28 July 2015

The New York Times: “Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin”

Many concepts central to Bitcoin were developed in an online community known as the Cypherpunks, a loosely organized group of digital privacy activists. As part of their mission, they set out to create digital money that would be as anonymous as physical cash. Mr. Szabo was a member, and in 1993, he wrote a message to fellow Cypherpunks describing the diverse motivations of attendees at a group meeting that had just taken place. Some people, he wrote, are libertarians who want government out of our lives, others are liberals fighting the N.S.A., others find it great fun to ding people in power with cool hacks.

Nathaniel Popper

I admit I haven’t paid much attention to Bitcoin, I don’t understand how it works and why it should exist and this article hasn’t helped clarify these questions. The paragraph above caught my attention though: so the main ‘advantage’ is as anonymous as physical cash. The thing is, physical cash comes with a lot of downsides as well. It can be stolen much easier, because there is no verification that a certain person owns a certain amount of cash. It’s also an easy way to avoid taxes, since no central authority can control how much cash you receive or pay. This makes cash the preferred currency for the underground economy: prostitution, drug dealers, trading in illegal weapons and the list goes on. Bitcoin may sound good in an utopian anarchy, but in our real world I think it will do more harm than good.

There are other fundamental issues with using Bitcoin as main currency. In a healthy economy, the money supply needs to be correlated with the level of economic activity, in order to prevent imbalances like hyperinflation. But the process of creating bitcoins is completely decoupled from the transactional use of bitcoins, and there’s no mechanism in place to destroy bitcoins or restrict creation as there is with currencies and national banks. It’s one matter where I agree with Paul Krugman and Charles Stross.

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