Gideon Writes

In the hearing of November 19 2013 Senator Heidi Heitkamp (North Dakota) asked how much sales tax to ring of a purchase of one Bitcoin?   When purchased ,it was worth $700, but by tax due date it shrinks to half of that, or swells do double?   The hearing also disclosed that Bitcoin is largely held by investors, anticipating price hike, not by traders who need stability.

It’s finance 1.01 that the Bitcoin enthusiasts seem to ignore: currency instability is self promoting, and leads to diminished utility.  And since there is no one to open the spigot when the currency gets red hot, or remove money from the market when the value drains from it, there is no way to humanly and wisely react to price instability.

My fellow cryptographers would argue that Bitcoin is the first step in a long experiment, and eventually the algorithm will evolve to exceed the performance of any human being central banker, much as today’s computerized chess, after many years of effort, is beating the human champion.

The difference, I argue, in return, is that the moves in chess are fixed, and known without surprises.  The value of money is determined by the combined psyche of the human traders.  No one is yet even close to mapping the total possibility of reactions to be anticipated from a single human being, not to speak of a society thereto. And that means that in principle any algorithm that the current Bitcoin would evolve into can only capture the insight of its writers at the time of writing it, it will not reflect insight gained afterwards, while a human central banker would be in a position to apply all the knowledge, understanding and insight of the present.

My prediction is that the elegance of Bitcoin will find excellent applications in some voting systems or others, not yet suspected, and it may perhaps  last as a fringe monetary system, but decentralized currency may never mature into mainstay currency.  Albeit, the scientist in me says: allow for surprises. So, how about for now, we take the list of goodies offered by Bitcoin, and build them through a centralized digital currency like BitMint, while Bitcoin is evolving and is pushed by its enthusiasts to as far as it can go. And if it becomes ready for prime time, then adoption will be quick because main street by then would be familiar with digital payment and digital banking through the centralized version.

So here is the proposed plan for now:  let’s test the notion of digital currency with the more conservative idea of centralized mint. We can test security, speed, convenience, cost, etc., without throwing in the volatility and uncertainty of the Bitcoin elk. A currency that amounts to digitized dollars, is fixed-valued towards the dollar.  In parallel, let the proponents of decentralized money pursue their dream, test the algorithm, accommodate the cryptographic concerns, perfect the various features, and immunize themselves from criticism by warning all traders of the inherent risks of this experiment.

Senator Tom Carper (Del) chair, and only senator in the Nov 18 hearing on Digital Currency has de facto reduced the hearing to discussing Bitcoin, and then he did not raise the two critical questions: (1) is the cryptographic foundation of Bitcoin strong enough to recommend to laymen traders to trust it with their material assets?  (2) is the US Senate OK with the emergence of a global currency that would relinquish monetary control from the Federal Reserve?

Even a quick browse of the Internet will show to any surfer that the cryptographic viability of Bitcoin is  an unsettled matter, which means that lay traders who trust the technology are at risk of losing all their Bitcoin assets overnight.  Is it not the Senate’s business to look after the people?

Money supply issues translate to socio economic stability. Off balance money supply will crash society, unleash wars, and invite catastrophe.  Is society prepared to allow a dead algorithm to determine money supply?

The atmosphere in the hearing betrayed the ignorant fascination with the tantalizing new technology. It reminds one of the wave of enthusiasm that followed the publication of the Communist Manifesto in 1848 — a prescription to save humanity from the pitfalls of human nature. It did not work then, and it would not work with Bitcoin. Alas, a lot of agony came to the world until communism was finally discredited. One fears a lot of human agony on its way, if the Bitcoin euphoria is not curbed in time.

Digital currency is wonderful — no doubt, but we should simply digitize the fiat currencies: the dollar, the euro, the yuan, gold-  That is what BitMint does.

161 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 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 will go underground, will submit to a Bitcoin-Lenin to lead them to the decentralized money promised land, and eventually they will languish under the 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. 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 overreaching 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 do show up, do find their way to disrupt the fairy tale dreams of the true believers. Alas, they camouflage themselves for a long time before the bitter truth becomes wide spread.

Lenin and Stalin understood very well that in order to implement the high minded principle of: “To each according to his need, from each according to his ability” they will need coercion, and will have to use violence — means, they considered a necessary temporary tool 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 pace-setters 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 — 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 ATM Bitcoin 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 will each argue for their version of the newly modified Bitcoin, or that a Bitcoin-2, and Bitcoin-3 challengers by whatever names will defy the Bitcoin primacy? After all, the value of money is directly proportional to its public acceptance: a fractured decentralized currency market can never prevail against the allmighty 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,  then the incentive to play dirty against detractors will rise to “mafia levels”  — all in the name of the ideal of fair money, created by the network, not by the nitpickers.

 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 NSA 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.

 Come to think about it, the very rise in the value of Bitcoin points to the core need  for central banks. Something funny about money: if people believe its value will rise, they will hoard it, and be reluctant to trade with it (tomorrow it will be worth more). This behavior pushes the price up, vindicating the hoarders, who resist parting with their money, on expectation of even higher values, which in turn jacks the money further up. There is a perfect symmetry on the opposite side — fear of inflation generates inflation. In other words, the venerated “wisdom of crowds”, and the current darling of science — the network — are not so universally effective. Yes, the Internet proves that decentralized networks are very powerful, but countless historical examples prove that as networks grow, so does their built-in complexity, only at a faster pace, and towards a fatal implosion. I, for one, will rather trust a living breathing human being, appointed by elected officials, then trust a finite algorithm that was written on the basis of insufficient knowledge, and that its formulas are locked and unresponsive to new and emerging insight. I vote for fiat money, flaws and all.

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 purposes, 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. I elaborate on this vision in my new book: “Tethered Money: Digital Currency & Social Innovation” available on Amazon. Fair disclosure: I am the CTO of BitMint — we digitize fiat currencies and crypto empower them.  BitMint may become a universal standard, or be one option in a mix, or perhaps would surrender to a better idea for digitizing fiat money. Either way, digitized fiat currency, not decentralized algorithmic money,  is the way to go — per my opinion, for what it is worth.

Throughout the 20th century physics was confronted with an increasing number of experimental results that could only be explained by corrupting the age old pristine notion of Euclidean and Newtonian space, and re-defining it, and the spotted phenomena in it in ways that fit the abstraction of mathematical equations, but offend our common sense, and disturb our mental tranquility. Physicists immunized themselves from popular protest by waiving the math — if you are not fully versed with the body of math that gives rise to this deformed space, you have no right to argue one way or the other.

Physicists observe how the crowded shelves in their office buckle under the weight of the stocked books, and so they accept the idea that the straight lines of Euclidean space buckle under the presence of mass, suppressing the offense sustained by our common sense: the math is right!

When in 1927 physics had to explain how single electrons shot towards a crystal with two trajectory slots, create a photo plate as if these were waves that went through, then the scientific interpretation was not: Hey — space is not the vehicle. Let’s divorce it, and construct another entity, another framework to interpret the duality of matter, the non-locality of space, and the non-repeatability of experimental results. Physics did not say: Ok space, we will use you for all practical purposes, but we are actively looking for a replacement — start from scratch.  Instead we developed Schrodinger equations, put shackles on our wrists: we can never know both position and momentum accurately — never!  And in general probability — the science of incomplete knowledge, was crowned as the science of ultimate knowledge!  Future generations will ridicule our pathetic stubborn embrace of our 3D space model, wiping from our face the spits of insult from the warped explanations of what we measure.

Physicists seem to behave like a partner in an irreconcilable marriage. They redefine a good relationship, they forgive offensive behavior, the point out the good things, ignoring the bad, arguing that a bad relationship is better than being alone. Alas, if you are alone, you are looking for proper mate, and that is what physics should be doing.

You can’t imagine yourself without imagination —

The two contextual meaning are true: if you have no imagination, you cannot imagine who you are. And if you have imagination, you cannot imagine yourself in a state where no imagination is present. The latter is so because of the first: in a state without imagination you cannot be self-conscious, or have a sense of self — namely, you are not you!

What else is out of bounds for our imagination?

Plenty — come to think about.

We can’t imagine a molecule, or a grain of sand, to be endowed with imagination. So the building blocks which self assembled over the eons to become you and me, have acquired imagination as part of the process known as Darwinian evolution.  Darwin has taught us that we only acquire survival traits according to his model, now widely accepted as holy scriptures.  Our imagination, therefore, is a survival tool, and anything that is out there in the great vast land of reality, which has no survival impact on us — our imagination has no engagement gears to grasp it, and, so, soaked within our Unbound Ignorance, we think that what we can imagine, is all there is.  Sci-Fi writers — sorry…

Are we doomed?

Not necessarily —

But to hunt for the missing reality we need to climb a steep mountain. We need to go BACKWARDS — unlearn, recapture our more pristine state, scrub our brain from our recent evolutionary steps…  It would be like, say, a muscle cell, realizing that not all cells are muscles, but in order to learn what else a cell can be, the muscle cell must undo its differentiation, restore its embryonic state, and take a different route.  This is infinitesimally close to impossible, and so is our task ahead.

Ergo — let’s get started right now, even before your eyes lay on the closing line of this blog-

You procrastinate…

It’s  a tall order, and readily confused with hubris and arrogance, to be committed to the ultimate questions of life and reality. And it would appear that the smartest among us, at their peak performance are the ones to exercise this commitment, while for the rest of us, it is a banner, a philosophical declaration, regarding ‘philosophical’ to mean: nice to say, poetic to pray, but planners and doers are not  invited.

I am here to argue the contrary. And more: weakness is no excuse. One might reason: my mind is not that sharp, my practical life is too stressful, my health is below par — I should be excused from exercising any such commitment to what life and reality are all about.

Alas, relinquishing the strive to understand to its full depth the situation we are in, creates a chain reaction of un-fastening the belt that ties us to the practical matters we think sustain our lives. Apathy — once given a crack, will crawl in, and devour any genuine interest in anything. Under pressure we will sell our dearest values because we are not sure how durable and sustainable they are, not sure because they float on the dark ocean of the underlying meaning of life, which we have given up on. So anything can be anything else, any conclusion can be overturned, every premise we believe in, we may disbelieve in tomorrow. And we typically resolve this confusion by retreating to more basic things.

When you hear people claim: Money is all that matters, the only thing that counts, the one thing I want more off,  the single issue I care about — you hear people that yielded to the sustained pressure of the confusion from the higher-up questions of meaning of life, and  they desperately  hang on to a number — net worth, money in the bank — number!    The property of numbers is that one is either larger than the other, or smaller than the other, or equal to the other — numbers are lined up!   while love, wisdom, fear, death, eternity, infinity, dimensionality, spirituality, poetry, art — are like floating bubbles in a  marsh of chaos.  They don’t surrender to a line up.

And how to withstand the pressure of these many bubbles?  There is only one way that I have come up with so far, and I am quite an old guy, with a long thinking mileage — and that one way is to commit yourself to the ultimate questions: to say, I don’t know what is going on, but, by golly, I am dedicated to finding out, dedicated — despite my disappointing level of wisdom and smarts, despite mental slowness, even fogginess, and through my emotional storms, and regardless of a small or a handicapping physical weakness, and even through a foreboding sense of dying —  I live, I commit — Ultimate Questions you are my target!