The Sinister Future of Cryptocurrency (Codex Vagus: essay 02)

Codex Vagus is the title I gave to essays unrelated to creative writing on this blog.

I have always found it very difficult to gauge whether I am being original or just being stupid. For what it is worth, I predicted movie streaming services like Netflix back in the ’80s when video rentals like Blockbuster were the new thing. I also predicted Twitter back when cell phones were huge and email could only be received on stationary computers. If I had been a coder I might have been able to make a fortune by now. Or maybe not. Maybe somebody will pick up some of my ideas and become a billionaire on it.

Codex Vagus: essay 02

A lot of people dislike crypto currency. Charlie Munger, famed investor and partner of Warren Buffet, publicly decried crypto trading. Some have called Bitcoin a multi-level marketing scheme. Others have called it a Ponzi Scheme. There is nothing new about these allegations. Regrettably, all of these criticisms are focused on the speculation side of cryptocurrency, and not on its more sinister, fundamental dangers. Nobody is warning you what disasters could happen if cryptocurrency actually worked.

Once again, we are seeing history repeat itself. When computers were first introduced, half the world was excited about its possibilities, the other half were skeptical of the practical utility of the “thinking machines” and doubted that it had any real value. Nobody, at the outset, was talking about singularity and the potential dangers it may pose. And it has been the same way with every new development that people failed to understand. People get so caught up in the confrontation between the believers and the doubters that they fail to both believe and worry at the same time. People tend to argue along the dichotomy of whether a new proposal is a great invention that will change the world or whether it is a worthless piece of unfounded hype. People tend to postpone thinking about the consequences if it actually did change the world.

Cryptocurrency was developed with good intentions. The idea was to create a decentralized fungible currency that is free of irresponsible banking institutions and the capricious whim of governments, thereby democratizing wealth creation and putting control of money in the hands of the public. Ironically, the great democratizer of money has created a legion of instant billionaires, which – in the zero-sum game of speculative trading – means that it has created a whole lot of suckers whose money was funneled into the hands of the few. Obviously, cryptocurrency is not working as a democratizing instrument, but is proving to be a very efficient means of money collection. Double irony, cryptocurrency has become very popular because it can make some people rich by siphoning money from the losers.

Whenever somebody casts doubts on cryptocurrency, crypto-fans counter attack by suggesting, more or less, that the doubter does not understand the disruptive power of crypto. But in this case, it is the crypto enthusiasts who are underestimating just how much disruption decentralized currency can bring about. I believe there is a genuine possibility that cryptocurrency can become the first ever fluid value money.

If you research the direction smart contracts and blockchain technology is heading, and push it to its logical conclusion, you will likely find that the future of crypto is fluid value. I don’t understand why it took me this long to figure it out, but so far I cannot find anybody else who put two and two together either.

Fiat currency, for all its faults, is actually a great equalizer. Ten dollars in the hands of an inner city child has exactly the same value as ten dollars in the hands of the president of the United States, the Chairman of China, Bill Gates, or Mark Zuckerberg. But what if you could change that? What if some very powerful person could charge you a fee if you wanted your ten dollars to be worth the same as his? This is not an original idea either. This was the origin of taxation.

If the value of your money changed with the computational power you have control over, then the rich and powerful will be able to wield control over how much your money is worth. It will be like that fairytale scene where the gold coins held by a magical queen turn into clay pellets the moment they are handed over to a pauper.

This is not possible with the primitive iterations of the cryptocurrency we have today, mainly because developers are hindered by their limited concept of what money can be. But in the future, it is almost inevitable. Those who control massive computational power will decide the value of money in each individual’s accounts and the little people will have no choice but to pay arbitrary subscription fees in exchange for the dubious privilege of having their money retain value, thereby becoming locked in a lifetime of indentured servitude.

Bitcoin was never intended to be fluid value and can never be such a currency. And yet it’s worth is already extremely volatile. And even with primitive Bitcoin, given that the majority of the blockchain ledgers are owned by a handful of mining corporations, if you can somehow buy and merge these companies, you can theoretically manipulate the price through a block withholding attack – which is a method to rig the way blockchain votes to decide what is true. That is a crude way to manipulate currency compared to what is possible. With a little creativity, you could make currency manipulation a constant state rather than a one time attack in a coin that is specifically designed to be fluid value.

I say this is inevitable because (A) it is technologically possible, and (B) it is extremely profitable. When decentralized fluid value money takes over, wealth will be concentrated like never before possible. No matter how much you save or invest, unless you are on the top of the food chain, your account will be held hostage and you will be forced to pay continuous ransom. If you are on the top of the food chain, you can not only take away the savings of your underlings, but buy loyalties and allegiances by protecting the value of mid level people working for you. I’m sure the Chinese communist party would value having such control over its population. I’m also pretty sure that America’s top billionaires are already also thinking along the same lines.

We expect ten dollars in my hand to be the same value as ten dollars in your hand. In reality, it never really is. That is why people can make profit in currency trading and arbitrage. But the illusion of universal value is so strong in our minds that we forget that the nature of trade has always been fluid. A big muscular man with a knotted club could negotiate a better deal in trading wheat for meat than a small weak man. Then, for a relatively brief few millennia, we had fiat currency during which market pricing became more convenient and universal pricing became the norm. You cannot have a market price without a fixed currency. You could still buy and sell above or below the market price, but because the market price is there, prices become more stable and universal for everyone. That is a good deal for most people, but a bad deal for the most muscular 1% who previously could rob anyone they pleased.

Now, the Big Boys are making a comeback. Not because they have more muscle, but because they have more computational power.

This is disruption. It would be lot less disruptive and good for all people if cryptocurrency was just another Ponzi scheme.

Crypto currency has more potential for disruption than anyone has ever openly said. And it is not in the direction most crypto fans are hoping for.