I have seen the future of Bitcoin, and it is bleak.
The Promise of Bitcoin
If you were to peek into my bedroom at night (please don’t), there’s a good chance you would see my wife sleeping soundly while I stare at the ceiling, running thought experiments about where Bitcoin is going. Like many other people, I have come to the conclusion that distributed currencies like Bitcoin are going to eventually be recognized as the most important technological innovation of the decade, if not the century. It seems clear to me that the rise of distributed currencies presents the biggest (and riskiest) investment opportunity I am likely to see in my lifetime; perhaps in a thousand lifetimes. It is critically important to understand where Bitcoin is going, and I am determined to do so.
My hundreds of hours of thought experiments have been productive. I published a whitepaper about the future of Bitcoin, and because of that paper I’ll have the great privilege of sitting on the “Bitcoin in the Future” panel at the 2013 Bitcoin Conference in San Jose. Through these years of deliberation I have satisfied myself that the answer to the “Trillion Dollar Question” of whether any form of distributed currency can ever achieve a stable price, is “yes”. (There are three ways this will happen, as I have written elsewhere).
I have been predicting for years that the world’s first trillionaire by USD valuation will be an early investor in distributed currency — quite possibly Satoshi Nakamoto, whoever he/she/it/they may be. I own a few bitcoins, and I intend to keep them until I find a more attractive investment (that is, I want to invest in whatever replaces bitcoin or builds on top of it).
To many people, this sounds like an implausibly rosy future, and for early adopters that is true — it feels like winning the lottery every day. However, for most other people, the ascendancy of distributed currency systems will feel like a disaster. If you are involved in Bitcoin now, you should prepare to be almost universally hated someday.
In this article, we will examine a few simple thought experiments to show how the rise of distributed currencies such as bitcoin could create massive social upheaval due to governments’ rapidly degrading capability to fulfill their core functions of taxation and regulation of commerce. We’ll see how the end result could be extremely painful for common citizens due to previously unimaginable wealth disparities, hyperinflation of previously stable government-backed fiat currencies, and a greatly empowered criminal class.
The Bleak Future of Fiat Currencies
Anarchists and hardcore libertarians love Bitcoin, but most people outside those circles are not in favor of completely doing away with their government. If you aren’t part of a fringe political movement, chances are there is something the government does that you like, whether it’s handing out entitlement money, killing enemies, putting people in prison, building dams and roads, funding research, or any number of other things. The government can do these things because the government can collect taxes, which in turn they can do because the flows of money are highly regulated and tracked at every level. Whether you are collecting a paycheck, buying furniture, cashing out investments, or simply dying and leaving an inheritance, the government knows about it and takes a cut.
For our first thought experiment, let’s imagine a world where distributed currencies like bitcoin have become wildly successful due to technological advances which make them easy to use and completely stable. In this world government-issued money is as good as dead. It may take a few years for everyone to realize it, but there will come a point when the ever-increasing outflows of money from fiat money into untaxable, unseizable decentralized currency will reach a tipping point, and we’ll have a financial panic like the world has never seen. Frightened lawmakers and banks will try to stop people from cashing out, but that will just increase the panic. Those who don’t get out before the door closes will be in dire straits indeed. This is the ultimate bank run — the run on the world’s central banks, and who could possibly step in and restore order?
When people think of hyperinflation, they usually envision a Zimbabwean printing press running around the clock in the dark corner of a mud hut, putting ever more zeroes on cheap paper. Has it ever occurred to you that hyperinflation can happen while the printing presses are off? The value of the money in your pocket is not ultimately guaranteed by your government, but by simple supply and demand. The government controls the supply, and we control the demand. If demand falls precipitously, we have hyperinflation without ever needing to print another dollar or euro. If people start fleeing government currencies en masse, hyperinflation is the inevitable result.
The good news is that you don’t need to worry about current government debt in this scenario. If government currencies lose their value rapidly, debts which previously seemed overwhelming suddenly become much more manageable. Perhaps your debt-laden government will someday completely pay off it’s national debt by simply selling a few gold bars and a couple national parks.
The Bleak Future of Retirement
For our next thought experiment, let’s consider what will happen to Grandma. For her whole life, she has carefully saved her money, and now she is living in reasonable comfort. She gets money and health care from the government, and she has her own savings to fall back on. Grandma has done everything right, including taking her savings out of the stock market; most of her savings are now invested in the safest asset known to man: U.S. Treasury Bonds.
Rather suddenly, things start to go wrong. At the same time all her expenses start skyrocketing, the government has a liquidity crisis; they are having trouble collecting taxes and can no longer pay for her health care. Her savings are still “safe” in the sense that she will get U.S. Dollars out of them, but that is little comfort when those dollars which should have lasted years can barely pay her weekly grocery bill.
Grandma’s retirement has been sabotaged by the rise of a new kind of money that she can’t even begin to understand. All she knows is that she did everything right, and now she has nothing.
The Bleak Future Wealth Disparities
All the world’s wealth has essentially been stolen, but by whom? By you, dear reader.
We’ll be very lucky if we aren’t all rounded up and summarily executed. Thankfully, you’ll be able to use some of that money to purchase protection, but I’m not at all convinced that it will be enough. A wrathful government backed by an enraged population is a fearful enemy. Satoshi foresaw this long ago, and I doubt he/she/it/they will ever voluntarily come into the light.
If there are enough of us, and we are very careful and charming, we may be physically safe. However, the massive displacement of wealth will still have some awful consequences. People argue all the time about the societal benefits and drawbacks of wealth disparities, and the rise of distributed currencies will create disparities that previously did not seem possible. It seems clear that there will be a lot of jobs created by the new wealthy, but whether the average person is better off or not, one thing is sure to rise: resentment. What right do we have to take all the wealth of the world and put it in our pockets? Sure, a nifty new idea should pay off for early visionaries, but nobody ever expected a new idea to suck all the wealth out of the world like a financial black hole!
The Bleak Future of Law Enforcement
This is where things get really bleak. Currently distributed currencies facilitate money laundering, black market commerce (the Silk Road), and insider trading (TorBroker). These applications in their current form are just a snowflake on the tip of the iceberg. Not only will they get MUCH bigger, but we will see applications which are much less savory. Historically, the “Dark Net” accessible by Tor and private networks has been nothing more than a hidey-hole for illegal files and a hangout for paranoid schizophrenics, but it is quickly becoming the platform of choice for large-scale illegal commerce.
For this thought experiment, we will imagine that your child has been kidnapped and put up for sale on “TorSlaver”. Their business plan is to kidnap children and sell them to the highest bidder, whether parent or pedophile. The winning bidder is sent the location of the child, probably bound and gagged and dumped somewhere. As long as they don’t get caught doing the kidnapping, the kidnappers can do this again and again with complete impunity. Once someone proves it can be done, copycats will come out of the woodwork, and it won’t matter if the first mover gets caught.
As a parent of three small children, I cannot describe to you how awful this makes me feel. I have always been a very reluctant bitcoin investor, for this very reason. I don’t invest in bitcoin because I think it will bring about a happy utopian world. Quite the opposite. I invest in bitcoin because the rise of distributed currency is inevitable, and owning some bitcoins seems to be the best way to prepare for the chaos ahead. And just maybe, if I position myself correctly, I can make things a little less awful.
The Government Strikes Back
Does anyone really expect the government to sit back quietly and watch while their currency is debased, terrorism is funded, and children are kidnapped? The only question is when and how they will strike back against these forces. While the government does have a lot of options, ultimately those options only slow things down. At some point, we collectively with our governments face a difficult choice between trying to survive this deadly storm or attempting to destroy all decentralized computer networks (including the internet). The former seems unthinkable, the latter, impossible.
I wouldn’t be surprised if this chaos gives rise to a strong, centralized, one-world government which gets its revenues by tightly reigning in freedom of commerce in order to collect taxes. For instance, I will not be surprised to see a requirement someday that every person buying or selling have an implant which tightly binds their identity to the sale. Perhaps the implant will even be located on the back of the right hand or the forehead! This may seem repugnant to you now, but wait until you have lived in the storm for a while before you call it impossible. The natural reaction to the deadly chaos of decentralized currency is for the populace to embrace increasingly centralized controls on commerce. The battle lines are only just starting to be drawn, and your guess is as good as mine for how it will play out.
What Should We Do?
We need people thinking about this. I’ll admit that many of the things I wrote about may not happen at all, or may happen very differently than I imagine. However, there are lots of people touting the fantastic benefits that bitcoin and its children can give us, and I don’t see anybody talking about how bad things could potentially get.
We need solutions. When the government finally starts taking decentralized currency seriously, it will probably be doing so in a state of panic. We need to be advising governments now about how they can survive the storm and protect their populace. We need to think of ways the government can pay for its most critical operations, and what legislation makes sense to mitigate these new risks while preserving as much freedom as we can.
The Lifeboat Foundation is attempting to provide this thinking, advice, and solutions. They are already getting ready for a new advisory board, culled from computer scientists, economists, and bitcoin experts. If you make a fortune from your investments in decentralized currency, I urge you to consider how you can help all the people harmed by these rapid changes. Many bitcoin enthusiasts seem to think they will get to retire on a private island with a harem and a stable of Italian sports cars. This is wrong. Bitcoin investors need to someday become bitcoin philanthropists, and our giving needs to be targeted at helping all the people we have harmed. The Lifeboat Foundation is one option, but I’m sure there will be others.
This article first appeared here on the Lifeboat Foundation blog, but I have also posted it elsewhere.
Reddit version is here: http://www.reddit.com/r/Bitcoin/comments/1cos8x/bitcoins_dystopian_future/
Bitcoin forum version is here: https://bitcointalk.org/index.php?topic=180798.0
tl;dr: Wildly successful distributed currencies could hurt a lot of people.
Some interesting scenarios to think about for sure. Though I don’t doubt the transitory power of a deregulated/decentralized currency, I tend to prefer the more optimistic end of the spectrum, in which humanity is able to transition away from the capitalist/scarcity-based structures (upon which your scenarios are based) altogether, and towards an economic system that is instead based upon abundance for all, without any need for barter, ‘monetary exchange’, or forced labor.
In this scenario, it is possible to provide for all of humanity’s needs through technologies, available today, and automation. According to Jacque Fresco of The Venus Project, “technology has progressed to a point where it is now possible to produce more then enough energy and resources on our planet to satisfy all of humanity’s needs and enable all people to share in a very high standard of living; technologies which are clean, efficient, and do not harm the environment.” In a resource-based economy, “all of the world’s resources are held as the common heritage of all Earth’s people.” Fresco argues that the current capitalist economic system is based upon a scarcity of resources, which has ultimately lead to our monetary system being driven by the principals of debt and competition. In a resource-based economy on the other hand, “people have access to whatever they need without the use of money, credit, barter, or any other form of debt or servitude.” Over time, automated machines would intelligently manage the Earth’s resources and ultimately free human beings for the first time of all unnecessary laborious tasks. Far from a static utopia, however, a resource-based economy is designed to liberate humanity and allow people to pursue their true passions without having to worry about the fulfillment of basic needs. As such, individuals remain in control to determine their own individual paths and are empowered to develop society and themselves as they see fit. According to Fresco, “what is needed is a change in our sense of direction and purpose — an alternative vision for a sustainable new world civilization, unlike any in the past.” The Venus Project ultimately argues that the capitalist economic system is based upon an obsolete system of scarcity and that a more equitable and desirable alternative is achievable through the intelligent use of technology.
Call me an optimist, but I prefer to believe that the transitory power of bitcoins is taking us toward something resembling this sort of resource-based economy, rather than a perpetual capitalist-based societal decay.
-Chris
You had me reading all the way up to the implant part, sorry dude not all that into Bible prophicies. You didn’t mention the fact that bitcoin requires a network thats always up and running. Plan and simple bitcoins greatest weakness is its dependency on the internet. New p2p wifi networks will need to be put in place to secure bitcoin indefinitly. Its sad that it took this long to develope bitcoin because 15 years ago the internet was free and privatly owned, now its regulated and ruled by the government and wealthy elite.
I had to link my post on bitcointalk. I dont have many responses and dont think I will get many due to the fact that it shatters all the optimism about cryptocurrency, but this is a real issue on a global scale. it needs to be debated and talked about. This seems to be the only real down to earth post I have seen on bitcoin. Here is a link to my post please reply, debate, argue, etc. It needs to be done.
https://bitcointalk.org/index.php?topic=181564.20
I have two children. I am committed to an alternative to currencies altogether. I am a simple math teacher, I do not have the scope you have in being able to consider the various thought-experiments as you have, and I would invite you to consider the potential of MTTP and EDP and SEA at ecosquared.com. I am currently writing a fictional account simply because I don’t have the capacity to mount an academic exploration.
I think you are wrong, not so much about the future of decentralized currencies. A decentralized currency, if it can meet the demand, can be just eh final step to an independent currency. Something Germany tried with the Bundesbank and currently Europe is doing with the Euro.
The German government has and had no real control over the money supply, it had to except what the Bundesbank decided and live with it.
The question is, when will the governments accept taxes paid in a distributed currency. And when will more government regulate the broker and trade places for such a currency. If those become mainstream, I’m sure stock exchanges like the NYSE or Frankfurter Börse will take over the trading, they have much more ressources to fulfill this role and are much more trusted.
From my personal view point, there is not much difference between a fiat currency and a distributed currency, except one, which could be called kinda major: a current fiat currency is backed by the economy of one or more states. A distributed currency is only backed by supply and demand and since you called Bitcoins an investment I doubt it will ever become a real currency[tm]. (Whatever a real currency really is.)
I’m gorging on information about bitcoin at the moment, arguments for and against, trying to make up my mind if it is as good as it sounds. So thanks for a view which is at a point on my spectrum of thought about it that’s about as severe as it gets.
I can’t look at bitcoin as an investment as I don’t have any extra money to invest as all of my (working class) earnings go towards the high costs of our family of 4 (2 teenage boys) living in the UK.
I understand your fears, which are perfectly logical if you’re a loving family man who lies awake worrying about the future of your wife and kids (especially if they’re young). Worries about people stealing and trafficking your kids are terrible and we are especially vulnerable to these thoughts when they are young — when we dream about them living in a world which is as lovely and clean and pure as they are.
I do think that your views are very bleak though. It would be a terrible thing if everyone thought the same way and were only buying bitcoins with this kind of bunker mentality. Hoarding it and not using it in the way it should be used — as an alternative to cash/filthy lucre/dirty money.
I like the your first commentor where he mentions Jacque Fresco (this is a synchronism for me as I was just listening to a podcast of his this morning). You need to find a space in your mind where the good people are (too much News on TV and reading The Press will make you think the whole world is just waiting to gobble you and your kids up unless the Government is there to protect you).
People are in the majority good. The only real reason people do bad things is not so much for religion as for money. If people have the opportunity to create some wealth for themselves and a decent family life comparable to what we in The West take for granted, they’ll have less time and inclination to participate in illegal activities. I think bitcoin provides a platform for everyone in the world to achieve this.
The way I see it, the cash-network possibilities of bitcoin would facilitate more networked social structures locally and worldwide. Strengthening communities would mean criminals have less room to manoeuvre.
Lighten up man! It’s as good as you think it’s going to be. You obviously have a great intellect — perhaps you should use your imaginings for good rather than evil :-)
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Have you read Daemon or FreedomTM by Daniel Suarez? In these books, Suarez constructs a hypothetical “Darknet” society that is decentralized and regulated by a computer program (the eponymous “Daemon”) that treats people and resources it knows about as if they were part of an MMORPG. In this context, currency used within the Darknet is decentralized and decoupled from the US Dollar. The focus of both novels is not the currency alone but the birth of a computer-controlled society where the daemon awards or withdraws resource permissions according to criteria such as “sustainability” or “self-sufficiency”. This computer-controlled resource allocation scenario feels like a possible solution to the Venus Project goal of a resource-based economy (mentioned in the first comment to your post; more info here: http://www.thevenusproject.com/en/the-venus-project/essay). The scenario spelled out in Daemon and FreedomTM is revolutionary and bloody in much the same way you described in your essay. Owners of wealth get angry when their money is devalued and will act to protect their assets. However, I think that Daemon and FreedomTM are necessarily revolutionary in order to squeeze the plot into a timeline short enough for readers to be able relate to (if I recall correctly, the revolution in the books take place within 5 years). In the books, decentralized currency is only one of several components that trigger the revolution. In FreedomTM the darknet credit (the bitcoin stand-in) enjoys the synergystic configuration of being forcefully implemented at all levels of the darknet’s supply chain (mining & agriculture, chemical processing & manufacturing, services, and other industries that the Daemon integrates into itself). In Please consider at least giving the books’ wikipedia plot summaries a read-through.
With respect to bitcoin itself, I don’t think that the bitcoin network alone offers sufficient value in order to spark violent societal change. However, bitcoin would be useful for implementing socioeconomic experiments like the Venus Project as long as bitcoin is used as the exchange medium across all levels of an economy (from mining & agriculture to PC manufacturing). That’s a plausible scenario I can see where bitcoin might be a significant threat to the US dollar.
@baltakatei: Yes, I read the novel Daemon very recently, and while I found several of the premises that led to the chaos to be quite outside the realm of possibility, I did see the resemblance to some of the worries I have about vulnerabilities in our current system. I expect the collapse of fiat government money to be disastrous to many people, however it actually happens.
The dystopian future will NOT happen because the present is dystopian with an insane Fractional Reserve Banking system and Central Bank issued currencies. It is only science and technology which has preserved living standards while the financial system throttles businesses, distorts production to debt-based consumption and creates wealth disparities.
Governments in a cryptocurrency future will simply be forced to run balanced budgets and represent no more than 10% of an economy, because they will be funded by sales and asset taxes only.
Interesting essay. Lots of speculation.
But I bet you didn’t think about this:
https://gist.github.com/ABISprotocol/8515891
-ciao
Check out my solution to technological unemployment on my blog. I think technological unemployment is the single biggest problem and I don’t think governments can do much to solve it. We can do something to solve it.
http://darkai.org/?page_id=41
This is a very practical part of info. Now i’m happy you distributed this handy information with us. Please keep us up to par similar to this. We appreciate you revealing.
There will be no economic recovery.
https://www.youtube.com/watch?v=bYkl3XlEneA
This will happen as a consequence of the existence of government.
Government can print more money (inflation–forced devaluation of the currency you hold), increase taxation (theft–pay or be forced by gun into prisons), or borrow (deferred increased theft from future generations–again, pay or get thrown in jail). All of these are uses of force. They benefit those in power and immediate friends of those in power. They hurt everyone else. A great deal of average people (Ma, Pa, Grand-Ma, Grand-Pa) have learned to thrive in this environment without looking at the inherent moral faults of the system and without considering where it inexorably leads.
A simple but powerful example to boil it down:
Question:
Do you support the use of force against me? (I’m just going about my day minding my own business, no aggression towards you or anyone else)
Ma, Pa, Grandparents, people from any civilized area and many from non-civilized areas would say “No.” When they say this they are saying it from a threat evaluation perspective. I’m just some guy. No reason to hurt me randomly and if you tried to I would probably try to defend myself, which greatly increases the risk of damage to yourself. Being a person with a sensible interest to not needlessly risk self injury you would leave me alone. OR you would try to make an alliance with me through mutual trade so that it benefits both of us to keep the other alive. Safety in numbers and all that. In addition when new members to the alliance agree to trade and benefit each other specialization is possible. People who are very good at a certain skill relative to others can free up more time to invest and specialize in that skill and trade for the things they then have less time to do. Given enough time and generations remarkable technological advances are possible. Everyone benefits and no force is necessary. If there are “bad” people they are ostracized, people refuse to trade with them and they either change their behavior to be acceptable or leave. Peace is maintained through free trade, not force.
Revisit the above question.
Someone says “yes.” What does this mean? If you ask someone if they support the use of force against you and they say “yes” your first response would be to get the hell away from them. Fast. Self-preservation. You would not want to associate with that person at all. They appear to be a violent psychopath.
… Now here is the disconnect.
Ma, Pa, etc… don’t associate government with the use of force. Generations of propaganda (if you can see other countries doing it to their citizens why can’t you accept that it happens to you too?) have created this fundamental disconnect where people simply can’t picture the government as a psychopath. The propaganda is embedded so deeply that we lash out quickly against anyone even suggesting that the government doesn’t have our best interests in mind.
Government is similar to a mafia. You are stolen from by taxation, if you resist you are beat up a little bit and made an example of. One of the most infuriating things is that a portion of this money stolen from you is used to pay the thugs with guns (law enforcement) who enforce the theft to begin with. Another, much much smaller portion of this stolen money is dangled around in front of you by politicians during elections in the form of tax breaks, government programs, or promises/lies to do things to try to get your vote, which is in essence a statement by you that says, “I support this continued use of force against everyone including myself and want whoever i voted for to force his ideals onto everyone else.”
Once you come to such realizations there is no going back. You have already taken the red pill.
Is it unfortunate that Ma, Pa, etc… will be hurt by a changing economy? Yes. Was it bound to happen if cryptocurrencies never existed? Yes. It has been happening constantly since the existence of government. Are cryptocurrencies and dark markets bad for most likely speeding up this transition? I would argue that most of the trade that goes on in the world is black market trade — black market in the sense that it isn’t regulated (taxed/stolen) from by governments. Again, like the term “anarchy” the term “black market” has a shit ton of propaganda against it so all sorts of negative thoughts and images of drugs, guns, slaves pop into your head. Black market is simply a market where the government does not steal a portion of the trade value. A grocery store where there is no portion of the trade being stolen to pay off people with guns to continue enforcing said theft doesn’t sound so menacing does it? Damn, actually sounds rather more peaceful and sensible doesn’t it? Cryptocurrencies have built in benefits of typically predictable eventual money supply (some alt coins are exceptions), typically predictable inflation rate (so you can know with certainty how much new currency is coming into existence and how quickly this rate is increasing or slowing), very quick world wide transactions that have extremely cheap fees that don’t depend on governments (users of force) or other central authorities to authorize, censorship resistant messages, identity verification, proof of transaction that isn’t dependent in your trust of a central authority who has the power to edit any transaction however it wants, no need to keep your money in banks that will gladly turn it all over to the government if they request it (greece, etc), etc… So no. In my opinion cryptocurrencies and dark markets are not bad for speeding up this transition. Rather as they don’t depend on the use of force they are more peaceful and sensible than any government. They are bringing peace. If you don’t want to be left behind, jump ship sooner rather than later.
Want peace but not cryptocurrency? Look into austrian economic theory, free market economy, non-aggression principle, philosophy of voluntarism, etc… Ludwig von Mises, Murray Rothbard, Stefan Molyneux, etc… You can NEVER have peace with governments. They are all built on the use of force.
“You take the blue pill—the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill—you stay in Wonderland, and I show you how deep the rabbit hole goes. Remember: all I’m offering is the truth. Nothing more.”
https://www.youtube.com/watch?v=Xbp6umQT58A