tl;dr
Drugs:BTC::Petrol:USD
Speculation ultimately hurts long-term value prospects
Decentralized stuff has to provide a better end-user experience than centralized alternatives; it can’t merely be good on paper
Reference if you need it:
Bitcoin is an abstract concept that runs on a blockchain network of connected bitcoin client software nodes.
To use bitcoin as it was intended you would need to download the client software, run it to create a node, and let it sync with the network.
Each “block” of data is an encrypted set of transactions in a ledger and the “chainlinks” are hashes of that data.
“Hashes” are unique IDs algorithmically created from sets of data; a data fingerprint. These hashes also double as encryption keys for decrypting the blocks.
People have built frameworks on top of bitcoin enabling it to do more and the bitcoin protocol itself frequently receives updates. Like any actively maintained software, it's always improving.
The core client software functions both as a blockchain node, a wallet address, and a mining tool. Bitcoin is “printed out of thin air” on the blockchain through mining, which entails processing power basically being wasted on dehashing the hash value at the end of the previous block.
This means every single person using the network can know the amount every single wallet has in it if they go back through the chain, decrypting along the way. Not a single person has been able to hack the blockchain yet because any modified transactions would conflict with the majority of the network, preventing that data from propagating during the syncing process. However, most people do not use bitcoin as intended and instead entrust their bitcoin to third party wallets, which have been hacked.
At first glance that shouldn’t seem like a very valuable piece of software. You can play with game software, learn with browser software, work with word processing software, but what does blockchain software literally do? Generate numbers in a database when a computer wastes electricity? It’s kinda cool you can transfer those numbers to other people, but you could send arbitrary numbers to people before with email and it’d be a lot more efficient.
The people who know just enough about crypto to scam you will tell you the secret sauce is DeCeNtRaLiZaTiOn. Wait til they learn we had a decentralized method of exchanging not just numbers, but whole porn videos in 1999. I’m def not saying decentralization itself is bad, only those MBAs who tainted it into yet another bullshit buzzword. Their worst crime was being wrong about why bitcoin’s valuable.
Sorta the other side of the coin are the cynical speculators who are more dumb than bad. They view cryptocurrency as nothing more than neopets; digital beanie babies. Many in this faction saw what happened with the dotcom bubble, so they’re a little more wise to utopian technocrat marketing campaigns. They think crypto is just a gambling loophole and they’re right. For the most part. Most people, even the naysayers, seem to have figured out there is an exception to this rule. So what makes bitcoin special?
First of all, Satoshi Nakamoto. No one knows who actually came up with bitcoin. Satoshi is the pseudonym the author of the first whitepaper about bitcoin gave himself. He had two incentives to do this. One, he knew the government would inevitably crack down on anyone trying to create an alternative currency. There was a not-subtle War on Bitcoin for a while. The only thing you saw on corporate media was that bitcoin funds pedophiles and hackers. China embarrassingly tried to enforce laws against it for a while. In a few short years bitcoin won the War on Bitcoin, kicking off the crypto gold rush. China might be trying it again now, but all that means is they’ll lose some tax revenue.
Another key difference was the bitcoin faucet. While all the mining and syncing and wallets were part of bitcoin from the get-go, not many people would bother going through any trouble for something as worthless as bitcoin circa 2009. So someone used their laptop to mine 50 bitcoin every ten minutes and created a website that automatically sent some bitcoin to any wallet address users typed into the form. You didn't have to prove any work was done for this free money. All you had to do was stick out your hand.
Contrast that with any contemporary crypto. I still remember the first time I heard about “initial coin offerings” and “pre-mined coins”. I thought I misunderstood something about the article I read, but no, these niggas really over here witholding cryptocurrency they generated to create artificial scarcity. Anytime you hear “pre-mined” coins, you won’t be exchanging your fiat currency for a cryptocurrency, at best you’ll be investing in the company that made it and at worst you’ll be the victim of a pyramid scheme.
To blockchain programmers in the future: don’t pre-mine, do something the bitcoin blockchain can’t, and do it better than one can via traditional means. I get that your goal is just to make money, so you fork an existing cryptocurrency, spend all your savings on marketing, and ultimately run an ICO scam. There are over 1,000 cryptocurrencies actively traded right now. Not all altcoins can make the cut so flooding the market with another clone of Ethereum just makes it harder for everyone. I get that you’re literally printing money, but it’s making the whole industry look bad and when normies have a better grasp of what you’re doing, they’ll come home to roost eventually.
To everyone else playing the lottery with altcoins that other people made: playing roulette gives you better average payouts than a crypto you make yourself. With roulette you can put it all on black, but how many altcoins would you say have a 50% chance of doubling your investment? Let’s just assume only the 37 top cryptos have a serious chance of surpassing bitcoin and you’re well-informed enough to choose one of them. Do you really think you’ll adopt early enough and sell late enough to end up with a 35x ROI? If you’re not a founder, probably not. While cryptocurrency has made it far easier to circumvent anti-gambling laws, it’s trivial to gamble online legally with fiat and there is a much higher expected value doing it that way.
People suddenly becoming wealthy draws a lot of people into the cryptocurrency space. I don’t think the “cryptolotto” aspect is the predominant source of bitcoin’s value because there are better ways to get rich quick. If you’re still determined to play, please avoid succumbing to “line-scryers”. They’re the source of the most misinformation in the cryptocurrency community. These guys use needlessly complicated equations and jargon to justify their gut instincts, which for some reason always seem to be that whatever they’re heavily invested in will spike in value.
The truth is that hindsight is 20/20, you can find an equation that fits any set of data, and it’s easy to succumb to confirmation bias. The best way to make financial predictions isn’t poring over mesmerizing graphs, it’s reading the news, or even following celebrity tweets. Though even that isn’t great. These sorts of grifters are not unique to cryptocurrency. In the stock trading industry, index funds (which autobuy a little stock in each of the top 500 companies) outperform hedgefunds (which produce beautiful, inscrutable graphs to justify intentionally selected stock picks) more often than not.
A lot of people will tell you in the future we'll all “be our own banks” using bitcoin, then turn around and store their own bitcoin in a centralized wallet. Judging from how lucrative and stable a career as an accountant is, it seems most people don't like handling their own finances. Crypto is no different. Most people store their bitcoin in a wallet that a third party has access to (despite what their promotional materials say) and charges exorbitant fees for the privilege (go learn how the fee system is supposed to work). Protip: if you have to show someone else your ID to send your crypto somewhere, it's not in your possession.
I hate to admit it, but centralized fiat banks have another advantage. Have you ever gotten ripped off by PayPal or Amazon? In case you didn’t know, you don’t necessarily have to bite the pillow and take it. You can call your bank and ask them to stop the transaction. Unless you’re a millionaire, there’s nothing you can do against megacorps. I’m not saying central banks never fuck anyone over, but they can be sort of… a bully on your side. At least that’s been my experience and I ain’t rich.
You’ve technically been able to live off purchases you make with bitcoin transactions for several years now. You can stay in a hotel, buy all your groceries, cars, computers, furniture, even pay for healthcare with bitcoin. Yet the majority of income for these companies is still in fiat. Why? There’s a huge incentive to hold your bitcoin in the hope that it explodes in value. I’m still kicking myself for donating 3 bitcoin to an indie gamedev back in 2013.
When you can literally find fiat currency littering the ground it doesn’t make sense to waste your bitcoin on a bag of rice. In hindsight, that bag of rice may have cost you $10,000 if you pay with bitcoin and it moons again. On top of that, all the intermediary apps/giftcards you’d have to go through to purchase some stuff with bitcoin make it so transactions with bitcoin cost you more than with fiat, regardless of taking deflation into consideration.
Bitcoin is far better than centralized banks for one type of transaction: illegal. It was worth a negligible amount til darknet black markets like the Silk Road started popping up. Doing illegal business in bitcoin only makes your wallet address public, not you or your IP. If you tried to wire fiat money to a drug dealer or even to yourself in a different country to evade taxes it’d be trivial for the authorities to track you down. You have to put a shitload of information into any transaction you make with a bank or money order. Don’t forget that before bitcoin all the ways to send money electronically had exorbitant fees. It’s not just drugs either, bitcoin is great for committing all kinds of crime, extortion, assassination, tax evasion, you name it.
If you take nothing else from this article, take this: there are certain transactions that can ONLY occur with bitcoin (if you hope to remain out of prison). This necessity transmutes it from a mere currency into a commodity. It has strong parallels with the petrodollar system. America produces a lot of intellectual property and most of our natural resources stay here, so we don’t do a whole lot of exporting goods to other countries.
What they didn’t teach you in Civics class is the USD mostly has value because other countries are forced to always have a supply of dollars on hand. At least if they want to buy petrol from most oil producing countries. Sure, right now the oil market is larger than the black market, but every country in the world is desperately trying to stop consuming petrol. On the other hand, I don't see crime being legalized any time soon.
Theoretically, perhaps one could get away with buying drugs online by mailing cash, but again, it’s not as easy or risk-free as copy-pasting an escrow wallet address and clicking send. If you tried to use cash in-person there's always the risk of getting robbed or busted. So is the claim that in 2020 only 1% of bitcoin was used for illicit transactions a bald-faced lie? Not quite… because speculators and technically legal scammers make up most of the market now.
Unlike so many cryptocurrencies these days bitcoin doesn’t merely have its heart in the right place, it’s not simply cool on paper, it makes the existing financial structures obsolete. Every crypto has some gimmick. Dogecoin has a cute mascot. Ravencoin uses a mining algorithm that’s ASIC resistant. DeFi very well may provide a better user experience than its centralized counterparts one day. When all those social media dapps give you their custom crypto for engaging on their platform what they’re really doing is giving you their equivalent of reddit karma. They’re internet points that are difficult for admins to arbitrarily take away, which is neat, but again, it’s far easier and more efficient to use conventional methods.
The only reason you can trade those internet points for money you can buy things with are the speculators who hope they won't be left holding the bag. Without them, crypto is mostly really cool to think about. Bitcoin’s advantage is not theoretical. It has an advantage right now over alternatives: ending up in prison for committing felonies. No other crypto provides anything close to that valuable… which is exactly why their value can be mostly attributed to the value of bitcoin.
So bitcoin’s the head of the cryptosnake. Wow! You just can’t get this insight anywhere else. Does that mean the whole cryptocurrency movement can be killed if the government kills bitcoin? No. The value bitcoin provides, the function bitcoin provides, is that it makes illegal transactions orders of magnitude safer. If bitcoin was made illegal and they, y’know, actually tried to enforce it, the best case scenario for the government is 100% of the speculators dump their bitcoin, leaving most of the bitcoin with hackers, drug dealers, and most importantly, their customers. In this scenario the BTC:USD exchange rate would certainly plummet, but it’d never go to zero.
Unfortunately for the feds their best case scenario isn’t very likely because a law like that would be impossible to effectively enforce. China pulling off a 51% attack on bitcoin and for some reason killing it by wiping everyone’s wallets is actually more feasible, but even in that case other cryptos exist. People are currently poised to start using Monero (XMR) as a back-up crypto for criminal transactions.
You might be wondering why XMR hasn’t surpassed BTC as predicted if the ability to commit crimes efficiently is truly the source of its value. Bitcoin was first, criminals trust using it, they don’t want to fuck with something else, and here’s the rub: the government has yet to bust anyone by tracing their bitcoin transactions alone. Since the very first iteration of Silk Road in 2011, anyone handling significant amounts of bitcoin for illegal purposes has been tumbling their coins and using all sorts of tricks to cover their tracks.
If law enforcement officials seize the drug dealer’s personal financial records or even put up a honeypot darknet site themselves, they can use that in conjunction with bitcoin data to make the conviction a bit easier. If the feds seized the server logs for a darknet market but we lived in a world where customers mailed cash directly to the darknet drug dealers rather than using bitcoin, they’d still have the server logs and a huge bag of cash. The only difference would be they wouldn’t have those detailed financial records of who mailed which cash envelope to whom. Also in the real world, an anonymous internet drug dealer will be hard-pressed to find customers willing to mail cash in an envelope.
Anyone using darknet at this point knows they have little to fear though. Only a few hundred arrests have been made from the hundreds of millions of darknet transactions that took place in the ten years darknet markets have been an option for consumers, and most of them were international drug dealers rather than people buying for personal consumption. Most of the time the people who get caught were being sloppy, like these guys who didn’t realize how conspicuous it was to pull out millions of dollars from preloaded giftcards from the same few ATMs.
I’ll let you in on a little secret: all those crypto asset managers, crypto corporate lawyers, or plain ol’ crypto blog authors claiming crime has little to do with crypto’s value have an agenda. They’re speculators who want their personal crypto investments to maximize their ROI and they know they can increase the likelihood of it happening by managing data. That’s my agenda too; most of my money is currently in crypto. What most of these guys don't understand is why bitcoin has any value to begin with. They’re just speculators. So why am I being so candid? I know that, even if the growth may slow, it’ll be less volatile if all the unprincipled speculators stopped making crypto look like a scam.
I'm absolutely not saying the only value of blockchain technology is the ability to commit crimes more effectively. That's just bitcoin. NFT digital tickets are a huge improvement over existing e-tickets. One use I believe has potential is as a basic income substitute. A lot of people don't know this but there's already been a few attempts at a cryptoUBI. Unfortunately I can break down what I found in my investigation into 4 categories:
Project literally consists of nothing but a website with a mailing list or it's been formally shut down.
Project that has an actual blockchain product which seems to be actively worked on, but it's not functional now and there is no expected release date.
Cryptoscams AKA all the organizations that require a non-refundable payment to sign up, premined most of the crypto for themselves, and/or did what scammers call an "Initial Coin Offering" to give it an aura of legitimacy.
Projects that, once you get your account verified through an (understandably) intrusive slow procedure, you really do start receiving... a tiny amount of a crypto no one wants.
I digress. The only way a cryptoUBI could work is if there are things to buy with it. One of the cryptoUBIs I tried recently is Swiftdemand. The “store” is nothing but pirated ebooks or recipes. There’s no incentive to bother signing up, which requires your name, phone number, email, AND a selfie. The pain in the ass of exchanging the useless existing cryptoUBIs for BTC or USD makes the intrusive sign-up process not worth the trouble for most people. This is compounded by all the scams you have to wade through.
One of the early cryptoUBIs I liked, Grantcoin, had the right idea because there was at least a dedicated online marketplace where you could buy random junk and even food. It’s long gone now though, and I think you'd need a partnership with a megacorp like Amazon for a cryptoUBI to really get another one off the ground. It could also possibly work with enough local partnerships, like if Miami business associations all agreed to accept Miamicoin as currency. It will be harder to get them to do that cause they’d still have to pay taxes in USD and they wouldn't have a multibillion dollar slush fund for acquiring raw materials.
I have faith that we’ll use blockchain democracy tools to interface with the government within my lifetime. Blockchain tech is here to stay and it’s so much more than a get-rich-quick scheme. Economic indicators get worse every time the Federal Reserve does another round of quantitative easing. I don’t want to be left holding a bag full of worthless USD, so the majority of my wealth is already in bitcoin. So far it’s brought me nothing but drug highs and smug highs. If your goal is to multiply your money with the least effort, bitcoin is still the way to go, though it’s not impossible to get rich if you get in early enough, sell late enough, and are lucky enough with an altcoin. I’m apparently the first person to draw attention to the petrodollar parallels so if you’re reading this, congratulations for being on the cutting edge of cryptocurrency theory.