From Alex Payne:
Last week, investor Chris Dixon posed a provocative dichotomy when introducing his employer’s USD $25M investment in Bitcoin service Coinbase:
“The press tends to portray Bitcoin as either a speculative bubble or
a scheme for supporting criminal activity. In Silicon Valley, by
contrast, Bitcoin is generally viewed as a profound technological
breakthrough.”
Now working at vogue venture capital firm Andreessen Horowitz, Dixon
is in a fine position to speak for Silicon Valley. But to the extent
that the Valley is a placeholder for the technology industry at large, I
beg to differ. Bitcoin is “generally viewed” quite differently.
Most charitably, Bitcoin is regarded as a flawed but nonetheless
worthwhile experiment, one that has unfortunately attracted outsized
attention and investment before correcting any number of glaring security issues.
To those less kind, Bitcoin has become synonymous with everything
wrong with Silicon Valley: a marriage of dubious technology and questionable economics
wrapped up in a crypto-libertarian political agenda that smacks of
nerds-do-it-better paternalism. With its influx of finance mercenaries,
the Bitcoin community is a grim illustration of greed running roughshod
over meaningful progress.
Far from a “breakthrough”, Bitcoin is viewed by many technologists as
an intellectual sinkhole. A person’s sincere interest in Bitcoin is
evidence that they are disconnected from the financial problems most
people face while lacking a fundamental understanding of the role and function of central banking. The only thing “profound” about Bitcoin is its community’s near-total obliviousness to reality.
Regulation and Other Minor Details
Bitcoin owes its present flexibility to a lack of regulation (or, more accurately, a lack of understanding around existing regulations
and/or unwillingness to comply with them). If the broader Bitcoin
experiment doesn’t implode, the currency will be regulated just as any
other. In this best-case scenario for Bitcoin, what of the benefits
Dixon claims?
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”.
And Coinbase certainly feels, uh, compliant. It took me over
a week to use the service to turn US dollars into a fraction of a
Bitcoin, an experience that coupled the bureaucratic tedium of legacy
consumer financial services with the cold mechanization of notoriously
customer-hostile PayPal, but with the exciting twist that I have no idea
from moment to moment how much my shiny new Internet money is actually
worth.
Magical Thinking
While most of the claims around Bitcoin are merely wince-inducing,
there is one that deserves particular attention: that Bitcoin is “a way
to offer low-cost financial services to people who, because of financial
or political constraints, don’t have them today.”
Economic inequality is perhaps the defining issue of our age, as trumpeted by everyone from the TED crowd to the Pope.....MORE
HT:
naked capitalism who also says about another piece,
Why I want Bitcoin to die in a fire, Charlie’s Diary. "Must read.".
