Category Archives: crypto

Essential Reading on Crypto

Since penning a post on the libertarian ideology of Bitcoin, and the inherent unfairness of a deflationary currency (Bitcoin is the thin end of a far-right libertarian wedge), I’ve come across more articles on the subject that articulate the problems with crypto-currencies far better than I every could.

First up, the Folding Ideas video Line Goes Up – The Problem With NFTs, is a must-watch for anyone remotely interested in the space, or considering an investment in any form of crypto. Despite the headline being NFTs (you thought crypto-currency was bad? wait till you see this dumpster fire), it goes fairly deep into crypto-currencies and blockchains in general. At 2 hours and 18 minutes, it’s a very long video by YouTube standards, but the presentation is excellent, the research solid, and it never drags. Since it was posted 5 days ago, it has racked up 2 million views, so it’s certainly having an impact.

If two hours is too long though, I strongly recommend reading The Case Against Crypto, by software developer Stephen Diel. He nicely summarises the anti-crypto argument under 4 headings:

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Bitcoin is the thin end of a far-right libertarian wedge

There’s a fair bit of noise about crypto these days. About a year ago, advertising from crypto exchanges and various sh*t-coins really ramped up, and it really hasn’t ceased. Fortunately, the cringe-worthy tie-up between Matt Damon and crypto.com has been received about as well as anyone outside the crypto bubble would expect, but I’ve been doing a lot of thinking about crypto recently as a result. And I’ve been thinking more about about Bitcoin, as, regardless of what you think of crypto in general, Bitcoin is not a shi*t-coin, and is regularly held up as an alternative to the global financial system.

Yet, the markets are currently in free-fall, and one of the main reasons to hold Bitcoin (as a hedge against inflation) hasn’t really panned out – inflation is up, and Bitcoin is down more than the S&P 500. This is not a counterpoint to Bitcoin as a reserve currency though, as the free-fall of Bitcoin is based on its value in fiat. But the fact that we’re still pricing BTC in fiat, more than 10 years since its inception, demonstrates to me that it has failed in this mission.

I think there are many problems with cryptocurrencies and blockchains, but in this essay I’m only going to talk about one aspect of Bitcoin as a currency – the hard limit on supply. I should also add that I am not an expert, just an interested observer. In the early days I thought Bitcoin was an interesting idea, and I have held a little crypto over the years. While I never lost money, I didn’t make a fortune, and these days I am consciously a “no-coiner” – someone that holds no cryptocurrency, and believes they have no value. Or more specifically in my case, that they are a bad solution looking for a problem.

Deflationary by design

One of the arguments in favour of Bitcoin that I keep reading about, is that supply is inherently limited, making it a deflationary currency. This would mean that, hypothetically speaking, if adoption of Bitcoin was universal and stable, the price of goods in Bitcoin would steadily fall over time. This is a gross over-simplification, but the supply of Bitcoin has a hard limit, and thus we can never alleviate upwards pressure on its value by increasing the supply (I.E. debase it), without forking the chain. And of course, as a network participant, you wouldn’t support that if, like most Bitcoiners, you were against debasement in the first place.

Fiat currencies aren’t like this, because they have central banks issuing them, and these banks debase their currencies as a fiscal tool. The effect of this deliberate inflation is that the real value of the cash that people hold (and also their wages) goes down over time.

If the argument is that Bitcoin’s deflationary nature is a good thing, a corollary to this, is that a currency that can be debased is a bad thing.

With me so far? Good. Let’s take a look at that argument.

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