Bitcoin Is (Still) Not Doomed

This article was originally published on December 24, 2014 by Bitcoin Magazine. They have since removed it from their website, so I am republishing it here.

Washington Post columnist Henry Farrell has just added himself to the Nakamoto Institute’s running list of skeptics making bold assertions about the certain demise of Bitcoin. In a post entitled “Bitcoin’s financial network is doomed,” Mr. Farrell demonstrates his short-sightedness in the face of Bitcoin’s subtlety and allure, perhaps as a cunning-though-not-so-original means of acquiring cheap coins for himself. Regardless of his motivations, I couldn’t resist a full rebuttal, if only to reassure the weak hands among us that no, Bitcoin is still not doomed, and yes, Mr. Farrell is in for a rude awakening if he really believes the poor arguments he makes in his Post article. Without further adieu, a rebuttal to Mr. Henry Farrell, Bitcoin Skeptic:

“There is a reason why you have to “comply with hundreds of pages of regulations” to use the Visa network that goes beyond Visa’s selfish corporate interests. That reason is government.”

No, the reason you have to comply with hundreds of pages of regulations is that those networks are run by centralized entities that reside in a particular legal jurisdiction and are therefore vulnerable to attacks by the government and other powerful adversaries. The centralization of the networks precedes their vulnerability. Without this vulnerability, government regulation is as effective and enforceable as a law against breathing. See: Bitcoin.

“Governments regulate payment networks very heavily, for a wide variety of reasons, which include making sure that people don’t use these networks to support activities that governments don’t like. They use financial intermediaries as ‘points of control’ that allow them to control who does business with whom.”

Yes, and politically marginalized journalists and businesses are great examples of how this power is abused. And Bitcoin is a great example of how this power becomes irrelevant.

Quoting Obama administration official David Cohen,

“Carefully designed and customized to maximize pressure, [economic sanctions] have impeded Iran’s ability to acquire material for its nuclear program, isolated it from the international financial system, drastically slashed its oil exports, and deprived it of access to a sizeable portion of its oil revenues and foreign reserves.”

This sounds like a great argument for Iranians to convert their oil into electricity to mine bitcoins, which can then be sold locally, exported to be sold abroad, or sent anywhere in the world to buy whatever they need directly for bitcoin.

Continuing the quote from David Cohen,

“Not surprisingly, the impact on Iran’s economy has been dramatic: its budget deficit and inflation have spiked, the value of its currency has sharply declined, foreign investment has all but dried up, and overall economic activity has stagnated.”

Collectively punishing an entire population of millions of innocent, peaceful people for the actions of political leaders that are forced on them doesn’t sound like something to brag about. But like Madeline Albricht before him, I’m sure Mr. Cohen would say that the Iranian people’s suffering is “worth it.

Continuing the quote,

“Put simply, financial institutions everywhere need dollars to serve their customers, and thus require access to U.S. banks through correspondent accounts to settle their customers’ transactions.”

They need dollars, until they don’t. And with many fiat currencies growing weaker by the day, people may elect to do an end-run around their rulers and choose a politically-neutral option like bitcoin instead of trusting their government not to mess up the next attempt at fiat currency.

“Now, imagine the likely response of the U.S. (and the E.U., and, for that matter, China) to a payment network which is designed from the ground up to be decentralized, so that it is impossible for any specific intermediaries to really control payment flows from one actor to another.”

I imagine it looks something like the nation-state equivalent of a young child throwing a tantrum because their parent didn’t buy them a particular toy at the store. Baseless threats. Pounding fists. Bargaining. And, finally, acquiescence.

“Such a network would be impossible for states to control.”

Yes, and that is a good thing.

“While Bitcoin allows consumers to buy illegal drugs on Tor Hidden Services sites like Agora and Evolution, they don’t do so on a sufficiently large scale to really cause enormous alarm.”

‘They’re just subverting a decades-old policy of prohibition out in the open, no big deal.’ Keep downplaying bitcoin’s revolutionary effects, Mr. Farrell, it just makes the rest of your arguments look even more absurd. In reality, politicians probably learned after the first “enormous alarm” that they raised about this capability that they should just shut up and let law enforcement do their job rather than draw too much attention to the fact that people can easily go online and buy “any drug imaginable” using bitcoin.

“But if Bitcoin were ever to threaten to become a truly decentralized payments network, owned by no one, and with no one e.g. capable of implementing Know Your Customer rules…”

In case you didn’t notice, Bitcoin already is a “truly decentralized payments network, owned by no one…”

“If Tim Lee and other Bitcoin fans want to make the case that Bitcoin can become a major payment network, they need to do one of two things.”

Bitcoiners don’t need to “make the case.” Bitcoin is.

“First, they could show that the U.S. and other major states would not feel threatened by a well-established payment system that they couldn’t control.”

Telling such a story would be lying. The good news: the sooner they assimilate, the less painful it will be.

“Second, they could show that a Bitcoin financial network would survive the opposition of hostile states that have enormous control over the actually-existing financial systems that Bitcoin needs to connect to, as well as regulators, police, etc.”

As former Executive Director of the Bitcoin Foundation Jon Matonis pointed out in Forbes almost two years ago, a ban on bitcoin would “fail miserably.” The only remaining option to curb adoption would be to attack the network itself (as opposed to the endpoints that a ban would target). Given the time and resources required for such an attack, bitcoin adoption could spread to the point that a concerted attack on the network would be too expensive before such an attack would even be feasible. As suggested earlier in this post, it’s not unimaginable that marginalized States (like Iran) would contribute resources to secure and utilize the Bitcoin network. I have already heard rumors that a government in China is converting locally produced coal into electricity to mine bitcoins because it’s not worth exporting the coal itself. Assimilation may be occurring sooner than expected.

Even if a State were to marshal the resources necessary to launch a credible attack against the Bitcoin network, developers could change the code within hours to render an attack impotent, and a game of whack-a-mole would ensue which would likely be a) politically unpopular since, presumably, a lot of people actually want to use bitcoin b) financially draining, since new specialized computers would need to be manufactured for each attack, consuming huge amounts of electricity in the process and c) pointless in the long run, since there are hundreds of alternative cryptocurrencies people could choose to use instead of bitcoin if things got really ugly – good luck trying to attack them all!

“Bitcoin is doomed as a payments network — the very point at which it looks as though it is likely to be widely deployed is the point at which governments, like that of the United States, will crack down on it.”

Even if this were true, it would not render false any of the above arguments in favor of Bitcoin’s survival. Bitcoin can – and would – survive a direct attack.

“US understands the value of its influence over the global financial system, and is demonstrably willing to upset business in order to pursue its strategic aims.”

Yes, and like a bull in a china shop, destroying all that is good in the process – except Bitcoin.

“Moreover, much of this power comes from the fact that any individual payment system, if it is to be effective, needs to be interoperable with other payment systems which, by and large, rest on transactions in US dollars.”

Bitcoin already coexists with fiat payment networks via payment processors such as BitPay, but if hyperbitcoinization were to occur, that wouldn’t even be necessary anymore. Bitcoin would not need to interoperate with other payment systems because it would be THE payment system. And it would not “rest on transactions in US dollars” any more than the auto industry rests on the supply of horse feed. Given sufficient liquidity post-hyperbitcoinization, a bitcoin wallet and an Internet connection is about all that will be needed to conduct commerce of any magnitude with anyone in the world.

“The sorry recent history of financial flows to and from another stateless financial system, Somalia, provide some evidence of how difficult life can get for financial networks that have been targeted by the US state.”

The history provides evidence of how difficult life can get for centralized financial networks! As pointed out at the very beginning of this piece, this is a vulnerability that Bitcoin explicitly by design does not share. For this reason, Bitcoin will survive where others have failed. With this in mind, cue the dramatic music and bring on the doom!

by John Light

BTC address: 12sJXtV8aQ8orQFhmaqe5KRsKoC7tsRuoT

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