The former Coinbase CTO argues that Pax Bitcoinica is replacing Pax Americana — and that's a good thing.
Super essay, I really do appreciate your moderated round-table and inputs from the experts essays.
This is so interesting, and I can’t wait for the other side of the coin 😉
First, I do welcome these kinds of discussions. There are a lot of complex and complicated issues facing us today and efforts, like this, to help people better understand the various elements and sides of these issues is important
On this issue - I am still trying to learn. I'm certainly not convinced of the authors arguments. for some of the reasons itemized below. But I also think that the premise - that a technology is going to "solve " all those issues is problematic on its face. That's what was said about the Internet, social media etc - and look where that got us. I remember how the technology enthusiasts cheered on the Arab Spring because, among other things, it was "enabled" by social media. All those enthusiasts forgot two important things.
1. Technology doesn't make a true democratic revolution. People, policies and culture do. Unfortunately none of that was in place in an organized fashion at that time and without an organized, policy driven opposition, those efforts were doomed to fail resulting in, if possible, even greater destabilization of that region. At the time I was working with a lot of those tech utopians (because I am in technology) and when I said that I was ostracized for it
2. The bad guys can use the same technologies - and do - for their own authoritarian purposes. And we've seen that play out time and again as they use it to track down dissidents etc.
The bottom line is that it is that technology is not, in and of itself, a force for good or bad. It is a tool to help implement policies, processes and fulfill agreed upon needs. With the key being that we need to first address - and agree upon the policies and processes we want. agree on how we want to govern those and then decide what technology we want. My two cents
Just wanted to say I appreciate articles like this. It's difficult these days to be able to see both sides of the story.
I love this debate and would love to see more -- potentially addressing other crypos in addition to bitcoin.
I (like the author) am torn about cryptocurrency. Is it the future or just a fad? I wish I knew. However, a few very serious points do stand out.
1. Bitcoin is not stable. The value of a Bitcoin has been highly volatile over time. That makes Bitcoin a poor 'store of value'. In this respect, Bitcoin is much like Gold. Gold is also volatile.
2. Bitcoin is not a fiat currency. In many respects that is a good thing. No government can print Bitcoin, as it deems convenient. In this respect, Bitcoin is much like Gold. Back when Gold was money, inflation really did not happen. For example, the CPI in 1918 was apparently lower than it was in 1800. However, economies were deeply volatile. The price of currency stability was economic instability. Cryptocurrencies could mean a return of the bad old days.
My guess is that governments will never accept the loss of power that could be a consequence of cryptocurrencies. I am not at all sure if they should.
I'm not an expert on anything discussed in this essay, but here are some problems with it based on what I think I know:
• "It is much harder for an oppressive government to arbitrarily seize (or even locate) someone’s digital property."
Cryptocurrencies are safe from small, less-authoritarian governments. However, most of the world's Bitcoin mining operations are located in China. Theoretically, if the CCP were to seize control of enough of that mining power, they could prevent any Bitcoin mining and other transactions throughout the world (https://www.investopedia.com/terms/1/51-attack.asp)—essentially freezing people's digital assets—though people smarter than me argue about how realistic that scenario is. The CCP probably wouldn't use it for individuals, but it seems plausible in some circumstances for them to attempt large-scale disruption.
• "Crypto Protects Online Privacy"
This point is a bit of illogical hand-waving: Some applications of encryption enhance privacy, cryptocurrencies use encryption, therefore cryptocurrencies are private. While it is true that cryptocurrency transactions are generally more private than, say, using a credit card so a bank can sell data on your purchase history, their privacy is not as infallible as people tend to think. There's been a fair amount of research on Bitcoin de-anonymization, and a few years ago, Sandia National Laboratories announced that they were working on a Bitcoin de-anonymization tool for the Department of Homeland Security (https://www.sandia.gov/news/publications/labnews/articles/2016/19-08/bitcoin.html).
• "Lawyers and judges are fallible and can be fickle. Smart contracts built on blockchain technology are not."
This is a pretty disingenuous claim. Smart contracts are just a particular kind of computer programs, and of course a computer program only does exactly what you tell it to. However, the programmers who write smart contracts are as fickle as lawyers and judges. Writing software that does exactly what you want it to is hard—think of all the times your computer has frozen for no apparent reason—and unlike most software, there is no way I know of to update a running smart contract.
After the impressive introduction that made Mr. Srinivasan sound like a giant among men, I found his article disappointing . He makes some reasonable points about cryptography being a net good for society, but most of it has nothing to do with digital currency. Worse, he ignores practical realities in a manner totally characteristic of starry-eyed tech-bros with no clue about how the world really works, leaving me in mind of John Perry Barlow and his ridiculous "Declaration of the Independence of Cyberspace", which Mr. Srinivasan seems to have swallowed whole.
To note just one example: It is all very well to say that cryptography makes it impossible for your data to be searched without your consent, but he neglects to consider that you may not have a choice in the matter under law. If a court orders you to decrypt your data, and decides to keep you in jail until you comply, then the crypto isn't really protecting you against the state as much as Mr. Srinivasan seems to think. As long as the government can jail people or make them pay large fines, nothing can really "reset the relationship between state and citizen".
Nothing in his statements about monetary stability, inflation, etc. suggests that he actually understands how that stuff works. Does he know what the Federal Reserve is for, or why it was created? Or has he been reading too much of Ron Paul's demented ranting, and thinks the Fed is part of the problem?
A great exposition of how good Bitcoin is, but I still don't know what, it is, apart from Ponzi like tales of how you can buy (how?) today and your investment will spiral up day by day. How can something which replaces a currency have far more volatility than a currency? And I've seen that there are rival versions of Bitcoin. How do I know the bona fides of a Bitcoin organization? I'm sure someone will explain but most are like me (and Bari) - all questions.
Ask Venezuelans if they would rather have a US Dollar or Bitcoin would be a better question and the answer would be more telling.
At a time when the masses are being guilt tripped to live in tiny houses, shower once a week, and eat worms to avert a climate disaster, there's no way I would ever endorse Bitcoin. Why not? Because the energy consumed during a single transaction would power my three bedroom house for a week. And that's without considering the recent pipeline ransomware attack here in the Southeast which surely involved cryptocurrency.
So, Mr. Balaji S. Srinvasan, a million, billion, sextillion times no for bitcoin.
another technologist harboring electric dreams of techno utopia. Balaji is a high IQ, very smart guy who should read more Dostoevsky and Charlie Munger's Almanac to understand human nature to understand why his vision, if realized, will inevitably veer off course because of pesky humans. I would recommend Notes from the Underground as a starter. Or Hamlet. As for Pax Crypto, maybe we should apply Chesterton's Fence logic before tearing down Pax Americana.
Bitcoin is a tool. Just a currency is a tool.
Like any tool, it can be abused or used to cause harm.
Government should welcome the innovation - but put guardrails around it to prevent its abuse. They already do have guardrails around currencies and other financial instruments. By taking an enormous amount of time to establish clear guidelines for use of this instrument - the US government is just allowing other countries to gain an advantage in this technology.
Let's face it - this technology is global and it is not going away. The US government should get a head of it. Right now the US is leading from behind - way behind.
Let me add a third point that everyone should take very seriously.
3. One of the key functions of a central bank (the Federal Reserve in the US) is to act as a ‘lender-of-last-resort’. This is a function that we take for granted now. However, it was a very big deal historically. In the past, there were ‘runs’ on banks and banks would run out of cash. The consequences were grievous. That never happens now, because the Fed just provides as much cash as is needed to stop the ‘run’. Indeed, ‘runs’ don’t even really get started these days (a more complex point, if you include the shadow banking system).
However, Bitcoin could break this system. Right now, the Fed can conjure up any amount of money to stop a bank ‘run’ and indeed, the Fed can invent trillions of dollars to stop a major system event such as the GFC (of 2007/8/9).
If Bitcoin replaced the (paper) dollar, this would not be possible. Paper dollars can be invented by the trillion by the Fed. Bitcoins can not be created at will. Of course, this is (arguably) the key advantage of Bitcoin as well.
However, the bottom line is that the ‘bad old days’, were bad for many reasons. One of them was the lack of a ‘lender-of-last-resort’. Bitcoin might take us back to the ‘bad old days’ in ways were are not prepared for.
Let me use an example (from https://qz.com/1038954/whatever-it-takes-five-years-ago-today-mario-draghi-saved-the-euro-with-a-momentous-speech/).
“Exactly five years ago, European Central Bank president Mario Draghi demonstrated the power of words. The euro zone was in the throes of crisis, with bailouts of debt-laden members pushing the currency union to the verge of collapse. But with a simple, seemingly off-the-cuff phrase, Draghi fundamentally changed the course of events: “whatever it takes.””
Of course, Draghi could not address the deeper problems of the Euro and indeed the deeper problems have gotten worse (in my opinion). However, his example shows how central banks can (and really do) use fiat (paper) currencies to solve real problems.
Now, the obvious counterargument is while Bitcoins can not be printed (quite true), they can be borrowed. The unknown is whether the Fed could/would borrow enough to deal with a financial crisis in the future.
Love the topic... here is a question that may have been answered, but I’m not reading well enough to fully understand... the potential “bubble” people talk about is relative to the value of the US dollar, which is still essentially the world’s reserve or benchmark currency. So YES, you can directly buy goods and services with Bitcoin, but if I understand correctly, they are all priced in dollar or euro and then sold at the exchange rate for Bitcoin. What would it take for commodities to be priced in Bitcoin and then the value of a dollar be tied to its exchange value in Bitcoin? In the wake of our current spiral into MMT and profligate spending of money that didn’t exist before we spent it, that is quite a scary thought - hoping someone can tell me I’m missing something.