Bitcoin, Magical Thinking, and Political Ideology
Joyce Park stashed this in Tech biz
Alex Payne has some excellent points:
We’re told that Bitcoin “fixes serious problems with existing payment systems that depend on centralized services to verify the validity of transactions.” If by “fixes” you mean “ignores”, then yes: a Bitcoin transaction, like cash, comes with the certainty that a definite quantity of a store of value has changed hands, and little else. How this verifies any “validity” or cuts down on fraud I’m not sure; stolen Bitcoins are spent as easily as stolen cash, which is why theft of Bitcoins has been rampant.
With those risks in mind, are the fees that existing card networks and payment processors charge – Dixon’s “roughly a 2.5% tax on all transactions” – outrageous, or are we perhaps collectively subsidizing the cost of fraud prevention and regulatory compliance? In what plausible universe will legitimate Bitcoin transactions be allowed to take place without such protections, and thereby without the associated costs? (Incidentally, you can expect to pay a similar “tax” just to reclaim some semblance of the anonymity that Bitcoin fails to provide in the form of mixers, a zingy term for money laundering.) To be sure, the credit card companies have fattened their margins beyond the raw cost of moving money around, but we have a miraculous salve for this called regulation.
If Bitcoin’s strength comes from decentralization, why pour millions into a single company? Ah, because Coinbase provides an “accessible interface to the Bitcoin protocol”, we’re told. We must centralize to decentralize, you see; such is the perverse logic of capital co-opting power. In order for Bitcoin to grow a thriving ecosystem, it apparently needs a US-based, VC-backed company that has “worked closely with banks and regulators to ensure that the service is safe and compliant”.
More on the Coinbase fail in particular:
PayPal and most credit cards charge in the same 2.5% ballpark per each transaction as a fee to vendors that offer consumers the convenience of using those payment systems.
What's more outrageous is how credit cards charge their retail users, as much as 33% and 39% per annum if they miss a payment--on top of monthly late fees--which by most definitions is in the ballpark of usury and loan sharking.
How Citibank and all others ever got away with such credit creation covenants in direct and flagrant violation of existing legal statutes still astounds me.
Even when Congress tried to reform those rates, they were stopped in their tracks hard by lobbying.
You're right, it shouldn't be legal to charge customers those usurious rates.
Silicon Valley has a seemingly endless capacity to mistake social and political problems for technological ones, and Bitcoin is just the latest example of this selective blindness.
The underbanked will not be lifted out of poverty by conducting their meager daily business in a cryptocurrency rather than a fiat currency, even if Bitcoin or its ilk manages to reduce marginal transaction costs (at scale and in full regulatory compliance, that is). But then, we should note that Dixon wasn’t talking about lifting anyone out of poverty, just “offer[ing them] low-cost financial services”.
Also notable is that both Andreessen and Horowitz supported Mitt Romney’s failed presidential bid, giving us some insight into the likely level of concern for economic inequality around Dixon’s office.
I did not realize that both Andreessen and Horowitz supported Mitt Romney.
Uber also represents the extreme application of libertarian ideology:
I like that Pando article Adam. The author’s discussion of disruptive Millennials at TechCrunch Disrupt who looked to disrupt laws (in many cases public safety laws) instead of large oligopolistic industries reminds me of the behaviour of a few of the competitors during Stanford’s Startup Engineering course. https://www.coursera.org/course/startup.
The basic idea behind the course was to create an actual mico-startup. How much Bitcoin a startup generated was a factor measuring its success. In discussing some of the course’s results the instructors said the following about people who tried to game the course leaderboard:
“We can't say for sure that we caught every trick - we were actually somewhat impressed with the sheer variety of ways that people used to game the leaderboard, particularly on the social side of things! Some creative ways that students obtained tweets (either intentionally or unintentionally):
a bot that constantly roams and retweets the team's URL tweeting their own URLs continuously paid tweets from random users creating scripts that tweet continuously from a set of fake Twitter accounts
By the nature of things, the most aggressive-but-not-banned social tactic is likely to win, so we'll need to figure out where to draw the line next time. We're looking at implementing possible solutions for the next version of the leaderboard, such as only counting unique tweets from different accounts, and using some measure of account authenticity and history. However, the default Twitter API doesn't support all of these features, so we'll need to explore third-party or other custom solutions. We'll also probably implement more guidelines in terms of the kinds of apps which are expected, and potentially some spam reporting tools for the class to use.”
There will be those that argue that kind of unethical behaviour is creative. But I can’t shake the feeling that I would not want to start a business with people willing to take those kinds of actions. On the other hand everyone needs to “fake it till you make it.”
It seems when individual wealth is the most important measure of success it legitimizes all manner of behaviour.
At the very least individual wealth is an easy-to-understand score that one can try to increase.
Increasing the amount of kindness in the world -- or happiness in the world! -- are more intangible.
Peter Drucker says to be very careful about what we measure.
Because whatever we measure gets managed and optimized for.
Here is the crux of the issue:
Economic inequality is perhaps the defining issue of our age, as trumpeted by everyone from the TED crowd to the Pope. Our culture is fixated on inequality, and rightly so. From science fiction futures to Woody Allen character sketches, we’re simultaneously alarmed and paralyzingly transfixed by the disappearance of our middle class. A story about young people dying in competition with one another just to continue lives of quiet desperation isn’t radical left-wing journalism, it’s the pop fiction on every teenager’s nightstand and in every cinema right now.
With this backdrop of looming poverty, nobody can reasonably deny that the euphemistically “underbanked” are in desperate need of financial services that empower them to participate fully in the global economy without fear of exploitation. What’s unclear is the role that Bitcoin or a similar cryptocurrency could play in rectifying this dire situation.
Bitcoin will not help economic inequality.
After all, fewer than 1000 people own half of all the Bitcoins:
You meant to write fewer than 1000 people own HALF of all the Bitcoins, right?
The inequality also has a major demographics problem.
The wealth will get transferred very quickly. I always hoped the transfer would be the trickle of trickle down but I think is not the case.
There is the Gates/buffet trend of huge sums of money to projects they deem worthy. Which is noble but also has a nobility of imperialist smell.
Then there is the America first trend that is going to the aspects of the system that created the wealth. Huge sums to the elite aspects such as universities or "think tanks."
While the food banks can't keep the shelves stocked.
Rob, right, HALF of all Bitcoins. Thank you, I modified that.
Mark, it is that demographics problem that has brought the issue to the front.
Bitcoins, tulips, Mississippi land... it really doesn't matter what the underlying commodity or derivative is when it is simply used as a speculative vehicle for wealth generation without added productivity or intrinsic value.
Bitcoins or bottle caps or anything without inherent value can serve as speculative commodities. Bitcoins are slightly more spurious than greenbacks, tulips or Mississipi land simply because they lack inherent value, whether that of the fiat backing by sovereign nations most currencies enjoy, or the intrinsic utility within a physical substance itself, like precious metals and gems--as far as I know you can't make a pretty necklace out of bitcoins if they go to shit as currency... well, at least not in physical reality, but maybe in Virtual Life.
And therein lies the only rub: who's to say whether real world or virtual worlds are the more valuable existence these days... and as far as the economic divide and inequality goes, it seems that bitcoins enhance the technological and digital divide as well as a financial one: it's kinda hard to play in the bitcoin game and achieve financial equality without an internet connection...
It's a wonderful life... For some of us:
The industrial revolution created jobs. The internet / drones revolution is destroying jobs.