Friday, December 6, 2013

Bitcoins: A Fully-Compliant Currency The Government Can Love

I’m finishing up a novel, a piece of speculative fiction in a genre you could call “economic-thriller”.

The Mark of the Beast?
In the book, the dollar crashes in a hyperinflationary fire (natch), replaced by a new currency called the american. The exchange rate at the time of the changeover is $1,000 equals ₳1. To illustrate its purchasing power, ₳1 buys you a candy bar.

However, americans don’t exist as physical currency. There are no “american bills” like there are dollar bills, and no coins either. Instead, americans are a fully digital currency: They exist in the ether. You need a card—be it a credit card, debit card, or EBT card—to spend americans. And to receive americans, either from employers, customers, government, etc., you need a “central account” which is tethered to your Social Security number.

The rationale for these measures is convenience—but the implication is, no one can earn, save or spend money without the government being aware of exactly what you are doing.

Since the government can easily access all your spending and earning of americans, no one can launder money, or evade taxes, or even so much as fail to pay all their bills on time. Law-makers and politicians and pundits say it’s no big deal that the government will know everything about the citizen’s finances, because, “If you’re not doing anything wrong, you’ve got nothing to hide! If you’re paying all your bills and your taxes and your loans, you got nothing to worry about!

Another feature of this virtual currency: With americans, you can never again be late with your bills. Payments you have to make are automatically deducted from your central account. And if you take out a loan for whatever purpose, not only is that information in your central account, but your ability to spend money is automatically prioritized: Taxes get paid first, followed by private loans, then bills, then food, then “etc.”

In the novel, law-makers use this compulsory “compliance” as a selling point for the american. “Think of the convenience! No more worrying about paying your bills—your bills are all paid for you!

However, if you don’t have enough money for “etc.”—entertainment, booze, an ice-cream sundae with the kids, what have you—you don’t get any. And if after paying off your loans and bills there isn’t enough left over for food—then no food for you. Ditto with bills: No money for electricity, or water, or heat? Then no electricity, or water, or heat for you. And if perchance you can’t fully pay off your loans, then you are declared in “non-compliance”. And if you can’t pay off your taxes, then you are charged as being in “criminal non-compliance”—and then woe is you.

In the language of the novel, it is a “fully-compliant currency”—and it forces the people to be “fully-compliant citizens” of the dictates of the government and the banksters.

This is of course a fiction I invented for my upcoming novel—but I couldn’t help notice how lawmakers and banks are all of a sudden getting on the bitcoin bandwagon.

For something that was supposed to be a threat to the established order, which is what bitcoin and the other cryptocurrencies promised to be, the established order sure seems to be happy with it: The U.S. Senate hearings on bitcoins were pretty much of a success for bitcoins, and banks are starting to throw nothing but love in bitcoin’s direction. The mainstream media isn’t putting down bitcoins, as it did a few years back.

In short, and unlike what a lot of cryptocurrency proselytizers have been saying—that the powers that be would be against bitcoins—the establishment seems to be fully in favor—or at least accepting—of bitcoins.

Makes you go Hmm . . ., now doesn’t it?

Me, I've already explained here and here why I think that bitcoins are in a bubble, and why bitcoins and other cryptocurrencies will never be currencies per se, only an asset class. My thinking is, cryptocurrencies represent a new class of assets whose value is highly unstable so long as they are not actually tethered to some good or service people both need to buy and have to sell. Until that day happens, cryptocurrencies are nothing but speculative investments that can plummet to zero at a moment’s notice.

However, thinking about cryptocurrencies from the point of view of the Federal Reserve, or a senator on the Banking Committee, or a trader at a bank’s prop desk, cryptocurrencies such as bitcoin have a lot of advantages—they’re not something to be dismissed out of hand.

All of bitcoin’s benefits to the establishment revolve around its blockchain.

In simple terms, a blockchain is a registry of all transactions carried out in bitcoins. Thus is resolved the problem of double-spending one particular bitcoin: It can’t be done (at least in theory) due to the blockchain.

But the blockchain is in fact a register—a trail—of bitcoins. So it’s a relative cinch to piece together each and every transaction of any particular wallet in the bitcoin universe. And since exchanges need detailed personal information about a bitcoin user in order to comply with money-laundering laws before issuing a new user with a wallet, the government or other interested parties could determine what any one particular person has been doing in the bitcoin marketplace.

In other words: Imagine that the government knew each and every cent you earned and spent, without a single exception.

That cannot be done with dollars, at least not easily. The dollar’s inefficiencies when compared to bitcoin or any other cryptocurrency are exactly what make tracking dollar transactions so hard. That’s why money-laundering in fact exists: Criminals are taking advantage of inefficiencies in the dollar to hide their profits and thus not get caught.

But with bitcoins as they currently exist, it is a snap to keep people compliant. Once some simple baseline limitations are imposed on users of bitcoins—such as the rules implemented by exchanges so as to comply with money-laundering laws—a user’s transactions are as transparent as glass.

Which is what a government would want, in order to get every bit of tax revenue it wants. Which is what a bank would want, in order to properly gauge the risk of a loan it is extending, and thereby maximize its profits.

Not only that, being able to track people’s spending completely, in real time, as can be done with bitcoin and conceivably every cryptocurrency, the government could easily rescind someone’s ability to earn money.

Witness how the government shut off WikiLeaks’ source of funding—took them less than a week. WikiLeaks depended exclusively on donations made via credit card payments—so by “encouraging” the credit card companies, Visa and Mastercard, to refuse to process donations to the organization, the U.S. government shut down Wikileaks just days after the first big document leaks of 2010.

With bitcoin or some similar cryptocurrency, the government wouldn't even need to take the step of contacting credi card companies to “encourage them to do the right thing”: The government could simply make any payment to a targeted group invalid. (And perhaps get a notice of whoever it was who donated to the targeted group?)

All this is to say, bitcoins and other cryptocurrencies are potentially a great step forward for a government looking to impose a Panopticon society on the American people. We can’t travel without TSA’s approval, so why not extend that power to people’s ability to interact in the economy as well? Due to the fact that, with bitcoins, there is a trail from people to their bitcoin wallet to their bitcoin usage, a trail that is relatively easy to read, the government could have this power over each and every citizen—the power to monitor and control our interactions with the economy.

Which is why bitcoin—far from being a threat—might just prove to be the fully-compliant currency the U.S. government can come to love. A currency that will let it have unfettered access to each and every financial transaction you carry out.

Is that something that we as a people want? More power to the government? Because that’s the promise of bitcoin.

———————

P.S.: In case you’re wondering, the novel is going to be called A Secret History of the American Crash. I expect to have it finished in a couple of months.

For kicks: Insert ₳! at the beginning or end of your comment. If I get fifty comments with such a secret mark, I’ll post the first fifty pages for free, in both Kindle and EPUB formats. Deal?

At my Strategic Planning Group, I’ll posting a protocol this Sunday discussing exactly how to acquire a completely anonymous bitcoin wallet that will not raise flags. If you are interested, check out the SPG Preview Page to see if you’d be interested in joining.

25 comments:

  1. ₳!
    cash represents very little of todays transactions. the problem with traceable BC is mostly the same as with $. where i live i have to give the government/bank documentation of where that money came from if i/someone deposits more then ~8000$ in my account. i cant get more physical currency from my account than ~500$. and all digital transfers are already monitored.

    the charm of BC in this case is that pretty much anyone can put up an exchange for it. today the major exchanges demand alot of info for you to be able to do the exchanges, but should governments start poking around too much i see alot of smaller exchanges popping up. thepiratebay goes BC-exchange for example? how many years have they tried to shut TPB down? not gonna happen. and there is little money to be made in the bittorrent world, no matter what Warner etc says. BC on the other hand... exchanges can pop up and switch servers pretty much forever if there is money involved and the ppl running it can make a living on it (and banks profiting). so far ppl arent willing to take such a risk, sending money to small exchanges but during a scenario as the one u make, entrepreneurs will beat the governments. nerds will always stay ahead techwise, and mixing in alot of money to be made will ensure that they will have backers that can handle the bankaccounts needed. some will do it to stick it to the authorities, some for the possibility of making money. taxevading is already pretty established and impossible to solve.

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    1. "cash represents very little of todays [sic] transactions."

      Given that cash transactions between individuals is not traceable, you can't really know this for certain.

      "where i live i have to give the government/bank documentation of where that money came from..."

      This is not a cogent argument for the use of bitcoin, it simply shows how far the over reach of government is. It is none of the governments business where we get our money or how or how much money we earn.

      A reclaiming of our rights and a return to a gold standard is what we need not a new and "improved" fiat currency.

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    2. Gold is not good as most of the gold is already owned by the banksters. Plus there is so much paper gold and too many ways to fool with the value. Look at what is happening today. Gold fluctuates so much that it would be hard to place a value on it from one day to the next. State (the people) owned banks are the answer. Russia and North Dakota know this. Bit coin, Quark and all the other crypto currencies would be a good start to get the privately owned banks off our backs. But State owned banks would be the answer to the currency fraud that we have endured since 1913.

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    3. I'm looking forward to your novel. It seems to me that we are in world economic and currency limbo until 'something' universal is invented to replace the dollar or bail out the dollar. And that 'something' would most likely be to the advantage of the powers that be - not to our (middle class) advantage. We should be watching not what the IMF, the WB and central banks say; rather, we should be watching what they do in the direction of a New World Order with a global currency. I can now see how Bitcoins might conveniently fall into that category..... I don't want anything to do with Bitcoins - I'm hanging on to my silver and gold bullion, thank you. Anonymous61

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  2. ₳ Maybe it was the Government that thought up the idea for Bitcoins all along₳

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  3. ₳! Interesting thought, one I haven't heard before. Good to know. I also like the idea of your novel. Sounds like it could be a fun read.

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  4. Mr. Lira, Thank you for your well-written article. Indeed to much emphasis is placed on Bitcoin as a speculative investment or alternative currency and too little on the panoptic nature of the blockchain.

    When you consider triple entry accounting (3D accounting or momentum accounting, Yuji Ijiri) and the inability to escape specific application of specific funds via the conventional "sources and uses of cash" in GAAP, the compliant nature of Bitcoin comes to the forefront.

    In the same way that a "Buy Here/Pay Here" used car lot works and if a buyer misses a payment their car can be shut down, when you had a 3D means tested payment system you would have your EBT card shut down in the line at Wal-mart if you exceeded your allocation for Pampers or Enfamil.

    Today folks use welfare to shop at Wal-mart and then head to the customer service counter for a refund and then off to the liquour store. With a blockchain, that would be the end of that. Even your carbon footprint could be means tested and you could be prohibited from buying a plane ticket because the Cass Sunsteins of the world had decided that you had exceeded your carbon allowance.

    Capital One credit cards offer "the transaction eraser" so that you can hide your hotel expenses from a snooping spouse. In the blockchain there's no hiding anything from Big Brother.

    http://tradewithdave.com/?s=%22triple+entry+accounting%22+

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  5. Interesting take, GL. That book sounds like my kind of read. Finish it up!

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  6. ₳! As always a worthwhile read, and a point of view i have yet to see anywhere else.

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  7. ₳!
    The bitcoin (good or bad?) debate has ping-ponged so much in recent months I am almost getting dizzy, trying to stay focused on the fast moving ball bearing.

    I do not (yet) own any BTC but I have thus far leaned towards a 'pro' BTC or positive opinion of the concept. But, articles like this will likely succeed in forcing many to reappraise just what the longer term implications of BTC adoptions might be.

    As it becomes ever more computationally difficult to create (mine) new bitcoins (i.e., as the upper limit is approached) then perhaps the only people left with the capacity to own a sufficiently powerful computer, will be "The State" (aka, the "moneyed interests" and Banksters)??

    With Bitcoin, not everything adds up. It may have done prior to 2012, but not now. Something doesn't feel right. And the more blase response by TPTB should be flashing a warning to all who remain wide awake.

    I suspect, the most powerful way to cut though the fog and bullcrap will be to read a novel that projects an anticipated scenario, far into the future, when BTC (american) is the major legal tender. This would make it easier for people to place themselves in real scenarios, and then play them out, as per the story line.

    So, Gonzo is not only having fun, he is doing us all a favour, if not a major service to a "too trusting" humanity. I therefore wish his project success, and look forward to reading both the extracts, and the completed novel. For sure, I shall be looking out for his initial release in both Kindle and EPUB.

    Come on people ... let's get this problem sorted!!!
    ₳!

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  8. For some reason, GL really loves writing on subjects he really has no clue about. First economics, now Bitcoin.

    I realise that the mathematics behind Bitcoin is outside most people's mental abilities to grasp simple things, so all I can provide is counter-claims. The actual proofs are in the math and if you don't understand it you won't understand the proof anyway.

    Yes, all Bitcoin transactions are public. Yes, the blockchain identifies every single amount of Bitcoins. What it most definitely does NOT identify, however, is the person doing the transaction and the wallet holding the coins (unless you can monitory every single packet on the Internet).

    You have probably seen strings of letters on websites by people who accept Bitcoin donations. Apparently, GL thinks that such a string identifies a particular wallet. It does not. A single such string is used only for conventience - so that everybody who can donate can use one and the same thing. But for every wallet, you can generate as many such keys as you want - a different one for every transaction, if you want. You can have one key for donations (and even that can change automatically every minute) and another one you use if you are selling illegal drugs for Bitcoins. In fact, you can have a different one for every customer. Or for every transaction, for that matter.

    Yes, the exchnges are the weak point. They collect personal data and if the government subpoenas it, it can determine which person has traded which particular amount of Bitcoin. (Which is also why if the governments want to shut down Bitcoin, they will start by shutting down the exchanges.)

    So what? It is the same as cash. Every dollar banknote has a number. If you go to a bank and want to exchange an amount of dollar banknotes for, say, euro banknotes, and if somebody is monitoring the transaction they can determine that, say, some of your banknotes were stolen during a bank robbery three months ago. So what? Does that prove that you have robbed that bank? No. It only means that some of the stolen money has circulated via private transactions (not going through a monitored bank - or through an exchange in the case of Bitcoin) before reaching you.

    If the government can monitor EVERY Bitcoin transaction on the Internet (including the private buying and selling between any two entities of products and services for Bitcoin) then they can monitor what you are doing with your money, yes. But this requires monitoring every single packet of information on the Internet (even those that are under levels of encryption) and if push comes to shove, such transactions can be performed not via the Internet, too.

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    1. At last! Someone with some brains that has also taken the time to research the subject. By the way has why has no one questioned Mr GL's agenda?

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    2. I still prefer something real something I can hold in my hand and
      something I can hide something real like gold!

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    3. ₳ From 1240 to 680 in 2 days after rising from 160 to 1200 in a couple of months ... not the recipe for a currency suitable for trade.
      And I don't think you have to worry about the government shutting it down because quite a few exchanges seem to have taken care of that themselves, leaving depositors with nothing and nobody identifiable to chase.
      As far as liquidity is concerned, there seem to be four exchanges with sufficient volume: one in China(!), one in Bulgaria(!), one in Japan (better chances there?), and one in the UK (perhaps there is a hope for accountability there, perhaps).
      Robt

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  9. ₳!
    I never quite saw the BitCon in that light!
    Thanks GL!

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  10. Ben Stone took Gary North to task over North's similar hit piece in the podcast titled "Gary North’s False Dichotomy". You can listen to it over at badquaker.com: http://www.badquaker.com/?powerpress_pinw=2914-podcast

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  11. ₳!

    If you want Bitcoin anonymity, all you need to do is buy and sell without going through an exchange, through a local face-to-face meeting service such as localbitcoin.com.

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  12. RE: I still prefer something real something I can hold in my hand and
    something I can hide something real like gold!

    A smart Bitcoin holder has several encrypted copies of his/her wallet in different locations. If a wallet would be stolen/taken the original owner would only have to spend the coins from one of his copies to a new wallet, and the thief will be left with a completely useless encrypted wallet. Even after cracking the code he would not be able to spend a single coin.

    To me, this is a much safer and more resilient alternative to gold in this digital age. (And I am a long-time gold bull.)

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  13. Oof. Gonzalo, read up on Zerocoin.

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  14. ₳!

    I look forward to your book and like the title.

    Re: bitcoin - I agree that there has been a sea change in the regulators' publicly avowed opinion on bitcoin and read it as their co-option and diversion / manipulation of what was marketed (?) as a potential threat to their monopolistic hegemony.

    The opportunity to have a grass roots (astro-turf?) created e-currency even more fictitious than our present vestigial paper fiat system is too great to pass up - especially if the early adopters are rewarded with e-riches and the new e-currency includes the sexy prefix "crypto".

    These attributes near guarantee a quick climb to critical mass for adoption fueled by greed and the fear of missing out on the next big thing.

    Your comments on how this can be used (in conjunction with the plethora of panopticly obtained data from your personal surveillance i-device which delivers constant pings of gps coordinated data and soon biometric as well as voice, text and visual output) is not frightening enough because when this already available data is cross referenced with the data from all the other i-devices in your vicinity and then tracked as you move through your day the loop is closed on whatever previously non e-transactions you engaged in now that you are using the supposedly crypto e-currency.

    Taking this a step further, you will be transparent, your associates and associations will be transparent and your e-denominated transactions will be transparent so that any attempts at peaceably assembling let alone contemplating or discussing dissension can be effectively quashed with extreme prejudice perhaps even before you can entertain the question of why is society structured the way it is and if and how it could be changed.

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  15. Abolishing cash would do nothing but deprive government of the seigniorage it currently receives from paper notes. Burglars, drug dealers, hookers, and illegal immigrants would accept payment in gold, silver, foreign currency, ammunition, cognac, gasoline, liquid Tide, or some other commodity of concentrated value. Millions of small businesses would exist only to launder money in and out of the system.

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  16. Have you seen http://www.cnbc.com/id/101266173
    He brings out themes that are quite similar

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  17. If what the GL says is true, then it works the other way too. The public will also be able to track how the government spends it's Bitcoins. Do you think they are going to adopt a currency where this will be possible?

    Maybe I'm missing something.

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  18. Good luck to your novel Gonzalo. I know every novelist will surely keep their eye on this kind of speculative bubble. Bitcoin is not your typical currency. Central banks and watchdog authorities are working on its regulations because it is a large threat. Bitcoin systems don’t need your credit cards, bank accounts or checks for transactions; your digital address is enough to process virtual transaction anytime and anywhere around the globe. See, bitcoin casino is incorporating their operation because this will attract global bettors.

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Whether you agree with me or not, thank you for your comment.

If you liked what I wrote—or if it at least made you think—don’t be shy about making a payment. The PayPal button is there for your convenience.

If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL