Do you know why in the United States after 1971 labor productivity continued to grow at a constant rate, but at the same time real incomes of people abruptly stopped following the growth of productivity and remained virtually unchanged? Or why after 1971, over 50 years, the consumer price index soared 7-fold (what cost 1 dollar in 1971 now costs 7 dollars), although before 1971 it took almost 200 years for an approximately similar price increase? Or perhaps why the share of US residents living with their parents until age 29 gradually decreased until 1971, but began to grow again after? Or why the cost of housing relative to workers’ incomes in the US has only increased several times during this period?
The answer is extremely simple – on August 15, 1971, US President Richard Nixon finally liquidated the gold exchange standard, canceling the fixed conversion of the US dollar into gold. After this, the US dollar turned into paper that was effectively backed by nothing. It was after this decision that the impoverishment of Americans, who had previously only grown wealthier, began.
This rather simple fact clearly confirms the absolute failure of paper money as a means of exchanging goods between people and accumulating wealth. The use of paper money is merely a reliable way to become poor. After all, what else can be expected from money that can be printed in unlimited quantities, thereby devaluing people’s savings, while enriching officials, government structures, subsidized oligarchs, and banks, who received the new money supply first and realized it at the old prices. Or what else can be expected if money is distributed boundlessly at an artificially low interest rate for the development of businesses that would be absolutely unprofitable and failing at a rate formed under free market conditions. Indeed, the theory of the Austrian School of Economics does not call unlimited money emission and credit expansion the main causes of economic crises for nothing.
People will only grow poorer until we abandon government paper currencies in favor of money that is not controlled by any centralized governing bodies and has a strictly limited issuance of new coins. Precious metals demonstrated their reliability as a means of exchange and wealth accumulation in the past. But in today’s digital world, where information technologies play a key role in all types of activity and relationships, cryptocurrencies can serve as a reliable means of exchange.
When a serious crisis occurs in a society and people lose not only their rights, freedoms, and accumulated wealth, but are literally deprived of the means of existence, concerned representatives of other societies try in every way to help them. Organizing the provision of humanitarian aid is a difficult task, especially in crisis conditions. But cryptocurrencies can come to the rescue, as they make it possible to provide this aid in the most accessible way.
We are talking about Afghanistan—a country where power was seized by the Taliban terrorist group. The country’s economy has practically come to a standstill, and people have lost access to their deposits and savings. The terrorist regime was subjected to significant sanctions from the West, and although the US President exempted humanitarian aid from sanctions, banks are blocking transactions directed to Afghanistan, and the international payment system SWIFT has simply stopped working within Afghanistan. This has made it practically impossible to provide humanitarian aid to the residents of Afghanistan using classic financial instruments.
Cryptocurrencies came to the rescue, proving to be practically the only way to send funds to the residents of Afghanistan. For example, Fereshteh Forough, an Afghan-American who founded a programming school for women in the Afghan city of Herat, turned it into an improvised crypto-bank. This allowed money to be transferred to the institution’s students, which they can exchange locally for afghanis (the currency of Afghanistan) to buy food and medicine. And Sanzhar Kakar, an Afghan who grew up in Seattle, created the HesabPay mobile electronic wallet for the residents of Afghanistan back in 2019, which also works with cryptocurrencies. As he claims, 88% of families in Afghanistan have at least one smartphone, allowing them to trade, transfer money to each other, and receive transactions from abroad without ever touching banks or the Taliban regime. And this could help save millions of Afghans facing the risk of starving to death. It is also reported that the opportunities provided by cryptocurrencies are being actively studied by international charitable organizations.
Now it should be perfectly clear how cryptocurrencies are capable of saving millions of needy people from certain death. Sometimes cryptocurrencies are accused of being merely a financial pyramid operating for the enrichment of a limited circle of wealthy individuals, and therefore they must be banned for the benefit of ordinary people. Of course, such claims are incorrect, and banning cryptocurrencies is simply impossible, except by completely shutting down the internet. It can be concluded that a person who advocates for the well-being of people and the provision of aid to those in need, but is at the same time an opponent of cryptocurrencies, is completely inconsistent in their reasoning. Cryptocurrencies are a benefit for ordinary people, and especially for those who have fallen into an unenviable position.
Record inflation in the US has once again shown that one cannot rely on currencies with unlimited emission and centralized management, such as modern government (fiat) money. For a long time, the US dollar was considered a fairly stable currency, and many chose it specifically as a means of accumulating wealth. Now, all dollar savings are merely awaiting devaluation. The reason for this is the inadequate economic decisions of the US government during the coronavirus pandemic; it decided to combat the arising difficulties by increasing the money supply. And no government in the world can guarantee that it will not make decisions leading to the devaluation of money and the impoverishment of people. Rather, the opposite should be expected—inflation is beneficial to governments, enriching those whose hands the new money supply reaches first (for example, the government itself and state banks), since they can spend these funds at pre-inflation prices. Thus, there is no such fiat currency in which your funds would be safe.
Cryptocurrencies demonstrate a different picture—of course, not all of them, but certainly those that are truly decentralized and crypto-resistant. The emission of such currencies is limited by the mathematics of large numbers, and centralized management is absent—any changes in the network’s operation (and even the implementation of updates by developers) are possible only with the direct consent of the holders of the majority of the computing power involved in it. Together with the absence of any restrictions on the exchange of funds (funds can be sent to any person in a matter of minutes, even one located in a distant country on the other side of the Earth), this makes cryptocurrencies a valuable asset in the eyes of an increasing number of people—the well-known Bitcoin, for instance, recently broke another record in its value.
Sooner or later, the governments of all states whose currencies are considered guarantors of savings stability will, mistakenly or even intentionally, make decisions leading to an uncontrolled increase in the money supply, meaning the devaluation of money and the impoverishment of people. And each time, cryptocurrencies whose emission remains at the initially set level will only become more popular as a means of accumulating wealth, or even as a means of exchange. The decline of fiat money is inevitable when such a good alternative exists!
About a month ago, the chapter-by-chapter publication of the translation of Jonathan Beer’s book Blocksize War ended on the Hype Coin News and Bitcoin Translated channels. I read the translation as it was being released, and when it finished, I decided to layout the book in epub, as I had previously done with the book Inventing Bitcoin published there. I started the work but forgot to upload it to the cloud, and then I left for Albania, resulting in a long technical break. Better late than never, so I laid out the book upon my return, and now I am posting it.
The book describes the inner workings of the bitcoin community in detail and provides an understanding of how decision-making occurs when everything is decentralized. Moreover, it is a successful case study where a very difficult and fundamental conflict eventually led to a good, balanced solution where everyone made some concessions. Thus, the book will be interesting not only to tech geeks (I am not one of them), but also to those interested in the mechanisms of self-governance in complex systems, which is extremely important for us ancaps.
Upd.: I added a section about patrons to the preface, as it felt impolite toward the people who funded the translation. Sorry for forgetting it at first.
El Salvador now has a second national currency alongside the US dollar — bitcoin. Thus, since the autumn of 2008, in just under 13 years, bitcoin has grown from a project posted by an anonymous person for open discussion into a currency equal to the dollar. Although, so far, only in one country.
Now the world should wait for El Salvador to implement something like Estonian e-residency: then anyone wishing to do so will be able to remotely open a business in El Salvador and conduct completely official settlements in Salvadoran currency, because Salvadoran laws will mandate it.
To mark this giant step in bitcoin adoption, discounts have been announced: some lucky individuals managed to buy in today at a price of around 43 thousand US dollars per bitcoin. But it is still not too late: at the time of this post’s publication, bitcoin costs only 47 thousand dollars.
Vladimir Milov is preparing to make the first bitcoin transaction of his life: a hairdresser is telling him how to install a Lightning wallet
The friendly channel Bitcoin Translated, which specializes in translating important texts about bitcoin, recently posted on its website the final version of the translation of Ian Pritzkers’s book “Inventing Bitcoin”. I don’t like the translation of the title—I don’t understand the habit of translating “-ing” constructions as gerunds in such cases; it doesn’t sound Russian at all. I would have translated it as “Inventing Bitcoin” [in the sense of ‘Let’s invent bitcoin’]. Otherwise, the book is good, clear, illustrated, and fully ready to be absorbed by the brain.
To make this easier via phones, I formatted the book in epub format; download it and enjoy. I will be happy to receive donations from both the Bitcoin Translated team and the readers.
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.
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.
A little over two weeks ago, Bitcoin came very close to its historical all-time highs in US dollars. It reached the mark on some exchanges and began to hesitate near the peak. And today, it has finally confidently captured this height. So, we can officially congratulate each other on the end of the three-year decline. To everyone holding bitcoins, you have my respect. To everyone who isn’t, you have my pity. To everyone trying to halt its adoption, you have my disdain.
Supporters of authoritarian-right (conservative) ideas should consider whether the financial and economic freedom they so praise is even compatible with the persistence of physical violence in society.
Those who believe that free economic relations can be ensured in a society where violent activity is permissible—and where a strong centralized organ of violence exists—are making a fairly significant mistake. Let us correct this error.
Let us first note that the problem is much broader than state violence, meaning that the mere destruction of the “stationary bandit” will not solve it. The problem lies in aggressive violence as such, regardless of its source. The public will only continue to support states in strengthening financial control as long as the threat of financing violent activity, such as terrorism, exists. And even in a stateless society, people, fearing they will become victims of violence, will continue to pressure free and independent financial structures to control the flow of finances as strictly as possible. Moreover, the structures themselves are interested in control, as violence threatens them as well.
Perhaps you have heard of cases where some European banks voluntarily blocked the accounts of cryptocurrency traders due to suspicion of financing terrorism, even though the traders provided all legally required documents within the AML/KYC procedure. The state did not compel the banks to do this, but they nevertheless decided to forego a portion of their profits to reduce potential reputational damage (if the cryptocurrency was indeed obtained for jihadism or contract killings and this later surfaced, clients concerned with their own reputation would not want to do business with these banks, even if the banks had done everything correctly from the perspective of state law).
Also, do not forget that in a society with an unresolved problem of violence, financial control will inevitably grow with scientific and technical progress, as potential violent actors will have more opportunities to cause significant harm—for example, by using high-capacity energy sources, new types of explosives, or even biological threats in the form of intentional viral infection (DNA synthesizers are becoming more accessible every year).
Where will all this lead? To the fact that many market agents, driven by fear, will most thoroughly verify the origin of funds of any subjects entering into transactions with them. After all, who would want to conduct a transaction with a person who earns their money by selling explosives to terrorists, thereby putting their own life at risk?
As a result, transaction costs will only increase, and any inaccuracies or suspicions will lead to the blocking of bank accounts and the seizure of funds from a suspicious person, just to ensure that violence is avoided. Many may be caught in the crossfire for no reason (the problem of “false positives” remains). This will clearly slow down the economy, making it quite inefficient, which will ultimately lead to a sharp decline in people’s well-being and the stagnation of progress. Even the use of uncontrollable financial instruments, such as cryptocurrencies, will not help, as they will be useless if the majority of agents in the economy refuse to accept them, again, fearing a violent origin.
Conservatives may object—that this is exactly why a strong state is needed: to deter violence. They believe that if it is properly organized within constitutional frameworks that limit its growth, it is possible to ensure both economic freedom, so people can earn money and engage in entrepreneurial activity without hindrance, and a low level of violence.
However, a strong state cannot exist without financial control; for its existence, it needs enormous funds, which can only be obtained by levying high taxes on people and enterprises, as well as by using monopoly privileges in a significant portion of economic spheres. A strong state is incompatible with a free economy. And even a weak, minimal state is also incompatible, as it always degenerates into a strong state; politicians cannot be stopped from expanding their powers, as we have clearly observed throughout the history of states. Even the most seemingly liberal states, such as Switzerland, strengthen economic control over their citizens every day.
Moreover, politicians have interested groups of people supporting them and many justifications for increasing control—be it the expansion of state social programs, the increase of defense capabilities, or the supposed development of the economy. The latter is the most absurd thing one could imagine—how can the violent extraction of funds from the economy through the taxation of its participants, as well as the strict limitation of their activities in certain economic spheres, help it develop? Nonsense! Yet some interested groups follow even such nonsense.
I think it should now be clear that the fight against violence as a phenomenon in general is critically important for achieving financial freedom and all its accompanying positive aspects. And social models that permit the initiation of violence—whether it be state-monopolized and centralized, or private and independent—clearly contradict financial freedom.
