Bitcoin the “high-point of techno-narcissism”

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Cross-posted from James Howard Kunstler via Kunstler.com.

Shoeshine boys in airports ‘round the world must be whispering about Bitcoin as the crypto-currency coils upward to tickle the $10,000 line. Ethereum’s roaring up, too, along with most other cryptos, from Byteball Bytes to Tattoocoin (Limited Edition). Whatever else you think about it, this action is sending a message, perhaps several.

One would be Get Rich Quick, of course. Eight months ago, you could have copped Bitcoin for a mere $1000, and around Labor Day it touched $5000, which seemed, well, figment-ish. In the last two weeks it went all out hockey-stick, doubling. To a certain sort of mind this must seem irresistible. The result: a good old-fashioned mania. Digital tulip bulbs.

Another message probably goes something like duck-and cover. Some nervous nellies are seeking shelter in Bitcoin as they detect tremors in the more traditional markets creeping ever-higher to new records. To some degree, Bitcoin may be doing the job that gold used to do, providing the aura of a “safe haven” from a possible global financial mega-storm. The last time such an event came out nowhere (ha!) after the “permanent plateau” of 1929 collapsed, the government confiscated as much physical gold as it could get its paws on. So who wants to be there? (Echo answers….)

These days, the zeitgeist also points to new-and-improved government monkey business for shoving global populations into cashless monetary regimes where the authorities could monitor and control (and collect a vig on) all transactions — and there is the theory, at least, that Bitcoin’s block-chain computer math would be secure from any government’s clutches.

I’m not so sanguine about Bitcoin’s supposed impregnability, nor about many of its other appealing claims. The Mt. Gox affair of 2014 must be forgotten now, but back then some sharpie hacked 850,000 Bitcoins (valued over $450,000,000) out of the exchange, which was processing almost two-thirds of all the Bitcoin trades in the world. Mt. Gox went out of business. Bitcoin tanked and then traded sideways for three years until (coincidentally?) the Golden Golem of Greatness was elected Leader of the Free World. Hmmmm…..

Not many readers understand the first thing about block-chain math, your correspondent among them. But I am aware that the supposed safety of Bitcoin lies in its feature of being an algorithm distributed among a network of computers world-wide, so that it kind of exists everywhere-and-nowhere at the same time, a highly-valued ghost in the techno-industrial meta-machine.

However, the electric energy required for “mining” each Bitcoin – that is, the computations required for updating the block-chain network — is enough to boil almost 2000 liters of water. This is happening world-wide, and a lot of the Bitcoin “mining” is powered by coal-burning electric plants, making it the first Steampunk currency. If Bitcoin were to keep rising to $1,000,000 per unit, as many investors hope and pray, there wouldn’t be enough electric power in the world to keep it going.

Pardon me if I seem skeptical about the whole scheme. Even without Bitcoin bringing extra demand onto the scene, America’s electrical grid is already an aging rig of rags and tatters. There are a lot of ways that the service could be interrupted, perhaps for a long time in the case of an electric magnetic pulse (EMP). I’m not convinced that crypto-currencies are beyond the clutches of government, either. Around the world, in their campaign to digitize all money, there must be a deep interest in either hijiking existing block-chains, or creating official government Bit-monies to seal the deal of total control over financial transactions they seek.

Anyway, there are already over 1300 private cryptos and, apparently, a theoretically endless ability to create ever new ones – though the electricity required does seem to be a limiting factor. Maybe governments will shut them down for being energy-hogs.

My personal take on the phenomenon is that it represents the high point of techno-narcissism – the idea that technology is now so magical that it over-rides the laws of physics.

That, for me, would be the loudest “sell” signal. I’d just hate to be in that rush to the exits. And who knows what kind of rush to other exits it could inspire.

Nicely put. Bitcoin is not more powerful than government. Only one has a monopoly on violence.

So, what does government think? Via Bloomie:

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  • The Federal Reserve’s investigation into cryptocurrencies is in its early days, and it hasn’t been overtly enthusiastic about the idea of a central-bank issued answer to bitcoin.
  • The European Central Bank has repeatedly warned about the dangers of investing in digital currencies. Vice-president Vitor Constancio said in September that bitcoin wasn’t a currency, but a “tulip” – alluding to the 17th-century bubble in the Netherlands.
  • China has made it clear: the central bank has full control over cryptocurrencies.
  • Bank of Japan governor Haruhiko Kuroda said in an October speech that the BOJ had no imminent plan to issue digital currencies, though it was important to deepen knowledge about them.
  • In a country where lot of citizens still prefer to pay in cash, the Bundesbank has been particularly wary of the emergence of bitcoin and other virtual currencies. Board member Carl-Ludwig Thiele said in September bitcoin was “more of a speculative plaything than a form of payment”.
  • Bank of England governor Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance.
  • Bank of France governor Francois Villeroy de Galhau said in June that French officials “advise great caution with respect to bitcoin because there is no public institution behind it to provide confidence. In history all examples of private currencies ended badly.”
  • India’s central bank is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing.
  • The Banco Central do Brasil saw “no immediate risk for the Brazilian financial system” but remained alert to the developments of the usage of those currencies…
  • The Bank of Canada’s senior deputy governor, Carolyn Wilkins, who is leading research on cryptocurrencies, said in an interview this month that cryptocurrencies weren’t true forms of money.
  • The Bank of Korea’s focus has been protecting consumers and preventing cryptocurrencies from being used as a tool of crime.
  • Russia’s central bank has expressed concerns about potential risks from digital currencies, with Governor Elvira Nabiullina saying “we don’t legalise pyramid schemes” and “we are totally opposed to private money, no matter if it is in physical or virtual form”.
  • Representing one of the more stringent reactions, [Morocco] has deemed that all transactions involving virtual currencies as violating exchange regulations and punishable by law.

To be clear, centrally issued digital currencies are not BTC, they are simply electronic debit cards for the present fiat system. BTC is a private currency that cuts government out of the loop.

Good luck with that.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.