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The Bitcoin Delusion

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In 1848, Karl Marx published "The Communist Manifesto" and the world was tossed into decades of upheaval, inching to the brinks of global nuclear destruction before the pamphlet’s tenets were widely discredited when the Soviet Union collapsed.

One hundred and sixty-one years later, in 2009, Satoshi Nakamoto published a short paper: "Bitcoin: A Peer-to-Peer Electronic Cash System" and invoked the same deep-seated, noble desires for a better world, a fair society, freedom from oppression, triumph of the masses, defeat of the elitists. If history is any guide, the Bitcoin craze will keep swelling around the world, committed enthusiasts will risk life and limb, defy authorities, endure jail and hold on to the promise of decentralized money, where a pristine, fair and equitable algorithm replaces manipulative, decadent, central bankers.

While capitalism won the long, drawn-out war against communism, its victory, as years pass, appear accidental rather than inevitable. Afflicted with countless flaws, some at its very core, capitalism cries out for a creative upgrade, a modern Adam Smith, and until such upgrader comes forth, the victims of the flaws of capitalism will rise again. Bitcoin is their new battle cry.

Bitcoin enthusiasts, hunted down by worried governments, will go underground, will submit to a Bitcoin Lenin to lead them to the decentralized money promised land, and eventually they will languish under a Bitcoin-Stalin who will tweak the algorithm, dictate new rules as he pleases, and build a Bitcoin elite that would rule the Bitcoin traders with the same loathsome attributes that spurred the Bitcoin rebellion against arbitrary decisions by the central bankers of the world.

My heart goes for the wide-eyed true believers who revel now with the joy of the savior algorithm. It is a beautiful piece of abstract art. As a cryptographer, I am fortunate to have the background to truly appreciate its beauty, much as I appreciate the artistic beauty of ancient statues of various "Gods," vainly worshipped for centuries.

What doomed communism, and will likely undermine Bitcoin, is the delusional hope that a protocol, a procedure, a network, an algorithm can neutralize the ugly selfish traits of human beings. Somehow, wrath, greed, sloth, pride, lust, envy and gluttony disrupt the fairy-tale dreams of the true believers. Alas, they camouflage themselves for a long time before the bitter truth becomes clear.

Lenin and Stalin understood very well that implementing the high-minded principle of "To each according to his need, from each according to his ability" required coercion and violence – means they considered necessary temporary tools to achieve the desired garden of Eden. The just rising Bitcoin ruling class surely understands what it takes to implement the high minded principle of "decentralized, majority-rule money" immunized against any power-hungry minority by the unassailable weapons of probability, crypto-intractability, and one-way functions. The Bitcoin pacesetters are likely to wash the trusting public with the vision of money that pops up in abstraction owing to the cleverness of the modern priesthood of mathematicians and network wizards. They will paint the alternative, fiat currency, as the root of all evil, as the reason for why so many of us are still poor.

The trusting public, now standing in line to use the new Bitcoin ATM dispenser in Vancouver, don’t necessarily read the recent scholarly articles that point out cryptographic cracks, and network inconsistencies, that at the very least, require re-writing of the Bitcoin "bible." Who decides on those changes? Will you be surprised if soon enough two competing camps each argue for their respective newly modified versions of the Bitcoin, or that a Bitcoin-2 and Bitcoin-3 challenge Bitcoin’s primacy? After all, the value of money is directly proportional to its public acceptance: a fractured decentralized currency market can never prevail against the almighty dollar that is accepted from Antarctica to the North Pole.

And as more and more Bitcoin millionaires, and powerful shady and criminal figures exploit the new hard to follow currency, the incentive to play dirty against detractors will rise to mafia levels – all in the name of the ideal of fair money.

The value of Bitcoin is on the rise – proof that it is good, the masses don’t err! The value of The Communist Manifesto was on a worldwide soaring gush. It eventually matured into a revolution undertaken by at least a quarter of humanity. And a lot of grief was the destiny of so many, before communism was finally discredited. Bitcoin traders stand to lose their earthly assets overnight, once the hidden mathematical insight that would melt Bitcoin is one day discovered, and unleashed. Chances are that the National Security Agency and other cyber-war ministries around the world have already cracked the hashing algorithm that keeps the currency afloat, and it is for them to choose when to unleash it. It is sort of an irony that in their flight from central bankers the Bitcoin traders subjugate themselves to cyber-war tsars who serve the same governments.

Christianity was also originated, and is also based on the innate desire for justice, goodness, fairness, and freedom from oppression. It is durable though, unlike communism, perhaps because the Jewish carpenter who started the movement was wise enough to decree: "Give what is Caesar's to Caesar and what is God's to God."

The money equivalent to this wisdom is to give central bankers what belongs to them, and give crypto whiz kids what is for them to do: Let’s digitize the fiat currency, and tether it to its purpose. It is a crypto challenge to prevent subversion of money to self-interest. It is a mathematical task to append the digitized dollars or digitized euros or Yuans with metadata that would assure their network flow to their proper destination, frustrating fraud and abuse.

Now that is a durable, powerful, effective vision, and a good use of our modern technology.

Gideon Samid is the chief technology officer for BitMint, which is testing digitized U.S. dollars, and the author of "Tethered Money: Digital Currency and Social Innovation."

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Posted by Gideon | Monday, November 18 2013 at 1:01PM ET
Definitely some interesting points. And obviously a well written article. But you should have more faith in humanity. Just because we are sinners by nature, doesn't mean everything has to be ruined by it. And even if its ultimately ruined by our inherent dishonesty, that doesn't mean it can't do unbelievable amounts of good in the meantime, or despite that, or along with it. Nothing is black and white, or absolute. So it makes little sense to take such a negative stance on something with so much positive potential. People ruin everything. But they also do amazing good, too.
Posted by BittBurger | Tuesday, November 19 2013 at 6:59PM ET
Dear BittBurger: Bitcoin pushers are the ones to assume all people of power are inherently bad, and we should yank power from them, from anyone really, and vest it in an non human algorithm. In algorithm we trust -- they say. I argue that we better trust in human central bankers that answer to an elected government. An algorithm is unresponsive to insight gained after it was written, but people keep learning and keep thinking ceaselessly. I claim that there is enough crypto stuff to do, very elegant, very powerful, over a centralized mint which does not interfere with the money supply, and does not fluctuate versus the dollar.
Posted by Gideon | Thursday, November 21 2013 at 1:10AM ET
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