Thursday, July 31, 2014

Bitcoin is not a geek curiosity, but a breakthrough

In a consumption society, most of the new stuff is considered cool just because it is new.
We call that a geek curiosity, wearable Computing Devices and the Internet Of Things is exactly that.

However, such curiosities lack depth and purpose, how cool is it to change powerpoint slide only by moving a hand whose gesture is detected by an arm band ?
Cool it is, yes, purposeful and deep ? not so much.
I am not meaning there is not something deep and purposeful to do with the help of such devices, but the device alone is not enough.

Bitcoin is deep and purposeful, or what I call a breakthrough, just like internet was.
Proof is that once you start educating on Bitcoin by  yourself, one question leads to several others, those question make you understand not only technological aspect, but what "trust" is, what the "incentive" means, what is an economic force, and what is a private property.
Those are concepts that got altered by our politicians but Bitcoin redefines it without ambiguity.

The questions lead you to educate yourself about the different school of thought in economics are, even if you never cared,  by questioning the premises of its creator, why Satoshi has done it ? His ideal is rooted on economic thought coming from the Austrian school, from authors like Milton Friedman and Adam Smith. Names I never heard before questioning the purpose of Bitcoin.
You understand what the state is, what the central bank is, what a bank is, what are their motivations, why they are here, how they became, their beliefs and intellectual background, how a free market is like. The history of money and why some people retract or contract it, and why other prefer to stay away. You understand money is not different than any good and has an exchange rate with any other good in existence which is influenced by both, the good supply and demand, and money supply and demand.
You understand that money is not always wanted and all kind of substitute exists.

Bitcoin is like a window that opens into a new world that a simple geek does not normally care, but which solicit his curiosity to the extent where the old world will never look the same in his eyes.

Then, as soon as you deepen your knowledge about money, you then stop buying Bitcoin for speculation purpose but with the certainty that the value we are giving to it is so undervalued that it is worth risking. You also buy because of the new values the questions taught you.
You understand there gold has no more innate value than this array of byte representing this Bitcoin key.
You understand why economic forces will be drawn to use it anyway, masses understanding or not, state controlling or not. This does not mean a catastrophic event can't break Bitcoin entirely.
But such event will be purely technical and mathematical.
No political, consumer trends or any law can break Bitcoin. If the only weapon of state, coercion, is rendered ineffective by anonymity, then the state is impotent to stop economical in motion opposing its interests.
Bitcoin is not a declaration of war of the black market to the state.
Bitcoin is the best private property you can have. Nobody can steal it without your consent.
Even torture or computer theft can be rendered ineffective by a wise Bitcoin holder who can hide not only his Bitcoins, but also the mere knowledge of their existence.
Nobody can prove how much one person has, except if he agrees to speak, but even if, no proof can be given that he is not lying.

This means Bitcoin is the hardest private property to steal and the easiest to protect.
The creation of State was the response of society for the need of an entity that get granted with the monopoly of coercion on a territory, whose only goal is to protect citizen from violation of private property, be it physical, material and immaterial.
State should be happy, since, for the first time, we have an asset so inviolable by design, that very few resources is needed to protect citizens.

Bitcoin is not a war between black market and white market.
Bitcoin is nothing but an inviolable property that require explicit consent of its holder for any transfer.

Sunday, July 6, 2014

How does Bitcoin came to be ? Beyond a payment system.

I am heavily invested into Bitcoin since my goal is to help entrepreneur to take the technology to the next level.

The mass is not yet completely aware of Bitcoin, and does not understand how it came to be. The concept of e-cash is not entirely new, so why Bitcoin is such a big deal ?

What is new is
"a reliable e-cash where you can transfer fund on the internet with A knowing B and B knowing A, the way I can take a 20$ bill and hand it to you, and there is no record on where it comes from, and you can get it without knowing who I am" quoted from Milton Friedman, 1999.
This economist could define Bitcoin before it even has been developed. He is libertarian, heavily influenced by Adam Smith.

So what is important ?
  • Reliable
  • Anonymity (A and B does not know each other, and nobody knows them)
  • No record of where it comes from
Such e-cash could not exist by being backed by a company, principally for money laundering problems, government would have put pressure to such company to disclose privacy and track funds.

The genius of Satoshi is about creating such e-cash without it being controlled by a company, so nobody can take control, or stop usage of Bitcoin. The incentive to make it works is backed in the source code and not defined by any legal terms. Bitcoin can't be controlled by a central body, Bitcoin is controlled by consensus, and this is enforced with source code, not with the subversive legal system.

So why Bitcoin came to be and why it is not a fad ?
First, a fad is fired by a marketing budget too fat for a product. Bitcoin started from 0.
Secondly, early adopters jumped in the boat for ideological reason more than speculation and fashion.
Third, we will not deny that it is in the human nature to find the most economical way of achieving its purpose. Small payment commission is not the real reason behind Bitcoin adoption, we must admit that the fiscal incentives play a way bigger part. Powerful economic incentives drive adoption.

The ideological reason of using a new money for transaction which is not controlled by any government or central bank that act for its self-interest is the prime motive for Bitcoin usage.

Why is it important ? As I will explain in future post, Milton Friedman explains how the FED did not saved the great depression, contrary to what we learned, but created it.
Intentionally or not, the main conclusion we should draw is that by giving too much power to a central body, a failure of that body will ripple through the whole system. 

"A system that depends on the right person to works is not a good system."

"We will not solve our problem by electing the right people. We will only solve our problems by making it politically profitable for the wrong people to do the right thing"
These quotes from Milton Friedman. 

For the believers, Bitcoin is a way to take that centralized power off the hand of a few, and back in  hands of merchants.