In order to earn as much money as possible, it is better to invent entire new industries that disrupt and displace prior, obsolete industries than it is to develop products and services within an existing industry.
Bitcoin is such a new industry, and it is the greatest industry disruption event in history since it disrupts money, half of every transaction.
Everyone will be richer after bitcoin replaces the dollar, but early adopters have the most to gain.
Some people will be made richer than anyone in history.
Bitcoin is a protocol, and, like the internet, email, and other dominant protocols, it will be the protocol that wins over its competitors due to, 1) the first-mover advantage, 2) the network effect, and 3) the self-interest of participants to fix any problems and make any worthwhile additions (like how the internet has evolved to include the larger address space of IPv6 or email has evolved to include file attachments).
The way the internet is the solution to the problem of information transmission, bitcoin is the solution to the problem of money.
Bitcoin allows value to be stored (permanently and privately), divided, and transmitted (instantly and privately) between any two people anywhere in the world (where the security of the transaction is proportional to the length of time passed after the transaction).
Fiat currencies, gold, and fish are the precursors to bitcoin the way the telegraph is the precursor to the internet.
Fiat currencies are the most widely used form of money at present.
The way the internet disrupted the telegraph and democratized information transmission and made it harder for governments to censor people’s communications, bitcoin is disrupting fiat currencies and democratizing money and making it harder for governments to control people’s finances.
This will be better for everyone, but it won’t happen without a fight, since most governments will fight to retain control of the money supply.
There are only 21 million bitcoins, but there are seven billion people.
Once bitcoin is adopted by the entire world, bitcoins will be worth millions of dollars each.
Right now they are selling for only about a hundred dollars each.
Therefore the easiest way to profit from bitcoin is to buy as many bitcoins as possible and wait.
However, you can earn more bitcoins by being an entrepreneur and putting time and effort into solving problems in the bitcoin economy.
Bitcoin entrepreneurship is necessary to maximize the wealth you acquire from the bitcoin revolution.
Don’t waste any more time on the legacy financial system that is about to be obsoleted.
Adopt bitcoin thoroughly and quickly, and, if you are not already working on industry-disrupting technology on the scale of bitcoin, solve the largest problems in the bitcoin economy thoroughly and quickly in order to maximize your profit of the bitcoin revolution.
The sooner you do this, the richer you will be in the future.
“Ask not how to earn lots of money.
Ask how to earn lots of bitcoin.” —Satoshi Nakamoto
The monetization of bitcoin (becoming generally accepted as a medium of exchange) is nearly guaranteed for the following reasons:
1) The unique advantage of bitcoin as delocalized gold or, equivalently, intangible currency with no trust requirement and a limited supply or, equivalently, a decentralized ledger with limited space.
Since such a thing did not previously exist but has some value on the market, bitcoin fills this niche.
This provides the initial value of bitcoin and a foundation upon which to grow.
2) The network effect, which encourages users to proselytize for bitcoin since they get more value from it if more people use it.
This ensures that bitcoin will grow beyond the foundation with an unlimited potential.
3) The first-mover advantage, or the fact that bitcoin was the first to offer its unique featureset.
This ensures that competitors are unlikely to dominate over bitcoin since bitcoin already has much more momentum.
4) The rational self-interest of bitcoiners (in the Austrian sense).
This ensures that any fixable problems will be fixed and any competitors cannot outpace bitcoin for long since bitcoin will quickly be made competitive in order to serve the interests of its users.
Combined, these forces mean bitcoin is likely to continue to grow in its use as medium of exchange until everyone on the planet is using it, with inexpensive and virtually free electronic devices, and cheap transaction costs determined by the market.
It will also change in form along the way as it conquers any competitors that pose fatal threats.
Related: Hyper-monetization: Questioning the bitcoin bubble, The Case for Bitcoin, Bitcoin is the Economic Singularity.
Compliance with US regulations concerning money transmission for small bitcoin businesses is extremely challenging.
It is so challenging that some businesses may find that compliance is prohibitive, while maintaining pseudonymity through cryptography, and simultaneously not complying, is not prohibitive because it is so much cheaper.
Thus, their only option if they want to operate is to operate pseudonymously.
In a few months of dedicated effort writing my thesis, I would have a PhD in physics.
However, I have converted to part-time, unfunded status in order to pursue opportunities in bitcoin.
I may never finish my PhD.
Because any time I spend in graduate school is time I’m not capitalizing on bitcoin, and bitcoin is the more valuable opportunity.
Technology, and presumably the theoretical understanding of technology and the experimental data behind it in the form of science, seems to proceed along a smooth exponential curve throughout history independent of governments.
Thus is does not seem that government really helps science much, even though it funds a lot of it.
I was going to make a long argument about this, but I was pleased to discover today that people have already made arguments for free market science, so I’ll just leave it to them for now.
See this article and this book.
In The Moral Landscape, Sam Harris argued (if I’m getting it right) that science can determine the best way for us to live our lives.
I agree with this.
For those of us who agree that science can, in principle, do this, we need to actually use science to do this.
So as a next step, I would like to propose, somehow, plugging all knowledge we presently have about human psychology and society into a computer, and employing simulations with different initial conditions to see which moral rules work best at bringing about well-being.
For instance, the libertarian rules would be along the lines of “it is immoral to hit and steal,” and the socialist rules would be something like “it is moral for the State to redistribute wealth from the rich to the poor.”
All the people in the simulation would start out believing in one of these sets of rules.
We would then run the simulations and see how happy the people in the simulation are some time later.
May the happiest simulation win.
The reason for simulations is that it is very hard to run these experiments in real life.
However, they could be run in real life by establishing more than one seasteading community with different rules.
The people moving to each community would have to actually believe in the rules of the community for it to work.
This approach is utilitarian.
Presumably, once we see which rules work best, most people would adopt those rules.
I had a hard time grasping statistical mechanics and quantum mechanics on an intuitive level as an undergrad.
I’m not the only one.
Here is my response to that article detailing my own understanding of the issue.
I had the same experience. For me, the problem was the concept of probability. This term was left undefined in every textbook, and I had no intuitive grasp of it like I had of charge, mass, space, time, etc. The key, for me any way, was the information theoretic interpretation. But it’s not as simple as saying that probabilities (and entropy) represent knowledge (and uncertainty). So here’s my interpretation which makes perfect sense to me, and now all the pieces fit.
There are three kinds of probabilities that are relevant in statistical mechanics. One is Bayesian probability. These represent your knowledge or uncertainty. Another is frequency. These represent the fraction of the time a system has a certain state. Then there are quantum probabilities. These represent the information in the environment with respect to some basis (a basis is an extension of the concept of a frame of reference—just like a particle can have a different location in a different frame of reference, the information in the environment can be different and, bizarrely, have different amounts of entropy in different bases).
In statistical mechanics, you might be tempted to ask whether probabilities are Bayesian or frequency. This is a false dichotomy. In your model, the probabilities are Bayesian. In the physical system of interest, they are frequencies. If your Bayesian probabilities are the same as the frequencies, then your model is accurate. Being accurate does not necessarily mean being certain.
Same thing with quantum mechanics. Your model has Bayesian probabilities which are accurate if they match the real probabilities in the system of interest. (Note that the probabilities of your model need to be the same in every basis, not just one, if your model is to be accurate.) Being accurate does not necessarily mean being certain (although, actually, entropy is always zero in a basis where the state is a basis element).
I have never seen a textbook that distinguishes between the different kinds of probability. If I wrote such a book, I would put it front and center. Instead, textbooks treat the different probabilities as different interpretations of the same thing. This isn't just misleading, but is actually false. No wonder students are confused.
For more information on this subject, I highly recommend E.T. Jaynes’s book “Probability Theory: The Logic of Science,” which, though it does not give the exact same interpretation of probabilities I’ve given here, will nonetheless give you a pretty solid grasp of Bayesian probabilities and how they fit into physics.
The police are brutalizing the #OccupyWallStreet protestors, and yet the protestors’ list of grievances (or at least the grievances of the NYC General Assembly, which doesn’t represent all the protestors) presumes government ought to solve their problems (if only it implements the right policies).
They haven’t seemed to connect the dots to realize that the government is the problem, and that is why it is brutalizing them.
To see their fallacies in detail, read this excellent analysis of the Anonymous “Open Letter” (Anonymous is the organization that initiated #OccupyWallStreet).
That article really says it all, but here’s my take on this movement in light of recent events.
The NYCGA and Anonymous (but surely not all the protestors) criticise capitalism for the exploitation they are on the receiving end of rather than the institution, the State, that actually enables their exploitation via its monopoly on force.
Changing government policy does not fix this problem, since there would still be an organization, the State, with a monopoly on force.
And whoever controls the government (and that’s not the voters) gets to use the monopoly on force, which they will invariably use for their own ends.
The only way to fix this problem is to get rid of the State, which doesn’t need to exist.
The State does not provide any necessary services that cannot be provided by the free market, i.e. via voluntary exchange without the use of force.
Any services that can only be funded by force probably shouldn’t exist and we’ll all be happier without them (except criminals).
(It is interesting to note that the protestors actually recognize that force is immoral, and thus their movement is explicitly nonviolent.
And yet they have not seemed to draw the implication that the State, because it is intrinsically aggressive, is intrinsically immoral, and is therefore a problem and not a solution.)
I fully support the sentiment of #OccupyWallStreet—the well-connected elites are indeed exploiting the 99%.
Unfortunately, the 99% (or at least many of them) appear to have fallen hook, line and sinker for the propaganda/myth/lie that the State is “we,” the 99%, rather than them, the elites.
But hopefully their movement will spark conversation and thought, and perhaps the right ideas will see the light.
I would suggest people start with “The Mystery of Banking” and all other works by Murray Rothbard, which will detail exactly how it is the elites (which are usually connected to banking, government and the control of the money supply one way or another) are exploiting the masses.
And for a thorough modern and even entertaining update of basically the same ideas, watch and listen to Stefan Molyneux.
Update: Further evidence that the protestors (or at least some of them) don’t get it.
Many organizations around the world, particularly governments and banks but also ordinary people, have too much debt.
This has created a global debt crisis that is quickly spiraling out of control.
It appears that Europe is in the most immediate danger since Greece is almost out of money, and this will ripple out to the rest of Europe.
But it’s not just Europe.
The United States government has probably already reached the point where either default or massive inflation must inevitably result, and it’s just a question of when.
Japan also has debt problems, and China has a giant real estate bubble.
And because all these great economies are so linked to each other and to the rest of the world, these problems are threatening the entire world financial system.
The age of fiat currencies, central banks, and fractional reserve banks may be coming to an end.
Since I last mentioned this issue, I’ve been following it closely.
Here are some references I’ve found to help understand what’s going on.
Doug Casey and Casey Research
The things Doug Casey have been saying about the economy are downright frightening.
One point he keeps making again and again is that governments are not just responding to the crisis by doing the wrong things, they are doing exactly the opposite of the right things.
By that he means they are increasing spending, snatching even more wealth from the most productive members of society, and redistributing it to the biggest losers.
This is not only not fixing the problem, but accelerating the collapse.
For more Doug Casey and Casey Research, see here and here.
Zero Hedge is a financial blog written by Tyler Durden—a pseudonym that probably represents more than one person since his/her/their output is so prolific—which is extremely well informed and lacking in the censorship of mainstream media.
(I believe mainstream media is too afraid of accidentally causing a financial crisis by merely giving out bad news—which actually could happen since fractional reserve banks are so inherently fragile—to be trusted to actually say the truth.)
See Zero Hedge for more.
Here are some other links from various places around the web.
I remain unconvinced that the entire world financial system is going to collapse in the near term for the simple reason that this is in basically no one’s best interest, and the powers that be (primarily, central banks and governments) are going to do everything in their power to prevent this from happening.
However, Doug Casey makes a good point that they are so confused about reality that they are likely to make things worse, accelerating the collapse.
So I consider a near term collapse to be a significant possibility, but not a certainty.
Long term, however, a collapse is more likely, because of the inherently fragile nature of fractional reserve banking, central banks, and fiat currencies, and due to the unfairness of the system, which is unstable in light of the growing democracy of information enabled by the internet.
The people won’t stand for injustice as they gradually come to understand the nature of the system that is enabling the elites to win at their expense.
This weekend a rally took place in Israel where people protested for “tax cuts,” “expansion of free education,” and “bigger government housing budgets.”
I don’t know any more details about this protest other than what this article states, but there is a general theme in the world whereby people want government to solve their problems, and this protest appears to fit right into that theme.
Aside from the fact that these demands do not even appear to be consistent (Are they seriously suggesting that government both decrease taxes and pay for more stuff? Evidently they intend to decrease spending and increase spending at the same time), let’s consider if it is even a good idea for government to solve any problems at all.
Government is made of people, and they have their own interests.
But the only person who can represent your interests is you.
Unless you have a great deal of influence over government (and no, voting doesn’t count), then government is always going to conflict with your interests some of the time.
You are therefore asking to be at least partially dissatisfied any time you want government to solve your problems.
That doesn’t seem like a very good strategy for solving problems to me.
Update: The Government Can!
The United States is a “representative democracy,” which basically means we vote for representatives who then vote for legislation.
Our representatives, who are human, are supposed to represent out interests.
This is a deeply flawed system, because our representatives have their own interests.
Their interests may overlap with ours a lot, but they will never have identical interests to our own.
Thus, since they have the power, their interests will win whenever their interests conflict with ours.
But if we don’t have representatives, how ought we structure our society?
By merely recognizing that we already are our own representatives, we merely have to act in our own best interest.
The system that emerges from this is the most democratic.
Not democratic in the sense of having everyone vote, but democratic in the sense of everyone having a say in what happens.
Just don’t be brainwashed into serving somebody else’s interests.
Serve your own.
There are lots of reasons to vote, but influencing the outcome of an election is almost never one of them.
For consider that, all else being equal, your vote would not have changed the outcome had you voted differently, except in those rare cases where the outcome is determined by a single vote.
If you want to make a difference, then you need to convince many people to vote one way rather than another.
Of course, your vote will make a difference in the world, because your vote affects the number of people who vote one way rather than another.
But who wins the election will almost always be determined by more than one vote.
Fractional reserve banks (FRBs) are fraudulent (1,2).
If they keep 10% reserves, then they counterfeit into existence 90% of the money (that’s the fraud part), which they wisely loan out rather than just buy stuff with it.
By inflating the money supply, they steal purchasing power from everyone, who then have to get a loan from a bank to recover the amount of purchasing power that rightly belongs to them.
The bank charges a fee (interest) for the service of stealing your purchasing power and loaning it back to you.
It’s a giant scam that benefits bankers at the expense of everyone else.
With FRBs both legal and common, everyone is encouraged to go into debt.
(Note that there is nothing wrong with loaning money.
The problem is with counterfeiting money, and then loaning that out.)
This is fundamentally why governments, organizations and people are in so much debt today.
The problem is even greater than it seems, because banks counterfeit a vast majority of the money supply into existence, greatly inflating the money supply.
The only way to pay off all this counterfeited money is to deflate the money supply by 90% (or so, depending on reserves).
But this would be economically catastrophic, because once the deflation starts, almost no one would be able to pay off their debt, because the value of the money would rise so rapidly that that they cannot produce value fast enough to pay it back.
Thus, central banks have been created that print new reserves, so fresh new money can pay off old debts.
But this just increases the amount of debt, because banks pyramid new counterfeited, loaned-out money on top of the new reserves.
This debt-based system is very fragile, because if someone becomes incapable of paying off a very large loan, the effects can ripple and magnify throughout the system.
If Person A cannot pay off Person B, then Person B cannot pay off Person C, and so on, until everyone cannot pay off their debts.
Worse, if Person A used the loan from Person B as leverage, then the amount they lose can be vastly more than the amount they owe, making them not just incapable of paying back the loan to Person B, but making it impossible to pay off anything else they owe to anyone else, magnifying the problem.
When this happened to the entire banking system in 2008, the Federal Reserve (the central bank of the United States), printed new money which it gave to banks so they could pay off their debts so the system wouldn’t collapse.
This is a terrible solution, because it only ensures the worst businesses are kept alive, sucking resources out of the rest of the economy.
The solution to this giant mess is to end the fraudulent practice of fractional reserve banking so that our system does not depend so deeply on debt.
If FRBs didn’t exist, then debt-money would only account for a small fraction of the money supply rather than the vast majority.
Then, if someone couldn’t pay back their debts (which happens all the time), the problem wouldn’t ripple as far (because not everyone is in debt), and it would not be magnified (because there is much less leverage in the system).
This can be done either by making fractional reserve banking (FRB) illegal, or by removing all regulations from the banking sector so that the bad banks simply fail, and thus only banks that keep high reserves would be able to compete.
Unfortunately this cannot be done instantly, because it would cause a tremendous contraction of the money supply, which would have terrible economic effects in the short run (although in the long run it would be much better).
Thus we would like to know if there is a smooth way to end FRB that does not cause catastrophic effects in the near term.
My solution is this.
We need to turn all fake, counterfeited money into real money.
The central bank will simply give all banks 100% reserves.
(It might seem unfair to simply give, as a gift, 100% reserves to banks, but this merely reveals the fraud that is already there.)
Now there is enough money in the system to pay off all the debt without contracting the money supply.
On that same day, fractional reserve banking will be made illegal.
The day after that, the central bank will be ended, since printing money (which is basically the only thing it does), serves no public good.
And all other regulations on the banking sector will be removed, enabling true free market competition.
We will also need a cultural change where we all mutually recognize that forcing people to do stuff is wrong, that way the government cannot cement the fraudulent practice of FRB into existence through the use of force again.
It is possible to end FRB in a way that does not cause an economic catastrophe by turning all counterfeited debt-money into real money by giving FRBs 100% reserves as a gift, and then making FRB illegal.
Unfortunately, I do not think this is likely to happen, because the powerful banking interests in our society do not want to end the giant scam that they benefit from at everyone else’s expense.
Instead, the over-indebted system, particularly in the United States and Europe, will just collapse, either through a default, or through an effective default arising by printing, and thus devaluing, the money.
See also The World Financial System May Be Collapsing
Rational beliefs are the most certain beliefs you can have that are justified given the information you have.
(They are Bayesian probability theory calculations that you do in your head.)
It is always in your best interest to be rational, even if you pretend not to be, because better beliefs will help you make better decisions about how to achieve your interests.
Moral behavior, on the other hand, is behavior that is both in your best interest and other people’s best interest.
It is not always possible to be moral, because some decisions may benefit only some people at the expense of the rest.
Sometimes, rationality and morality come into conflict, because the best thing for you may harm someone else.
Should you be rational or moral?
Since you are always concerned with your own interests (and only with the interests of others insofar as they are the same as yours), rationality comes first.
Being moral is often valuable, but only when it is rational.
I think people are often more rational than they may seem, because sometimes they will pretend to be self-disinterested, and moral, as a strategy to serve their own interests.
But much less often will they want to be seen as being rational when they are actually being moral.
But the situation is complicated because people often act in the best interests of their genes rather than in their own interests.
Our interests are, of course, tuned by natural selection to be closely in line with the best interests of our genes.
But they are not identical.
So there are at least two forces begging us not to be rational:
1) Moral forces, which demand that we be irrational in order to get along well with other people. People do not usually fall for this, but instead will just pretend to be moral while secretly being rational.
2) Genetic forces, which demand that we be irrational in order to support the survival of our genes. People fall for this all the time, because our genes have programmed us to turn off our rationality sometimes to protect our genes’ interests.
It’s always in your best interest to be rational.
But sometimes we pretend not to be rational, in order to get along with others.
And sometimes we genuinely won’t be rational, in order to support the survival of our genes.
It seems society is less of a threat to us than our genes, unless you are susceptible to being brainwashed by society into being irrational.
- “Probability Theory: The Logic of Science” by E.T. Jaynes
- “The Selfish Gene” by Richard Dawkins
US dollars and other fiat currencies are not ideal money due to their centralized nature, and so the market is applying great pressure to replace them with something better.
A lot of people think gold and silver are the future of money (e.g., GoldMoney.com) because they have better properties than dollars.
But I think bitcoin is actually the better alternative because it has technical features that gold and silver can never have—in particular, faster and cheaper transmission.
Gold (and similarly silver) has at least two advantages over bitcoin: 1) Gold has thousands of years of history of use as money, and is thus an extremely reliable store of value.
2) Gold has some uses besides being money (i.e., “intrinsic value”).
I think the second point is actually not much of an advantage for gold.
Although its intrinsic value helps to ensure it will always retain some value, most of the value of gold comes from its use as money, and not its use as jewelery or as an electrical conductor.
On the first point, gold has bitcoin beat—gold is certainly one of the most reliable stores of value in history.
Bitcoin, being very new and very volatile, is not nearly so reliable.
However, this does not mean bitcoin cannot become more reliable.
It just carries with it a higher risk.
Bitcoin has at least two advantages over gold:
1) Transmission fees are radically lower for transactions over long distances.
2) Transmission is radically faster for transactions over long distances.
Thus we see that bitcoin is a technological advance over gold.
These advantages make bitcoin appealing in a way gold can never be.
The only way to endow gold with these properties is to trade gold IOUs instead of actual gold.
But if we followed that path, the central parties would inevitably become corrupted, and we would eventually find ourselves back in the fiat currency world we have today.
Gold and silver will surely exist as money for a long time yet.
But they are not the future of money.
I believe there is a deep problem with the way our system of education works in the United States (and, from what I can gather, pretty much everywhere else): there is a bizarre assumption that the responsibility for education lies in the hands of some authorities (teachers, administrators, parents, the president, etc.) rather than the students.
But the interests of the authorities are never going to be perfectly aligned with the students, and thus the students find themselves being forced to waste their time acquiring valueless knowledge which benefits the authorities rather than the students.
We should recognize that, contrary to popular assumption, the students are the ones who are actually responsible for their own education.
If older people want to do anything to help, they should provide opportunities and resources to the students.
But no one should be forcing the students to do anything.
Like some others, I think this system is going to come to an end (not just higher education, but formal education at all levels), for the simple reason that economic pressure will demand it.
Let’s embrace the collapse.
It may sound catastrophic, but it will actually be much better.
The collapse is the collapse of a broken system, not a successful one.
Finally, young people will be freed to take matters into their own hands.
And the rest of us will benefit from their contributions.
According to Matthew Yglesias, the state should ignore business in order to “save the economy.”
I think this is a terrible idea because the state only has one tool at its disposal that other organizations don’t have: force.
Yglesias is suggesting that the state force people to have certain behaviors in order to save the economy.
But this directly causes harm to the economy—where I am using the term “economy” broadly to mean the sum of human interaction with one another—because the very act of forcing people to do stuff is harm to the economy.
Force has further implications, mostly negative, because the effects ripple out to situations far removed from the actual use of force.
For instance, the fact that people are encouraged to go into debt, thus making their lives awful, is due to the fiat currency/central bank/fractional reserve bank financial system we have in the United States (and elsewhere).
This system is enforced by the state under threat of violence (for instance, anyone who tries to create a competing currency for the dollar is jailed).
The only positive effects from force are to the people doing the forcing.
Their interests are served at the expense of the people being forced.
I think businessmen are right about the way to save the economy.
We need less force, and thus less government.
I do not believe the answer to this is to use government to fix itself—that is a contradiction.
The answer must come from the free market.
So I have a suggestion.
The problem at hand is that businesses are forced to do stuff because the owners are threatened with violence from the state.
But this threat is neutralized if the state does not know who the real-world owners of a business are.
Thus by constructing pseudonymous companies—which are companies that have a constant, sustained identity that can slowly develop a good reputation, but where that identity is never attached to the real-world identity of its owners—businesses can simply ignore bad laws.
Their only constraint will be that they need to maintain a good reputation in order to continue getting business.
Pseudonymous businesses are now possible, because they can be paid in and pay with bitcoins.
There are two examples of pseudonymous businesses that I am aware of: Silk Road and MyBitcoin.
MyBitcoin has failed, but Silk Road is still operating.
Silk Road ignores drug laws.
But drug laws are not the only laws that should be ignored.
Intellectual property (IP) laws, in particular patents and copyrights, are further destructive laws that should be ignored.
It is now possible to ignore them thanks to bitcoin.
Innovative companies are now free to operate pseudonymously and simply ignore patent and copyright laws.
They cannot be destroyed by the state because the state will not know who the owners are.
I would never encourage anyone do anything that is unethical, and some laws do encourage ethical behavior.
Unfortunately, many laws prevent people from doing perfectly ethical things, thus making the world on the whole worse off.
Bitcoin enables people to operate pseudonymous companies that simply ignore the law, because the state cannot employ force against the owners, because it doesn’t know who the owners are.
Save yourself from violence by operating your company pseudonymously where possible.
Your life and the lives of everyone on the whole will be better.
See also this post on the Bitcoin Forum.
Creating new currency doesn’t create new wealth.
If I counterfeit a billion dollars and go buy stuff up, it might seem like I am “stimulating” the economy by introducing new wealth to it, but what really happens is that after I buy everything up, there is less of everything, but the demand is still the same, and so the prices for everything goes up, but everyone else has the same amount of currency, so they can buy less stuff.
They have lost purchasing power.
By counterfeiting a billion dollars, I have not created new wealth.
Rather, I have stolen approximately a billion dollars worth of wealth from everyone who uses the currency.
Matthew Yglesias argues that printing currency can replace lost wealth, but this is not so.
If you break a window and then counterfeit currency to pay for it, what is really happening is that the replacement of that window is being paid for by everyone else—the people who do not get the new currency and thus have lost their purchasing power—rather than you.
The destruction of the window has not been magically fixed by printing new currency.
Rather, the loss has been socialized.
If printing currency replaces wealth, then Ben Bernanke could destroy the entire planet, and then counterfeit new dollars to pay for it, and all would be well.
But this is not true.
And because this is not true, it proves by contradiction that the premise that printing currency replaces wealth must also be false.
Printing currency does not create wealth.
It moves it from the people who use the currency to the people who get the new currency.
This is fundamentally why fractional reserve banks, central banks, and fiat currencies are scams.
Printing currency does not solve problems.
It makes them.
The most successful bitcoin business is probably Mt. Gox, the largest bitcoin exchange.
They make a profit by charging 0.65% on every trade.
I intend to start my own bitcoin business, and I’m concerned about what will make a successful one.
One key to remember, I think (take my opinion for what it’s worth, considering I don’t actually have a successful bitcoin business yet), is that bitcoin businesses must be profitable.
This might sound obvious, except that a lot of USD businesses are able to “succeed” not by profiting, but by constantly getting new money in the form of investments and loans.
Many businesses can survive for many years this way.
This is possible because the financial industry constantly creates new money, and thus there is always new money to invest and to loan out.
It is a sort of Ponzi scheme and financial scam.
But this is not possible with bitcoin.
So businesses will have to rely on old-fashioned profit in order to survive.
(It is also interesting to note that because bitcoin will basically always increase in value, a business will be “profitable” if it can maintain its bitcoin reserves or only slightly lower them with time.)
The people and governments of the US and Europe have so much debt that they probably can’t pay it off.
This is likely to lead to a collapse of the entire world financial system (1, 2).
The fundamental problem behind this is fractional reserve banking, which allows bankers to steal wealth from everyone at the cost of putting everyone in debt.
The problem will not be fixed until a majority of people realize that fractional reserve banking is illegitimate.
Fractional reserve banks create money in the following manner.
You deposit $100 in the bank.
They loan out $80 of those dollars.
The loanee puts the $80 back in the bank.
The bank now has $100 in reserves—all your money.
But if you add up the checking account balances—$100 from your account and $80 from the loanee’s account—you get a total of $180.
Thus $80 in new money has been created by the bank, given to the bank, and then loaned out by the bank, which they earn interest on.
Since the bank has 10/18 reserves, higher than the legal limit, they keep loaning out money until 80% or so of the money in the world is owed to them.
(The 80% figure assumes 20% reserves. If the reserves are X, then the bank ends up owning and loaning out (100-X)% of the money.)
This is an illegitimate practice.
Although the bank in this scenario does not start out having any of the money, through accounting fraud they end up owning 80% of the money, and loaning it out.
Because they have fraudulently stolen 80% of the money, this creates an incentive for everyone to get a loan from the bank.
For suppose you are a business, and your competitor gets a loan.
They are able to expand their business more rapidly than you.
You must get a loan to compete.
In this manner, everyone is encouraged to get a loan from the bank.
Everyone ends up in debt.
There is more than one bank in the world, of course, but the effect is the same.
Everyone owes something to banks because banks have fraudulently stolen 80% of the money.
This problem is only made worse by central banks which, by printing money and giving it to banks, ensure that banks can never lose.
Any bad business decisions made by banks are fixed by stealing wealth from savers through the mechanism of inflation.
No other fraud in the world financial system could possibly be as large as fractional reserve banking in terms of the quantity of money that is stolen.
Fractional reserve banking is thus the most fundamental problem with the world financial system.
It must end if we are going to free ourselves from debt slavery.
For this to happen, everyone is probably going to need to understand the nature of the fraud so they can opt out.
Otherwise it will continue to suck people in.
Reference: “The Mystery of Banking” by Murray Rothbard. See also this discussion on Hacker News and this discussion on the Bitcoin Forum.
It is unethical to use force.
Government, which has a monopoly on force, is inevitably abused by individuals acting in their own interests, which will inevitably conflict with the interests of others.
And such a system can never be stable, because the people who lose will force the system to change.
This fact is all that is needed to understand the flaw in Robin Hanson’s position against libertarianism, which he explains in
Why I’m Not Libertarian.
Hanson’s argument—that, apparently, there should exist entities that force us to do stuff—seems to rest on two principles: 1) Libertarianism is less efficient than a hypothetical planned society.
2) Libertarians have an irrational attachment to contracts because they were physically abused as children.
The second point is an ad hominem and has nothing to do with whether or not libertarianism is the correct position to hold.
The first point, that an efficient planned society is better, seems to forget that people’s interests do not always overlap, and thus the people planning the efficient society are obviously going to place their own interests above the interests of others.
Thus we must recognize that because it is unethical for the planners to force people who would lose to participate in their society, such a society can never be stable.
The only stable society is where everyone’s right to freedom from force is recognized equally and universally.
Such a system could never be designed by rational humans who have their own interests in mind.
The power of the state to force people to do stuff will be abused by the people who have the most power, unless those people are irrationally acting against their own best interests.
But irrational behavior can never be sustained, because rational behavior will always beat it.
So the power of the state to force people to do stuff will actually necessarily be abused in the long run.
How do we fix this?
The only resolution to this that I see is to scale the size of the state down to the individual.
All this requires is that we merely recognize that this is already the case.
We are our own sovereign states.
If you find that you are in a situation where you are being forced to do stuff to serve someone else’s interests, then use your power as a sovereign state to change your situation.
In summary, government is unethical because it forces people to do stuff.
And it is always self-interested people behind the abuses of this power.
Hanson’s argument that libertarianism is not efficient ignores the fact that the people who design the “efficient” system will, as rational agents, place their own interests above others, and will thus find themselves constructing a system that will inevitably collapse as the people who lose in the system force it to change.
(However, an efficient and stable system may evolve naturally, without having been designed by self-interested individuals at any point.)
The solution to this is to recognize that we all are sovereign individuals, with our own interests, and we can, and we will (insofar as we are rational) act in our own best interests, and will not accept being forced to act in someone else’s interests for long.
Liberty is realizing this.
I’m extremely optimistic about bitcoin and very annoyed with the present financial system of the world, which is made up of central banks, fiat currencies, and fractional reserve banks.
However, recently I have become not just annoyed, but downright pessimistic about the world’s financial system.
Problems across the world—in particular debt problems in the US and Europe—make it likely that the system will actually collapse.
And unfortunately the bitcoin economy is not developing quickly enough that the transition will necessarily be orderly.
It might be chaotic.
Consider the trajectory the US is on.
The Federal Reserve creates new money, and banks pyramid further new money on top of this.
Banks—both domestic and foreign—loan this newly counterfeited money to the US government so the government doesn’t have to raise taxes to pay for wars and welfare.
This system is unsustainable because the US maintains a constant budget deficit every single year.
Eventually, interest on its debt will require 100% of people’s incomes to pay.
So there are a few ways this could end:
- The US government becomes responsible and raises taxes and lowers spending and gradually pays of its debt.
- The US government does not become responsible and defaults on its debt.
- The US government “becomes responsible and pays off its debt” by printing money and greatly devaluing the dollar. This is effectively a default, because the debt is paid of with less value in real terms.
Unfortunately, all three of these options are terrible. The only non-terrible outcome would be if the US economy suddenly became far more productive so that Option #1, paying off the debt, became possible and not painful.
That seems unlikely, because the US is so highly regulated that almost every new business entrepreneurs might want to start is illegal, and thus the economy is not likely to pick up until those regulations are removed.
So it is probably going to be one of the other two options, both being an effective default.
In most countries this would be a mess, but with the US it will be a global disaster, because the US dollar is the world reserve currency, meaning many central banks keep it as their reserves, and also it is the de facto currency for international trade.
Obviously, it can only be worse with the debt problems in Europe.
If the world financial system collapses, I think bitcoin is the only reasonable replacement.
Gold doesn’t work for the simple reason that it cannot be sent over the internet.
Bitcoin, the gold of the internet, solves this problem.
But it will probably take a few years before all the infrastructure is in place for bitcoin to actually be able to replace all the fiat currency infrastructure.
If the world financial system collapses before that, it’s going to be painful.
Information concerning the collapse of the world financial system:
A broadcasted message is a message that is heard by everyone.
There is no general purpose broadcast protocol that anyone can use, possibly because it would be plagued by spam.
I have designed a broadcast protocol for a P2P network based on proof-of-work to minimize spam, called Proofnet.
See this post on the Bitcoin Forum for more information.
I wrote that last post in haste, but I thought I should add that while merchants will help drive adoption of bitcoin, there are lots of other things that will drive (and already have driven) adoption of bitcoin.
Speculators have driven the price from nothing to 15 USD.
They believe the bitcoins are undervalued, and thus they create a great deal of demand.
So speculators help drive bitcoin by creating demand.
Technogeeks who mine drive bitcoin because there are only so many bitcoins to be mined—50 every ten minutes, approximately.
Other technogeeks may buy into bitcoin for nerdy reasons without mining.
So technogeeks also help drive bitcoin by creating demand.
Anarchogeeks who like the economic and political implications of bitcoin buy into bitcoin for ideological reasons.
They, too, drive bitcoin by creating demand.
Startup founders who see the opportunities created by bitcoin can create services that use bitcoin that aren’t possible or practical with centralized fiat currencies.
These people will not be “merchants” in the obvious sense of selling a product for bitcoins.
Rather, they will create innovative businesses that are not necessarily like the sorts of businesses that have come before.
So startup founders will drive bitcoin by creating compelling reasons to use it.
Finally, regular merchants, who sell a product for bitcoins, will also drive bitcoin, because they will find the reasons for using bitcoin so compelling that they will be willing to sell their products only for bitcoin, or give special prices for using bitcoin.
For a different analysis on what drives or will drive bitcoin, see the series by Falkvinge: 1, 2, 3, 4.
Sometimes people ask why they would bother paying for something on the internet with bitcoins rather than credit cards or Paypal.
One reason is privacy—since with bitcoin no third party knows about your transaction—but most people don’t care about privacy.
The answer is that some merchants will only accept bitcoins, and thus customers will need to pay with bitcoins.
The reason for this is that accepting bitcoins over the internet is technologically as easy as accepting anything else, except that you don’t have to deal with any third parties, so on the whole it is easier.
Further, it is safer for the merchant, because no one can charge back bitcoins.
Thus, customers will adopt bitcoin so that they can buy stuff from the merchants that accept it.
People regularly argue that bitcoin is a “scam” (e.g., 1, 2) because early adopters got a lot of bitcoins for cheap, and they can now sell their bitcoins to new adopters for a profit.
Thus it sounds vaguely like a pyramid scheme or Ponzi scheme, because adopters from one generation only profit at the expense of the next generation.
Except, it’s not.
Adopters from later generations are not losing to the early adopters; they, too, are profiting.
In this sense, bitcoin is not fundamentally different than any appreciating asset, like stock in Google.
No one argues that Google is a scam because early investors profited.
Thus, bitcoin is not a scam either, because people profit through exactly the same mechanism.
Further, not only is bitcoin not a scam, it is actually relief from the giant scam that is central banking and fiat currencies.
With bitcoin, your money appreciates in value and no central organization can confiscate your wealth by printing more money and giving it to themselves.
But with fiat currencies and their associated central banks, central organizations actually do print more money, constantly, and give it to themselves, and to organizations that are well-connected (in particular, other banks), which has the effect of confiscating wealth from everyone who uses the currency and who is not well-connected enough to get the new money.
Bitcoin is not a scam—central banks, and their associated inflating fiat currencies which redistribute wealth to a well-connected elite, are the scam.
Fractional Reserve Banks
Fractional reserve banks (FRBs) are such a common, established kind of institution that it might be hard to believe, at first, they are actually scams that do not create wealth but actually steal it.
However, it’s true.
They do this by writing down that they have more money than they actually have.
If their reserves are 20%, what that means is that they actually have, say, $20 million, but they have created an additional $80 million by editing the number “20” in their computer and changing it to “100”.
Of course, the reality is a little more complicated, because they do not create all this new money at once.
But the end effect is the same; they have counterfeited 80% of the money supply, and given it to themselves.
They then loan this new money out, and charge interest for it.
In effect, they have stolen 80% of the money, and charge a toll for anyone who wants to use it.
Fortunately, FRBs are voluntary, so you do not have to use them if you don’t want to.
But the most devious of bankers fixed this flaw in their scheme by creating central banks that people are forced to use.
You cannot legally opt-out of central banking.
Central banks, like the Federal Reserve in the United States, are banking cartels and/or monopolies that print fiat currencies that everyone is legally required to accept for payments and legally required to pay their taxes with.
Anyone who attempts to create a competing currency is jailed.
There are limits to the amount of money that FRBs can create out of thin air, because if they try to create too much, fluctuations in daily withdrawals would reveal them to be insolvent, and they would collapse.
Thus, FRBs keep a certain amount of “reserves” to prevent that from happening.
Central banks, however, have no such limit, because they can create new reserves by literally printing money (or having the Treasury print it for them).
Like FRBs, central banks declare themselves owner of most of the money and charge a toll (interest) for using it.
But central banks are even worse than FRBs because they constantly inflate the money supply with no end, so that its value asymptotically approaches zero while they get all the new money, which has the effect of constantly channeling wealth from everyone else to them.
Central banks will also literally put you in jail for attempting to compete with them, which non-monopoly FRBs can’t do.
The fact that the US dollar has lost 95% or so of its value since the invention of the Federal Reserve shows that 95% of the people’s wealth has been irrevocably snatched and given to bankers.
To call this a scam is a understatement.
It is the greatest theft in the history of the world.
There are only 21 million bitcoins, and it is impossible for greedy bankers to make more and give it to themselves.
The only way to get bitcoins is to ensure the security of the network by mining, or by doing something else productive for them.*
This is a tremendous, revolutionary advance in the technology of money.
Finally, wealth created by productive hard work cannot simply be confiscated by the people who control the money supply.
There is no understating how important this development is.
Hard work and savings will actually be rewarded!
Productive people everywhere should literally let out a sigh of relief upon realizing this fantastic fact.
The only people who should be worried are bankers.
They will not be able to continue snatching wealth from everyone by printing more money.
Their giant scam now has a time limit—as bitcoin grows, they will shrink.
They will have to learn how to actually produce wealth rather than steal it if they want to survive.
Bitcoin is not a scam.
Bitcoin is a solution to the giant scam that is central banking.
The sooner you realize this, the sooner you can be freed from banking tyranny.
* Of course you can also steal bitcoins, but assuming people take proper security precautions with their money, that is much harder and less effective than the printing of new money that central banks do.
- “The Mystery of Banking” by Murray Rothbard
- “The Case Against the Fed” by Murray Rothbard
- “What Has the Government Done to Our Money?” by Murray Rothbard
- “End the Fed” by Ron Paul
Three weeks ago I discovered bitcoin.
It sounded interesting enough that I decided to devote an entire Saturday to it—that was my “day of bitcoin.”
My day of bitcoin evolved into my three weeks of bitcoin.
In that time, I have been obsessively reading about it, writing about it, buying it, and creating businesses for it.
As far as I can recall, I have never been so obsessed about anything.
But the reason I am obsessed with bitcoin is simple: it is the most incredible thing to ever happen in the world.
I am not exaggerating.
We are presently witnessing the most disruptive change to ever happen to collective human behavior.
Although there have been other disruptive changes to human behavior in the past, bitcoin is happening much faster than those.
Consider, for instance, computing.
Charles Babbage invented the mechanical Analytical Engine in the 1830s.
It took on the order of a century or more before those seeds of an idea blossomed into something that actually started being used on a large scale.
Or consider, say, the internet, which was invented in the 1960s, but took on the order of decades before it saturated the world.
That was faster than computing, but still long compared to bitcoin.
Bitcoin was only invented about 2.5 years ago.
And already, I have been able to ask random people about it, and they know what I’m talking about.
If the growth of bitcoin continues exponentially like most widely useful technologies, it will only be on the order of years—not centuries, not even decades, but individual years—before virtually everyone is using it.
The standard term for such a rapid change is a “singularity.”
Robin Hanson predicted an economic singularity.
Bitcoin, as I will argue, is that singularity.
(Hat tip to noagendamarket on the bitcoin forum for reminding me of Robin Hanson’s article.)
What is bitcoin?
Bitcoin is the decentralized digital currency.
I say “the,” rather than “a,” because there can only be one.
Since decentralized digital currencies rely on computational power to ensure security, the currency with the most computational power is the most secure.
If we ever found ourselves with more than one decentralized digital currency, which ever one had more computational resources devoted to it would be the most secure, and thus more people would trust it, and thus more people would use it, and thus it would come to dominate and be the only one.
Bitcoin is that currency.
(Previously, I argued that there could be a market of currencies.
However, I now realize that, while there can be a market of currencies, there can’t be more than one decentralized digital currency.)
Why is it gaining traction?
Bitcoin is useful for all the same reasons that any currency is useful: it is a medium of exchange.
The advantage of being decentralized is that you do not have to rely on a third party for security.
Thus, bitcoin is more useful than digital dollars for the same reason that digital dollars are more useful than paper dollars, or paper dollars are more useful than gold: it is just easier to pay people with them.
No banks means less headaches, in the same way that no gold means there is a lot less weight you have to lug around.
Bitcoin is thus a better answer to a problem humanity has been slowly solving for millenia: how do we remove barriers to payment?
There are other advantages to bitcoin too, besides being more convenient.
The fact that no central party party controls the supply means no central party can inflate it to redistribute wealth in their favor.
No one can debase bitcoin to pay for a war.
Also, since it is deflationary (in the sense that prices reliably go down), it encourages savings, because everyone gets richer that way.
Certainly, then, bitcoin is a candidate for an economic singularity, because everyone has incentives to use it, and it makes the world a better place.
That’s great in theory, but the reason why it clearly actually is a singularity is because its adoption is, in fact, growing exponentially.
There are at least two exponential curves we can see.
One is Google Trends, where bitcoin has crystal clear exponential growth.
And another is its value in USD, where again the growth is clearly exponential.
Although these quantities are not the same thing as adoption, they are probably proportional to adoption.
2.5 years ago, there was one user of bitcoin.
We may estimate that there are somewhere between 104 and 105 users of bitcoin at present.
Thus, in another 2.5 years, there will be somewhere between 108 and 1010 users.
Since there aren’t even 1010 people on the planet, we may estimate that adoption will be ubiquitous in approximately three years.
This incredibly rapid exponential growth is being powered by the fact that people around the world are quickly learning about it.
Thus, the exponential growth can only last until it saturates the world, at which point it will continue growing only at the rate that humanity grows (which is also exponential, but much slower).
At present, there is no reason to think the growth will stop before that.
There are no credible attack vectors at all; not even government (the US government or any other) can stop it, because the economic incentives are too large.
A War on Bitcoin would have exactly as much efficacy as the War on Drugs: none.
Bitcoin is susceptible to DOS attacks, but that would only slow its growth, not stop it.
The only credible threat to bitcoin is quantum computers, because bitcoin relies on classical, rather than quantum, cryptography.
But that threat is many years away.
Bitcoin will be ubiquitous by then.
What will happen?
Bitcoin will take over as the currency of the internet.
It will also take over as a store of value; why earn a measly, less-than-inflation interest rate in a savings account when you can have steady appreciation of value if you just keep your money in bitcoin?
People will spend less and save more because they know if only they do that, they will be richer in the future.
Companies will no longer produce things of no value, because no one will buy them.
The world will become more efficient, because there will be less waste.
Everyone will realize how much they lose by spending money on valueless things.
There will be a more equitable distribution of wealth, because no one can inflate (or, to use a less charitable term, counterfeit) bitcoin at their whim.
Bitcoin will also take over any fiat currencies that inflate too rapidly (think Zimbabwe, Argentina, or any other country that presently has or will have a rapidly inflating currency).
Central banks will be under enormous pressure to stabilize their currencies or become obsolete.
Many banks will collapse.
Many fiat currencies will become worthless.
Probably, all fiat currencies will become worthless eventually, because it is only a matter of time before the central banks fall into the temptation of inflating their currencies just a bit too fast.
How to proceed
Since bitcoin appreciates in value very rapidly during the singularity phase, you should convert all of your liquid assets to bitcoin as quickly as possible.
Do not keep any cash, savings, or checking beyond what you need to pay for goods and services that cannot yet be paid for with bitcoin.
The more things you can buy with bitcoin, the more bitcoin you should keep.
Stop wasting money on excessively expensive meals, televisions, cars, and anything else that loses value quickly or instantly.
Instead, put your money into bitcoin.
You will be much richer that way.
You may think having less stuff is less fun, but actually the pleasure of financial freedom far, far outweighs any losses.
During the singularity phase, you should also take out loans to buy bitcoin, since bitcoin appreciates far more rapidly than interest on any fiat currency loan.
When bitcoin gets near saturation, which is the end of the singularity, you should pay off the loans, because at that point the rate of appreciation will probably be a lot closer to the interest on the loans, and you may not be able to reliably earn money that way anymore.
You may also be tempted to convert other assets to bitcoin.
If you are invested in anything that is likely to be bitcoin-unfriendly, like a bank, it would be wise to convert those assets into bitcoin.
However, if you are invested in companies that actually produce value, those companies will thrive after the singularity, so it is not necessarily a good idea to convert those assets to bitcoin.
If you own assets where the ownership of those assets is certified by a country that is likely to collapse after the singularity, such as if you owned land in a country where the currency is rapidly inflating, you should consider converting those assets to bitcoin, or risk losing it when your country’s government collapses.
If you own a business, you should start accepting bitcoin as quickly as possible to maximize your ownership of the bitcoin economy.
If you don’t own a business, consider starting a bitcoin business.
See my previous post to learn more about bitcoin startups.
The economy is going to change very dramatically in a matter of three or so years.
You are likely to be doing a significant amount, if not all, of your economic activity in bitcoin very soon.
The change will be as dramatic as, say, computing or the internet, except that it will happen much faster.
The change will be for the better, since it is more convenient to use bitcoin than fiat currencies for digital payments.
Fiat currencies may stick around if they do not hyperinflate; they will probably still be useful for buying coffee.
The most interesting change is that we will all become more motivated and productive, since we will see very clearly how our work ethic affects how rich we are.
And the world as a whole will be significantly more efficient, since it will be extremely difficult to finance huge wastes of money, like wars.
Personally, I have invested most of my savings into bitcoin, and am in the process of figuring out precisely how much more it is wise to invest.
I have not yet taken out any loans to buy bitcoin, because that decision is too hard to swallow (I may yet do it if I can stomach it—Falkvinge did.)
I have also begun producing bitcoin businesses which I am hoping will support me after I graduate.
(My bitcoin savings alone will actually probably be enough to support me, but I will be richer if I work too.)
Most of the other ideas I had about what to do with my life after graduation have gone into the toilet—I will probably do something with bitcoin.
In the future, books that summarize the history of money will have a line that says, “and then came bitcoin.”
It is the economic singularity.
And we are living in it now.
Donations appreciated. 1CU8KRSTcrYKyjfeGRTjpJ1S57jViwqrnh
Bitcoin is a decentralized digital currency that derives value from at least two principles:
1) It is impossible for anyone to print new bitcoins (without mining, which is computationally challenging).
2) It is very easy to transmit bitcoins across the internet.
Gold has the first property—that it can't be created out of thin air—and that is part of why gold is so valuable.
But you can't send gold over the internet.
Bitcoins, however, you can.
And like gold, there is a finite total amount (21 million coins), and is divisible to as small of quantities as we will ever need.
Bitcoin is to the internet what gold is to land.
Also like gold, bitcoin has intrinsic value: it is cool.
The coolness factor, along with a great deal of speculation, has allowed bitcoin to catch on, at least a little bit.
Multiplying the present number of bitcoins by the present exchange rate gives a value of about 50 million dollars; much greater than worthless.
But it has not reached anywhere near its potential, which is as the defacto internet currency.
That will only happen when, and if, it has a stable and growing economy with diverse businesses.
And that economy is only just getting started, because most obvious bitcoin businesses do not yet exist.
For instance, there is no bitcoin bank.
For entrepreneurs, we thus see there is an algorithm for creating bitcoin businesses: List existing bitcoin businesses, and then list existing non-bitcoin businesses, and see which businesses are only in the non-bitcoin category.
Then, create those businesses for bitcoin.
You do not have to be clever to employ this algorithm; you just have to work hard.
So long as your business is solid, it will scale with the bitcoin economy.
But naturally, any bitcoin businesses are going to be entirely dependent on the success of bitcoin.
If bitcoin succeeds, you can ride the bitcoin wave.
But if it fails, you will fail with it.
So as entrepreneurs, we ask: should be put our energy into bitcoin?
I think the answer is yes, for these reasons:
1. Bitcoin will probably succeed in some form or another. Bitcoin is as secure as it could be at this point in the history of cryptography, the community is devoted and growing, and there are no reasonable competitors.
If it is possible to create a successful, classical (not quantum) cryptocurrency, bitcoin is it.
Even with all this, it may yet fail.
Personally, I give failure the somewhat low but still significant probability of 25%.
But of course, any individual will have to asses this probability themselves.
According to my estimation, there is a 75% probability of success, which is good enough for me.
Even a 10% probability of success would be good enough given the likely size of bitcoin if it succeeds.
2. If it succeeds, it will probably be huge. I am not aware of a recent technology so widely useful except for the web, the internet or computing itself.
If you create a big bitcoin business, and bitcoin itself becomes big, your business will be big squared.
What Google is to search, your business could be to digital currency.
3. There is almost no competition. Since most obvious bitcoin businesses do not yet exist, you can straightforwardly monopolize any segment of the bitcoin economy by creating a really solid business.
The first bitcoin bank will probably do this; why have another bank, if the first one is excellent?
Mt. Gox has already done this for bitcoin exchange.
4. It has never been easier to start so small and get so big. Businesses that already sell products or services can simply start accepting bitcoin, and then profit enormously if bitcoin succeeds.
And new businesses that offer services will need as little as a functional website to be profitable, which we all know can sometimes be created with as little as a day of effort.
As the most obvious bitcoin businesses get created, these low-hanging fruits will be snatched.
A year or so from now, we will know if bitcoin has succeeded or not.
If the bitcoin economy has grown significantly, and shows no signs of stopping, and has survived all attacks up to that point, then it has succeeded.
The momentum will surely be impossible to stop at that point.
But if it falls victim to an attack and its value has plummeted, then it has failed.
Waiting to know with certainty whether bitcoin will succeed or not will only ensure you miss the present opportunity.
By next year, all the easiest, obvious businesses will be taken, and entering the bitcoin economy will be much harder and less profitable.
Bitcoin is not a guarantee.
But neither was the internet, computing, or any other disruptive technology.
Personally, I am investing with every coin of entrepreneurship I can spend or borrow.
More information on bitcoin:
Bitcoin makes it very easy to send payments (in bitcoins) over the internet.
Transactions are “pseudo-anonymous” which means it is very difficult to know which real-world people were involved in each transaction, but at the same time, each transaction is known to everyone who runs the software.
What that means in practice is that bitcoin transactions are effectively anonymous unless you do extensive analyses of the block chain in combination with enormous quantities of other information in order to piece together (probably inconclusively) who is responsible for what transactions.
It’s fantastic that this is a fundamental feature of bitcoin.
But, there are times when we do not want transactions to be anonymous.
In particular, when we are donating or investing, we want to be sure the person we are donating or investing to is trustworthy.
Conversely, if we are receiving donations or receiving investments, we want to be sure the people making us promises to deliver bitcoins are trustworthy.
This is the problem of accountability.
Bitcoins have enormous potential to be used for funding (either donations or investments) since the barriers for sending them are so low.
Bit Fund (which I introduced in the previous post) is a project to connect funders to fundees, and has the following central feature: optional accountability.
Users will be able to authenticate their posts with their PGP identity, as well as digitally sign their statements.
In doing so, they will be choosing to give up some of their anonymity in exchange for being able to use their reputation to their advantage.
Fundees, people who want to be funded, will be able to show they are reliable based on their history of interactions.
And funders, people who want to do the funding, will also be able to show they are reliable.
When people make this choice, to lower their anonymity, and raise their accountability, they will make themselves more trustworthy, and thus more likely to be funded, or more likely to be trusted to do the funding.
The way I envision this site is something like reddit, except with proposals and bounties instead of links, and bitcoins instead of upvotes.
A proposal will be a statement of what a fundee plans to do with their bitcoins.
They can optionally authenticate their account, and optionally sign their proposal.
Funders will make the decision based on that user's reputation whether or not they will actually do what they say they will do with the funds.
A bounty, on the other hand, will be a statement of what funder wants someone to do for some amount of bitcoins.
They, too, can optionally authenticate their account, and optionally sign their bounty.
Fundees will make the decision based on that user's reputation whether or not to trust that they will actually hand out the bounty.
And finally, attached to each proposal will be the quantity of bitcoins in their account.
If it's a proposal, the bitcoins will be how many they have gotten.
If it's a bounty, the bitcoins will be how many they have available.
This information can be retrieved by analyzing the block chain and will be displayed automatically by the site.
There are many features the site could have after the basic framework is up and running.
For instance, the site could allow users to create contracts, and digitally sign them.
It could also allow people to create bitcoin accounts on the site to hold and distribute money according to algorithms, like distributing bitcoins in monthly installments.
Bit Fund would be a general purpose funding vehicle that could be used for charities or businesses.
It would attach people with the funds to the people who need it.
One of the features of bitcoin is that you can send and receive bitcoins with pseudo-anonymity.
It is very hard to figure out who is sending what to who without doing complicated and possibly inconclusive analyses of the block chain.
This is seen as being a plus, and indeed it probably is wise to have this property built into the fundamentals of the protocol.
However, sometimes we want to have information about who is receiving what.
For people who are sending donations, they would like to know which charities, organizations or people are in most need of the bitcoins.
A service that attaches identities to bitcoin addresses would be able to read the block chain and see how much has been donated to each identity, and optionally from who.
That is the idea for a new service I plan to create, called Bit Fund.
Bit Fund will allow people to register their identity (using a private-public key pair) and post proposals for projects that they would like to be funded with bitcoins.
For each project, the bitcoin address would be listed, and next to it would be the quantity of bitcoins deposited in that address.
Because of the distributed nature of bitcoin, it is possible for a third-party like Bit Fund to know the quantity of bitcoins deposited to that address by merely knowing the address.
Donors would be able to browse through projects looking to be funded, and they could decide who or what to fund based not just on what the project is, but based on how much they need the money (because some will have already received more than enough, and others will have only just gotten started).
Donors would also know that they are sending to the right charity, organization or person, because their identity would be verified with their public key.
The front page will basically be a list of proposals.
It will be sort of like reddit, except with proposals instead of links, and quantity of bitcoins donated rather than upvotes.
The donations to each project will be displayed in real time, and a donor will be able to see their donation show up quickly.
Each proposal will have a description of the project, and will allow comments from other authenticated users.
Once a project is submitted, it cannot be changed.
However, the bitcoin address can be removed when the owner decides the funding objective has been achieved.
The primary purpose of this website is to enable donors to know how much money each project has so that they can use this information, along with the proposal, to decide which projects to fund.
And of course, it should also enable project creators to find funding easily.
All of this can be done without any bitcoins passing through Bit Fund.
Bit Fund will merely serve as the authentication service, and will provide the convenience of analyzing the block chain for the donors.
Bit Fund will not, however, allow people to easily figure out who donated to which projects.
That is a service that may be offered to donors at a later time.
Naturally, Bit Fund will be a charity, and will be funded by proposals submitted to itself.