{"id":1354,"date":"2019-02-15T10:32:05","date_gmt":"2019-02-15T10:32:05","guid":{"rendered":"http:\/\/kusuaks7\/?p=959"},"modified":"2023-08-02T13:29:15","modified_gmt":"2023-08-02T13:29:15","slug":"how-bitcoin-ends","status":"publish","type":"post","link":"https:\/\/www.experfy.com\/blog\/fintech\/how-bitcoin-ends\/","title":{"rendered":"How Bitcoin Ends"},"content":{"rendered":"

Ready to learn Blockchain?\u00a0Browse courses<\/a>\u00a0like\u00a0Blockchain for Finance Professionals<\/a> developed by industry thought leaders and Experfy in Harvard Innovation Lab.<\/em><\/strong><\/p>\n

Is the cryptocurrency just going to end up reinforcing the financial system it was supposed to disrupt?<\/h2>\n

Bitcoin was a clever idea. Idealistic, even. But it isn\u2019t\u00a0working out\u00a0quite as its developers imagined. In fact, once all the coin has been mined, bitcoin will simply reinforce\u00a0the\u00a0very banking system it was invented to disrupt.<\/p>\n

Watching the bitcoin phenomenon is a bit like watching the three-decade decline of the internet from a playspace for the counterculture to one for venture capitalists. We thought the net would break the monopoly of top-down, corporate media. But\u00a0as business interests took over\u00a0it has become primarily a delivery system for\u00a0streaming television to consumers, and\u00a0consumer data to advertisers. Likewise,\u00a0bitcoin was intended to break the monopoly of\u00a0the banking system over central\u00a0currency and credit. But, in the end, it will turn into just\u00a0another platform\u00a0for the big banks to do the same old extraction they always have.\u00a0Here\u2019s how.<\/p>\n

At its core, bitcoin is just an extension of the old PGP, or\u00a0Pretty Good Privacy encryption protocol<\/a>. Public and private keys are used to hide and verify the identity of the parties in a transaction. The transaction itself\u00a0is authenticated by thousands of internet\u00a0witnesses, who vote for its veracity with all the cycles of\u00a0their computers and the\u00a0electricity on which they run. In return for dedicating all that hardware and wattage authenticating transactions and recording them in a ledger known as the blockchain, they are rewarded with bitcoin. It is their verification activity that mines new\u00a0bitcoin into existence. And\u00a0the more bitcoin they have, the more committed they will be\u00a0to maintaining the\u00a0integrity of the blockchain recording their assets.<\/p>\n

In essence, bitcoin is money built and maintained by nerds, based on the premise that good nerds will outnumber the bad nerds. Sure, bad actors can dedicate all\u00a0of their\u00a0processing power to fake transactions, but they will be outnumbered by those\u00a0who want the token to work properly.<\/p>\n

At its most ambitious, bitcoin is meant to provide an anonymous, decentralized, frictionless, and incorruptible form of transaction\u2013an alternative to the extractive, central, bank-issued currencies now enjoying a virtual monopoly in our economies. Cryptocurrencies aren\u2019t just about increasing efficiency, but taking down an economic elite that has been using its control over currency to maintain its wealth and power.<\/p>\n

Central currency is not the only kind of money that ever existed. For many centuries, gold and other precious metals served as money. The problem with gold was that it was so scarce and valuable in its own right, that no one wanted to spend it on daily necessities such as bread or chicken. Gold was hoarded, and really only useful for long-distance trading between the wealthy.<\/p>\n

During the Crusades, however, many European communities adopted the more flexible market money systems they had seen used in Moorish territories. Market money was virtually worthless: like a poker chip or IOU that was redeemed for a loaf of\u00a0bread or\u00a0dozen eggs at the end of the day. Unlike gold, which was\u00a0no good for\u00a0transactions because it was too scarce, market moneys\u00a0existed only to enable\u00a0trade, and often expired at the end of the day.\u00a0They couldn\u2019t be stashed.<\/p>\n

But this sort of money was fabulous for trade, which was the whole point of money, anyway. Everybody who had a way of creating value\u2013whether making shoes or growing grain\u2013now had a way of exchanging that value with others. The use of market moneys led to a century or two of wealth creation unlike any we\u2019ve ever seen since. The former peasants of feudalism became the merchant middle class, working just three or four days a week, and exhibiting a level of skeletal growth (a sign of health) larger than at any time in the history of humanity, until the 1980s.<\/p>\n

The problem was that the aristocracy, who hadn\u2019t created value themselves for hundreds of years, was losing its stranglehold over the masses. As the poor grew wealthy, the wealthy grew relatively poorer. So they outlawed local moneys, and replaced them with central currency. Central currency sometimes had trivial bits of gold in it, but that\u2019s not where it got its value. No, central currency was valuable by decree.<\/p>\n

Everyone who wanted to transact from then on had to pay kings\u00a0and their banks\u00a0for the privilege of using coin of the realm. All money was borrowed from the central treasury, at a rate of interest set by the king. People had to pay back more than they borrowed. It was a terrible\u00a0drain.\u00a0The rising merchant middle class of the late Middle Ages became incapable of transacting on their own; the money was just too expensive. The merchant class became peasants and laborers again, the cities became the only place to work, and the plague soon followed.<\/p>\n

And that\u2019s the system we\u2019re stuck with today, with central\u00a0banks\u00a0issuing money, and banking conglomerates lending it to the public\u00a0and\u00a0verifying our transactions for a fee. All of our businesses are just subsidiaries of a banking system with a legal monopoly over our money.<\/p>\n

Bitcoin was meant to cut out\u00a0those\u00a0unnecessary intermediaries, and replace them with computer\u00a0cycles. The high\u00a0processing cost of mining bitcoin<\/a>\u2013as well as an\u00a0arbitrary limit on the total\u00a0number of coin that can ever be mined\u2013keeps the money supply scarce. But this\u00a0means that instead of re-creating\u00a0those high-velocity market monies of the Middle\u00a0Ages, the abundant ones\u00a0that worked like poker chips, bitcoin re-creates the market mechanisms of gold, a\u00a0currency that invites hoarding and\u00a0speculation while discouraging transactions.\u00a0Oops.<\/p>\n

This explains why bitcoin has become less a means of exchange than a\u00a0speculative pyramid, as well as why the coin\u2019s developers and early investors have ended up billionaires. The wealth disparity in bitcoin is worse than that of central currency, with\u00a04% of users owning 96% of bitcoin<\/a>. So much for breaking the banking monopoly; this is just hackers seizing the banking industry for themselves.<\/p>\n

The money itself is\u00a0worthless.\u00a0Less than worthless, in fact. We are spending massive\u00a0amounts of machine cycles\u00a0and electricity, burning fossils fuels\u00a0for no reason other than to prove our commitment to the coin. It\u2019s not like we\u00a0don\u2019t\u00a0already have enough problems generating energy to operate our highly industrialized civilization. Now we\u2019re spending billions of dollars and\u00a0millions of gallons of fossil fuel\u00a0in a symbolic act of securitization. What if the \u201cproof of work\u201d for coin were based on something good for the world, rather than aiming so directly for ecological self-destruction?<\/p>\n

The\u00a0non-financial uses of the blockchain are certainly inspiring<\/a>: Smart contracts let people devise and administrate complicated agreements without hiring lawyers. Whole companies and co-ops can be orchestrated and secured through simple sets of instructions that are confirmed and recorded on a blockchain such as Ethereum. It requires a whole lot of code and electricity, however, and may say less about how much computers can assist business than how selfishly and unethically we expect one another to behave without such elaborate safeguards.<\/p>\n

Still, even if such currency and contract solutions can work, the part of the story that nobody\u2019s talking about is the\u00a0ending.\u00a0What happens when all the bitcoin is mined? Bitcoin transactions\u00a0are\u00a0authenticated by the thousands of people who dedicate their\u00a0computers and\u00a0electricity to building the blockchain. They\u2019re not\u00a0donating all this money and\u00a0computing power; they are being paid\u00a0in bitcoin. Mining for bitcoin and\u00a0authenticating transactions is the\u00a0same thing.<\/p>\n

What is\u00a0the\u00a0incentive for people to spend millions of dollars on computers and\u00a0power once\u00a0there\u2019s no more kickback of coin? I have asked this question of\u00a0the world\u2019s leading\u00a0blockchain investors, miners, and scholars, and\u00a0none of them have offered a\u00a0satisfactory answer. The best they can\u00a0come up with is \u201cwe\u2019ll figure out\u00a0when the time comes.\u201d (How is\u00a0that good enough justification for a\u00a0combined quarter of a trillion\u00a0dollar bet on cryptocurrencies?) I spoke to the CEOs of four companies that have either just issued or are about to issue tokens, and none of them had even considered how the blockchain is administrated once the coin is all mined, or what that means to the future of their operations.<\/p>\n

So what will really happen when all the bitcoin is mined? The\u00a0people\u00a0and companies currently authenticating transactions for coin will\u00a0instead insist on service fees. The more processing power and\u00a0electricity it\u00a0takes to authenticate, the more they will want to be\u00a0paid.<\/p>\n

Already, financial institutions like banks and brokerage\u00a0houses are\u00a0rising to the occasion, promoting their own blockchain\u2013 as well as\u00a0authentication services for those who want to keep using existing\u00a0cryptocurrencies. So instead of disrupting and replacing the\u00a0banking industry\u00a0and its fees, bitcoin and other blockchains simply\u00a0feed into the banking\u00a0monopolies. They\u00a0don\u2019t disrupt banking, they reify\u00a0it, only they do so through\u00a0obscenely wasteful and unnecessary expenditure of\u00a0processing\u00a0power and computing hardware.<\/p>\n

Bitcoin may have been meant to disintermediate the agents of\u00a0trust\u00a0who monopolized commerce and currency. Like the internet, it was\u00a0meant to\u00a0engender trust by connecting people directly to one\u00a0another. But all it really\u00a0did was substitute for trust in a new way\u2013with computer cycles instead of a\u00a0human or institutional\u00a0middleman.<\/p>\n

As such, it ended up less a way of promoting transactions\u00a0and trade\u00a0than the same old extraction and growth. So just as our computer\u00a0screens became just another outlet for television, our blockchains\u00a0will become\u00a0just another instrument of the financial services\u00a0industry.<\/p>\n","protected":false},"excerpt":{"rendered":"

Watching the bitcoin phenomenon is a bit like watching the three-decade decline of the internet from a playspace for the counterculture to one for venture capitalists. We thought the net would break the monopoly of top-down, corporate media. But as business interests took over it has become primarily a delivery system for streaming television to consumers, and consumer data to advertisers. Likewise, Bitcoin was intended to break the monopoly of the banking system over central currency and credit. But, in the end, it will turn into just another platform for the big banks to do the same old extraction they always have. Here’s how.<\/p>\n","protected":false},"author":285,"featured_media":3076,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[192],"tags":[98],"ppma_author":[2906],"class_list":["post-1354","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fintech","tag-blockchain"],"authors":[{"term_id":2906,"user_id":285,"is_guest":0,"slug":"douglas-rushkoff","display_name":"Douglas Rushkoff","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","user_url":"","last_name":"Rushkoff","first_name":"Douglas","job_title":"","description":"Winner of the Media Ecology Association’s first Neil Postman award for Career Achievement in Public Intellectual Activity, Dr. Douglas Rushkoff is a writer, documentarian, and lecturer whose work focuses on human autonomy in a digital age. He is the author of fifteen bestselling books on media, technology, and society, including Program or Be Programmed, Present Shock, and Throwing Rocks at the Google Bus. He has made such award-winning PBS Frontline documentaries as Generation Like, Merchants of Cool, and The Persuaders, and is the author of graphic novels including Testament and Aleister & Adolf. Named one of the world’s ten most influential intellectuals by MIT, he is responsible for originating such concepts as “viral media,” “social currency,” and “digital natives.”"}],"_links":{"self":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/1354","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/users\/285"}],"replies":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/comments?post=1354"}],"version-history":[{"count":4,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/1354\/revisions"}],"predecessor-version":[{"id":29852,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/1354\/revisions\/29852"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/media\/3076"}],"wp:attachment":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/media?parent=1354"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/categories?post=1354"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/tags?post=1354"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/ppma_author?post=1354"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}