[FoRK] [ZS] Bitcoin - A Means for Redistribution of Wealth

Eugen Leitl eugen at leitl.org
Mon Oct 1 07:05:44 PDT 2012


----- Forwarded message from "ZeroState.net" <info at zerostate.net> -----

From: "ZeroState.net" <info at zerostate.net>
Date: Mon, 1 Oct 2012 14:08:17 +0100
To: Doctrine Zero <DoctrineZero at googlegroups.com>
Subject: [ZS] Bitcoin - A Means for Redistribution of Wealth
Reply-To: doctrinezero at googlegroups.com

>From our very own Rüdiger Koch...

http://ieet.org/index.php/IEET/more/koch20120927

Bitcoin - A Means for Redistribution of Wealth


Amazing things would happen if a large percentage of transhumanists
were financially independent. How can this be done?

Many Transhumanists have great ideas but they never get to work on
them due to lack of time and money. Only the most uncompromising and
dedicated H+ individuals ignore all liabilities and proceed.
Encountering great difficulties, many give up, but a few receive
funding and continue. A handful also find jobs that permit them to
pursue their dreams…

Clearly, amazing things would happen if a large percentage of
transhumanists were financially independent. How can this be done?

There is a way…

We need to redistribute wealth! Here’s how:

Open P2P currencies running wild on the Internet represent a coming
paradigm shift for the very bloodstream of our economy - it’s money.
After 400 years of nearly uncontested control over the money supply,
central banks of the world now face formidable competition,
threatening to make them obsolete altogether. And it’s not only
central banking - any form of money transfer does not require the help
of a payment processor any more. No need for banking networks such as
SWIFT or SEPA, no need for any proprietary e-money - many of the
traditional banking business models will become obsolete. Once again,
it will be possible to live your life without ever entering a bank, if
we so choose. Nothing short of taking control over the Internet by
almost all governments worldwide or removing the Internet altogether
can stop this development. The djinn is out of the bottle.

Bitcoin is the first of these P2P currencies. Like P2P filesharing,
anyone can participate by simply downloading a client, of which there
is a rich selection. Bitcoin has properties designed to empower it’s
users and give advantages to it’s early adopters:

1. Bitcoin is oblivious of national borders. A transaction to your
neighbor is the same as a transaction to a user at remotest location
of the networked world.

2. Bitcoins are not created out of thin air in arbitrary amounts like
fiat money. They are created at a predictable rate through a process
called Mining. At the time of this writing, 10 Million are in
existence and there will never be more than 21 Million.

3. Bitcoin addresses have no obvious connection with their owners.
Unless such a connection can be constructed by other means, Bitcoin
transactions are anonymous.

Redistribution of wealth is powered by 2: As the supply is very
limited, Bitcoin value has to rise if demand increases, in a quite
predictable way: Early adopters benefit if the number of users
increases because their demand for Bitcoin will drive the price up.
How much can the price increase? We’re currently at 50,000 users and a
market cap of $100 Million. Should 1 Billion people use Bitcoin in the
future, the price will have to rise 5 orders of magnitude to
compensate. In other words, if you buy a Bitcoin today, you have $12
to lose, should the project fail entirely. But you have $100,000 or
more to gain should it succeed.

This already suggests how redistribution of wealth works in favor of
early adopters. Early adopters are able to acquire Bitcoins cheaply.
Network effects are expanding the Bitcoin community and the Bitcoin
price will rise. The question is now, if one gains, who loses? After
all, all monies today are purely virtual, so this must be a zero sum
game. If Bitcoin gains, capital must flow into the Bitcoin economy.
The losers are those who hold other currencies because they will lose
capitalization. At present prices, this is completely negligible since
the market cap of Bitcoin is next to nothing compared to the 10
Trillion Euro in M3 and a much higher amount for US Dollar - which the
FED wisely decided not to publish any more since 2006. But it is
doubtful that users of those currencies will feel the loss - the ECB
and the FED will screw them much harder, by means of inflation.

Image: Bitcoin price since 2010. Ignoring the bubbles, particularly in
mid 2011, it nicely fits an exponential.

Since the Bitcoin community now has learned a lot about how to make
the best use of Bitcoin, this price is increasingly driven by use, not
just speculation. The single biggest user still seems to be SilkRoad,
a site to purchase illegal drugs, but there is now also online
gambling such as SatoshiDice, the first online game which can
mathematically proof that it is honest. Bitcoin also solves the
biggest problem of online Poker - transferring money from and to the
site. At some point of market penetration, Bitcoin will take on
Western Union and other money transfer services because this is what
Bitcoin has been designed for from the very beginning. And once the
Bitcoin flow gets closed i.e. businesses can pay their bills with
Bitcoin and have their revenue in Bitcoin, Bitcoin use will explode.
Putting your money on further growth seems a very good bet - much
better than USD or EUR denominated papers like life insurances which
are almost guaranteed to lose value and possibly turn out to be just -
paper.

Of course Bitcoin received quite some criticism after it gained
popularity last year. Here are the most relevant, with refutations:

*  Bitcoin is a Ponzi scheme: Like a Ponzi Scheme, Bitcoin rewards
early adopters. The important difference is that Bitcoin has utility
as a method of payment and it does not promise interest payments so
there is no obvious point where investors run for it. Ponzi schemes
also never come back once the bubble bursts. Bitcoin had a bubble in
2011 which burst in July, but it recovered beautifully since.

*  Bitcoin is an HMLM scheme: As above, there are similarities, but
there are also important differences. There is no individual reward
for winning a new Bitcoin user like in MLM and if you own Bitcoins,
you don’t need to do anything to profit from rising prices.

*  Bitcoin has no intrinsic value: Nothing has intrinsic value.
Everything is valuable only to the extend people value it. People tend
to think that objects with a tradition of being valued have intrinsic
value, such as gold. Bitcoin has no long tradition yet, but this will
obviously change in time.

*  Deflation is bad: If falling prices were bad, the semiconductor
industry would be in a crisis since it’s beginnings. What is bad in a
Fiat system is a credit contraction: If everyone starts paying back
their loans instead of investing or consuming, productivity goes into
destroying money (this is what paying back a bank loan is in essence).
Hence the economy suffers and the deflation caused by market forces
and defaults forces people to try even harder to pay back loans. The
myth that deflation as such is bad is spread by governments to justify
the creation of fresh money and the earnings from seigniorage and
monetizing government debt - inflation tax - under the euphemic name
“monetary policy”.

As with any investment, there are risks:

*  As Bitcoin is nearly anonymous, it has obvious applications for
criminals. Should it get confined in this “community”, it’s value will
get stuck. The investment won’t be lost, but it won’t be the 5 orders
of magnitude of profit either.

*  Elliptic Curve encryption or the used hashing algorithms get
broken: Depending on how that happens, it can be a total loss or only
an outage until a replacement is implemented. There are already plans
for this case.

*  Governments ban Bitcoin: This is a very real possibility since many
governments plan cashless societies with proprietary e-money where
every transaction will be monitored, taxed and possibly vetoed in real
time. A ban may be a major setback, but in such an environment,
Bitcoin is also very attractive for everybody as cash replacement. It
may even profit from such a ban.

*  The Bitcoin price can be quite volatile at times. There is at no
time a guarantee that you won’t get coins later at a cheaper price. As
a long term investor, you must be able to ignore such short term
fluctuations.

There are many ways to acquire Bitcoins. You can sell stuff for
Bitcoins or you can work for them. The most common way to get a
reasonable amount is to buy them at an exchange. MtGox is the biggest.
Once you have them, you want to withdraw them. If you only want to
save them, create a paper wallet, print it out and store it in your
safe. Don’t forget to print another copy for backup. Then withdraw the
coins to the address shown and delete the paper wallet from your
computer so no malware can steal it. That is all! When the time comes
to use your Bitcoin, you can redeem the private key at an exchange or
scan the QR code into your wallet on your computer or your mobile
device.

Cryonicists will find the option of a brain wallet interesting: As a
private key is simply a very large (256 bit) number, it can be
deterministically created from a pass phrase. This is a string of
words that have meaning to you, possibly salted with things like your
social security number. Since you can remember the string now, you
should be able to remember it after your reanimation. So as long as
you keep your memory, you can access your funds even if everything
else has been taken from you during your time in the dewar. What’s
more, it is possible for you to prove that you are the owner of a
Bitcoin address and hence the funds on it so people in the future can
be sure that you can pay for your reanimation once you are back and
can access your funds. This is done by signing a message with your
private key. Anyone can now verify your ownership with that message
and your public key. Depending on how Bitcoin develops, even a single
Bitcoin can be a fortune at the time of your reanimation so it seems
prudent to invest that little sum now to give the future a real
incentive to reanimate you.

The true value of Bitcoin lies in using it as a method for payment.
You need an electronic wallet to spend anything. My recommendation is
Electrum on Linux, Mac and Windows, and BitcoinSpinner on Android.

Transhumanists tend to be freethinkers, which means they usually can’t
agree on anything. This is both the greatest strength and the greatest
weakness of the H+ movement. But if we can agree for once to use
Bitcoin and use our personal networks to spread it, there are enough
of us to make Bitcoin’s success and hence, rising prices, a self
fulfilling prophecy.

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