Doing business and any financial activity are always associated with certain risks. Many will first think of risks leading to the loss of invested funds, however, that is not the issue we are interested in. We will consider the risk that violence, up to and including liquidation, may be applied to a person engaged in such activity. I think you have heard stories about how some businessmen were “taken to the forest” by their more violent and gangster-like competitors in the market. Frequently, a government may eliminate a person for “unacceptable” economic activity. An illustrative example is the recent story of the death of John McAfee, who had some problems with paying taxes and activities related to cryptocurrency operations, and who, as he claimed before his death, was threatened by representatives of the US authorities.
Of course, some will say that problems can be avoided by strictly playing by the rules of the state power and stronger market agents. But these rules are established unilaterally and can be changed at any moment to destroy your activity or make its conduct impossible. The mere fact of conducting some activity may be unacceptable to those capable of committing violence against you. In the best case, your business will be stopped due to the threat of violence from ordinary or stationary (“state”) gangsters, resulting in large financial losses. In the worst case, you will simply become another person who “committed suicide.”
Anyone engaged in any economic activity, especially if it involves running a business or investing in certain assets, finds it beneficial and necessary to invest in the fight against violence. Only by eradicating violence in human society can its risks be eliminated and one can finally peacefully attend to their affairs without fearing tomorrow. Investing in the fight against violence is clearly worth it to simultaneously preserve both your activity and your life!
Ekaterina Schulmann in her program introduces a distinction between news, meaning that which attracts attention, and events, meaning that which has consequences. For example, when I announced the debates between Litreev and Milov, it was news, but the debates never took place because Navalny returned to Russia, and everyone stopped caring about trifles.
A bit later, I announced a doublet of lectures by Alexei Nefedov and Alexander Kotov as part of the Ural libertarian lecture series. There was no broadcast of the lectures on the day they were held, and I soon conveniently forgot about them. But this event had consequences: after a considerable amount of time, the Ural libertarians channel quietly uploaded the recordings of the lectures, and I finally watched them.
The lecture first analyzed why money appears in human collectives at all, what function it serves, which types of money achieve wider distribution, and which rely solely on state coercion. Then it briefly described how Bitcoin is designed and why this construction ensures its wide adoption and price growth. Finally, it explained why Bitcoin never actually became money, but instead turned into a defensive financial asset.
The parts about economics were clear and interesting enough for me. Where it concerned technology, I didn’t dive too deep, trying not to be intimidated by phrases like “quantum superposition.” I learned some specific new details, such as how the rules for the Bitcoin network’s operation are changed, or how the price forecast was built based on the stock-to-flow model.
It seemed to me that it would have made sense to expand the topic of altcoins a bit more, but Alexei is a Bitcoin maximalist and apparently believes that if you don’t talk about them, they will disappear on their own.
I hoped to hear ready-made recipes in the lecture, but it turned out to be more philosophical than practical. Interestingly, Alexander believes that state actions are not the cause of problems such as, for example, censorship in social networks, but that these are purely social problems. It seems to me that in the absence of a state, these problems would at least be less acute, because attempts to silence opponents are linked precisely to the task of political dominance, which is nonetheless a state phenomenon. Nevertheless, several interesting recipes were mentioned in the lecture, for example, regarding moderation in large social networks that would significantly reduce social tension—through subscriptions to rating agencies that would act independently of the social network’s administration and provide services directly to its clients.
The lecture turned out to be quite sobering; it became much clearer to me why there is such low mass adoption of decentralized social networks, and now I am not entirely sure that I want to bother with it myself—at least as long as centralized solutions provide some room for maneuver.
At the end, Alexander demonstrated how a hardware wallet works; it was curious but not very clear, however, it is evident that it is a fairly paranoid piece of hardware that is unlikely to allow the user to lose their money in a very stupid way. Unfortunately, I don’t have enough money to be that obsessed with security, but it was interesting to watch.
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.
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:
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.
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.
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.
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
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.
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.
I often hear objections against agorism, crypto-anarchism, Bitcoin, darknet platforms, TOR, VPNs, and everything else that allows for fighting the stationary bandit (“the state”) using non-violent methods online. Critics argue that it is easy for the state to ban and block all of this.
Indeed, purely theoretically, the state is capable of blocking all this with a flick of a finger, but as always, the ratio of benefit to cost comes into play. Currently, network connectivity is so high that blocking a single IP address, protocol, or even a specific DPI signature will inevitably lead to collateral damage.
Roskomnadzor (RKN) tried to block Telegram, but eventually abandoned the idea because as a result of the blocking attempts, completely different services stopped working: online stores, payment processing for MasterCard, courier services, and even the Odnoklassniki website. Banning VPNs won’t work either—they are used by companies. Banning them for individuals while allowing them for companies sounds like complete madness—the appearance of 140 million legal entities in Russia would be a DDoS attack on the entire bureaucratic system. Could they create a powerful firewall with DPI “like in China”? Also not an option—all halfway decent VPN services provide tools to bypass it.
Some might mention whitelists, where all resources are blocked except those permitted. That won’t work either—a great deal of imported industrial and medical equipment requires network access to connect to the manufacturer’s servers. Talking about “import substitution” for equipment of this class is simply laughable. And let’s be honest, the authorities need to develop their own next “wonder-weapons,” and for that, they need access to many different “pirate” resources like Sci-Hub, where scientific articles from foreign publications are posted.
An objection also occasionally slips in that the state can simply intimidate crypto-anarchists with repression in real life. In reality, you can only intimidate some random guy playing a “pirated” version of Call of Duty. Ideological fighters against the stationary bandit, which is what most agorists and crypto-anarchists are, will quickly find ways to bypass surveillance and blocks. They will only become more resentful of the state and, instead of innocent internet mischief, will move toward developing tangible tools to deter the aggression of tyranny, such as drones, blinding lasers, and even weapons of mass destruction, since they have plenty of skills.
So it turns out that while blocking the activities of crypto-anarchists is theoretically possible, in practice it would result, for example, in the failure of tomographs and life-support systems in hospitals, along with the shutdown of many industrial enterprises and the collapse of the economy. Will the state take on such costs? I don’t think so!
To understand what will happen to currency under ancap, it is enough to visit the site coinmarketcap.com, which provides the price history of more than seven thousand cryptocurrencies. Since there is no copyright on cryptocurrency, literally anyone can create one, and this site reflects far from all of them, but only those that are traded, more or less, on exchanges, or were traded for some time.
What do we see when studying the price history of various currencies relative to Bitcoin? In many cases, it is a short-term speculative rise, followed by a long and painful decline with occasional spikes, sometimes ending in complete oblivion. The issue is not even unrestrained emission, but the fact that the consumer does not need an excessive variety of types of money. As we know from Alexey Tereshchuk’s catallactic theory of money, money are goods used to reduce costs in indirect exchange. If there are many candidates for the role of money, under conditions of freedom of choice, the consumer will use those that can reduce their exchange costs more effectively than others.
How many types of money are needed to fully satisfy the needs of the market? Money has various parameters by which they can be compared. For example, the possibility of anonymous transfer, or conversely, the impossibility of such, or the size of costs to make a payment, or preservation during storage, or preservation of value over time, or the development of infrastructure for working with this type of money, and so on. Each such factor is interesting because it allows reducing the consumer’s costs when using money in different ways. It is very unlikely that one single type of money will be found that leads in all possible criteria. Therefore, in the course of natural currency selection, at least as many should remain as there are leaders in individual functions of money.
However, of course, this does not mean that new and new attempts will not be made in the market to displace the old leaders. They will be. Most of them will end in failure. There will also be initially fake attempts, where the creators of the currency build hype around it, profitably sell it to all who wish, and then relax, and the currency fades into oblivion.
