Tales from the Edict 26A - The Trigger

To understand what led to the collapse of cryptocurrencies one must understand the real reasons behind their emergence in the first place.

Cryptocurrencies have existed since 1997, albeit as theoretical models with zero appeal beyond the concept stage. Even the early years of Bitcoin were low rent years. Mining bitcoin did not directly correlate with wealth since no one was sure that Bitcoin would become valuable. In all probability the first Bitcoin were distributed at a cost to cover mining and moderate overheads, remembering that the principal users of Bitcoin were powerful people unlikely to take to being ripped off. It would be best to think of Bitcoin at the start as having a value equivalent to a fencing fee. In other words, entirely dependent on the value of the transaction being expedited. Which is why no one claimed to be the genius when Bitcoin broke out into the commercial underworld. And how so many coins ended up being unaccounted for so quickly. Because the inventor(s) never showed up on a flaunt your wealth list. Hands up anyone who knows an unaccountably luxury-lifestyle-living techno-nerd. No one? Because no one hung on to the early bitcoins when they had no value. The only value was in the service they provided.

A lot has been written on the unique quality of Bitcoin (for example) being created to address weaknesses in traditional currencies which are backed by central banks and governments. This, it was claimed, made traditional currencies prone to corruption and manipulation, among a host of other issues. As a decentralized, open source and transparent digital currency these attributes are presented as verification that someone is not manipulating a digital currency, since the claim that one can see all the transactions that have ever been done on the network and one can check and review the blockchain data to verify the authenticity of each transaction suggests a crime-proof system.

Finally, if ever an argument suggested exactly the opposite of what it purported to prove, for those wishing to carry around large amounts of money (and this ignores the convenience of the €500 note) then digital wallets would let you carry an infinite amount of cryptocurrency, as if all consumers needed the ability to move chunks of money around without the inconvenience of a holdall.

The reality therefore was that having amassed a lot of money legally or otherwise, the very rich tend to prefer to keep their wealth to themselves, except when they flaunt it. In other words, once you have money it is easier to make more money, only this time you prefer not to pay taxes on it. Whether a drug dealer, a financier, or an industrialist the predominant motivation is ‘what’s mine is mine and no one else’s business or I’ll cut your balls off.’ To be fair, the last bit is for the drug dealers.

Nevertheless, cryptocurrencies came into existence because players at both ends of the social spectrum desired the same thing. To be able to conduct business without any oversight. So, much as in the way credit developed in the late 18th century when the Rothschild family were able to facilitate business across war torn Napoleonic Europe, so a clever anonymous computer-literate financier created the first digital currency to serve transactions that preferred to remain under the table.

Bitcoin was always intended to be a middle currency that would be swapped in and out of for the purpose of financial movement. Like bearer bond share certificates but without the need to declare them since cryptocurrency exists only in a digital format, possession was ten-tenths of the (unwritten) law.

But one thing we do know about the mysterious Satoshi Nakamoto, supposed inventor of Bitcoin, is that he didn’t understand markets. What he created for a niche elite market soon took on a life of its own. And that life was in the murky world of crime (including, probably, the white-collar crime for which the currency was originally designed to assist). Within months drug cartels saw the obvious benefits of easy to move digital assets, cutting by 50% the chances of getting caught (bags of money going one way attract as much interest as drugs going the other). Bitcoin took off and its inventors were forced to go dark, since to admit to its invention would have been no less than aiding and abetting.

Now let’s go back to all those underlined attributes that make cryptocurrencies so reliable. Society has rules because without rules there would be no society. Decentralization is great when everyone can be trusted to follow rules, like driving cars on the right side of the road. But since the No. 1 global incentive today is to get rich (put crudely), working towards decentralising financial control is backward thinking, for the same reason you do not carry a lot of cash around – you can’t trust anyone. So, in whatever system is present, if you cannot trust the people you can see, how can you trust people you cannot see?

Open-sourced: a phrase for a generation. It conveys all that is good, but what does it actually mean in this context? The fact that three of the six biggest bitcoin mining countries are dictatorships in all but name (China 65%, Russia 6.9%, Iran 3.8%) suggests something is not right with the crypto industry, a product supposedly for the benefit of free market commerce. The truth is that only a handful of individuals might be able to map the Bitcoin system, but that does not make it secure. Like a bank vault, it is only a question of time and motivation. But more of that later.

Finally, the argument that crypto currencies are in anyway transparent is incredible. Hands up anyone who owned Bitcoin before 2011. No one was coming forward back then. And why was Mr Nakamoto a pseudonym? Because, for a period of time, taxable transactions were not being taxed precisely because they utilized crypto currencies. The same applied to illegal transactions – the criminals didn’t want to pay taxes either.

Fast forward to 2021 and Bitcoin is in everyones digital pocket. Values are soaring and there are few other ways to make money in the economic doldrums. Now Mr Nakamoto felt the benefit of celebrityhood outweighing the risk of criminal action, especially with the consumer market taking off. Over the course of the next decade crypto currencies would rise and fall back, but always with an upward trajectory as more investors sought safe returns on their money. After all, Bitcoin was a currency, wasn’t it?