L. Neil Smith’s THE LIBERTARIAN ENTERPRISE
Number 926, June 11, 2017
A critique of Mike Adams on Bitcoin “end game”
by Jim Davidson
Special to L. Neil Smith’s The Libertarian Enterprise
Recently, Natural News published an essay by Mike Adams about the end of Bitcoin. [Link]
There are some things that Adams writes which I believe are not true. He clearly believes that Bitcoin is a giant scam and will never be a useful tool in storing value outside the confiscatory banking system. I’m not really clear on what he thinks is a good system of money, perhaps he loves the government fiat money, I simply don’t know.
My own opinion is that Bitcoin is a very logical protocol that allows a distributed ledger to be maintained in a decentralised way. It has value because it is accepted by many merchants and individuals, and because it lacks a central authority that can inflate it and devalue it. It has issues because it lacks effective decision making authority, and because it clearly has scaleability issues. (Ethereum, by the way, seems to have a good handle on scaleability.)
Adams suggests that kindergarten teachers are “throwing money at Bitcoin, believing they’ve discovered a magical source of unlimited wealth.” I did not find any evidence that any of the parties he quotes believes that Bitcoin is either magical or a source of unlimited wealth. All the quoted users indicate that they feel it is a hedge against issues with fiat money including inflation and government decrees seizing their bank accounts. Perhaps Adams prefers people simply obey the government and let central bankers plan their future enslavement.
Adams says that Bitcoin transactional costs have skyrocketed from $16 per transaction to $23.30 per transaction. That’s false. The actual transaction processing fee depends on how the Bitcoin protocol evaluates recent transaction fees. Since December 2016, someone has been gaming that system by sending 750 BTC from one wallet to another every 5 seconds. Large transactions involve a higher transaction cost, so very small payments (I just made one of about 0.0311 BTC or US$84) do not cost $23.30 to send. A very tiny fee was charged by LocalBitcoins to facilitate my transaction.
Adams says, “…selling Bitcoin and exiting the market in a time of high trading volume will be increasingly expensive and difficult, with long delays on transactions that could require days or even weeks to be confirmed.” I believe that statement is completely false. Transactions offering zero fee or a very low fee of a few Satoshis were being ignored by the blockchain miners for days, but eventually were processed, before a recent fork that seems to have cured this difficulty, in my direct experience. All transactions are eventually processed, anyway. But people motivated to have a transaction processed within 10 minutes, and confirmed soon thereafter, can offer a transaction fee commensurate with their timing concerns—as any free market in the world, the BTC market knows how to manage the time value of money.
Adams writes, “Bitcoin will approach its ’end game’ in the next decade when all Bitcoin mining permanently ceases due to the mathematical limit of 21 million Bitcoins in circulation. False.
In fact, Bitcoin mining will continue forever, because the “mining” operation does not only find all the new bitcoins that can be mathematically brought into existence, it also finds all the new blocks that have transactions. Bitcoin miners have for years accepted transaction processing fees, and these are built into the protocol to provide an increasing amount of the total revenues for Bitcoin miners. Once all 21 million Bitcoin coins are mined, all miners will be mining only for transaction fees, and will continue to profit accordingly. By 2024, when Adams predicts a collapse in Bitcoin mining, 100% of mining fees will be found in transaction processing, and that has been built into the protocol from the beginning. Rather than turning all mining operations unprofitable, it will continue to be very profitable to use ASIC and other technologies to solve hashing functions.
Moreover, Bitcoin has for a very long time not been the only crypto-currency. Today it represents less than 46% of the total coinmarketcap.com value for the amount in circulation of all 745 blockchain currencies and 121 assets they follow in 4,046 markets—a large, growing, and very robust industry indeed. In the last 24 hours, well over US$4.3 billion in transactions have been processed in all these currencies, which makes the crypto-currency economy as a whole have a “total economic activity” of nearly 1.6 trillion USA dollars.
By way of comparison, Wikipedia lists countries by the size of their economy in annual “gross domestic product” here. Canada is #10 at US$1.53 trillion, making the cryptocurrency economy larger than all but 9 countries: The USA, China, Japan, Germany, the United Kingdom, France, India, Italy, and Brazil. Bitcoin remains a major part of this industry, and both the industry as a whole and Bitcoin itself continue to grow rapidly in number of users, number of companies and people accepting these types of money, number of transactions processed each day, and value of transactions processed.
Far from having “…a catastrophic end…mathematically engineered into the system,” Bitcoin and similar currencies are designed to prevent central bankers from ruining everyone’s life and putting everyone into debt peonage. While scepticism is always welcome, Adams simply fails to get and keep his facts straight.
Not everyone is an expert on everything. My own experiences with digital money date back to December 1998 when I was a very early users of e-gold and the Liberty Dollar. I’ve seen hundreds of digital currencies come and dozens go away for various reasons. I’ve known the principals of e-gold, GoldMoney, e-Bullion, Hayek Gold, SilentVault.com, and DigitalCash.to, personally and face-to-face, and have corresponded with many others in this industry. I understand the factors that motivated Satoshi Nakamoto to create Bitcoin back in 2008 with his white paper, and I understand the limitations and facts about its procedures. Also, I very strongly prefer the decentralised features of free market money to the idiocies that attend on government-issued fiat currencies.
For further reading, I recommend the Wikipedia overview on Bitcoin and FA Hayek’s essays on the Denationalisation of Money, especially his third edition thereof published in 1990.
Jim Davidson is an author of four books, an entrepreneur, a world traveller, a story-teller, and a philanthropist. He founded Individual Sovereign University in 2009. He has started and run over 20 businesses since he was 8 years old. You can find “Being Sovereign” on Amazon.com and “Being Libertarian” on Lulu.com if you wish.
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