For every day that passes I like bitcoin less. It’s bad for the world.
I have ranted about this many times, and it’s time I consolidate these rants into a blog post.
We’ll see with time if this rant ages poorly or not.
Section 1: Practicalities
What bitcoin is trying to achieve in payments
These would be good things:
- Peer to peer and remote payments
What bitcoin is actually good for
Bitcoin today is pretty much only good for two things:
- Committing crimes
- Speculating on currency
If you’re not doing one of those, then don’t use Bitcoin.
If you are an online store then sure, accept Bitcoin. There’s moral problems with supporting Bitcoin (see rest of post), but as long as you immediately convert to fiat currency when you receive payment it’s fine for you. There are even companies out there that’ll guarantee an exchange rate so that you never have to get into the business of currency.
You may say that Bitcoin can be used to get money out of China, or into Brazil, or to enable shopping of “things that should not be called ‘drugs’ anyway”, but you have to admit that no matter what you think of laws, that’s just other words for “committing crimes”.
It does peer-to-peer and online payments, you left that out!
Is that really a hard problem?
- GMail Payments
- WeChat P2P
- Facebook is introducing it
- Venmo (Owned by Paypal)
But wait, it’s still anonymous!
Is it though? In order to pay anonymously with bitcoin you need to jump through hoops and be improbably competent. You need to tumble your money very carefully, through multiple parties (how do you know they’re not fronts for the same party?), who you trust are not compromised.
… who you trust are not compromised.
If you’re the NSA/GCHQ/etc… and you haven’t hacked most bitcoin exchanges and tumblers then you’re incompetent, and essentially asleep at the wheel. They hack SIM card manufacturers and SWIFT, so of course they would hack these amateur tumbler and exchange websites.
… and be improbably competent
Attacks only get better. They never get worse. There are people today who claim to be able to de-anonymize bitcoin.
Can they? Maybe. But the transaction log is public. Do you think in 30 years it’ll be impossible? Do you think that your bitcoin tumbling strategy today will be impossible to decode after 30 years of research and statistics?
For those familiar with cryptography: Your use of Bitcoin anonymously is like you making your own security protocol, and thinking it’s secure because you base it on AES. But solid primitives don’t automatically make for a solid protocol.
There are vast opportunities to screw up a security protocol even with good primitives, and new ways are found every day. E.g. encrypt-then-sign, or sign-then-encrypt? If you’re not actually a cryptographer you shouldn’t put yourself into a position to answer that.
In 10-30 years when there’s a new paper showing how to de-anonymize your tumbling-strategy of today, do you want your weed purchases to be visible for the whole world to see? The government is unlikely to care (they likely already had the info anyway, and it’s beyond the statute of limitations), but now anyone with a grudge can make a “thing” out of it, socially or legally.
And do you truly believe that the people who tumble your cash aren’t secretly recording the in’s and out’s? If someone’s already immoral enough to launder money for anyone, what makes you think they’ll be loyal to you? That in/out mapping over a few years will be worth a lot.
Are you that competent? Is anyone? Seems improbable to me.
Section 2: Let’s talk about an anonymous global currency
If the end goal of Bitcoin is a currency as common as any other, legal and practical for goods and services on a large scale, then we need to answer some questions about what society that is.
Let’s assume that all technical hurdles of anonymity and scale are actually solved, and we have a perfectly anonymous currency, and compare it to digital non-anonymous currency like today’s “banks” and “credit cards”.
How would tax work?
Are you against taxes existing at all? All of it? Income tax, capital gains, VAT, duties, etc…
Sure, you can be an ultra-liberal to the point of being almost indistinguishable from an anarchist, but you and I both know that most people are not, and they won’t be.
Most people want and will want a government, and in the west even democracy.
If there’s no way for the government to check, then there’s no way to get caught. Why not pay everyone under the table? Today stores and taxis (bloody black cabs) dealing with cash have the opportunity to pocket money tax free. But there’s at least some work to keep that quiet. And it’s not always easy to spend the money either. It’s hard to pay rent, buy a car, a vacation, and all other things using untaxed money.
And if you get audited today it’ll look suspicious if 100% of your legal money goes towards rent, since the tax man knows that you need to eat too.
When paid in bitcoin both employer and employee have perfect deniability about how much is being paid. Bonuses can be simply transferred in bitcoin.
So in the end rich people will pay zero tax, and poor people much less than today. All untraceable. If there’s a social safety net for people who can’t afford food then everyone will be entitled to it.
If I don’t tell you my password before I die then that money disappears.
If I do tell you my password before I die then it could disappear before I die.
What’s Bitcoin’s plan for this? Just suck it up as inflation? What if someone or something worth 10% of the currency dies? Which brings me to…
Do you want a society where one family can collect 50% of the world’s money? To want a digital anonymous world you not only say “yes”, but you also want to say “yes, and future generations should not be allowed to know if this happens”.
Today we can at least investigate how much money rich people have. They hide it in complexity, but not with unbreakable math.
Individuals are not competent in every field humanity does
When was the last time you tried to get cash and the ATM said “sorry, we forgot the password to your account, so your money is gone”?
With Bitcoin people will have (and have had) hard drive crashes that have destroyed fortunes.
A society like this makes no sense.
Bitcoin exchanges are not regulated
… or at least not as regulated as banks.
Every idiot with a Cloud account can just become the bank and steal all the money.
Or claim that someone else broke in and stole all the money.
Or turn your bank into a Ponzi scheme after someone steals all the money.
- Mt. Gox. In one breach 6% of all Bitcoin in circulation was stolen (4% of all Bitcoin that will ever exist). Imagine if 6% of all cash were stolen. And realize that some of that bitcoin that you use is stolen property.
- Phaser Inc
- Many many more
With game money you and the robber can just shrug and say “this is part of the game”, but when it’s about your non-disposable real money it’s not so funny anymore.
Fraud (e.g. credit card fraud) is often solved by reversing the charge. This not only returns the money to the victim but also puts the incentives in the right place. Consumers don’t have the power to force chip-and-pin, so there would be no point in placing the incentives with them.
Thought it was annoying to get a virus before? Now it’ll take your bank account with no possibilty to fix it. You can’t really insure against it either, because another crime that’d be trivial and untraceable would be insurance fraud.
Fraud handling works much better “for the little guy” today than with Bitcoin. With Bitcoin fraud is not fixable.
Banks get hacked, or sometimes just make mistakes in big transfers. How do you fix it? Yes, you reverse the transaction. What if the recipient has withdrawn all of it as cash? You send the police after them. And people know this, so they almost invariably don’t.
“If you are bank then don’t make a mistake” is obviously not the answer.
Are you simply OK with money laundering as a thing everyone should do? I’m not.
“Follow the money” for crime investigations
Bob is murdered. Alice transferred $100k to known criminal Dave 7 days prior. It’s not conclusive proof in itself, but you know where to start this investigation, don’t you?
Alice withdrew $100k 7 days prior, has been seen handing a bag to Dave, and Dave now needs to carefully and competently launder that without making a mistake.
Bob is murdered. The End.
Without bitcoin ransomware would not exist
To participate in bitcoin is to enable ransomware. Yes, you can shrug and say “guns don’t kill people, people kill people”, but you have to admit that this is starting to add up. You have to shrug at a lot of suffering in the world in order to support bitcoin. People literally die who would not die if cryptocurrency didn’t exist.
How much shrugging is too much for your abstract notions of decentralized currency? (and it looks like it’s not even all that decentralized anyway, but this section assumes a perfect cryptocurrency)
Section 3: But it’s just like cash and that’s fine!
Bitcoin is really really not like cash. For small transactions, yes. But more of the same is not the same.
One example: Kamikaze-robbery
What happens if a huge pile of cash is left unguarded for 2 seconds? It might get stolen. Someone could grab the bag and run. They may even be armed. But the robbers can only grab as much as they can carry, and they have to keep it safe. The police will run after them, and often the money is recovered.
What happens when someone goes into a bitcoin exchange armed to the teeth, demanding all bitcoins in the exchange or the hostage will die?
What happens when a rogue employee of a company holding bitcoin (e.g. an exchange) realizes that due to a security mistake they have access to $1B worth of bitcoin, and they take it?
Well… they’ll probably get caught. Let’s assume the government exists, or at least the police does.
Now what? The money is gone. The robber didn’t even need an exit strategy, and can just surrender. Their family is set for life, and only one person went to jail, and maybe only for a few years. When they get out they’re rich.
ISIS could do this today. They could even go in, steal a billion dollars, and then blow themselves up.
You could literally kill a bank and take all its money.
HSBC got a slap on the wrist for laundering terrorist money, but at least we know about it
Yeah that happened.
If the world were Bitcoin then HSBC would not be needed. Bitcoin is dishonest money laundering because “money laundering” is just the flip side of honest “anonymity”.
Section 3: The electricity
Some of the electricity aspects are in theory possible to fix, I’ll admit. But the current state is absolutely horrible.
As of 2017-11-10 Bitcoin consumes about 1.7GW of power. That’s about 1.5-4 nuclear reactor’s worth of output (depending on reactor size) at a cost of about 1.3 BILLION dollars annually.
All this to support 7 transactions per second.
Bitcoin is built on burglary and theft
As of approximately now-ish (depends on BTC value of the day) it’s not economically feasible to pay for electricity to run Bitcoin. So why does Bitcoin run?
Because it’s run on stolen power. Hacked machines, fraud, abuse, and malware runs bitcoin.
You don’t need to go to Silk Road to be part of the criminal parts of Bitcoin; Bitcoin itself runs on crime.
Electricity cost floor
This is another major reason I strongly dislike Bitcoin. As long as participating in mining or transaction validation is compensated this sets a floor on the cost of electricity.
Imagine I invented a device that lowered the cost of electricity production to 10% of what it is today. How would that affect the price of energy for consumers, to save money for consumers, resources for the world, and enable new uses of energy previously not economical?
In a Bitcoin world: Not at all. The price was already at the level where it was rational for someone to pay that in order to make Bitcoin. If the price drops, then that pushes up demand until supply runs low causing the price to be back to exactly where it started.
Placing a floor on the price of energy is just about the most evil thing that can be done to civilization, the world economy, and everything affected by it.