Bitcoin

You Dont Understand Bitcoin Because You Think Money is Real – Popula

Bitcoin is an illusion, a massive hallucination, from what one hears. they are just numbers in cyberspace, a mirage, insubstantial as a soap bubble. bitcoin is backed by nothing but the faith of the fools who buy it and the great fools who buy it from these lesser fools. and know? seem right. all this is true.

what may be less easy to understand is that the u.s. dollars are equally an illusion. they also consist mainly of numbers that exist in cyberspace. they are sometimes stored in paper or coins, but while paper and coins are material, the dollars they represent are not. U.S. dollars are backed by nothing but the faith of fools who accept it as payment and other fools who agree to accept it as payment from them. the main difference is that, at least for the time being, the illusion, in the case of dollars, is more widely and fiercely believed.

Reading: I don’t understand bitcoin

in fact, almost all of our u.s. dollars, about 90 percent, are purely abstract, they literally don’t exist in any tangible form. James Surowiecki reported in 2012 that “only about 10 percent of Americans. the money supply, about $1 trillion of the total of about $10 trillion, exists in the form of paper money and coins.” (the number now appears to be about $1.5 trillion of $13.7 trillion). no there is nothing to stop our banking system from generating more dollars whenever the mood strikes of the $13.7 trillion in m2 money supply as of october 2017, $13.5 trillion was created after 1959 or, to put it another way, the square meters have expanded almost 50 times.

in the united states the dollar is what is known as “fiat” currency. fiat is Latin for “let there be”, as in fiat lux, let there be light; therefore, fiduciary denarii, be they liras, bolivars, dollars and rubles. Historically, the temptation for nation-state leaders to make money has been virtually irresistible. One obvious result of this rampage is inflation: the purchasing power of $1 in 1959 is now just under 12 cents.

The bitcoin blockchain was created, in part, to address this historical weakness. after the 21 millionth bitcoin is mined, around 2140, the system will not produce any more.

quacks and thieves will always try to cheat the various structures set up to control and/or account for any monetary system and indeed any store of value (see: panama and paradise newspaper thieves, bernies cornfeld and madoff, the whale of london, ltcm and bcci, the clever and silent treasure thieves of the gardner museum in boston, the 2008 financial crisis and associated bailouts, and the heists at mt gox, the dao and tether). all reserves of value are objective. and using any system of exchange, through fair or foul means, fortunes can and will be made and lost. And yet, surprising as it may seem at times, there are enough people acting in good faith to prevent monetary systems from collapsing entirely.

there are some radical differences between cryptocurrencies and the us. uu. dollars for example, transactions made in the bitcoin system are recorded in a non-falsifiable ledger that is not based on the authority of banks or governments, but on the strength of a public computer network to which (at least in theory) anyone can join. plus, again, the supply of bitcoins is finally fixed. the anonymity of cryptocurrency is perhaps not as bulletproof as the anonymity of (unmarked) cash.

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money itself is an illusion, a massive hallucination. you’re working hard to make it, cultivate it, and maintain it, but still, the only real thing is its symbolic power. which is really amazing, considered from a certain angle.

Our shared understanding of the value of that green-tinted piece of paper, that krugerrand, ether token, or pound coin, is all that counts. and that shared understanding has no fixed meaning; it is in an eternal flux. The “value” of all money, all exchange reserves, is unstable and abstract, even in the face of all attempts to secure it, for example, with a fixed exchange rate against various assets, or to regulate its flow by setting of interest rates. . money is just a shifting web of deals made in and on behalf of the hive, and that’s all it’s ever been: a fragile thread in a web of human trust.

Think of the “flight capital” that refugees are forced to trade at huge losses to cross a hostile border. that’s money, but what exactly does it have in common with the invisible money that is your paycheck, a string of numbers colliding in the ether with the string of numbers that is your bank account? maybe the price of avocados or coffee will go up or down between the time of the electronic crash at your bank and the day you go to the market. there are natural disasters where people must suddenly be willing to pay vastly inflated sums for a few gallons of clean water. what, then, is “the value of a dollar”?

All the common arguments against cryptocurrencies like bitcoin, and the blockchain technology that supports them, invariably fail to take into account this fact, the temporary and fragile nature of ordinary money. cryptocurrencies cannot be understood one bit by anyone who thinks money is real, sound, or “backed by” anything other than human trust in institutions whose stability is always uncertain. A US dollar is “backed by” “the full faith and credit of the United States.” but what exactly does this mean?

means that if you take a dollar to the us. treasury and you ask them to redeem it, they will: they will give you… a dollar. or four quarters, if you want, probably.

The unfortunate fact is that currency crises in unstable governments like those of Greece, Venezuela and Spain have already precipitated a series of spikes in the crypto markets. When the Cypriot government tried to solve the country’s banking crisis in 2013 by subjecting its citizens’ bank deposits to a nearly 7 percent haircut, the price of bitcoin skyrocketed, likely because, at the time, many euro holders in the debt-ridden southern europe governments surmised that bitcoin might represent a more reliable home for their money than cypriot banks could provide. Spanish bank depositors must have wondered: would their own banks be next?

In a nutshell, our existing financial institutions are deeply flawed and perpetually prone to corruption, and this was long before bitcoin was a gleam in the eye of its mysterious inventor. Satoshi Nakamoto made sure to make it clear as the day in the so-called genesis block that bitcoin started rolling: “the times 03/01/2009 chancellor on brink of second bailout for banks.” bitcoin was a politically motivated project from the start, a new system created explicitly to provide a tamper-proof digital medium of exchange on which a better alternative to our existing banking systems could be built.

The theory behind all cryptocurrencies, including bitcoin, is that the records produced by a distributed computing network can be made tamper-proof, which theoretically guarantees the soundness of a currency better than governments. And so far, despite some substantial bumps in the road, the blockchain system on which bitcoin is built has at least partially proven this theory. A million or more bitcoins have been stolen since 2009, but the underlying system’s distributed ledger, the accounting system on which bitcoin is based, has so far remained stable and incorruptible.

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the many robberies and scams that occurred in the early days of bitcoin are reminiscent of the movie the treasure of sierra madre, an excellent drama of greed and corruption set in the 1920s. there can be no doubt that the prospect of instant wealth , almost close enough to touch, can drive people crazy. Note, however, that greed’s propensity to produce crime and madness did not cause the value of gold to evaporate.

The real caveat here is that the incorruptibility of the bitcoin ledger survived, not only because of the distribution of the system, not only because of its clever cryptographic protections, but also because of the good faith and good sense of the individual developers who guided the project. through his wobbly-legged childhood. Without the cool-headedness of Gavin Andresen, who was effectively Bitcoin’s sole steward during many of its early crisis moments, the project could easily have died. even today, the various forks and growing pains that still plague the bitcoin system are providing a kind of stress test. at present (this is just my opinion) the relative lack of confidence of bitcoin’s core developers, who many believe are strategizing for their own benefit, may be inflicting lasting damage not only on the cause of bitcoin, but also to the promise of blockchain technology in general.

As a separate issue, cryptocurrency speculators were at risk of being scammed, from the start, due to difficulties in (1) creating secure storage and (2) developing systems for getting regular money in and out of cryptocurrency in a safe way. due to disasters like the theft of around 800,000 bitcoins from mt. gox exchange, which was discovered in 2014, the entire cryptocurrency ecosystem got a bad rap. the public impression was that bitcoin itself was somehow hacked, when in fact it was the largest exchange that was hacked. as if the central bank of bangladesh deprived $63 million in its account at the federal reserve bank of new york last year.

saying “bitcoin is a fraud” because bad actors have scammed people is exactly like saying “the financial services industry is a fraud” because jamie dimon’s company is corrupt. bitcoin was used on the dark web to buy and sell drugs! well… most hundred dollar bills have traces of cocaine on them, so if you have any objections to the hundred dollar bills in that account, please send me your surplus. Does the fact that it is used in criminal transactions delegitimize cash? No. The truth is that money is tainted by its very nature.

very soon, the block chain system that is now used to secure bitcoin transactions will transform and merge with other systems, because its value is incalculable. Investors from Wall Street to Sand Hill Road have already invested significant amounts of money, time, and effort into blockchain-based businesses. In all the places where humans need to know for sure whether or not something really happened, blockchain technology can be programmed to give us incorruptible information about it. Whatever the flaws in the system that Satoshi Nakamoto launched in 2009, and they are still substantial, it showed that there really is a way for people to create foolproof and guaranteed records of human transactions, without relying on outside authorities like banks or governments. there is no going back from that.

The fight for stability in any currency is always in the process of being lost, because whenever there is a chance to game or falsify a transaction, human nature is such that some will try to cheat. even the limited and precarious stability we have in developed countries requires vigilance and work by countless principled people, and there is never any certainty. the fight to preserve the illusion that money is real never ends, and can never end.

Originally published on Medium Nov 2017. Thanks to Matt Higginson for his valuable help and editing.

crypto tips gratefully accepted here on behalf of the brick house cooperative, or tip the author on eth using the metamask link below.

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