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Bitcoin: The Future of Money?

Dominic Frisby’s book Bitcoin: The Future of Money? is now available.

The first chapter describes what Bitcoin is and how it works. The achievement of this chapter is that Dominic has described Bitcoin in plain English without missing any important details and without simplifying to the point of error. Too often when I read writing intended for the general audience about something I know about, I notice how wrong it is and how ill informed the general audience must be about all things. Not here.

Technical description out of the way, the rest of the book deals with the culture of Bitcoin’s early adopters, the various scandals we may have heard about and what they mean, what Bitcoin means for the state and for you, and what the future might hold for Bitcoin and cryptocurrencies in general.

The longest chapter is about the mysterious Satoshi Nakamoto, who wrote the original paper and developed the first versions of the software, and who has successfully remained anonymous. It is not particularly relevant to understanding Bitcoin, but it is very intriguing, and I think there is a good chance Dominic has reached the right conclusion about Satoshi’s identity.

There is discussion of the problems of inflationary fiat currency: the author has read his Detlev Schlichter. There is discussion of how the decentralised nature of Bitcoin sidelines governments and opens up new markets with people who are otherwise difficult to trade with. And there is discussion of the problems, too: the volatility, the technical challenges, and the dangers of being defrauded in a new marketplace where we are still learning what are the best business practices and how to decide who to trust. Finally, there is some advice about where to buy Bitcoins. It is not out of date yet!

The book is concise, complete, correct, entertaining, and a very good introduction to what Bitcoin is all about.

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39 comments to Bitcoin: The Future of Money?

  • Mr Ed

    Why not just monetise segments of π?

  • Runcie Balspune

    Blimey, £3.99 for Kindle! Done, ker-ching, reading on the train tomorrow.

    I enjoyed his Life After The State, even if it went off the rails at the end, he writes in a very informative way and this should be a good one.

  • Rob Fisher (Surrey)

    It turns out you can, Mr Ed, barring a few problems that have now been solved by Mr Nakamoto and friends.

  • Mr Ed

    Thank you Rob, so in place of ‘air pies’, we would have slices of real π.

    I suppose for me one of the issues is the seigniorage issue from providing ‘currency’ ex nihilo.

    The other one is a money that no one can see, touch or weigh. “No, honestly, this particular string of π is valuable”. How do we know that bitcoin would be regarded as valuable?

  • Rob Fisher (Surrey)

    Mr Ed, my answer to the air pies argument is that Bitcoin ownership is what it is: you have the private key that enables you to add certain records to a public database.

    That you can do it is observable. That you need the private key to do it is a matter of mathematics. That someone will give you goods or services in return for doing it is also observable. That you will still be able to do it in the future is speculation.

  • Mr Ed

    Rob, I was anticipating a comment from the Sage of Kettering. I see no reason why bitcoin could not be a money, but I can’t see that it would, but I am not an entrepreneur and I fear that I would be a lousy forecaster.

    However, such is the state of mathematics knowledge in this country, where is seems to me that to be able to do basic mental arithmetic may arouse suspicion or wonder, I fear that the scope for bitcoin to have currency, i.e. universality, is simply lacking.

  • Laird

    It looks like a very interesting book; thanks for the reference. I’ve downloaded the free sample from Amazon to my Kindle, and will probably buy the whole thing later.

    I have no idea what the future holds for Bitcoin, but it seems to me that it couldn’t hurt to invest a few sheckels in some just to be safe. You never know.

  • Rob Fisher (Surrey)

    Mr Ed, you may yet be proven correct. We’ll see. I can say that Bitcoin is useful to me today (for example to anonymously register a domain name), so I’m happy anyway. I’d like it to become universal, and there are people working on that problem, and the solutions happily don’t involve the general population understanding the mathematics any more than they understand how banking infrastructure works. The solutions are practical: how easy and useful can we make it? In that sense it’s like any new tech: will it be an iPhone or a Betamax?

  • Paul Marks

    “Bitcoin is what it is”.

    Special magical numbers.

    As to the argument that Bit “coin” is no more absurd than the Pound, the Dollar and so on…..

    The government currencies have legal tender laws and TAX DEMANDS to back them – Bit “coin” has Max Keiser instead.

  • Paul Marks

    That being said….

    The main line of attack upon Bit “coin” from the establishment (the Financial Times newspaper, the Economist magazine – other vermin) that it is “inelastic” (i.e. that it can not be inflated to benefit the corrupt) is one thing I actually LIKE about Bit “coin”.

  • Rob Fisher (Surrey)

    Paul is right that nothing backs Bitcoin. But *everyone* is *very* certain about that inelasticity, which accounts for why they are willing to part with goods and services and gold for it.

  • Laird

    It is precisely that inelasticity which is a major selling point.

    Paul is technically correct about legal tender laws, but they really matter only to governments. You need to use the “legal tender” in your jurisdiction to pay your taxes, or to buy services from your government. But these laws are wholly unnecessary in private transaction except in situations where the “legal” currency has been debased but you nonetheless want to force someone to accept it in exchange for something having real value. In true consensual transactions the two parties would agree on the method of payment, be it a “legal” currency, bitcoins, a commodity (i.e., gold), some other currency, or even barter. No “legal tender” laws are required, or even desirable.

    Bitcoin (or something similar) will become “the future of money” if and when enough people accept is as a medium of exchange. Its technical issues (ease of use, security, certainty of non-debasement, etc.) will play a large role in determining that, but so will the rate at which our respective governments debase our current currencies. And “enough” people does not mean “everybody”; bitcoin just needs to achieve reasonably widespread use to attain critical mass. Time will tell.

  • Laird

    Of course, I suppose there is always this possible risk.

  • Bit “coin” has Max Keiser instead.

    You need to expunge that man’s name from your memory Paul. Seriously. It is like a virus that is doing you damage. He is an irrelevance not just to BitCoin but pretty much everything.

  • Shlomo Maistre

    Did my comment get squashed?

    (Editor: No, smitebot has not snagged any comment of yours for moderation)

  • Shlomo Maistre

    Laird,

    Bitcoin (or something similar) will become “the future of money” if and when enough people accept is as a medium of exchange. Its technical issues (ease of use, security, certainty of non-debasement, etc.) will play a large role in determining that, but so will the rate at which our respective governments debase our current currencies. And “enough” people does not mean “everybody”; bitcoin just needs to achieve reasonably widespread use to attain critical mass. Time will tell.

    If only it were so!

    What Bitcoin represents (Austrian economics) and even IS (inelastic currency in appearance and fact) is inherently & eternally the future of currency, but only in the abstract sense that currency is not by definition paper printed at will.

    If its printing of paper that is used the world over as currency (and even RESERVE currency) is not proof enough of the sovereignty of the US government, let us simply ASSUME it is sovereign for a moment.

    There are two things I’ll note about sovereignty:
    A) It does what it wants.
    B) It lies about why it does things.

    There are two things I’ll note about Bitcoin:
    A) It is not in governments’ interests for it to flourish.
    B) It is not part of a sovereign entity.

    Libertarians/anarchocapitalists/classical liberals don’t understand bitcoin for the same reason they don’t understand politics. That reason is the nature of sovereignty. No offense, of course.

    I suspect that if Bitcoin ever becomes too popular it will be destroyed or subsumed into the sovereign entity. There will be an excuse for that action that rings about as true as “too big to fail” – true in the short run, immoral in the long run.

    As Mencius Moldbug said:

    If I have one lesson to impart, here at UR, it is this: USG is what it is. It is not what you want it to be. It is not what you hope it will become. It is certainly not what it claims to be. No – it is what it is. Respect that reality, and you will neither run afoul of Leviathan, nor live “free” as his spiritual servant. In short: think for yourself and obey the strong.

  • Shlomo Maistre

    I can’t believe i’m saying this but I agree with Paul Marks.

    The government currencies have legal tender laws and TAX DEMANDS to back them – Bit “coin” has Max Keiser instead.

    Exactly. I think I go rather further (as is my vice) but still this very much on target.

    Keeping the link to an “Unqualified Reservations” post in a previously submitted comment kept whole comment from appearing, so I took out the link and resubmitted the comment (long one above) successfully. BTW.

  • Libertarians/anarchocapitalists/classical liberals don’t understand bitcoin for the same reason they don’t understand politics.

    Then I think you don’t understand libertarians/anarchocapitalists/classical liberals 🙂

  • I think the strongest argument against Bitcoin’s success as a currency is that all the sovereign states have an utterly compelling interest in maintaining their monopoly on monopoly money. And it has a few technical challenges (none of which cant be overcome) that will foster the growth of other crypocurrencies. However, Bitcoin has features so compelling to the individual, that I dont believe any sovereign nation will be able to stop the use of it, or of an alternative digital currency. Even China, who is not shy at all about clamping down on behavior they dont like, have backed off a bit on Bitcoin, and so China is executing most of the transactions in the network, and have been for months, according to this aggregation site: bitcoincharts.com/markets

  • Brian Micklethwait (London)

    Following on from Perry 9.04pm, how about this?:
    http://www.titcoins.biz/

    Which I understand even less than I understand bitcoins.

  • Alsadius

    I buy the Megan McArdle line on bitcoin – it’s too useful for criminals, so the government will break all its links with the real financial system, and it’ll whither and die other than among a handful of crypto-libertarians. They did the same with bearer bonds (and they didn’t even need to smash the system there, just change the taxation status until nobody issued them any more).

  • Richard Thomas

    Seeing a lot of “the same old arguments” here. It is hard not to simply dismiss them but it must be remembered that this is an emergent technology and people will be unfamiliar.

    An important thing to remember: We (perhaps not all here) believe Austrian economics and libertarian principles to be superior. As much as the other side appears to be winning, their policies are ultimately self-destructive (and we appear to be entering the most destructive phase). If Bitcoin can’t succeed, it doesn’t deserve to succeed. I believe it does and that it will.

    As to disconnecting Bitcoin from the financial system, they will certainly try (though they generally appear to be being somewhat cautious about being so heavy handed currently) and there definitely appear to be behind the scenes moves that have taken place to cause a few issues. That would be a set-back for Bitcoin but ultimately, as long as you can exchange bitcoins for a loaf of bread, a pile of bricks or a thousand lines of code, it still has room to grow and expand.

    There’s always the possibility of a direct attack, of course. The US did outlaw gold ownership after all. That could get interesting. But I believe also that that would be an admission that governments are on the back-foot.

  • Bearer bonds still exist outside the USA.

  • JohnK

    Paul:

    Max Keiser can be an irritating fellow, but I watch his show because he does have some interesting guests, such as Dr Fekete or Mitch Feierstein of Planet Ponzi recently, and even Dominic Frisby. Of course, when he has on the likes of Russell Brand or Alec Baldwin, one does rather lunge for the off switch.

    As to bearer bonds, I wondered what had happened to them. They were always a staple of 60s and 70s heist movies, but I did wonder if they existed in real life.

  • The interesting thing is not bitcoin itself. It is the blockchain technology that underlies bitcoins. A public ledger that automatically reconciles worldwide every 15 minutes without the need for a single trusted authority to underwrite it is nothing to sneeze at. You can (and people have) used the same technology to make hundreds of currencies that operate on different monetary policies than BTC including some avowedly inflationary ones. While some of those currencies are not my cup of tea, I’ve no trouble allowing others to waste their resources in buying and selling them.

    The globally agreed upon, nearly frictionless, public ledger is a great advance and can be utilized without any currency whatsoever.

  • Stuck-Record

    What TMLutas says above.

    I’ve read Dominic’s book (I funded it at Unbound). It’s a very good primer on the subject – though I would have re-ordered the chapters to begin with money theory first as I think it’s hard to understand the ‘need’ for crypto if you don’t understand how debased and disconnected from reality the current system is. But what do I know? My wife, who knows nothing about BTC picked the book up and was gripped immediately, so ‘Kudos, Dominic!’

    The blockchain is the future, but I agree with those above who say that TPTB will do everything – starting with FUD, and ending with guns and imprisonment – to prevent this technology from gaining a foothold. At the moment pols fall into 2 camps.

    1. The ones too stupid to understand. This is most of them and they are not worried about BTC.
    2. The ones who understand. They are terrified.

    When Cat 1 wake up, the sh*t will hit the fan as the magic money trees of tax, borrowing, printing, and inflation are about to disappear, and they will no longer have any power.

    Of course they’re going to fight.

    Also, BTC is largely politically agnostic at the moment. Leftists see it ushering in a form of Communism, Anarchists see Freedom, and Libertarians see true and open markets taking centre stage. IMO the crunch point will come when those on the general left (pols and MSM) realise that BTC will kill their tax baby. Then you’ll see the posse of corporations, banks and the welfare-teat lobby saddle up and ride out with a noose.

  • Shlomo Maistre

    Then I think you don’t understand libertarians/anarchocapitalists/classical liberals 🙂

    There are obviously philosophical differences among them, but generally they favor policies that decrease the size and scope of government for pragmatic (Austrian economics) and moral reasons (individual rights to life, liberty and property). Where am I wrong?

    If they understood the providential nature of sovereignty, they’d know that favoring policies that decrease (let alone limit LOL) the size or scope of government is inherently folly. The more secure, stable, and unified the basis of governance is, the less individuals’ lives, liberties, and properties are violated (whether by government or not – does it matter?)

    One mercifully on-topic example. As governance generally becomes more democratic (AKA less unified, less stable, less secure) currency is increasingly debased. Which came first – chicken & egg. Evidence:

    1. As the vote in the US expanded, so too did the currency generally lose its basis in gold/silver standard.
    2. As democracy spread post-WWI and post-WWII, so too did fiat currencies. Emblematic example: German Empire pre-WW1 used German gold marks, post-WWI used fiat currency.
    3. Henry I created whole new social/political institutions and filled them with “new men” from (relatively) low class backgrounds and introduced “tally sticks” as fiat currency.
    4. Crisis of the Third Century led to the debasement of currency implemented by Emperor Diocletian.

  • Rob Fisher (Surrey)

    Shlomo Maistre: out of interest, what sort of time and place do you think of when you think about “secure, stable, and unified” governance?

  • If they understood the providential nature of sovereignty, they’d know that favoring policies that decrease (let alone limit LOL) the size or scope of government is inherently folly. The more secure, stable, and unified the basis of governance is, the less individuals’ lives, liberties, and properties are violated (whether by government or not – does it matter?)

    Yes I think they understand that collective sovereignty does none of those things than you think it does, and they take a much more heterarchical view of human affairs.

  • Shlomo Maistre

    Rob Fisher,

    what sort of time and place do you think of when you think about “secure, stable, and unified” governance?

    3 answers: my TLDR, Mencius Moldbug’s Formalist answer, and my long “religious” answer.

    1. TLDR: The past. The earlier the time, the more secure, stable, and unified government generally was. And before I’m accused of being pro-slavery, I’d suggest we strive to refrain from mistaking the liberating consequences of technological innovation for anything but.

    2. Mencius Moldbug (who taught me a lot and, like me, went from libertarianism to the side of the Sith and Dostoevsky’s Grand Inquisitor) explains: violence is a result of ownership and (perceived) control being out of sync. He said:

    Now, I love libertarians to death. My CPU practically has a permanent open socket to the Mises Institute. […] On the other hand, it is hard to avoid noticing two basic facts about the universe. One is that libertarianism is an extremely obvious idea. The other is that it has never been successfully implemented. […] So this is why I decided to build my own ideology – “formalism.” […] Whether we’re talking about the US, Baltimore, or your wallet, a formalist is only happy when ownership and control are one and the same. To reformalize, therefore, we need to figure out who has actual power in the US, and assign shares in such a way as to reproduce this distribution as closely as possible.

    (Emphasis mine)

    3. Long version:
    It’s difficult to really explain my understanding of this without coming off as a bit of a religious nut job; I’ll preface by saying I was born a secular Jew and still am one.

    I think that:
    1. sovereignty is the immutable trait of human society – there must be at any moment at least one (preferably only one) to whom it cannot be said you have erred. Inevitably.
    2. the disorder wrought by time is inherent – power fragments and social order is degraded overtime. Inevitably.
    3. no government is the result of deliberation – rights (which is to say actual rights in reality) are won by both anterior action and concession by sovereignty. Inevitably.

    I could write books on this, but basically these three realizations are probably the keys to seeing why hereditary divine-right absolute monarchy is the ideal form of government. Attempt to distribute sovereignty (AKA form a democracy) and you literally create conflict, where such royal prerogatives as the seizure of others’ property is no longer conducted simply in the name of the King but the name of “social justice” or “paying your fair share” etc ad nauseum and, therefore, there’s rather more of such liberty being taken (pun intended)

    I generally concur with what King Charles I said on the scaffolding on Jan 30, 1649.

  • Rob Fisher (Surrey)

    Thanks for the explanation, Shlomo. It does sound awfully contingent on the king being agreeable, though.

  • Laird

    Stuck-Record: “Of course they’re going to fight.” It’s already started (not about bitcoin directly, though, but that will come).

  • Laird

    Schlomo’s comments are interesting (as are the ideas of Mencius Moldbug), and in some respects I agree. But not totally. In his Long Version, for instance, I disagree with #1, which leads to a certain, shall we say, instability of the subsequent points. I agree that the natural tendency of humans is to have a ruler. Some of us have a desire to rule, and others (most of us) are more or less content to be ruled. I have argued here before against the modern infatuation with “democratic” governments, and for the inherent superiority of something in the nature of an hereditary monarchy. But I don’t accept the need for infallibility in the ruler.

    And I also don’t agree that in earlier times governments were “more secure, stable, and unified”. Perhaps that was true in specific periods, such as in Egypt under the pharaohs, or in certain of China’s dynasties. But not usually.

    It’s interesting to compare the concept of some form of hereditary monarchy with the ideas advanced by Bruce Bueno de Mesquita and Alastair Smith in The Dictator’s Handbook (a fascinating book). Their central thesis is that the quality of government (or, perhaps better stated, the quality of life under a government) is directly related to the number of “essential supporters” the leader has to keep happy. The larger the number, the better the overall society (that’s very crudely stated, but it gets to the gist of their argument). I don’t know if it’s possible to reconcile these two ideas.

  • bloke in spain

    “As to bearer bonds, I wondered what had happened to them. They were always a staple of 60s and 70s heist movies, but I did wonder if they existed in real life.”

    In a somewhat earlier incarnation I once walked across the City of London with about 300 grand of bearer in an envelope. Apart from feeling the slight weight of responsibility of not losing it, never gave it a thought.
    Looking back….At the time the brokers I was working for specialised in Far East stocks. I had all manner of goto’s to the most weird, wonderful & helpful people. I really wouldn’t have been missed. Probably not until the next morning, if then. This was the late 60s when that was very, very serious money. I was a complete & utter idiot. I delivered them.

  • Alsadius

    Perry: Sure, but that sort of proves my point. It wasn’t a fashion thing, they were destroyed by a local law, and where that law didn’t pass, the instrument still exists. If a law that small(removing the deductibility of interest paid to them) is enough to make the entire financial system abandon the instrument, why do we expect Bitcion to survive a more serious attack?

  • Mr Ed

    How long would it take for there to be something like this? I wrote this of the ‘top of my head’.

    The Crypto-Currency Act 2015

    An Act to regulate the use of crypto-currencies.

    1. Interpretation: ‘Crypto-currency’ means any chose in action used as money or as a money substitute that is not the currency of a State which this country recognises, or a money made from a metallic chemical element. This definition may be subject to regulations under Section 3.

    2. (1) No Court shall enforce any contract, nor provide any aid or relief in respect of any contract, or any transaction, or claim of ownership, right or title, in which either party has used a crypto-currency.
    (2) Nothing in this section shall prevent any court so empowered from making a forfeiture or seizure order in respect of any crypto-currency.
    (3) Any value arising from a crypto-currency shall be taxable as if it were in a lawful currency. Nothing in this section shall prevent an assessment to tax in respect of possession of or transactions in a crypto-currency at a rate of exchange to the Pound Sterling that appears to be realistic at the time that of the taxable event in question.

    3. The Chancellor of the Exchequer may make regulations as to what is, and is not, a crypto-currency and from time to time publish such regulations, any such regulations shall be subject to a negative resolution of Parliament, and this Act shall be construed accordingly with those regulations from time to time in force.

    4. Any person who deals with a crypto-currency shall, if so required by a direction of HMRC or a Court, provide all necessary information including access to codes or any devices, or records, including electronic communications, that may be required of him in respect of that crypto-currency.

    5. A person who fails to comply with a direction issued under Section 4 commits an offence triable on indictment, and may be subject to 2 years imprisonment and/or an unlimited fine.

    6. Commencement: This Act shall come into force on receiving the Royal Assent.

  • Richard Thomas

    Mr Ed, that’s certainly a serious possibility. Just as many might have cut themselves off from the internet and lost all the several advantages that has brought.

    I would say that Stuck Record’s classifications are not complete. There are many politicians who see the threat that Bitcoin offers but also the dangers of excluding their constituencies from the advances such a powerful new technology can bring. Not banning Bitcoin (which is not yet clearly an immediate threat) is just another incarnation of what politicians are good at, kicking the can down the road.