harming the information still will be there ‘forever’ on the blockchain and searchable or findable for users. This is an extra argument for identifiable, real users in order to raise the level of responsibility. The fact that information will stay forever on the blockchain will also contribute to how people (literally) expose themselves and face the consequences of such actions.

The flip side of real identities is that users in situations where there is no freedom of speech will be heavily hindered in expressing their views and might face personal consequences from governments. In such cases a decentralised social media system might better not used and instant messaging application are probably more suited. In any way there will need to be an admission process to the decentralised social media system whether it is based on the anonymity versus identifiable discussion there has to be measures taken to guarantee the identity of a person involved.

Ewald Kegel, Jan. 6th 2018, Nootdorp