Cryptocurrencies — salvation from the state

Voluntarist, Bitarch

Everyone has already heard of such a thing as cryptocurrencies, and specifically about Bitcoin. However, many wonder why cryptocurrencies are so expensive and what their purpose is in general. Often, cryptocurrencies are mistaken for assets created and owned by some group of scammers who decided to profit from another racket and financial pyramid, while the high cost is explained by market manipulations and the inflating of a bubble that is about to burst. Consequently, for the average person, crypto can theoretically offer no benefit at all.

Let us debunk such misconceptions and convince ourselves that cryptocurrencies are not a fraudulent scheme and are even extremely necessary for us. If you already know how cryptocurrencies work, or if at some point you tire of reading the technical part but manage to understand why crypto is a reliable medium, you can skip directly to the section of the article titled “What is the Benefit of Cryptocurrencies.”

Decentralization of Management

Let’s start by explaining why cryptocurrencies are not a financial pyramid. To do this, although in a rather crude form, we will describe their structure to demonstrate the general concept. The essence is that a significant portion of cryptocurrencies has no central governing body. Their network is completely decentralized; every person, including you, can run a Bitcoin node on their own computer.

You might say that Bitcoin has specific developers who implement their updates, which indicates that they have power over the crypto network. Yes, there are developers, but they are not the owners of the network. Any changes and updates they propose are implemented only with the permission of the number of miners working on the network who possess more than 50% of the network’s computing power. In effect, we have democratic management (but it should not be compared with state democracy, which is nonetheless imposed by force; in this democracy, no one forces you to participate), and this democracy is quite direct, since although it has representatives in the form of developers, no decision can pass without the explicit consent of more than half of the network.

A question may arise: why create and maintain cryptocurrencies at all, if one cannot earn from them without having power over them? However, this is not the case; crypto developers usually perform a so-called “pre-mine,” meaning that before the public release, they create a certain number of coins for themselves, calculating that in the future their crypto will become popular and these coins will increase significantly in value. Additionally, crypto developers can earn money through donations from wealthy users who find further development beneficial.

New cryptocurrencies, which currently have a small network, are often subject to the risk of concentration of more than half of the power in one set of hands, which allows for network manipulation. However, the larger the network becomes, the more rapidly this possibility diminishes. Bitcoin, for instance, has involved such gigantic computing power worldwide that perhaps even large corporations and governments would not find the means (at least without causing significant harm to their own economy) to unilaterally subordinate it and disrupt the network’s operation.

Furthermore, the largest crypto miners are usually mining pools, which are also decentralized organizations. Mining pools are created so that people and organizations with insignificant computing power individually can unite and thus mine coins collectively. The mined coins are then typically divided among participants depending on their contribution to the total computing power. There have been times (for example, in the case of Bitcoin) when some mining pools approached the 50% threshold in power at different periods. However, thousands and millions of pool participants, naturally, cannot agree among themselves simply because of their number; in such a situation, they preferred to leave that pool and join others to prevent the centralization of the network and the loss of value of the coins they had already mined and could mine in the future.

Strict System Operation and Stable Emission

The algorithms by which the networks of many cryptocurrencies operate are fixed and based on unsolvable mathematical problems. The mining process—the creation of new coins—is usually based on finding a hash of appropriate complexity to add a new block of transactions to the network. Hashing, especially in the case of the SHA-256 algorithm used in Bitcoin, is an irreversible function; the only way to obtain a hash that fits a certain condition is to sequentially iterate through a special block parameter. The condition itself, i.e., the mining difficulty, becomes stricter over time; additionally, the mining reward regularly decreases. All of this is also strictly programmed with the calculation that more computing power will connect to the network as needed to maintain a stable currency emission.

Regarding the emission itself, the number of Bitcoins is limited to 21 million coins (currently about 18.5 million coins have been mined). It is simply impossible to just print new Bitcoins; inflation based on the standard paper currency model is simply impossible in the case of cryptocurrencies.

It is also impossible to interfere with the operation of cryptocurrencies via hacking (although there were hacks of Bitcoin, these occurred in the early stages of its development when its software code was not sufficiently perfect). Suppose a hacker wants to submit a false transaction with fake coins into the Bitcoin network. However, every block of transactions in the network contains the hash of the previous block. Other nodes will simply not accept a node that attempts to introduce an invalid chain of blocks into the network. It is also impossible to pick the right block parameters to produce the exact same hash as the original block. Hashing, again, is an irreversible function; it can only be broken by brute force. The SHA-256 hashing algorithm can produce 2^256 unique hash variants—finding a parameter that gives a specific hash would take more than the lifetime of the Universe, even with all the computing power on the planet. Mathematics of large numbers stands guard over the stability and inviolability of cryptocurrency operations!

What is the Benefit of Cryptocurrencies

Fine, cryptocurrencies truly lack centralized management and are absolutely reliable. But why do we need them in practice? After all, ordinary currencies are more popular and easier to use. What is the benefit of your Bitcoin, especially considering that supporting its network and mining new coins consumes an unbelievable amount of computing power and electricity?

The entire benefit of cryptocurrencies lies in the fact that they prevent anyone, including governments, from artificially devaluing your savings through inflation, unhindered taking of your cash funds, and restricting your economic freedom. Let’s start with a simple example. In a survey about Bitcoin usage in Nigeria, about a third of respondents stated that they use it or once used it. This is because the Nigerian government set a tax that is too high on transferring funds across borders. Cryptocurrency became the only option for Nigerians working abroad to send money to their families with minimal losses, bypassing idiotic government laws.

Many such examples can be thought of, as the stationary bandit (the state) tries to rob its citizens in every way. And cryptocurrency comes to people’s aid. You don’t want the stationary bandit to levy giant taxes on your transactions and demand an explanation regarding the origin of funds every time? Pay with cryptocurrency! You don’t want the state to be able to sue you at any moment for non-payment of alimony or take half of your assets in favor of a cheating ex-spouse? Keep them in cryptocurrency! Authorities have limited or banned some type of economic activity and control your income? Accept payment in cryptocurrency!

Cryptocurrency will save your savings, income, and economic freedom in these and many other situations. Cryptocurrency coins cannot simply be taken from you (unless you yourself give away the password to your wallet or your device, where the password is stored in unencrypted form, is taken—always keep this point in mind). Your savings in cryptocurrency will not lose their value over time because someone is regularly printing billions of new banknotes. You can use cryptocurrencies completely anonymously. Although, of course, Bitcoin is pseudo-anonymous, as all transactions in the network are visible to everyone; however, this problem is solved by using Bitcoin mixers (intermediary services that mix coins with the coins of other mixer users before sending them to the recipient, thereby making the transaction untraceable), including wallet clients with a built-in mixer (for example, Wasabi Wallet). There are also cryptocurrencies where coins are mixed automatically within their own network (for example, Monero, Dash, ZCash). Additionally, try as much as possible not to link your wallet to your real identity. If it is necessary, use a separate Bitcoin address for each transaction; this will make systematic tracking of your transactions impossible.

We can now confidently conclude that cryptocurrency is an excellent economic tool for avoiding regulations, bans, and the theft of funds by the stationary bandit. Cryptocurrency provides maximum economic freedom. This is precisely what forms its value.

So what, governments will just go ahead and ban cryptocurrencies

The thing is, it is impossible to ban the use of cryptocurrencies. As we remember, they are decentralized; there is no single server that manages everything. Millions of servers worldwide are involved in cryptocurrency networks; any person can run a cryptocurrency node even on their home computer. You cannot simply block a specific IP address, as is usually done with online services, and thereby achieve a ban on using the service. Cryptocurrency can only be blocked through a total shutdown of the internet, which certainly will not happen, as everything now works via the internet; such a step would result in gigantic losses for the governments themselves.

It will also be impossible to ban specific types of transactions using cryptocurrency, such as buying goods with cryptocurrency on gray and black markets, or exchanging cryptocurrency for fiat currency. In the case of exchange, the P2P exchange model comes to our aid. For example, you want to exchange Bitcoins for rubles, but services engaged in such exchanges have been shut down by the force of the stationary bandit. You simply use a P2P exchange to find another person like yourself who wants to exchange rubles for Bitcoins and carry out the exchange. The state will not find out that your deal was related to cryptocurrency, because if anonymity measures are observed, it cannot track cryptocurrency transactions. A ban on cryptocurrency is simply a useless and unrealizable measure.

Cryptocurrency is still useless because it is not popular as a means of payment

Now this is an outdated claim. Current trends regarding the adoption of cryptocurrency say the exact opposite. For example, Tesla recently announced its plans to start accepting payment in cryptocurrency. The Apple Pay payment service has already added the ability to link cryptocurrency accounts to wallets and use them within the USA. Google Pay and Samsung Pay have announced similar plans. At this rate, considering that these services are actively used for making payments for purchases worldwide, including in the CIS (admit that you have seen the icons of these services on store signs regarding the possibility of cashless payment, or even used them yourself), cryptocurrencies could become a popular means of payment. Of course, since these services operate by government permission, using cryptocurrency in this case may only add anonymity to the origin of the funds, but it is not a way to evade tracking of their expenditure and taxation by the stationary bandit. However, this should be enough for the general public to accept cryptocurrencies as a means of payment and begin treating them more tolerantly. People for whom cryptocurrencies are commonplace will gradually begin to actively conduct transactions using them directly, without intermediary services. This will allow all of us to achieve significant economic freedom, regardless of the orders imposed by the stationary bandit.

Cryptocurrency will not become a popular means of payment due to slow transactions and high commissions

This is also an outdated claim at the moment. Of course, pure Bitcoin itself is indeed quite slow (on average, transaction confirmation takes 10 minutes, and sometimes it can stretch to several hours) and expensive (the average Bitcoin network commission per transaction at the time of writing this material is about 24 dollars), so it is only profitable to make large transactions that do not require instant execution. However, solutions already exist for small transactions, such as buying a cup of coffee. One of these is the Lightning Network—a payment protocol that allows instant transactions between participating nodes and is proposed as a solution to Bitcoin’s scalability problem. This problem has also been solved in many alternative cryptocurrencies to Bitcoin.

Could you please analyze this video?

Your friendly neighbor from LPR

Thank you, very good channel, I’ve subscribed. Now about the video.

In effect, it was convincingly demonstrated to us, with illustrations, that modern corporations differ little from states, and vice versa. Not every business becomes a mega-corporation capable of effective expansion, but rather the one that performs the function of a platform for other businesses. The costs of scaling a platform business are relatively low, and profit primarily depends on the network effect. Therefore, old-style corporations, like Gazprom for example, will not move the needle in the new global market, but Yandex, for instance, is a serious player with prospects for further growth, especially if it manages to devour the Russian Federation that is getting in its way.

But here is the thing. There are relatively few actual employees in such corporations. However, the development of platforms is a factor that contributes to the success of small businesses, or even freelancers, who earn their living on these very platforms. With every new platform, there are more and more people earning money on them. The platforms themselves have far more, of course, but why should we care?

No, we shouldn’t care, as long as the game looks fair. The video describes several cases where the game was played ruthlessly, while the players were in significantly different weight categories. Corporations, becoming comparable to states in power, can well afford methods that are more appropriate for criminal gangs. Should we expect the good old territorial gangster to take a swing at the young, arrogant, and extraterritorial one? Should we fear the new gangster more than the old one?

Anything is possible. One can easily imagine evil corporations in a free market, as Hollywood has depicted them in abundance. But there is still a certain air of theatricality surrounding such companies. It is much easier to imagine a corporation merged with a classic state in symbiosis, using political methods to eliminate rivals when brute force is more convenient, and economic power when a softer approach is better. We see such corporations already; they eat US presidents for breakfast. But we also see the power of civil opposition to dirty tricks, as exemplified by the recent GameStop story.

Following the author of the video, I shrug my shoulders many times in this post because we see that the rules are changing right before our eyes, and it is not entirely clear exactly how “the market” will resolve it. But for now, I can make a cautious assumption that the market will push states further aside so they don’t interfere, and the owners of various platforms, as the market saturates, will fidget less and value the predictability of rules more. And for this, they will have to follow them themselves. By rules, I don’t mean what the platform owner demands from their users, but what the platform owners have agreed upon among themselves. And with the emergence of law, conflicts are resolved much more easily and cause much less damage.

Lectures by Alexander Kotov and Alexei Nefyodov

Ural Libertarian Lecture Hall

This Saturday (27.02.21), two lecturers will visit Yekaterinburg. The event begins at 13:00. Address: 12 Rosa Luxemburg St.. Entrance is free. Advance registration on TimePad is required. Come and bring your friends, it will be interesting! Our guests:

● Alexander Kotov, Perm. Author of the blog Crypto-Libertarian, dedicated to libertarianism, crypto-anarchism, and methods of collective decision-making.
● Alexei Nefyodov, Novosibirsk. Cryptocurrency popularizer, bitcoin maximalist. He is not a programmer, therefore he examines this issue from economic and socio-political perspectives.

Lecture Hall Program:

  1. Bitcoin and the Theory of Money (Nefyodov). There is nothing more practical than a good theory. Do you need bitcoin, and if so, for what exactly? To answer these questions, it is important to understand why it is designed this way, what money actually is, what types of money exist, and what they are for.
  2. Bitcoin, First Practical Steps (Nefyodov). You will master the simplest tools for acquiring, transferring, and storing bitcoin, and understand where to dig further. If you have a few rubles on your card, you will have your own bitcoins after the session.
  3. Technological Solutions to Social Problems (Kotov). Digital telecommunications and social networks determine what our society will be. Government regulation and centralization in the hands of corporations provide immense power over minds, allowing for censorship and the control of financial operations. Standard legal defense mechanisms against this are ceasing to work. Technological solutions can come to the rescue. The lecture will discuss the prospects of such an approach and what hinders its implementation. The theory will be accompanied by examples from the world of cryptocurrencies. In practice, the use of a Trezor hardware wallet will be demonstrated.

С Днем молниеносной пиццы!

Many people know about Bitcoin Pizza Day, celebrated on May 22nd, in honor of the first purchase of a product with bitcoin, when on May 18, 2010, a guy from Florida named Laszlo Hanyecz put out a call, saying he wanted pizza and would pay 10,000 bitcoins; he waited four days before finally finding someone who would buy him that very pizza in exchange for bitcoins.

And on February 24th, Lightning Pizza Day is celebrated. On February 24, 2018, the same Laszlo Hanyecz bought pizza again, using the then-recently launched Lightning Network—a second-layer protocol on top of the Bitcoin blockchain. This time, the price of two pizzas was only 649,000 satoshis, which is 0.00649 bitcoin. At today’s prices, that is approximately 330 dollars. Moreover, he handled the purchase significantly faster; there was no long wait for a seller.

Over eight years, the daughter has grown quite a bit

He described the technical details on a lightning developer resource, and the text shows how immature the technology was at the time. Currently, using Lightning is still far from convenient, but there has nonetheless been substantial progress.

How did I find out about all this? There is a convenient custodial lightning wallet on Telegram @lntxbot, equipped with many third-party services. In particular, you can subscribe to a mailing list of paid advertisements there. Send the bot the command /sats4ads on 15 and you will occasionally receive messages from the bot with very short ads and a claim button. By clicking the button, you receive a reward of 15 millisatoshis per character (this is very little, but you can play with the price—you can receive more expensive ads, but in smaller quantities). And so, today a mailing arrived where I was congratulated on the holiday, told this whole story, and offered cashback in satoshis for every pizza purchased. Unfortunately, the offer did not apply to the Russian Federation, so the bot’s ad targeting isn’t great.

On the other hand, today I received another offer regarding ad placement. And since it’s such a day, I requested payment in Lightning: 10,000 satoshis—exactly one hundred million times less than what the pizza cost in May 2010.

So, I am happy to post an announcement for a lecture on cryptocurrencies, which will take place this coming Saturday in Yekaterinburg. I hope there are residents of this city among my readers who are not yet aware, and that the lecturer’s advertising budget did not go to waste. Bring your acquaintances to the lecture as well, if, of course, you wish them well, because mastering the use of bitcoins is definitely a good thing. Otherwise, they wouldn’t be trying to fine us and tax us for it.

As for the announcement itself, it will be in the next post, to separate it somehow from the prolonged preamble.

Charter cities will not help achieve a free society

Voluntarist

Not long ago, the libertarian community began actively discussing the “Prospera” project – a charter city in Honduras. The idea of charter cities in general is quite popular among libertarians, many of whom view the option of autonomous jurisdictions and free economic zones, carved out from the jurisdiction of a state, as a real possibility for achieving a free society.

Regardless of the dreams associated with ideas of this kind, they shatter in the same way that the idea of seasteading and the creation of jurisdictions outside state territories in general shatters (you can find more details on this in the material “Why you should not count on the creation of new jurisdictions in the ocean or space”). If violence is still a current tool for achieving goals and the newly minted jurisdiction has no means of deterring an external attack (let’s be honest: for a small charter city against a giant stationary bandit, the only deterrent weapon could be WMDs like viruses), then its autonomy is merely an unsupported handout from the master. Seriously, how can one even expect to create a free jurisdiction by the grace of a stationary bandit (the “state”)?

Of course, I do not dispute that at a certain point in time, there may be people in the government of a specific state who are absolutely not opposed to such initiatives and are willing to allocate territory for them on terms of maximum autonomy and the ability to independently manage internal affairs, even up to the creation of their own laws and law enforcement mechanisms. But such power, like any other power, cannot be eternal. In any case, sooner or later, changes will occur in the government, and where are the guarantees that the new power will not want to liquidate such autonomy, or at least begin to reduce it in small steps so as not to cause excessive discontent with abrupt decisions? For example, as the Chinese government did with Hong Kong? Agreements themselves, in this case, will not help; the government may simply not care about them. History already has hundreds and thousands of examples of free cities and broad autonomies of various kinds, and where are they all now—did agreements with the central government help them?

Of course, representatives of such an autonomy could create their own political force and use it to lobby their interests in the central government. However, in doing so, they only involve themselves in another struggle for power over the tool of state violence. And this is a movement in a direction completely opposite to achieving a free, non-violent society. Factually, this is the same as simply changing the power in order to forcibly impose one’s own norms on society—this cannot be linked to libertarianism in any way.

Hoping for the mercy of the master is a foolish venture. Without the elimination of violence as a phenomenon in general, or at least without the presence of deterrent weapons, an autonomy carved out by a stationary bandit is worth nothing and is backed by nothing. And if such means are available, then perhaps it makes more sense to exit the jurisdiction of the stationary bandit in some developed place, for example, within a large city, rather than on bare land where one would still have to spend billions of dollars creating infrastructure and attracting people?

Libertarian Band. Cryptocurrencies.

I am pleased to present a new video from Libertarian Band — the guys have started the long-awaited series on the tools of agorism. And although I no longer write scripts for them, they are doing a great job, which I am very happy about.

The video provides a historical introduction to encryption and how this entirely state-driven affair suddenly led to cryptocurrencies—tools for liberation from the state—and concludes with recommendations on how to use them.

Critique of “Mechanics of Freedom”

My reader Sergey Soltys was discussing his anarcho-capitalist beliefs with an acquaintance and from time to time referred to Friedman’s Mechanics of Freedom. This ended with the interlocutor taking up reading the book, managing to get through about half of it, and posting a very detailed review, which I am now presenting for your attention because it is quite characteristic.

From this review, it is evident that the book was read sporadically and that the reader clearly did not grasp certain economic terms used in the text. The term “public good” suffered particularly. The reader believes that the key word in the term is “good,” whereas a good is simply some value, regardless of what it is, and the key is the definition of “public,” in opposition to “private good,” which refers to a very specific type of good possessing a set of characteristic properties.

Does this mean that the reader is an idiot and is fighting straw men? No, he is a smart and well-intentioned social democrat who values life’s comfort very highly, is ready to work hard and pay a lot for it, but is unwilling to delve deeply into how the economy works because he is a specialist in another field. Thus, for him, a complete lack of understanding of the theory of the firm, public choice theory, and similar things is forgivable.

The example of a perfectly intelligent person failing to understand Mechanics of Freedom shows the book’s shortcomings. It is long and disjointed; it was not sufficiently revised from edition to edition, and therefore often appeals to outdated facts about the USA from the middle of the last century; it is not rigorous enough in its use of conceptual apparatus.

Perhaps I refer to Friedman too much. That is a matter of taste. I like his language and characteristic humor; it is not that difficult for me to accept his system of definitions, although I often use slightly different terminology for myself. And simply, we both think roughly within the same paradigm of an economic approach to legal issues.

Perhaps I should still write my own work on ancap. Something clearer and more concise. More modern. Based on facts more accessible to the Russian-speaking reader. Svetov threatened to create something like that, but he isn’t in any hurry. I don’t know. I am not sure I have enough talent and perseverance. In any case, first I will finish polishing the Friedman edition. I have enough talent and perseverance for that.

Forgive me that the post came out more in a blog format. It is just that I am on the threshold of significant changes in my life, and that puts me in a very pensive mood.

Using a password manager

One of the most important measures of information hygiene is using a password manager. Recently, I referenced a video by Svetov dedicated to information security, and there he recommended a very specific password manager – KeePass. I agree with him on this matter. However, it has long been known that simply naming a tool is not enough for people; they still won’t start using it until you explain in detail how everything is done. So, I decided to prepare a short manual.

I would be happy to receive your useful instructions on various aspects of life online. I have created a section for such guides on the website and will continue to update it.

Trying out a new role at the debates

Tomorrow, February 20, at 17:00 Moscow time, on the channel @libertarico_debates, I will be indulging in an activity unusual for me — moderating text debates. The topic of the debates is the structure of a minarchist society. @libertsib will defend the position that minarchism should be democratic. His opponent @volunto (a regular contributor to my channel, which I hope does not constitute a conflict of interest for me) was not given a positive assertion, so he will have to attack democracy, which, in my opinion, is too easy a task, so I will lead him toward formulating his own version of the structure of a minarchist society.

If you see a sign saying “buffalo” on a tiger’s cage, do not believe your eyes. The correct start time, if the debate organizers are to be believed, is indeed 17:00.

Happy Anniversary!

Bitcoin has just broken a trillion dollars in market capitalization. That is more than the Russian ruble, but still less than the Swiss franc. If any of my readers still haven’t bought at least a little bit—believe me, I sincerely sympathize with you, but you should still try to make a decision. Even at the cost of slightly reducing consumption.

By the way, speaking of reducing consumption. Zolotorev recently posted a translation of an article by Jeffrey Tucker about how Bitcoin is changing consumer behavior. The article is very interesting, and I have fully experienced this effect myself. So, if anyone wishes to immerse themselves in the spirit of the 19th century—welcome to Bitcoin.