If you are new to the Equibit story, please read The Assassination of Equibit, originally released in 2023.

When the Berlin Wall fell in November 1989, the world celebrated the end of one of history’s most oppressive regimes. East Germans stormed the headquarters of the Ministry for State Security — the infamous Stasi — desperate to seize and protect the mountains of files that documented decades of tyranny. What they uncovered was more horrifying than most could have imagined.

Among the archives was Directive 1/76, issued in 1976 by Stasi chief Erich Mielke. This document formalized Zersetzung — “decomposition” or “corrosion” — a systematic program of psychological warfare designed to destroy “hostile-negative” individuals and groups without the messiness of arrests, trials, or overt violence. The goal was simple and demonic: fragment, paralyze, disorganize, and isolate the target so completely that they could no longer function as a threat — all while maintaining the appearance of normal life.

The Sheer Evil of Zersetzung

Historian Hubertus Knabe, one of the foremost experts on the Stasi, described it chillingly: “The Stasi didn’t try to arrest every dissident. It preferred to paralyze them… by damaging their reputation, by organizing failures in their work, and by destroying their personal relationships.”

Tactics included:

• Covert home invasions to move furniture, change alarm clocks, or swap everyday items (classic gaslighting)
• Systematic smear campaigns using true, false, and twisted information
• Engineered professional and social failures
• Provocation, anonymous threats, and orchestrated “coincidences”
• Destruction of marriages, friendships, and family ties through rumors and planted evidence
• Sabotage of careers, vehicles, and medical care

Victims often had no idea the Stasi was responsible. Many believed they were losing their minds. Mental breakdowns and suicides were common outcomes.

One victim, Jürgen Fuchs, a writer and dissident, called it “psychosocial crime” and “an assault on the human soul.” Many survivors suffered lifelong trauma, paranoia, depression, and shattered trust. Some received modest compensation decades later, but for most, the damage was irreparable. Families were torn apart. Careers evaporated. Lives were slowly, methodically erased from within.

The Stasi built an enormous network of civilian informants — the Inoffizielle Mitarbeiter (IMs). By 1989, there were roughly 91,000 full-time Stasi employees and between 173,000 and 189,000 unofficial informants. This meant roughly one in every 50 to 60 East German citizens was actively collaborating with the secret police — an astonishing level of societal penetration. Some estimates, including occasional informants, run as high as one in six or seven adults.

These informants came from every walk of life: neighbors, colleagues, friends, even family members. Recruitment methods ranged from ideological appeal and bribes to blackmail and threats against loved ones. Once enlisted, they were used to spread rumors, provoke conflicts, sabotage opportunities, and report intimate details for the creation of detailed “psychograms” — psychological profiles used to exploit every weakness.

From East Germany to Canada: The Equibit Case

What happened to Chris Horlacher and Equibit Group bears unmistakable hallmarks of this same strategy — updated with 21st-century digital tools and operating within a Five Eyes democracy.

As documented across the Equibit Factum, technical forensic reports, live videos, court filings, and interviews on equibitlawsuit.com, the campaign against Horlacher and his company included:

• Prolonged surveillance and contact by prime-suspect Marc Godard beginning as early as 2010 — when Chris was engaged in online liberty activism.
• What appears to be the recruitment and corruption of Sergei Sachkov, lead Core developer at Equibit Group, by CSIS.
• Intense and malicious harassment by the Ontario Securities Commission, and demonstrable entrapment efforts.
• Marc’s attempts to involve Chris with questionable individuals post-Equibit, more entrapment schemes via financial crimes.
• Router compromises via the TR-069 protocol, with logs showing impossible 1981 timestamps and persistent remote access.
• DNS man-in-the-middle attacks rerouting traffic through U.S. servers.
• Microsoft ecosystem intrusions where private memos were observed copying themselves in real time.
• De-banking, institutional pressure, and coordinated defamation campaigns.
• Insider betrayal, code forking, rebranding (OCEAN → Tesseract), a coordinated effort to dismantle Equibit Group from within.

Marc Godard’s background in Cognitive Science would have been particularly useful in constructing the kind of detailed psychograms the Stasi relied upon — mapping personality weaknesses, relationships, and pressure points for maximum psychological effect.

This was not random crime or bad luck. It was a sustained, multi-vector operation designed to isolate, financially ruin, discredit, and psychologically break a founder who dared to become a fierce advocate for limited, constitutional government.

Zersetzung Has Gone Global

The Stasi needed a vast human network because they lacked today’s digital omnipresence. In the Five Eyes countries (Canada, USA, UK, Australia, New Zealand), agencies no longer need millions of informants on the ground. They have tools that allow remote, deniable, scalable decomposition: compromised routers, operating system-level access, financial system cooperation, and institutional capture.

What Horlacher has experienced — and meticulously documented — strongly suggests that modern Zersetzung is not only possible in Canada and its allies, but is likely already being deployed against innovators, dissidents, and threats to the established order throughout the country.

A Call to Global Conscience

This is cruel, inhuman, and degrading treatment. It is extrajudicial psychological torture dressed up in the language of national security. It violates every principle of human dignity and the rule of law.

We call on readers to take immediate action:

1. Visit https://equibitlawsuit.com — read the evidence, watch the videos, review the technical reports.
2. Submit a detailed complaint to the UN Special Rapporteur on Torture (sr-torture@ohchr.org), including all available documentation and requesting an urgent inquiry into the use of modern Zersetzung-style tactics by intelligence agencies in democratic nations.
3. Contact appropriate NGOs and oversight bodies:  Amnesty International, Human Rights Watch, the Canadian Civil Liberties Association, Privacy International, and the National Security and Intelligence Review Agency.
4. Share this story relentlessly. Public awareness is the greatest threat to these shadow operations.

What was done to Equibit and Chris Horlacher must not be allowed to become the new normal. If governments in the West can wage silent war on their own citizens — innovators, thinkers, builders — using the refined cruelty of the Stasi, then none of us are safe.

The Berlin Wall fell. The files were opened. The world saw the evil and recoiled in horror.

Today, new walls are being built in the digital realm — invisible, pervasive, and far more sophisticated. We must tear them down with the same courage and determination.

The time for silence is over. The time for exposure, outrage, and accountability is now.

Demand an international inquiry. Demand justice for the victims of digital Zersetzung. Demand that this hideous violation of human rights ends.

Because if we do not act, the decomposition will spread — until freedom itself is nothing but a memory.

Stay tuned to equibitlawsuit.com for more updates on the Equibit lawsuits against CSIS and related actors

If you are new to the Equibit story, please read The Assassination of Equibit, originally released in 2023.

Chris Horlacher has documented multiple sophisticated intrusions through his Microsoft ecosystem. These incidents go well beyond ordinary malware and align with key moments in his legal activities. They indicate a close collaboration between Microsoft and the Five Eyes to deliver undetectable spyware onto targeted devices in order to steal information and interfere with the normal functions of the computer.

Key Incidents of Unauthorized Access

• July 19, 2025 – Unauthorized Sharing of Sensitive Memo
  A confidential memo was suddenly made publicly shareable via OneDrive using Chris’s own Microsoft account. He did not perform this action. During the event, his computer’s built-in screen recorder was disabled. Luckily Chris was able to capture the event with his cell phone’s camera.

Watch the incident:

• August 27, 2025 – Spontaneous File Movement
  A critical security report analyzing router compromises was mysteriously moved to the desktop.
• October 27, 2025 – Camera Roll Breach
  OneDrive logs showed someone browsing the Camera Roll folder containing images taken directly by the device, as well as two files related to psychology that provide insight as to the hacker’s identity (more on that in later posts!)

Watch the Camera Roll intrusion:

Mass Windows & BIOS Updates – Highly Suspicious Timing

On August 18, 2025, immediately before a strategy call with his lawyers about upcoming discovery sessions, Chris’s computer began installing an unusually large wave of updates — including Windows, BIOS, and more than a dozen other components. He described it as one of the largest simultaneous update pushes he had ever experienced. Call quality then rapidly deteriorated and the connection was terminated exactly when the discussion turned to sensitive topics.

This event is especially concerning in the context of Bill C-22, Canada’s proposed Lawful Access Act. Part 2 of the bill would require electronic service providers (including software and operating system vendors) to build and maintain technical capabilities to facilitate authorized access to information by law enforcement and CSIS. Critics argue this could effectively compel companies like Microsoft to enable mechanisms for delivering signed updates or payloads that Windows would trust by default. Because Microsoft-signed updates are automatically trusted by the operating system, they represent a powerful and nearly undetectable vector for delivering targeted tools to specific users.

For more on Bill C-22:

• Department of Justice Backgrounder
• Michael Geist Analysis

Nightmare Eclipse Zero-Days and Browsergate

These incidents occurred against the backdrop of major Microsoft security controversies. In 2026, researcher Nightmare-Eclipse (also known as Chaotic Eclipse) publicly released several high-impact Windows zero-days, including exploits targeting Windows Defender and privilege escalation mechanisms. Some researchers have speculated that certain vulnerabilities may have been known internally for extended periods before public disclosure.

Additionally, Browsergate exposed serious allegations against LinkedIn (owned by Microsoft). According to a detailed report by Fairlinked e.V.:

• LinkedIn allegedly injected JavaScript that scanned users’ browsers for over 6,000 Chrome extensions.
• The script reportedly collected detailed device telemetry and extension data without clear user consent or prominent disclosure in the privacy policy.
• This allowed LinkedIn to build extensive user profiles, potentially identifying competitors, corporate tools, and other sensitive software.

The revelations led to privacy lawsuits and widespread criticism. You can read the original report here: BrowserGate.eu

Broader Implications

These events demonstrate deep access into Chris’s systems, precise timing aligned with legal activities, and the ability to manipulate core operating system functions. When combined with other documented technical attacks, they highlight growing risks around proprietary platforms and the potential for state-level exploitation.

Further Reading & Updates:

• Additional technical evidence and interviews in the Media section
• Ongoing lawsuit developments at equibitlawsuit.com

This case raises important questions about digital privacy, corporate responsibilities, and the balance between security and individual rights. Share this post if you believe these issues deserve greater public scrutiny.

Stay tuned to equibitlawsuit.com for more updates on the Equibit lawsuits against CSIS and related actors.

If you are new to the Equibit story, please read The Assassination of Equibit, originally released in 2023.

In the ongoing campaign of digital harassment and sabotage documented by Chris Horlacher, one of the most technical and intrusive episodes involves repeated compromises of his home routers in Mexico. These incidents directly affected Chris Horlacher’s ability to work, communicate securely, and access the internet—targeting only specific devices while sparing others on the same network.

This pattern aligns with advanced persistent threats, often linked to state-level or ISP-enabled capabilities.

Background: Part of a Broader Pattern

After fleeing Canada due to chronic digital intrusions and other events stemming from what he believed to be the lawsuits he just filed, Chris continued facing disruptions. VPN instability, selective device blocking, and unexplained connectivity issues prompted deeper investigation. Factory resets provided temporary relief, but problems returned rapidly—classic behavior of persistent malware or remote management exploits

The Attacks: Huawei HG8145V5V3 and ZTE F670L Routers

Key Anomalies Observed:

• 1981 Timestamps: Multiple log entries show dates like 1981-01-01. This is a strong indicator of Real-Time Clock (RTC) reset or deliberate log tampering/manipulation, often seen when firmware is altered or during boot-level interference. Security analysis reports explicitly flag these as “Backdated logs to 1981 (RTC reset or tampering).”
• Custom Firewall Rules & Selective Blocking: Firewall settings changed to “user defined.” Specific devices (Chris’s and his wife’s) lost internet access while others worked, consistent with targeted rules or a Remote Access Trojan (RAT).
• Rapid Re-infection Post-Reset: Issues returned within hours, even on a replacement router from the ISP (Telmex).

From the ZTE Log (August 2025, post-reset):

2025-08-04T16:16:01Z [Error] |dnsmasq| bind interface socket failed 99
2025-08-04T16:16:01Z [Error] !!!!!![high Alert for send msg in POWERON]...
[Warning] RunPCB process[omci] Event[0x3e81]...

High-priority OMCI/GPON messages immediately after boot, IPv6 route injections before full WAN negotiation, and MultiAPD errors point to remote provisioning activity.

From Huawei Logs (July 2025):

Numerous 1981-01-01 entries alongside PPPoE renegotiations, deprecated SSL methods, and DHCP NAKs (potential MAC spoofing or rogue activity). Frequent PPPoE sessions suggest possible DoS or disruption attempts.

Expert Security Analysis

Independent analysis by a professional (using SIEM-style detection) on both routers confirmed:

• TR-069/OMCI remote provisioning activity.
• Backdated logs and tampering indicators.
• Potential RAT presence and DoS patterns.
• Recommendations: Replace/reflash router, disable TR-069, scan devices, and isolate vulnerable hardware (e.g., older Smart TV).

Huawei Router Analysis Report (PDF)

ZTE Router Analysis Report (PDF)

TR-069 (CWMP) Vulnerabilities: This Broadband Forum protocol enables ISPs to remotely manage Customer Premises Equipment (CPE) like routers via an Auto-Configuration Server (ACS), often over port 7547. While intended for legitimate management, it is notoriously exploitable. Compromised ACS servers or weak implementations allow attackers full remote control, DNS redirection, firmware backdoors, and persistent access. It has been weaponized in botnets (e.g., Mirai variants) and enables exactly the selective targeting and re-infection seen here. Many ISPs do not allow users to fully disable it.

Video Evidence: Router Investigations

Watch Chris document the issues in real-time:

Part 1: Initial router access and strange behavior.

Part 2: Firewall changes, selective blocking, and admin interface interference.

Part 3: Factory reset, log downloads, and post-reset observations.

Part 4 (Short): Post-reset functionality vs. actual device connectivity failure.

Implications

These attacks go beyond typical criminal hacking. The precision (device-specific blocking), persistence across hardware swaps, use of ISP-managed protocols, and alignment with other documented sabotage (e.g., Microsoft OneDrive tampering, email spoofing, bank disruptions) point to sophisticated actors with significant resources—potentially leveraging intelligence or ISP cooperation.

Combined with the broader evidence in the Factum (honeypot hits from government networks, Keybase anomalies, etc.), this leaves little doubt that Chris Horlacher’s infrastructure was under targeted surveillance and disruption.

What You Can Do:

• Demand transparency from ISPs on remote management (TR-069/OMCI).
• Support calls for accountability in intelligence oversight.
• Share this post—stories like this highlight risks to innovators and due process.

Full logs and analysis reports (Huawei and ZTE PDFs) are available for review upon request for credible researchers/journalists.

This is not paranoia. This is documented technical evidence of invasive digital warfare against a Canadian entrepreneur and litigant, across national boundaries, violating the property of a foreign ISP.

Stay tuned to equibitlawsuit.com for more updates on the Equibit lawsuits against CSIS and related actors.

Disruption for thee, but not for me…

For years, central banks have been sounding the alarm on Bitcoin and cryptocurrencies, fear mongering on the threats that they posed to the financial system, the global climate – at one point predicting that Bitcoin’s electricity demand would literally consume all available energy in the world by 2020 .

Nevermind that under the stewardship of the central banks, the financial system has lurched from one crisis to the next for decades on end, every one an order of magnitude worse than the prior.

The policy response to each crisis (expand credit, suppress interest rates, print money) simply incentivized moral hazard, perverse incentives, and an ever widening wealth gap – while providing the setup for the next crisis. With this unbroken string of failures under their belts, it’s always rich to listen to these insular technocrats, who have zero skin in the game, pontificating about the meltdowns they created. Especially when they get worked up around hazards of a phenomenon that has since emerged to obsolete them.

Now it’s Big Tech’s turn:

Warning us about the existential “risks to society” of AI and calling for a time-out. The very people who have benefitted the most from exploiting disruptive technology, regardless of the collateral damage, and in the process became literally the wealthiest people in history, now look at AI in the hands of the rabble, and there’s a flag on the play.

When these tech oligarchs blow out entire industries and replace them with quasi-monopolies in which they’re majority shareholders, it’s just creative destruction. #LearnToCode, baby.

But if a total game changer suddenly finds its way into the hands of the plebs, and the Big Tech incumbents realize it could be their turn to get their asses disrupted… by commoners at that….  then suddenly we’re looking at a crime against humanity.

The Future of Life open letter was signed by everybody from Elon (“self-driving robotaxis any minute now”) Musk, and Steve Wozniak to Yuval (“the plebs are hackable animals”) Harari and sundry other AI incumbents. 

According to their About Page,

The Future of Life Institute is an independent non-profit organisation funded by a range of individuals and organisations who share our desire to reduce global catastrophic and existential risk from powerful technologies.

And their listing in their entry in the European Transparency registry discloses that their funding:

..is about 87% provided by the Musk Foundation. Speaking of risks from powerful technologies, let’s remember that 19 people have been killed by Tesla’s in self-driving mode and another 21 when their Tesla’s exploded as a result of various crashes (out of a total known pool of 373 Tesla deaths thus far).

Who is really threatened by AI?

When I first started playing with chatGPT, I never for a second believed it was any kind of magical artificial intelligence. I’ve always called AI “Algorithmic Imitation”.

However, it is a quantum leap forward in natural language interface. I instantly recognized who was most at risk by this: the search engines, namely Google, and the entire ecosystem of made-for-Adsense “content” websites whose raison d’être is to game search algos.

Hence, Google’s panicked ham-fisted rush job on Bard, and Microsoft’s debacle trying to incorporate chatGPT (in which they are a significant shareholder) into their own Bing. (Soon I’ll be releasing a serialized collection of pieces, working title “Infernal Algorithmica”  which is a  technological grimoire  exploring the lower circles of the pay-per-click advertising model. Sign up for the list if you want that when it comes out.).

This is nothing new. This is the same dynamic that’s been played out with every disruptive tech innovation, ever – there are even accounts from the Decline of The Roman Empire on how the alchemist who discovered aluminum was beheaded when the Emperor suspected that this breakthrough innovation might devalue silver (the story was described by the Roman writer Petronius, circa 27AD, in his novel, Satyricon, although Pliny The Elder wrote that it could have been apocryphal).

Apocryphal or not, the tension between disruptive, rising technologies, and the elites who control the operations and markets of the incumbent ones is real and perennial.

In  “Innovation and its Enemies, Why People Resist New Technologies“, Calestous Juma writes how

“[Nearly all] debates over new technologies are framed in context of risks to moral values, human health and environmental safety. But behind these concerns often lie deeper, but unacknowledged, socioeconomic considerations”.

The face-off between the established technological order and new aspirants leads to controversies…perceptions about immediate risks and long-term distribution of benefits influence the intensity of concerns over new technologies”.

These calls for a moratorium on AI, the abolition or over-regulation of cryptos and Bitcoin and inevitable calls for technocratic control over your energy consumption and individual carbon footprint metering are all riffing on the same theme: you’re too stupid and infantile to use these technologies responsibly. Only The State can figure it out. (No wonder most governments of the world are on a mission to ban cash, privacy …and guns).

People like Musk, Harari and the ever increasingly batshit Eliezer Yudkowsky (who wants to forcefully curtail computing power to the point of advocating for the military bombardment of rogue data centers abroad) should know this.

Yudkowsky has been mentioned in these pages before. He’s the one who is convinced AI will inevitably result in the extermination of all humanity.

I had a lawyer who liked to say “You can’t suck and blow at the same time”. Either you want to ride a tide of rapid technological change to unparalleled living standards, personal wealth and privilege (but which affords everybody else those same opportunities), or not so much. You can’t do both.

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Originally published on August 29, 2022 here. It continues to be updated as events progress.

My name is Chris Horlacher. From 2015 to 2019 I ran a federally recognized and subsidized scientific research and development company out of Toronto called Equibit Group. After finally reaching a multimillion dollar valuation through years of work, and with eager customers lining up to use our technology, our company was quite suddenly and inexplicably shattered. Critical portions of our company’s work and research were stolen or destroyed, attempts were made to frame us for securities fraud, and my wife and I were harassed by the Canadian government for nearly 2 years.

This is our story:

With the invention of cryptocurrency after the shakeup of the 2008 worldwide financial crisis, Equibit saw an opportunity to greatly simplify securities trading and reduce users reliance on the large financial institutions who’d been a major point of failure in 2008 and who, from investors perspective, presented an enormous risk to their assets. Our team invested in the creation of the world’s first decentralized, blockchain-based, securities registration and communications system. This technology was, and still is, absolutely cutting edge. Our wallet could even perform cross-chain atomic swaps without ever leaving the application, a technological feat that has still never been replicated.

Had Equibit continued, it would have reduced costs and errors associated with settlements and investor communications. In plain English, this would have quickly replaced traditional financial sector methods for trading securities by being vastly more efficient and by cutting out several layers of middlemen. We were poised to completely disrupt the securities transfer agent and custodian sector, an industry which costs investors and issuers over $10 billion per year, processing quadrillions of dollars worth of transactions annually. As a long term industry insider, most recently as CFO of the Canadian-based arm of an international securities broker-dealer, I knew very well the enormous amount of waste involved in this dark corner of the industry. With our extensive credentials and the success of our technological development, private equity groups couldn’t wait to use our platform, and those who interestedly met with us collectively managed trillions of dollars.

In December 2016, as part of our legal preparation for launching the Equibit platform, we engaged a law firm to investigate Equibit and prepare an analysis regarding EQB’s, our blockchain’s native cryptocurrency, potential status as a security. After extensive investigation into the details of Equibit, lawyers from Davies, Ward, Philips & Vineberg, the top securities law firm in the country, arrived at the conclusion that Equibit’s cryptocurrency was not a security under the Pacific Coin test, basically the same thing as the US Howey test. We then sought the perspective of the Ontario Securities Commission (OSC) on the Equibit technology we had developed thus far. In order to continue moving forward, we voluntarily requested a determination from OSC as to whether they thought Equibit’s native cryptocurrency (EQB) was a security. I was encouraged by the OSC Launchpad leader, Pat Chaukos, to “keep going” with our work. Similarly, OSC Launchpad attorney Amy Tsai referred us back to our own counsel for any questions about securities law. As our attorneys had advised us that EQB would not be considered a security under the law, we moved forward and began a sale of pre-mined EQB’s, which is the traditional method of funding new protocol development.

Beginning in early 2017, we suddenly experienced a full-scale assault by the OSC. After starting a sale of pre-mined EQBs (“Equibits”), we were dragged into OSC offices and interrogated based solely on an “anonymous” tip (i.e., from the Canadian Security Intelligence Service). Ignoring all previous discussion and determinations, OSC proceeded unilaterally with a quasi-enforcement procedure (and later, an actual enforcement procedure complete with secret gag orders) to stop sales of EQB. We fully complied with them, of course, and continued to communicate with OSC in support of our project – including sending them the nine page expert opinion from Davies, Ward, Philips & Vineberg. After some prodding, the OSC ultimately acknowledged to us that they had never even bothered to read any of our offering documents before acting. Even after receiving the expert opinion, which they took months before acknowledging, they simply dismissed it without explanation or reasoning. This was despite overwhelming support for our assessment across the international regulatory community.

Though incredibly hostile toward us, the meetings did eventually conclude with OSC telling us – on the record – to go ahead and complete our sale of the pre-mined EQB’s. Regardless, from that point onward the OSC’s behavior towards the company, my wife and myself became crude, deceitful, and malicious. All my interactions with OSC are documented in detail in an internal company memo originally published in early 2018 and continuously updated with ongoing details until the end of 2019.

It is now well known amongst lawyers across Ontario that Launchpad has been engaged in a systematic entrapment scheme, devastating every company that has come through their doors. They are single-handedly responsible for the dearth of quality companies in the crypto industry throughout Canada – a country that has had every opportunity to emerge as a global leader in the cryptocurrency space. Not only have they stood firmly in the way of legitimate developers, but the OSC stood idly by and did nothing while well-known frauds like BitConnect were being reported to them. To their credit, they eventually did issue a warning to investors some three months after the BitConnect ponzi-scheme had already collapsed.

In mid-2018 our lead developer suddenly disappeared for two weeks. When he returned, he informed us that he’d been hauled down to CSIS’s offices and interrogated for hours by two agents that he refused to identify to us. According to him, CSIS was intimately aware of internal, non-public details regarding Equibit’s technology, and induced him to reveal additional details regarding the company by leveraging his desire to become a Canadian citizen (he was a Russian immigrant). After revealing this to us, he said he had been granted Canadian citizenship and stunningly requested a promotion to the company’s “inner circle”. Then, just days later, he inexplicably resigned from Equibit, deleted the sole copy of Equibit’s most recent code, and ceased all communications with us.

As you can imagine, not only was this devastating to the project, it had a deeply chilling effect on the entire team. However, we were determined to press on. Without the ability to continue in Canada, my wife and I picked up everything and moved to Switzerland to try to save the company. We were welcomed with open arms by the Swiss, and Equibit received a “no-action” letter from their securities regulator – essentially a written confirmation that we were free to operate as planned without registration or oversight by them. They agreed that EQB was not a security, and affirmed that Equibit’s activities were not of a nature requiring reporting to or oversight by financial regulators, confirming we could continue unabated with the sale in order to fund and finalize development of the protocol. Unfortunately, after several hundred thousand dollars in costs dealing with OSC, the loss of critical portions of our code, and with the sudden collapse of crypto markets in late 2018, Equibit had become impossible to salvage.

Around this same time, while attending World Crypto Con in November 2018, my wife was attacked and drugged by two men who were witnessed (and thankfully prevented from) attempting to kidnap her. I have positively identified the two men as Australian nationals Rev Nissan, a so-called “crypto influencer” who posts a lot of “not investment advice” shilling – and profiting from – high risk crypto investments, and Azzam Elterekmani, who Rev introduced as his “cousin”. I suspect they may have been acting as Australian agents for the Five Eyes network (which only gained the pretense of oversight in 2017), as they routinely drug and even rape their targets.

We also personally know of at least two additional people who were drugged at the same conference, and it stands to reason that World Crypto Con 2018 was a hotbed of espionage activity. It was shortly after this incident that I also experienced a SIM-swap attack – which is a sophisticated, targeted attack used to intercept someone’s phone calls and messages. Fortunately, I had already taken measures to protect myself against these kinds of attacks (never, ever use SMS-based 2 factor authentication!) and so the damage was very limited. This attack was followed on July 3, 2021 by an attempt to steal my time-based one-time-password tokens out of Authy, a service that stores these encrypted tokens on their servers. Again, and fortunately, I do not actually use the Authy service and only registered for it. So, no damages were suffered.

With the failure of the company all but assured, in mid-February 2019 we decided to move from Switzerland back home to Canada. Upon our arrival, we were singled out and searched by airport customs. Despite being some of the only actual Canadian citizens on this flight, we were the only people out of an entire plane load of mostly non-Canadians to receive this enhanced screening. It was obvious that we had been flagged by Canadian authorities for unknown reasons. At the end of a thorough but ultimately fruitless search, the embarrassed customs agent proclaimed “Not everyone is as honest as you.”

I spent the next few months winding up the company, paying our vendors and severance to employees, and doing my best to mitigate any more losses. We had been destroyed by our own government for the “crime” of trying to do something innovative and positive. It took many months to heal from my depression and get back on my feet, and in 2020 and 2021 I filed several lawsuits against CSIS and the perpetrators of this travesty. I knew I would be surveilled and attacked again, so I created a trap for them within my home network (a honeypot named “Equibit-DEV”) to test my theory. Immediately after filing my lawsuits, someone began breaking into my home network and hit the honeypot I had set up for them several times. They also tried hacking my contact lists to figure out who I was talking to. Just so you know, your Bell and Roger’s gateways are back doors for the government to snoop on your entire network. That’s why they insist you use them instead of your own router.

It’s worth mentioning that, on Edward Snowden’s recommendation, I reached out to Citizen Lab, a group of IT security specialists holding themselves out as aid for activists and journalists targeted by corrupt states, via email with my situation and asked for their help. Though my email was forwarded multiple times internally, and I have the DMARC reports and read receipts to prove it, I received no response nor even an acknowledgment of my email. One by one I reached out to their entire team and received the same wall of silence. The Canada-based Citizen Labs wanted nothing to do with a Canadian citizen targeted by Canada’s government.

I also served ATIP requests on CSIS for everything they had on me and my company, which were, tellingly, refused on national security grounds. When I complained to the Office of the Information Commissioner, the OIC first attempted to elicit privileged information from my case against CSIS and then simply dismissed my complaint with no consideration given to its actual substance.

In the meantime the CSIS saboteur I had charged, Sergei Sachkov, defaulted on his obligation to file a statement of defense – meaning that, legally, they have admitted to the truth of all my allegations. The government similarly defaulted on filing its defense, but eventually filed, nearly a year after it was due, an entirely inappropriate two-page denial of any knowledge of the events I alleged. So much for the right to a speedy and fair trial in Canada.

At the end of 2018, as my company was crumbling, CSIS director David Vigneault had the nerve to unironically deliver a speech to the Economic Club of Canada warning their members about industrial espionage. He also said “accountability is at the center of everything we do”, which strikes me as utterly hypocritical coming from the head of an organization that is exempted from key sections of the Criminal Code, been caught repeatedly lying to judges in order to obtain warrants, destroying evidence a court ordered them to produce, destroying a file on Pierre Trudeau that was about to fall into public hands, engaging in illegal data collection and retention, and is generally known as a cesspool of racism, sexism and other forms of bigotry. Most recently they have even been implicated in a case of child trafficking involving three girls, two of whom are now dead. The third is being held in a Syrian rape camp and her three children (ostensibly all from rape) are also now all dead.

Even though CSIS’s own terrorist reporting system provides no indication that cryptocurrencies are being used by terrorists, which is confirmed by a 33-year CIA veteran’s detailed analysis as well as my own ATIP requests on that matter, the people at CSIS, OSC, and other agencies within the Canadian government still proceed under the assumption that cryptocurrency developers are de-facto criminals who must be stopped at all costs. They would love nothing more than for you to believe it is something put forth only by misfits and miscreants. My own resume says differently.

I believe CSIS intended to turn Equibit Group into another debacle used to scare the public away from cryptocurrencies – something they are terrified of. The intelligence community is heavily reliant on financial surveillance and, in return for government protection of the industry (cartelization, bailouts, and direct subsidies), requires financial institutions to act essentially as an arm of the government in data collection, enforcement, and suppression.

The acts described above are the subject of two active lawsuits, together covering over $140 million in damages, which have been filed with the Ontario Superior Court of Justice (File #: CV-20-00645492-0000 and CV-21-00654929-0000). One of the key defendants, former Equibit employee Christian Saucier, is still at large and we have been unable to locate him even after employing the services of professional investigators. The investigators are unanimously of the opinion that he is being concealed by powerful interests.

Despite my best efforts to get ANY attention on these events, all media and political actors have consistently refused to look at anything related to this case. For example, Pierre Poilievre recently expressed views that he was favorable towards the cryptocurrency industry, claiming he wants to make Canada the “blockchain capital of the world”. This is a lie. Pierre’s office is aware of my situation and has told me in writing that they will say nothing and do nothing. Equibit could have been one of the premier blockchain companies in Canada, even the world. But Pierre and other establishment fixtures will do nothing for us – nor, ultimately, for anyone else in our industry. It is up to us alone to ensure the rest of the world knows what happened, what is happening, and what will continue to happen if we don’t make a change.

In the past I had been interviewed and published by leading media outlets, including American Banker, CBC, BNN, Bloomberg, Forbes, and The Globe and Mail, and had spoken before large audiences at countless prominent industry events since 2014. Now no one wants to hear this story, my story. Remember the immortal words of Desmond Tutu,

If you are neutral in situations of injustice, you have chosen the side of the oppressor.

During the darkest moments of this whole experience, I was blessed with two amazing children. I had expected to raise them in a world made better by blockchain, cryptocurrency, and Equibit. Instead I have been given the challenge of explaining to them just what kind of world they actually live in and I can only hope they will have the strength to make it in such an environment. I wish I could tell them to follow their dreams, and that with hard work they will be free to make a lasting contribution to humanity – but look where that got Equibit and all the people who believed in our vision of the future. We live in a world where the successful “innovators” of our time are only in those positions because they were placed there by even more powerful interests who don’t want their boat rocked. Anyone building things that can truly upset the status quo are quickly eliminated, their stories buried, and the world goes on never knowing what could have been.

So I’m asking for your help. Please, forward this story to your email lists. Post it to your forums and blogs. Write about it. If you know where Christian Saucier is, tell me. I am giving this information away freely and if you think you can help, write to me (PGP). If you are in a similar situation, let’s join forces. Make it impossible for the world to ignore what the Trudeau regime and the disgusting Western espionage alliance (Five Eyes) are doing to activists, entrepreneurs, and innovators the world over.

Update 09/01/2022 – Last night, without any warning, Telegram deleted the account and banned the phone number that I had been using to distribute this story for the last few days. The account was registered using a phone number that was not tied to my identity (it was a friend’s number), meaning it was the information itself that prompted the account deletion.

The theme for today’s post is from Scott Galloway’s (@profgalloway on Twitter) “Casper Should Not Go Public” post on Medium, which he wrote in response to the news that Casper, a mattress company I had never heard of, had filed to go public, having lost $73.4 million on $250.9 million revenues in 2017 and another $92.1 million loss on $357.9 million in 2018.

This post isn’t about Casper, the Galloway article is superb in analyzing exactly why anybody dumb enough to buy this IPO deserves to lose the 30% decline in stock price he posits for the first year (which I think is being charitable).

However, Casper will not go public, as it has no business being public. Casper’s numbers are a sign of a frothy economy: firms that should be sold in the private market doing a kabuki dance (“technology” mentioned over 100 times in prospectus), asking people to suspend their disbelief until the founders, VCs, and bankers sell their shares and get their fees. That’s not going to happen. Here too, yogababble won’t cut it: “We believe we are the first company that understands and serves the Sleep Economy in a holistic way.”

The economics work better if Casper sent you a mattress for free, stuffed with $300.

He also compared Casper to other players in their space, and adjacent space, mentioning that Away, is better differentiated in a less competitive space (there are 175 online mattress retailers!), and Warby Parker, who actually looks to be headed toward a successful IPO (because they actually have a real business).

It was a phrase near the end of the post which grabbed me, having  circumscribed almost perfectly the frustration and angst rational economic actors have been feeling these past several years. Said rational economic actors include

• non-VC funded business owners
• people who save money
• people who pay down or pay off their debts
• fiduciaries responsible for investing and allocating capital
• and most anybody with a time horizon longer than the next quarterly earnings report

What he said was this:

Casper is being drowned and likely won’t survive. Away needs to be adopted by someone who will feed, clothe, and protect them. Warby looks to have the muscle and fat to survive an Amazon winter and emerge stronger.

It was that phrase “Amazon winter” that got me. Amazon poses such an existential threat to any sector it enters that even speculation that it may enter a space is enough to tank every public stock in it.

But it isn’t just Amazon that is scouring the economy looking for spaces to disrupt and so-called “value to unlock”, it’s every Amazon wannabe, trying to become the Amazon of their own space, or to lock up a “blue ocean” before somebody like Amazon can move in and eat it.

The end objective of all these players isn’t to have viable businesses, ones that do business the old fashioned way, at a profit.

Instead the end objective is to set in motion a cascading series of financial events at successively higher valuations. That’s the game now, and I’ve decided to call that game Unicorn Bingo. The macro effects of Unicorn Bingo are to usher in Unicorn Winter.

Unicorn Winter is the long, hard slog where credit induced asset bubbles on Wall Street suck up all the oxygen from Main Street.

It’s the Cantillon Effect, when geometrically increasing central bank balance sheets lift up the Unicorns’s valuations while pushing up the cost-of-living for everybody else.

The Unicorn Winter brings central bankers out of hibernation if the stock market pulls back 5%.

“Free markets”

Futures go up -> shorts get smoked

Futures crash -> CME steps in immediately -> Trump makes statement -> Powell capitulates -> Exchanges use circuit breakers -> Plunge protection team steps in -> Media starts doing 24/7 specials about buying the dip

— Quoth the Raven (@QTRResearch) December 5, 2018

The Unicorn Winter isn’t about making money, as in profits. It’s about monetizing what goes on in the mind of people who have no idea they’re being datamined.

Unicorns don’t create jobs. For the most part they create gigs. Temporizing everything from your home, your office, your server space, everything is delivered as-a-service, most likely at-a-loss and if there’s any humans involved in the chain at all it’s as part of somebody’s side hustle. Because that’s all there is now that everything else has been disrupted away in a sweeping tide of financialization.

In the Unicorn Winter even the also-rans get their hallowed exits.

• Adam Neumann became a billionaire for vaporizing WeWork
• Elizabeth Holmes is out seeking funding for her next deal
• And it all started when an entire class of banksters got bailed out for creating a financial crisis…

None of the bailed-out financiers here at #Davos2016 who live in Greenwich & collect Lamborghinis can understand why US voters are unhappy.

— Rudy Havenstein, Comité de salut public. 99.6°F. (@RudyHavenstein) January 21, 2016

But in the Unicorn Winter the people who didn’t want to play Unicorn Bingo don’t get exits. They get shut down, liquidated, foreclosed or stripped out in asset sales.

Ground Hog Day is Coming

We’re now in that part of winter that usually gets to me the most, when it’s cold, wet, miserable. It’s dark in the morning when I walk the dog before I take the kid to school, it’s dark when I walk her again after dinner. It’s always dark, always cold. The dog doesn’t seem to mind. She’s a Siberian Husky who was named “Tenacity” by the rescue folks who found her, all those years ago, chained to a pole in a swamp and left for dead.

During these early dark mornings it feels like it will be like this forever and I can’t even imagine walking her around in shorts and my “Got Hedge?” t-shirt someday in the future. But even though it feels like winter will last forever, I know it won’t.

To rest of us, exiles from game of Unicorn Bingo during the longest and strongest Unicorn Winter on record, we could use a dose of this Tenacity. Owning gold (and silver) is one way to just wait it out. As Bill Fleckenstein opined on a QTR podcast in the fall of ’19 (I think this one), you can argue with the Unicorns, you can try to short them, because they should be shorted and they should come back to earth, someday. 

But it’s usually a disaster because of the Fed put, which looks to keep working until finally, one day, it won’t. There was another podcast I recently listened to with Grant Williams (which I can’t seem to find now), when he talked about his witnessing the end of the Nikkei Bubble from his vantage point in Japan at the time. No crash, no notable day of reckoning, the way he described it, “one day the Nikkei just stopped going up every day. It just started going down”. And it’s been down ever since, for thirty years.

But if you buy gold then everything the central banks do to keep the Unicorn Winter going is actually wind at your back. It feels good not to be endlessly fighting the Fed and doing it without having to actually drink the kool-aid.

If you run a business, like I do, that has to survive the Unicorn Winter, then you need that muscle and fat Galloway ascribes above. You need actual customers for whom you can provide value, not data cows to mine and surveil. If you’ve made it this far without taking on VC, don’t start now.

Connect with other unfunded, real businesses doing actual stuff and start working together: joint ventures, co-branding, white labeling, sell your customers what they want instead of loading up on VC and taunting them with shiny new objects.

If you aren’t already, get involved in the crypto economy.  After the everything bubble pops, I think it will be one of the segments that fills the vacuum.

If you can get your business to the point where you can continue operating in your niche no matter how long the Unicorn Winter lasts, just imagine how things will be when it’s over. I’ve said it before, the two periods where we experienced the most explosive growth at easyDNS were immediately after the bursting of the .com bubble and then again after the GFC.

My latest book: Unassailable: Protect Yourself From Deplatform Attacks, Cancel Culture and other Online Disasters is available now.

[ Read on Medium ]

Paul Krugman took time out from his European vacation to write why he’s a cryptocurrency skeptic. This is not surprising given who he is and what his positions have been over his career. Most of the orthodox criticisms against cryptocurrency  I covered previously in my “This Time is Different: What Bitcoin Isn’t” and “What Bitcoin Actually Is” series. But it’s worth recounting how one could easily take many of these criticisms against Bitcoin, search and replace “bitcoin” or “cryptocurrency” for “US dollar” and come out with are more applicable criticism of the modern fiat money system.

“Cryptocurrencies, by contrast, have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations — which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.”

This is more or less a truism that can be said about any fiat currency. Krugman seems to not notice, or care, that for most of recorded history, most currencies were either hard currencies (gold, silver, etc) or hard backed. Elastic, fiat currency, worldwide has only been around since the 70’s, and here’s Krugman complaining that it’s Bitcoin that has a tethering problem (or lack thereof). Further,

“In normal life, people don’t worry about where the value of green pieces of paper bearing portraits of dead presidents comes from: we accept dollar notes because other people will accept dollar notes. Yet the value of a dollar doesn’t come entirely from self-fulfilling expectations: ultimately, it’s backstopped by the fact that the U.S. government will accept dollars as payment of tax liabilities — liabilities it’s able to enforce because it’s a government.”

But people do lose faith in both currencies and governments. There have been 21 hyperinflations over the last 25 years.

It’s happening right now in Venezuela, where the inflation rate is on track to hit 1,000,000% by the end of the year, and Turkey may be next up.

Cryptocurrencies, meanwhile, are tethered to math. While in Krugman’s own words, fiat currencies can be created out of nothing:

“Instead of money created by the click of a mouse, we have money that must be mined — created through resource-intensive computations.”

Yes, that is entirely the point. In a recent Peak Prosperity podcast Chris Martenson quoted Charlie Munger’s observation:  “show me the incentives and I’ll show you the outcome”.

Krugman wonders “What problem does [Bitcoin] solve? I have yet to see a clear answer to that question.” Maybe we can clarify things by starting with the outcome: the fact that cryptocurrencies are here and as the data shows, steadily gaining traction, and then work backwards. (By gaining traction I’m not even talking about price action of any given cryptocurrency, I mean usage-based metrics like transaction volume, active addresses, hashing power, etc)

When we work backwards we can arrive at what the incentives were that gave rise to this phenomenon. When we do so we’ll understand that they didn’t spontaneously arise out of whim, they came about for a reason, and those reasons are the problems that crypto solves.

Crypto’s 7 Mothers of Invention

1) The custody problem

The custody problem is what we can call any situation where your wealth can be confiscated from you without your consent. I mean this in a sense distinct from outright criminal activity. All assets, crypto or not, have vulnerabilities to theft. Ostensibly we have legal recourse under our justice system to seek redress and punish wrongdoers. That isn’t the custody problem, the custody problem is when, for whatever reason, money or assets that belong to you are taken away in a manner that is then deemed to be “legal”.

A key example of this was the Cyprus Bail-in, which was the first time Bitcoin started making headway into the public consciousness, where it quadrupled in value  when Jeroen Dijsselbloem described what was about to happen as a template for future bank recapitalizations across the Eurozone. People began to realize two things:

A) maybe central bankers around the world weren’t able to control the economic destiny of the Universe, and

B) next time some banks blew themselves up they were going to be recapitalized with depositor funds.

Other events followed, from “bail-in” language being introduced in legislation from Switzerland to Canada, to MF Global imploding to the chagrin of unit holders who found that their accounts had been rehypothecated from under them.

Suddenly cryptocurrencies were looking like an idea whose time had come, so long as one holds their private keys themselves (cryptos understand implicitly: not your keys = not your coins).

2) The capital control problem

This is related to Problem 1, only instead of your being stripped of your wealth through confiscation or rehypothecation, you get trapped inside a system you have no control nor lattitude, or else chased into assets you’d otherwise not want to be invested in.

Cryptocurrencies slip through capital controls with ease. I was having a hard time wondering what Krugman was talking about throughout his piece about how hard and expensive and slow it is to do Bitcoin transactions, and yet, you can move hundreds of thousands or even millions from address1 to address2 for a few dollars in timeframes ranging from seconds to hours.

Meanwhile, wire transfers, still, to this day scare the living crap out of me every time I have to send one because it takes as long as a week just to find out that it hasn’t arrived and nobody has any fucking idea where the money is. Sure, it’ll get wound back, eventually. But that doesn’t exactly strike me as frictionless. These aren’t edge cases either, anybody in business knows this happens often enough that you end up worrying about it all the time.

China is a great example of a totalitarian police state with ubiquitous state surveillance, an absence of civil liberties and capital controls. Ironically, China is also one of the giant sources of hash power for crypto mining.

3) The dilution problem

It bears repeating what Krugman likes about conventional money: you can create it with a mouse click. Well you can’t. The Fed can. The money centre banks can. That’s a pretty sweet deal, if you own, run or are otherwise comfortably cozy with a bank or the Fed.

Most of us aren’t, so what happens to the rest of us is that we have to compete with the privileged few who get direct access to this freshly minted money. Only we don’t get to use freshly minted money, we have to use our own money, that we actually earned, somehow.

The stock market bubble, tech unicorns, the entire fracking industry, it’s all built on money centre banks receiving freshly minted money and ramming  it into private equity, investment banking, venture capital, and financialization – in other words, blowing up asset bubbles that have had one singular, defining effect that will take generations to unwind: acute wealth inequality and the decimation of the middle class.

If you don’t believe that this is a problem let’s take a single example of this dynamic in action. Yesterday, as I started writing this, Apple became the first company in history to achieve a trillion dollar market cap. One of the largest shareholders in Apple, is the Swiss National Bank. The SNB became one of Apple’s largest shareholders through it’s Swiss franc stabilization regimen. That’s where they print Swiss francs out of thin air, sell them for Euros and then use those Euros to buy up assets, including shares in companies, including Apple. Here we have the microcosm example of central bank money printing contributing to currency debasement and asset bubbles in one shot. This isn’t an outlier, it’s the way the system is constructed right now.

Every dollar that gets printed dilutes the value of every dollar we worked for, earned or saved. As I remarked previously 

“debt-based inflationary money creates a treadmill economy, which perniciously pushes assets up the wealth inequality ladder, as the Plutocrats on top spend their compounding wealth on buying up assets, while the lower tiers (the non-super rich) must continually and incrementally spend more of their purchasing power on staying alive.”

Cryptocurrencies by contrast are inelastic, deflationary currencies. Price volatility aside, which I think can be ascribed to it still being early days for crypto, the overall effect is that units gain purchasing power over time. As I noted in my earlier series on Bitcoin, there’s nothing wrong with a deflationary currency as long as you’re not using debt for money.

( I expanded on this a lot more in my review of David Golumbia’s Politics of Bitcoin book, wherein he attempts to dismiss any criticism of inflation as far-right extremism but even a cursory examination of his thesis shows beyond a doubt: inflation erodes the currency, either quickly or gradually, whereas crypto-currencies demonstrate anti-fragility and gain value over time)

4) The consensus problem

What I mean by “the consensus problem” is that consensus should describe a state where all affected parties to a transaction or a system should be voluntarily consenting to participate. There’s a problem when things are structured such that some participants are favoured, say by receiving freshly minted money before the effect of that new money dilutes everybody else’s purchasing power or by artificially holding interest rates below their market clearing values for over a decade thus rewarding debtors at the expense of savers.

The consensus problem arises when we’re forced to play a game that’s rigged against us, whenever the people in charge of the state or the money supply take it on themselves to change the incentives, give those closely affiliated with themselves preferential treatment or more generally pick winners and losers.

With cryptocurrencies, consensus is voluntary and participatory to the extreme. Nobody takes part in a cryptocurrency ecosystem with a gun pointed to their head. Then if people don’t like the direction something is going they can just “fork off” and go their own way with things. A good example of this functioning in a perfectly smooth and rational manner was the Bitcoin Cash fork of Bitcoin Core, or even Ethereum Classic’s fork from the Ethereum Mainnet.

Sure, there may be intense animosity between the rival factions, they didn’t go their separate ways because the affection and camaraderie was too intense. But they each took their irreconcilable differences and decided to try to run things in their own way, and from there the market forces take over. Not a single shot was fired not one bomb was dropped.

This is what a free market system actually looks like.

5) The “BUMMER machine” problem

When Krugman talked about how clunky and expensive transactions were he was probably referring more to day-to-day commerce and ecommerce activity than in moving larger sums of capital around. I hear a lot of people complaining about that, but when you drill down I can’t find many complaining about it that have actually ever done a cryptocurrency transaction.

I walk around with a couple of wallets on my mobile device and I routinely use them to spend crypto, at conferences, or even on websites. It varies, sure maybe in some cases the wait for confirmations will take longer than a credit card transaction, but again, early days.

Further, I remember having to wait for GIFs or songs to download, nevermind HD streaming over the wire. Things get faster. Remember, we’re dealing with a guy who figured the internet wouldn’t have much more impact than a fax machine so his take on technology isn’t the most prescient.

But one thing the Internet economy has been pining for since the very beginning is a viable system for micropayments. Online credit card transactions isn’t it, neither is PayPal or anything where you have a minimum transaction size measured in dollars and transaction fees larger than what a micropayment would be. Micropayments will drastically change the dynamic of the internet economy. If you read Jaron Lanier’s Ten Arguments For Deleting Your Social Media Accounts Right Now (excellent read, highly recommended and I will be reviewing thoroughly in my next post), he calls the current ad driven internet ecosystem “The BUMMER Machine”, which breaks out into 6 parts under the following mnemonic:

A is for Attention Acquisition leading to Asshole supremacy
B is for Butting into everyone’s lives
C is for Cramming content down people’s throats
D is for Directing people’s behaviour in the sneakiest way possible
E is for Earning money from letting the worst assholes secretly screw with everyone else
F is for Fake mobs and Faker society
— Jaron Lanier “The BUMMER Machine” in “Ten Arguments For Deleting Your Social Media Accounts Right Now”

BUMMER puts a point to that Munger observation: “show me the incentive, I’ll show you the outcome”. When the incentives are attention, clicks and eyeballs, the outcomes are dumpster fires of clickbait, ubiquitous tracking and invasions of privacy.

Cryptocurrency systems like Brave are bringing micropayments closer to reality and that will disrupt the ad-based revenue models of Facebook, Twitter and Google as much as Uber disrupted the cabs or Ebay disrupted the pawn shops. It’ll be a wrecking ball, and that wrecking ball will demolish the BUMMER Machine.

6) Execution problems

The plot lines in the latter half of The Big Short, the dramatized version of the Micheal Lewis book once the hero protagonists were no longer being laughed out of offices as cranks and were now vindicated by their predictions coming true, they found themselves with a new problem:

Their counter-parties were flaking out on them.

During that same period legendary short-seller https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg Cohodes encountered similar issues when the financial institutions arbitrarily hiked his margin requirements despite his being on the right side of his trades as the companies he had bet against were imploding. Despite his short thesis being bang on, the hi-jinx forced him out of his trades to the point he had to wind up his hedge fund.

When it comes to banks as counter-parties they seem to operate by a “heads we win, tails you lose” playbook. With blockchain platforms like Ethereum and EOS we get financial instruments, or rather smart contracts which have guaranteed execution built-in. There wouldn’t be any changes to the rules after all parties sign with their keys, when that happens, all bets are on. No matter what.

Thus, derivatives would not be created without proper collateraization or if they did, the consequences of that would be borne entirely by the counterparties involved.

Krugman might argue that precludes creation of synthetic derivatives that a lot of the banks today rely on. But again, that’s the point. If toxic derivatives nearly destroyed the entire world economy in 2008, then wouldn’t you describe a system that makes proliferation and amplification of those instruments impossible as having solved another problem?

7) The moral hazard problem

Moral hazard is when somebody passes on their risk to somebody else, without that somebody else knowing, or willfully accepting that risk. An example would be when a bank gets itself into trouble and then gets bailed out by the government or the taxpayer, or gets recapitalized through a bail-in.

When the current imbalances, built up over 10 years of ZIRP and NIRP come home to roost and the next financial crisis hits, when the government bails out the parties again or opts to confiscate yours and my wealth to recapitalize a failed system, it will be another example of moral hazard. They make the stupid policy decisions and enforce them, at our expense; and then we get to pay for it when it all implodes.

We’ve already seen the equivalent of insolvent banks and had several financial crises within the crypto-currency space and moral hazard wasn’t much of an issue.

When Mt Gox failed, it went down and that was it. It was blinking bright red warning lights for months and anybody who was paying attention acted on it and anybody who didn’t got wiped out. Karpele didn’t get a bailout out of which he paid himself a handsome bonus. Gox was put into bankruptcy and Karpele found himself facing some questions and courts around the world. This is the way it was supposed to work.

To sum it briefly, as I observed in my review of  Politics of Bitcoin:

“Bitcoin is a movement born from protest. If the people behind it thought that the monetary system was fairly structured, that those who control it exercise legitimate power to the benefit of wider society and that an egalitarian democratic ideal was at work, functioning largely as intended; then nobody would have bothered to invent it.”

In other words, if cryptocurrency didn’t solve anything, it wouldn’t exist.

At the very least, crypto-currencies can protect us from the problem of policy makers taking advice from academics with zero real world experience like Krugman and enacting policies to implement their hare-brained economic models….

[Read on Medium]

To me and many others, bitcoin is not a technical revolution as much as it is a triumph of political and economic incentives.

— Two  Bit Idiot

“Systems like Ethereum (and Bitcoin and NXT, and Bitshares, etc) are a fundamentally new class of cryptoeconomic organisms — decentralized, jurisdictionless entities that exist entirely in cyberspace, maintained by a combination of cryptography, economics and social consensus”

— Vitalik Buterin

In Part I we took a look at “What Bitcoin Isn’t”, where all the usual comparisons and analogies around Bitcoin were shown to be poor fits in explaining what the phenomenon really is, ending on the obvious next question:

What is Bitcoin then?

Money is one of those “aquarium characteristics” of life. Aside from worrying about our bills or investments, the general structure  of “money” is a background medium that underpins everything and for the most part we don’t really pay attention to it. Other examples are the base utilities like electricity and running water.

As we live our lives in these “aquariums”, we don’t really question the nature or the delivery mechanisms of these structural/cultural mediums we’re immersed in, unless they stop working or until they undergo a radical change.

A brief history of monetary innovation

What we are experiencing today is a technological innovation that is moving the nature of money itself from one form to the next and that is something that has only happened a few times throughout recorded history. It is because we are talking about a fundamental restructuring of the nature of money, and not an asset bubble occurring within the confines of the prevailing monetary system, that we can apply the “This time is different” label to Bitcoin.

Centralized, opaque, debt-based, money is being disrupted by decentralized, open source, competitive crypto-currencies.

This disruption has occurred out of necessity, given the irreparable harm central bank policies have inflicted on the citizenry over the last century, reaching what can only be considered a crack-up crescendo of targeted inflation, QEternity, ZIRP and NIRP, the war on cash and capital controls over the last 10 years. The most fitting label for all this is Chris Martenson’s “financial repression”.

During the era of debt-based money/fiat currency whenever an asset bubble occurred, “this time is different” was never actually different. Galbraith’s observation from the Part 1 bears repeating and it holds up:

The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.”
(emphasis added)

But as mentioned in Part 1: Bitcoin is not a debt based bubble. Leverage doesn’t account for the majority of the price action, at least not yet. As I write this, CBOE futures went live this week. Also, most exchanges are offering margin and a lot of traders are dumb enough to try using it, but that is not the driving factor pushing Bitcoin adoption. These emerging stories of people mortgaging their homes to buy bitcoin are “newsworthy”, and thus still sporadic. Debt would be a driving force of the bubble when it’s systemic.

Looking at Bitcoin as a technology shift, there have only been a handful of really big shifts in money throughout history: We had barter, then either money then debt, or debt and then money.

Anthropologist David Graeber (Debt: The First 5,000 Years) makes a case that contrary to conventional theory, barter did not beget money, but rather debt in the form of obligations came first. This was the first true abstraction of deferring present consumption into future value. Owing somebody something, whether it was returning a favour, or later, some symbolic representation of that favour, and that was the progression toward “money”.

Graeber’s larger point is that debt, the first big monetary innovation after barter, has been used ever since by a small minority of people to enslave the rest of the populace.

It’s a compelling argument. In either case, aside from subsequent innovations such as the creation of the banknote, which facilitated transmission of value at a distance, and double entry accounting, nothing much has happened in the structural shape of money since the last big innovation, which was the rise of fractional reserve banking.

Everything since then, from various fiat currencies, to credit cards to the magnetic strip or PIN chips have been variations on a theme, the theme being debt is money. As long as the various modern welfare states continue to spend more than they receive, they have to keep creating and monetizing more debt in order to keep the wheels on the system as a whole.

Crypto-currency is not debt

Crypto-currency is built on mathematics, open source, consensus and decentralization. These attributes combine to give us a monetary system with defining characteristics which set it apart from the current, fiat based model:

Inelastic

It’s Inelastic because as we all know there are only a set amount of coins that will ever be created. This is in stark contrast to the supply of money in fiat terms. As somebody jokingly tweeted the chart I included from Part 1 “Wow look at that bitcoin price! Oh wait, that’s the chart of the money supply” – more on this below.

This inelasticity makes Bitcoin and any other similarly constructed crypto-currency….

Deflationary

A deflationary currency is closey related to being inelastic, but we need to look specifically at the deflationary aspects of Bitcoin because conventional economic thought is that “deflation is bad”, and it is — if you’re using debt for money.

The reason why is because debt-based money, enabled by fractional reserve banking allows monetary units to “exist in two places at once”, so to speak. When I first started thinking about and researching all this economics and history stuff, it was in the immediate aftermath of the crashing of the dot com bubble. It was then when I realized that I had no understanding of economics, or finance and ultimately, money. So I began a “deep dive” into these matters which continues to this day.

One of the first books I read about it was Ferdinand Lips “Gold Wars”. Lips, Swiss banker, and expert on the Classical Gold Standard was reputed to have been the cryptic and anonymous “Friend of Another (FOA)” financial and gold markets commentator of the late 90’s (foreshadowing of Satoshi Nakamoto?).

When I pulled out my copy of the book recently I found I had scribbled the following into the back cover after I had finished reading it:

“Gold, like every other ‘normal’ thing cannot be in two places at once. Fiat money, however, is credit, redeemable into nothing, that is simultaneously counted as ‘money’ by multiple parties – this works as long as the bubble is growing – but can’t work if it starts to contract. If N parties hold the same ‘fiat’ and one suddenly uses it to retire debt, N-1 parties have the carpet pulled from underneath them. Because under a paper fiat money system, reducing debt (either by paying it off or defaulting) reduces the money supply”

My understanding of this today, is that Bitcoin is inelastic and thus deflationary. It has no counter-party risk (but there is consensus risk, but fiat has it as well), and it solves “the double-spend problem”. Fiat money, by contrast is one big double spend problem. The defining characteristic of inflationary debt-based money is mathematically and cryptographically eliminated under crypto-currency.

Under an inelastic or hard-backed monetary regime, such as the era the Classical Gold Standard (when there was no income tax and mild deflation) or the one emerging today, deflation is virtuous, not the other way around.

By contrast, debt-based inflationary money creates a treadmill economy, which perniciously pushes assets up the wealth inequality ladder, as the Plutocrats on top spend their compounding wealth on buying up assets, while the lower tiers (the non-super rich) must continually and incrementally spend more of their purchasing power on staying alive.

Many conventional economists say deflationary currencies wouldn’t work because:

1) There wouldn’t be enough “monetary units” to go around to purchase all the good and services available within the economy, and

2) It leads to HODLING, or hoarding. The theory states that people wouldn’t spend any money today, because doing so would forgo the increased value the money would have tomorrow.

Detlev S. Schlichter’s “Paper Money Collapse” is a dispassionate, objective look at why fiat money always goes to zero, every time, throughout all history, no exceptions and what would happen in an environment with a deflationary currency instead:

“A monetary system with a money commodity of essentially fixed supply will experience secular deflation. A growing economy, with an entirely inflexible money supply will exhibit a tendency for prices to decline on trend, and for money’s purchasing [power] to steadily increase. But the key question now, is why should this be a problem? We have already seen that historically secular deflation was rather minor and that it certainly never appeared to present any economic difficulties. [ What economists today fear in a ‘deflationary death spiral’ scenario is debt collapse and accompanying contraction of the money supply, not deflation itself – markjr] No correlation between deflation or recession or stagnation is evident under commodity money systems. We will now show that there are no reasons on conceptual grounds to consider deflation to be a problem”

Which he then spends the rest of the book doing exactly that. From personal experience, as a merchant who has been accepting bitcoin payments since 2013 I know that the increasing price of bitcoin has not slowed down transaction volume or aggregate payments received (in dollar terms):

A deflationary currency sees prices drop over time as purchasing power increases.

The chart above depicts the trendlines of transactions in Bitcoin on easyDNS from 2013 to present. I haven’t put the Bitcoin price trend line in there but we all know what it looks like, if it were in the graph it would be a hockey stick with the inflection point starting around Jan 2016. We clearly see the pricing in BTC dropping as the price rises, yet the transaction volume and sales in CAD remain steady, with a moderate uptrend.

Bitcoin is Transparent

It’s Transparent in two ways, first is the blockchain, where we can see the flow of bitcoin and all the transactions; and second the underlying code is open source.

Anybody can look at any block in the blockchain, and anybody can pull down the source code that actually runs all this and read it for themselves.

Contrast this radical transparency with, say, The Federal Reserve, which has an exclusive monopoly on the creation of money, creates it out of nothing and then lends it to the State and charges interest on it. Further, it is owned by a cartel of private banks and operates with no oversight. This is the crux of the current monetary era. For the longest time it was possible to dismiss criticisms of this system as “conspiracy theory”, but given that the damage Fed policies have caused to the economy, especially since the GFC is felt by all but a few, it is increasingly difficult to ignore this reality.

Anybody who actually analyzes this system going beyond the mainstream narrative of what The Fed is supposed to be doing would come up with the same conclusion I did some time ago:

“if smart, scholarly people happen to believe that government fiat money is both feasible and beneficial to society, and they put serious thought into devising such a system, what they will not come up with is one run by private central banks issuing debt-based money. They just won’t. Any critical analysis would grasp that such an architecture would become a parasitic cancer on the entire society. When you realize this, it’s hard not to posit a far-reaching conspiracy to institutionalize inequality. While I am a big believer in the maxim “never ascribe to conspiracy what can be explained by stupidy” it to me falls short in this case. When we look at the structure of the entire monetary system and realize that it’s the worst way possible to design a such a system if you have the best interests of the wider society in mind then you can’t help but ask ‘in whose interests was it designed and implemented?'”

Antifragile

Nassim Taleb, in his seminal work by the same title, invented the term “antifragile”, describing any phenomenon that gets stronger when it encounters volatility. The “imminent death of Bitcoin” is probably the one thing that has been predicted even more than the “imminent death of the Internet”, which was a popular recurring theme back in the late 90’s or so.

Both technologies – the Internet and then crypto-currency are decentralized, largely open source protocol stacks that have transformed our civilization.

These qualities make crypto currency something that is anathema to the previous paradigm’s debt-based fiat. As such, it poses an existential threat to existing incumbents, be they technocrats, banksters, career politicians, or complicit corporate cartels, whose position depends on their proximity to and relationships with the money centre apparatus that creates money and preferentially distributes it out amongst this network.

What does it all mean?

When we ask ourselves this question we’re back to Graeber’s assertion that the entire monetary system is a control mechanism that uses debt to keep the wider populace in line.

This was largely tolerated by a general population that was largely ignorant of the working dynamic of the money system and how it enslaves them. Keynes himself observed that

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

For a long time Keynes was right. Then, as the century-long debt super-cycle started to crescendo a couple of key events happened.

The first was the Global Financial Crisis 2007-2009 and the purported “near-death experience” of the modern economy. Wall Street was bailed out, who used the money to give themselves bonuses, while the middle-class was decimated and continues to be ground into poverty to this day. There was incongruence in this picture, on one hand incompetence and financial recklessness was rewarded while the rule-following middle class were penalized.

The 95 White Papers

It was at this moment, that the Satoshi White Paper appeared on the scene, and proposed a different way to structure the monetary system.

Nobody really noticed. But it set off a chain of events as sure as Martin Luther’s “95 Theses” set in motion the secular decline of another hitherto undisputed hegemonic central power: The Catholic Church. In that time the result was The Reformation and the Catholic Church never regained its central power position.

One document galvanized an entire movement, and the harder the Papacy pushed back on Luther to try to contain it, the faster Protestantism spread — there’s that antifragility again.

Protestantism presented enough benefits to enough royal houses throughout Europe that when weighed against the authoritarian and decadent papacy, the upside to the new paradigm looked better than the old system – and that is precisely what it is happening, again, today, in the monetary sphere.

For the first few years after Satoshi’s paper, Bitcoin didn’t really break into the public consciousness but the wheels were certainly in motion and those people who had a lot at stake and were coming to gain a visceral understanding of the hypocrisy and capriciousness, not to mention the destructiveness  of the current monetary regime were paying close attention.

It wasn’t until another event, years later, that people would begin to see the efficacy of crypto-currency in protecting wealth and savings. That event was the Cyprus bail-in. The framework for “containing” that event was quickly adapted by other nations, slipped into the “back pocket” to be used down the road. It became law here in Canada:

“In the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.”

This provision, originally from the Harper government has been reiterated under Trudeau the 2nd.

Of course, the language here is telling, belying the assumption on the part of the political elites that the rabble is ignorant and easily fooled. Similar to how barely “one man in a million” can diagnose inflation, they assumed even fewer would know that “certain bank liabilities” are the depositors’ savings.

But people do know what that means. Now it was clear – unless we owned a bank we were all pretty much on our own, and even worse, whenever those banks went off and painted themselves into a corner of insolvency, we were the ones who were going to have to make them whole. Banks are “too big to fail”, everybody else is expendable.

Bitcoin is a hole …in a burning building

“I had the thought that Bitcoin is like a hole in the wall of a burning building. The burning building is the petrodollar. The Bitcoin hole in the wall doesn’t meet any standard definition of a door. It wouldn’t pass a building inspection and it may not last long. It will most certainly be replaced by something else in the long run. But in the short term, no one inside that burning building really cares about any of that and the ones that first smelled smoke are already pouring through it. Many more will follow and some, sadly, will die in the fire. There are other exits from the building too, some may be safer than others, but the most important thing is getting out of the burning building as quickly as possible.

— from the comment thread on Zerohedge for Part 1 of this article (the only thing I would add to this is that the other exits lead to other burning buildings – markjr)

And this finally brings us to what I think Bitcoin really is. It’s a type of capital / currency flight. In a way, (and I didn’t coin this analogy but I can’t find who did) all fiat currencies are experiencing a hyper-inflationary collapse against Bitcoin. It makes a certain amount of sense, the logical outcome for the vast monetary printing of the last century is an inflationary blowout. But that conjures up images of Weimar Germany and wheelbarrows full of cash, the recent Zimbabwe collapse or perhaps Brazil – where banks installed a second clock to display the value of your money eroding while you waiting in line, it all seems so unthinkable here.

And yet, here we are with Bitcoin in a bubble, stocks in a bubble, bonds in a bubble, real estate – in a bubble, is everything in a bubble? Or are we experiencing a slow motion breakdown in the underlying fiat regime in a typically cavalier and nonchalant Western way? Not some James Rawles “end of civilization” novel but rather a mass exodus into anything perceived as “an asset” whilst Bitcoin surpasses them all because of a combination of inertia and the fact that’s it’s effectively an antidote to a global parasitic economic blight?

Having said this, even if this were true, it doesn’t mean “the price of bitcoin will go up…forever”. Even true hyper-inflationary episodes themselves usually last about 12 to 18 months, after which a new currency regime comes in to replace it.

What we could be seeing here are the early innings that usher in the end of USD as the world reserve currency and the beginning of “what comes next”. The fact that USD hegemony will eventually end is no surprise to anybody, even mainstream economists. However “eventually” has this vexing habit of showing up sooner than most people expected.

So while there have only been a handful of monetary innovations throughout history, there have been many currency regimes, rising, overshooting, collapsing and giving way to the next.

What may be unique about this one is that we’re rare witness to a double faceted shift: the technology shift from a debt based fiat money system to a decentralized crypto currency regime; along with the demise of the prevailing currency regime.

Also See:

• This Time is Different (Part 1): What Bitcoin Isn’t.

 

“[Bitcoin] won’t end well, it’s a fraud…worse than tulip bulbs…[but] if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars,”

— Jamie Dimon: CEO, JP Morgan

Headline: JPMorgan Guilty of Money Laundering, Tried To Hide Swiss Regulator Judgement

— via Cointelegraph

 

(Read on Medium)

Given the current, latest successive series of spikes to all time highs for Bitcoin, the detractors are working overtime to make the case that the crypto-currency is a Ponzi, a scam, a phantasm or at the very least, a bubble. Oddly, many of these same detractors spend a lot of time cheerleading the other bubble, that everything-bubble, stocks, bonds, real estate, even ETFs of ETFs, you name it.

It’s easy to make superficial apples-to-screwdrivers comparisons about why Bitcoin is doomed to fail. Until you really take some time to look into it. When first was exposed to the idea back in 2013 and researched it, I realized that “this really is different”, and the reason why was because of something John Kenneth Galbraith had once written which (until then) had invariably held up as true. In A Short History of Financial Euphoria Galbraith said:

“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.”

(emphasis added)

When one looks at the history this accurately maps every financial bubble from Tulipmania (which we will debunk as a suitable metaphor for Bitcoin shortly) right up to 2008 and beyond.

However one place where it isn’t applicable, is to the phenomenon of Bitcoin. Crypto-currencies, at least at present, have no leverage and are near impossible to purchase on credit. In other words, if asset bubbles get that way largely through leverage, and there is comparatively no leverage in Bitcoin, then something else has to be driving it.

That said…

The Price of Bitcoin is a Side Show.

Granted, at the moment it’s a very exciting sideshow for those who are on the train. A long time customer emailed me as I was writing this asking “at what point has easyDNS’ profits from accepting and holding bitcoin exceeded the actual operating profits of the company?” I had never considered that but some quick math revealed that even after cashing a chunk out to buy gold (not my greatest trade), that happened last year.

But the price action around this isn’t what is exciting about Bitcoin and the crypto-currency revolution. What is exciting is that the centralized, bankster controlled monopoly over the issuance of money itself is finished. It’s over. Even if they successfully manage to co-opt some major crypto-currencies or issue their own, Gresham’s Law will assert itself as capital managers will select a truly decentralized crypto-currency wherein they control, or have the option to control, their own private keys to safely store their wealth while they’ll use the government version to pay taxes, etc.

Whatever state issued digital cash comes out in the near future, I’m suspecting it will be centralized with mandatory key private key custody or escrow. When that happens it shouldn’t even be called crypto-currency, call it something else like “pseudo-crypto” or “fauxcoin” to differentiate.

Given the mostly bad analogies and unfounded criticisms being levelled at Bitcoin, let’s first take a serious look at what Bitcoin isn’t. Then in Part II we’ll look at what it is and why its different.

What Bitcoin Isn’t

Backed by nothing

This is the goto criticism for people who simply don’t understand that crypto-currencies are based upon mathematics, zero-trust, open-source and consensus. They think that bitcoins can simply be created at will and are backed by nothing.

They also say that as if the world’s reserve currency, the US dollar, isn’t, literally, backed by nothing and hasn’t been since 1972; and as if can’t be created at will, which it most certainly has, with a vengeance.

Indeed as Galbraith continued in our earlier passage:

“This was true in one of the earliest seeming marvels: when banks discovered that they could print bank notes and issue them to borrowers in excess of the hard-money deposits in the banks’ strong rooms”.

All fiat currencies today really are backed by nothing and can be created at will (that’s what the word “fiat” actually means), and perhaps unbeknownst to many we are right now in a protracted, global currency war. Every nation is racing to the bottom, trying to devalue their currency against their trading partners so they can:

1. give their exporters a competitive advantage
2. pull stronger currencies in to make money on the exchange, and
3. service their ever expanding debts back with devalued, cheaper currency

This is why everybody’s purchasing power is going down despite tenured academics and central bankers incessantly complaining about low inflation and political spokesmodels always talking up a strong currency.

Bitcoin isn’t: Backed by nothing
What is? The USD and every other fiat currency in the world.

Bitcoin is a ponzi

The idea that Bitcoin or most crypto-currencies are a Ponzi is easily debunked by understanding what a Ponzi actually is.

As observed in CryptoAssets (Burniske & Tartar, 2017), it’s very simple: new investors pay old investors.

It is important to realize that in a Ponzi, the earlier investors are literally paid with funds being injected by the new investors in a flow through fashion (as distinct from later investors having to pay higher prices to earlier ones to induce them to part with an asset).

As long as the number of new investors and thus the influx of funds is growing at a rate faster than the payouts to the earlier investors, the Ponzi scheme thrives. When the expected payouts exceed the rate of input, it dies.

One doesn’t have to look very far to find mechanisms that fit the definition exactly: Social security programs are all classic ponzis. The demographic reality today is that with the entry of the Baby Boom generation into retirement, given that the subsequent generations are so much smaller in size, additionally penalized by falling real wages, rising or multiple taxation, decaying purchasing power on their money and returns on any savings they can eek out suppressed into negative nominal yields; this Ponzi is in its terminal phase.

(Given that these exacerbating headwinds which face later generations can be summed up with the phrase “financial repression”, it is only logical that capital would flee to some asset or currency which appears resistant to them.)

Granted, the current ICO craze probably includes some ponzis. The Cryptoassets book describes the OneCoin Ponzi as well as how to spot a ponzi in crypto-currencies. I would have been hesitant to even call OneCoin a crypto-currency at all. It wasn’t open source and had no public blockchain.

In Bitcoin or other true crypto-currencies, early holders are not receiving bitcoin from later entrants. In fact, quite the opposite is happening. Later entrants must entice earlier ones to part with their bitcoin. Since Bitcoin cannot be created at will, it must be mined at a rate that drops over time (this year approximately 640K new bitcoin will be mined, about 3.8% of the total supply).

Demand for bitcoin is simply outstripping supply of new coins being mined (for reasons we will discuss in Part II). If said price action rises dramatically (like for example, Bitcoin suddenly became the highest performing asset class in the world) then a feedback loop would occur.  Ever higher prices would be required to induce earlier holders to sell.

Bitcoin Isn’t: A ponzi
What is: Social Security

Tulipmania

What is described above is the same dynamic that occurs in any bull market, as buying begets more buying, and fear of missing out (FOMO) kicks in. It is said one of the most accurate gauges of happiness correlates closely to how much wealth one has when compared to one’s brother-in-law.  Alex J Pollock describes it in Boom and Bust: Financial Cycles and Human Prosperity, as “The disturbing experience of watching one’s friends get rich”.

The trick would be to have some understanding of when a strong bull market has crossed into Bubble territory. One of the more popular analogies for Bitcoin is Tulipmania: the financial bubble that occurred in 1630’s Amsterdam with none other than tulip bulbs. Bitcoin is compared to Tulipmania so often I decided to take a closer look at Tulipmania to see if the comparison was valid.

What I found was that it most of what we know today about Tulipmania is superficial and self-referential, deriving primarily Charles Mackay’s chapter on Tulipmania in his seminal Extraordinary Delusions and the Madness of Crowds (1841). It is a scant 9 pages and is purely anecdotal, describing ridiculous prices paid by the otherwise pragmatic and level-headed Dutch and then it all just blew up like all bubbles do.

Finally I found Anne Goldgar’s Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, which is the most in-depth investigation to the rise and subsequent fall of Tulipmania extant today. In it we learn about the circular references that went on to inform our present time about Tulipmania:

“If we trace these stories back through the centuries, we find how weak their foundations actually are. In fact, they are based on one or two contemporary pieces of propaganda and a prodigious amount of plagiarism. From there we have our modern story of tulipmania.”

She traces the lineage of MacKay’s chapter:

“Mackay’s chief source was Johann Beckmann, author of Beytrage zur Geschichte der Erfindungen, which, as A History of Inventions, Discoveries and Origins, went through many editions tions in English from 1797 on. Beckmann was concerned about financial speculation in his day, but his own sources were suspect.

He relied chiefly on Abraham Munting, a botanical writer from the late seventeenth century. Munting’s father, himself a botanist, had lost money on tulips, but Munting, writing in the early 1670s, was himself no reliable eyewitness. His own words, often verbatim, come chiefly from two places: the historical account of the chronicler, Lieuwe van Aitzema in 1669, and one of the longest of the contemporary pieces of propaganda against the trade, Adriaen Roman’s Samen-spraech tusschen Waermondt ende Gaergoedt (Dialogue logue between True-mouth and Greedy-goods) of 1637. As Aitzema was himself basing his chronicle on the pamphlet literature, we are left with a picture of tulipmania based almost solely on propaganda, cited as if it were fact.”

(emphasis added)

Goldgar helps the reader in pursuit of truly understanding Tulipmania by rewinding to the late 1590’s, when there were no tulips in what is now Holland, or in fact Europe. Gardens were purely functional, for growing food, herbs or medicinals. Then tulips and other curiosities began coming into the country and Europe from merchant vessels trading in the Mediterranean and Far East.

The flower garden arose for the first time, and it was spectacular – giving rise to an entire movement of collectors and aficionados, whom in the early days were as a rule well-to-do and affluent. In later years, more people sought out, and then speculated in the tulip trade to not only profit, but to lay their own claims on what they perceived to be a higher economic class or status.

At the risk of over simplifying her work, the Tulip trade became intertwined and inseparable from, art.

“The collecting of art seemed to go with the collecting of tulips. This meant that the tulip craze was part of a much bigger mentality a mentality of curiosity, of excitement, and of piecing together connections between the seemingly disparate worlds of art and nature. It also placed the tulip firmly in a social world, in which collectors strove for social status and sought to represent themselves as connoisseurs to each other and to themselves.”

The more I delved into understanding Tulipmania, the more I couldn’t escape thinking that the analogy was much more applicable to a different asset class which did enjoy a momentous bubble in recent times, but it wasn’t bitcoin or crypto-currencies. To belabour my point, Bitcoin was impelled not by art, beauty or any semblance of collectibility but emerged primarily as a resistance to financial repression.

Something that was driven by uniqueness and fostered an aristocratic in-club all it’s own and until recently enjoyed stratospheric price action, was the aftermarket in domain names. This isn’t the place to conduct a post-mortem on that bubble, but suffice it say that the distinct characteristics of domain names more closely resembled that of tulip bulbs than Bitcoin does. (For the reader interested, I have written at length about the domain aftermarket here and here).

Bitcoin isn’t: Tulipmania
What was like Tulipmania? Domain names.

If Bitcoin isn’t a digital fiat backed by nothing, nor a ponzi nor Tulipmania, then what is it? Why has this come out of literally nowhere to become the strongest performing and fastest growing asset / currency in the world?

When I started writing this post I wasn’t sure myself. I had to go back through my library and look at history and try to find some historical antecedent for what was happening. After looking back through the origins of money itself and working forward I still wasn’t any closer to a mental model that “worked”.

Then around 2am the other night I woke up with the idea that I was looking in the wrong place, and it hit me with such force that I had a hard time getting back to sleep – even though I had made an off the cuff tweet that captured the basic idea of it a few weeks earlier (which I can’t find now).

I’ll take you through it in Part II. (Hope to have it up soon). But in the meantime, I’ll leave you with another megabank CEO who’s take on all this is very different from Jamie Dimon’s. Goldman Sachs’ CEO Lloyd Blankfein here muses on why it’s entirely plausible that money may evolve from being based on fiat to being based on consensus. Some truly extraordinary remarks coming from a man in his position.

Also See:

• This Time is Different (Part 2): What Bitcoin Really Is