Bitcoin is down by half year over year, and is lower than it was five years ago. The “to the moon” sloganizing is gone, as is the injunction to HODL no matter what.
Recall that HODL is a hip way to say “Hold your bitcoin,” misspelled in some internet forum and deployed to insiders to do something that has turned out to be very bad financial advice.
I’ve followed this sector closely now for 16 years.
I started as a skeptic, turned into a true believer in 2013 against my better judgment, and now watch in amazement as the thing that was going to bring the world wealth and freedom has turned into a tool for mass financial surveillance on a scale that would have been heretofore unimaginable.
It pains me to write this because for years, I cheered on bitcoin the way you do with a son who keeps falling short on his grades. You do what you can. You try to boost confidence and help with good advice. But there comes a point when you just have to wash your hands of it.
That point is now. That is not to take anything away from the genius of the technology. There are other ways to use blockchain tech and tokenization that are consistent with the original dream.
But as for bitcoin itself, it was slowly and relentlessly twisted to become the opposite of what it was founded to be.
The troubles began shortly after I had converted to the cause. It was early 2013 when I first became an owner and experimented with its peer-to-peer methods of moving scarce packets of information in a secure way. No name, no bank, no mediating institution. Just pure monetary trade.
That’s it, I thought, a stateless money. People had been trying to achieve this since the early 1990s but without luck. The systems kept getting hacked. Or they were run by a private company with a proprietor who ran off with the money.
The significance was even greater. For thousands of years, governments have controlled money. Sometimes they even bragged that money itself was created by the state—obviously untrue if you look at the history. In any case, seizing the money was always and everywhere the first priority of regimes, and that is precisely where the problems begin.
The theorist F.A. Hayek in 1976 posited a different system, something run entirely outside the purview of governments. He speculated about a commodified basket of goods that could be turned into tradable assets. The government could have its money, but the private sector would use something more reliable.
He wrote too early to imagine digital assets. But with bitcoin, we seemed to have solved the problem of hacking. And because it ran on a ledger called the blockchain—a public ledger that no one company controlled—it solved the problem of corruption. Its double-key cryptography made transactions secure from prying eyes. And its strict limits on the rate of creation meant the value could only go higher.
Not only that, but the inventors of the system thought through the incentives too. If you volunteered computing power to host the blockchain, confirming transactions as they came in, you would be rewarded with newly created coins. They called this mining, as an homage to the gold standard. Genius!
Seeing all this come together, I wrote my first article that celebrated this new thing in February 2013.
It was later that year that the Treasury Department lowered the boom on who could and could not exchange dollars for bitcoin. Only approved exchanges can do that. The edict came in a single-page PDF. Instantly, thousands of start-up businesses were criminalized and destroyed. Getting such approvals was way too expensive.
Overnight, governments controlled the on-ramps and off-ramps to the system, with the aim of surveilling the entire system.
That was disorienting, but we still had the bitcoin ecosystem itself. So long as you stayed within it, the thing could grow and compete with government monies. We were still in good shape.
But there was one sticking point. It had to do with the protocol itself, which had temporarily frozen the digital size of blocks that could be added to the ledger, if only to prevent spam in the early days. If the system was to scale to meet the needs of trade, these blocks would need to be expanded.
And grow it did, as more and more businesses started accepting the token while customers were downloading wallets and even accepting payment in it.
This takes us to 10 years ago, when suddenly a controversy arose within the community. Some very powerful people in charge of developing the underlying code decided that they did not want the block size to expand. They did not want to scale. They did not want adoption. They did not want merchants to accept it.
This boggled my mind. How can the whole theory and reason for the existence of bitcoin be flipped on its head? Something was going on, but it took me years to figure it out.
Meanwhile, of course, the system slowed down even to a snail’s pace. It would take days to get a transaction confirmed. This was because you had to wait in line. The blocks were so small and the demand so high that the entire system was severely throttled. And not only that, the sheer expense of sending became egregiously unaffordable, like a luxury good.
And yet, all the while, the oligarchs of the system said that all of this is just fine. It’s working as promised. Besides, they said, they are working on a second-layer technology that would solve all the seeming problems. That it was not secure and not really democratic like the base currency was merely a reflection of how new it really was.
Meanwhile, these same people were telling everyone not to sell because the price was headed to the millions, many millions. They would all soon be rich. Just hang in there.
The price ebbed and flowed, sometimes crashing by half and then recovering again. Unstable doesn’t quite describe it. It was obviously not useful as a store of value in any case. The only investable dollars in this system were discretionary, unless you were a crazy person.
Today, we are looking at a severely broken system that serves the cause of state surveillance better than anything in history. If your wallet’s public key is ever matched to a single transaction—something that courts can demand very easily—every transaction you have ever made becomes visible to the authorities or anyone else.
Banks typically keep records for three years or seven at most. Bitcoin transactions are forever. Authorities can trace back your sending and receiving records to 2009, and they will be able to do this until the end of time. It’s the absolute abolition of all financial privacy.
The shock to me personally in discovering this has been indescribable. Clearly I had let my enthusiasm for a technology outrun my rational skepticism—not a wholly unusual problem in our time.
To be sure, there are other coins out there that avoid some of these problems. Some are fast and low-expense. There are privacy coins that prevent tracing and surveillance, but these are not allowed to be traded on regulated platforms.
I was looking through the website of the Bank for International Settlements and found a blueprint for how they will use the blockchain to tokenize not only money but all existing property. It’s what they describe as a financial architecture for the rest of the 21st century.
Don’t you find it remarkable? I do. What is the lesson here? It shows you just how voracious is the appetite of governments to control our money and lives. It further serves as an example of the fact that it is a good idea to read the fine print and imagine all the ways in which promises of utopia can go wrong.
Above all, the story of bitcoin underscores a key point: Freedom cannot come from a technical change. It only happens with a population-wide commitment to an ideal and a willingness to stand up and fight for it. There is no magic invention that can substitute for that.
