Saturday, March 1, 2014

Bitcoin's axiom, the Mt Gox scandal, and wealth

It is easy to get lost about what bitcoin is and is not, especially if you are not a technical person. So here are the three axiom of bitcoin, and other crypto currencies for the layman.
  1. A money that you can use to pay someone without any intermediary. (like cash)
  2. A money that you can transfer as easily as a post message on a forum. (like a web wire transfer)
  3. A money whose supply can't be controlled by anyone. (like gold)

These axioms are verifiable by everybody, without any ambiguity, by looking at the source code of the protocol on github. All changes to source code can be controlled and reviewed by the whole community and yourself without any permission needed.

Mt Gox stole money of their customers, because their customers decided to exchange the axiom 1 and 2 against ease of use. This turned a bitcoin into a fiat currency just as the current dollar USD is.
The "Mt Gox bitcoin" was not a real bitcoin, it was a money controlled by Mt Gox convertible into real bitcoin. The trick is that Mt Gox were free to print any "Mt Gox bitcoin" they wanted as long as nobody asked to convert them to real $ or real BTC.
Then, when a bank rush happened on Mt Gox, Mt Gox were unable to convert their fiat money to real BTC and USD.
Exactly the same thing would happen if the population would decide to withdraw all their cash from traditional banks. But bitcoin being more volatile, it was probable it would happen to Mt Gox.

The hacking bullshit is surely an excuse of Mt Gox.
People should understand the three axioms of crypto currencies, as breaking any one of them make the crypto currency useless.

Without axiom 1, why don't you just use USD with banking cards, wire transfers ?
Without axiom 2, why don't you just buy real gold ?
Without axiom 3, why don't you just use World Of Warcraft coins instead of BTC ?

What happened to Mt Gox is a bank rush, and our currencies are weak to the same trick.
How to protect against it ? With fiat currency : you can't. Even with cash, if banks are rushed, the government will print more money, depreciating your cash.
With fiat currencies, savers are losers. Mt Gox Bitcoin is a small scale example.
So either convert your money into real gold and silver. (not stocks about gold, because those are also fiat currencies under disguise)
Or build a company. A company is not weak against inflation because the price of the services goes up or down at the same time of inflation. Fiat currency is not wealth.

No comments:

Post a Comment