There's a post at recode that is getting some traction "Bitcoin is the greatest scam in history" that probably wouldn't even be noteworthy but for the fact it's by Bill Harris (Paypal, Intuit).
The piece hits the highlights: failure as a means of payment, failure as a store of value etc. but all I could think as I was skimming through it was "Permit me to introduce you to Izzy Kaminska at FT Alphaville." She was already moving beyond those critiques in 2016 and getting into some pretty funny stuff that is on the wry/world-weary end of the spectrum.
(while avoiding Alinksy's rule #5: "Ridicule is man’s most potent weapon. It’s hard to counterattack
ridicule, and it infuriates the opposition, which then reacts to your
advantage...." cruelty is too easy.)
In 2009, Satoshi Nakamoto served the world an entirely new kind of
currency. It was one that people could move over the internet
instantaneously and nearly free of charge. Issued and distributed not by
a central bank but by its own users, it drew the drapes of privacy
around financial transactions while making forgery—in theory, at
least—impossible.
It’s nine years later, and there are now 24 million active Bitcoin
wallets in use around the world. The value of a single bitcoin has risen
from about a dollar in 2011 to as high as $19,700 in late 2017.
But success, of course, breeds competition. And Bitcoin is now
clearly the dominant cryptocurrency; as of this writing, in early April,
its market cap was three times that of Ethereum, its nearest
competitor, and roughly equal to those of all other cryptocurrencies
combined.
Yet while Bitcoin has established an economy in which it’s
impossible to forge transactions, it provides no defense against
replication of the idea itself. No one can copy an individual bitcoin,
but anyone can copy the idea of Bitcoin. So how might a government, or a
corporation, or even ordinary people, go about doing so in a way that
makes Bitcoin useless or redundant? Here are a few scenarios.
Option one: Government takeover
The year is two-thousand-something-big, and it’s the day your taxes
are due. But you don’t file them. Instead an algorithm automatically
makes a withdrawal from your electronic wallet, in a currency called
Fedcoin.
It’s the digital version of those crunchy bills you only vaguely
remember from many years ago, back before the central banks began taking
paper cash and redeeming it for fedcoins. Over the years, you’ve seen
less and less hard currency. You don’t need it anymore, not when you can
walk into a local bank, verify your identity, and set up a wallet on
your phone. Sure, you still have a few dollar bills. But they are tucked
away as souvenirs.
This hypothetical technology—a central-bank-issued digital
currency built with a tweaked version of the Bitcoin blockchain—was
described by David Andolfatto, a researcher at the Federal Reserve Bank
of St. Louis, and later refined by Sahil Gupta, who as an undergraduate
at Yale wrote a study on how a currency like Fedcoin would work. With
some colleagues, he wrote code to test a simulation.
In their system, a blockchain records transactions, just the way it
happens with Bitcoin. Instead of being updated by a network of
unaffiliated peers, however, the Fedcoin ledger is managed by
institutions certified by the Federal Reserve. “These authorized nodes
could be things like Bank of America, JP Morgan—basically, trusted
institutions,” Gupta told me.
Each bank is responsible for a chunk of addresses on the
blockchain. When new transactions come through, the bank validates them
in a new block and sends it to the Fed. The Fed then acts as the final
arbiter, checking the entries and unifying the blocks into a master
version of the blockchain that it makes public.
To use fedcoins, people must first show proof of identity and set
up a wallet with the Federal Reserve or an affiliate bank, at which
point they can buy the new currency with US dollars at a one-to-one
ratio. A scheme like this, says Gupta, might gain popularity and
ultimately result in the slow disappearance of physical cash.
“I’d imagine people first get comfortable spending Fedcoin on
things like groceries and movie tickets,” he says. “As people realize
it’s easier than cash, as businesses realize it’s cheaper than credit
cards, and as banks realize it’s literally more secure, so goes the
process by which dollars are phased out of the money supply and Fedcoin
phased in.”
This isn’t just an academic thought experiment. The Bank of Canada
built a simulation for such a currency, on a blockchain similar to
Ethereum’s, in 2016.
What such researchers are finding is that a digital version of
state-run currencies could match or even improve upon the efficiencies
of Bitcoin. Gupta believes that transactions should be processed much
faster when a central bank is behind the system (as opposed to the
peer-to-peer network that currently records Bitcoin transactions). This
efficiency could add up to a lot of saved money. The Bank of England,
which has been furiously researching blockchain technology, reported in
2016 that even partial adoption of a central-bank-issued digital
currency would result in a 3 percent increase in GDP as the cost of
taxes and transaction fees went down.
A shift away from cash would also make it easier for governments to
collect taxes and enact monetary policy, says Campbell Harvey, a
professor of finance at Duke University. For example, if a government
wanted to disburse stimulus payments, it could simply deposit money into
people’s Fedcoin wallets. “You drop five hundred dollars in everybody’s
wallet, a single line of code. You’re done … there’s nothing in the
mail, no mail being intercepted. There’s no people trying to
fraudulently take the money,” he says. “It’s no surprise that every
major central bank in the world has got a team looking at the
possibilities of moving to a blockchain-based crypto national
currency.”
Option two: Facebook sneak attack
Let’s voyage once more into the future, but not so far this time.
Because this scenario could happen tomorrow if the right people got
their acts together. This time Bitcoin is usurped by a social-media
behemoth. To make it easy, let’s choose the one that claims to have over
two billion users worldwide.
To imagine how Facebook could use its popularity to topple Bitcoin,
look at how another large network, Telegram, approached the issue. In
January of this year, the company, whose secure-messaging app has over
200 million users worldwide, announced that it would create its own
app-specific cryptocurrency, called Grams, that users could send each
other or use to pay for services within the network. By February,
Telegram had raised $850 million from investors by selling the currency
in advance in an initial coin offering. By late March it had raised
another $850 million in a second round.
So Facebook, like Telegram, could issue its own native currency. Or
it could take the more insidious route: adopt Bitcoin itself and take
it over.
Today, the rules of Bitcoin are enforced by a triad of network
operators: the users who make transaction requests, the miners who
process those requests and write them into the blockchain, and the
validators who watch the blockchain to make sure everything is up to
snuff. All of them are using interoperable software, which is what keeps
them united on a single version of the blockchain.
Any subset of these network actors can decide at any moment to use
another version of the Bitcoin software with slightly different rules to
split off from the rest and form a parallel currency. Exactly that
happened last year with the creation of Bitcoin Cash, an alternative
blockchain with slightly different specifications that allow it to
process more transactions in each block.
If Facebook could persuade a large enough fraction of Bitcoin users
and miners to run its own proprietary version of the Bitcoin software,
the company would thereafter control the rules. It could then refashion
Bitcoin as a corporate version of the Fedcoin described above.
But there’s an even better way that doesn’t involve converting a
bunch of true believers: Facebook could pull off a takeover before most
people even realized what it had done. If you’re reading this, Mark,
here’s how to do it....MUCH MORE
