The world is headed toward Central Bank Digital Currencies (CBDCs) and everybody knows it, even the people who don’t want them (which at the moment looks to be most people).

But the policy-makers have deigned it be so, and CBDCs provide such a compelling opportunity for surveillance and social control that they are irresistible. That the fiat currency system is in the process of imploding makes it an imperative.

My editor and researcher JonB, (give him a follow) sent me this tweet:

Australia to be ‘functionally cashless’ by 2025. Australian people have to stop this madness and start using more cash, otherwise we will be ruled by the banks and government and rationing will affect everyone. https://t.co/ygfpzMYNcf

— Giggity (@GiggityVJ) September 24, 2023

It was to draw my attention to the timeline for Australia going cashless, and while doing so doesn’t coincide with the launch of their CBDC, the RBA is dilligently headed there (as are nearly all central banks globally).

One area of focus in The Bitcoin Capitalist is that we track all the national CBDC deployments and the myriad supranational policies and aspirations that go into them (we call it “Eye on EvilCoin”, for the Mr. Robot fans out there).

With the tweet above, I became more intrigued by the call-to-action itself, because I see this a lot: the idea that the way to resist the CBDC is to keep using cash. This is not only wrong-headed, it’s self-defeating.

The idea that the way to resist the CBDC is to keep using cash is not only wrong-headed, it’s self-defeating.
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Cash doesn’t buy you freedom under CBDCs

The error in thinking so arises from a failure to understand that cash is simply older iteration of what digital cash, and CBDCs are going to be: denominations in a currency, backed by nothing and controlled by the very state that you’re trying to protect yourself from.

It gets worse, because this is also the same state that has already weaponized the currency against you, either slowly, via targeted inflation (a.k.a “theft”) or overtly, as we saw here in Canada during the #FreedomConvoy.

The only thing I can see happening to the paper cash economy after a given country has (successfully) gone cashless, is that the paper currency will lose most of its value and everything gets far more expensive when priced in terms of cash.

It’ll be easier to destroy cash than ban it

Far easier. After all, governments and central banks have been destroying cash throughout history.

In all probability, they won’t even have to ban cash or impose penalties for using it.

All they’ll have to do is crank up the money printer and hyperinflate it out of existence – all the while offering holders of cash the opportunity to switch into the CBDC at seemingly advantageous (or one-sided) terms.

At that point, banning cash will seem akin to banning the buggy whip. Kind of pointless.

The Good News

While it’s practically baked-in that CBDCs will either launch as, or morph into, CCP-style social credit systems, what is unknown at the moment is if Late Stage Globalism’s financial system will actually hold together long enough for retail CBDCs to deploy.

We see a lot of tweets and Youtube videos from people predicting a snap launch of a CBDC after a sudden banking holiday in the imminent future.

I don’t see that as possible, because there isn’t a major economy in the world that is anywhere close to being ready to launch a retail CBDC.

There are numerous interbank clearing networks that are either in test beds or already up and running. FedNow’s launch over the summer is one, and many say that is a precursor to the CBDC launch.

But at the retail level: on your phone, monitoring every transaction, metering your carbon footprint – this is still a long way off.

The US, the IMF, the BIS et al are still writing white papers about it. Many of them are chilling, to be sure, but they’re still navel gazing and not actually working on it. The UK just announced their retail CBDC roadmap and the research phase alone will start this year and go on for the next three years.

In Canada there are some tests going on but even the Bank of Canada admits there isn’t a compelling use case for CBDCs and not many Canadians really want it.

Of the four retail CBDCs already  up and running (The Bahamas, Jamaica, The Eastern Caribbean Dollar, and Nigeria), they have all been plagued with technical problems or public apathy. Venezuela has launched two CBDCs over the past decade, each launch coinciding with a massive currency devaluation, and they both stiffed.

But it’s Nigeria’s eNaira which is the closest to a heavy-handed government forced CBDC. Although there is no social credit component yet -authorities there were pressing hard for a full-on cash ban to get people to use it, and that’s gone quite badly. Nigerians are opting for gold and Bitcoin instead (hold that thought).

The global financial system is coming unglued so fast that governments may find themselves forced to accelerate retail CBDC projects.

My prediction has always been that in a crisis they’ll resort to some half-baked abomination that rolls out atop a base layer that already exists: like Ethereum (which we’re already seeing in Brazil) or Ripple – who seems to want to be the base layer for CBDCs.

Once CBDC’s hit, we will wind up in a type of Monetary Apartheid, and the important thing to understand is that clinging to cash isn’t going to save you.

Fortunately, no matter which path toward retail CBDCs governments choose, it will take long enough  that you still have time to prepare.

Fortunately, no matter which path toward retail CBDCs governments choose, it will take long enough that you still have time to prepare.
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Precious metals are a favourite amongst the liberty-minded. Wisdom and history show it prudent to have some of your wealth in gold and silver (the FDR gold ban is actually instructive there because even though many people refer to it, it wasn’t overly successful in terms of public compliance).

But real sovereignty will lie in having access to a digital hard-asset that is truly decentralized and that can be frictionlessly moved around the globe, impervious to capital controls.

I am talking of course, about Bitcoin. Start a dollar cost average today, get off zero – and you will be in an entirely different economic class from 95% of the people who get blindsided when retail CBDCs do roll out.

It’s also entirely possible that Late Stage Globalism may implode before then and make it all moot. But even then, you’re still going to need some way of preserving and safeguarding your wealth, and paper cash will be especially useless in that event. You’ll also need the ability to move it, at will, and that isn’t always easy to do with gold.

The ideal toolkit contains both Bitcoin and precious metals, among other elements which are out of scope here (second passports, property and businesses in multiple jurisdictions, etc).

The main point is this: If your goal is to mitigate against a cashless society, one of the least effective ways of doing it would be with cash.

My forthcoming ebook The CBDC Survival Guide will give you the tools and the knowledge to navigate coming era of Monetary Apartheid. Bombthrower subscribers will get free when it drops, sign up today.

The Bitcoin Capitalist provides actionable intelligence on the macro forces shaping Late Stage Globalism and a tactical toolkit for growing your wealth as it plays out. Try it today here.

Follow me on Nostr, or Twitter.

This is what CBDC’s are being built for

Anybody who seriously thinks that Universal Basic Income (UBI) programs of the future won’t be full blown social credit systems need look no further than Brazil, where newly selected socialist / globalist Lula da Silva just decreed that the Bolsa Familia program will require family members to be vaccinated in order to continue receiving benefits.

“we can’t play around. It is a question of science. If there are ten covid vaccines, 50 to take, I will take as many as necessary because I like my life. I think everyone has a duty to their children’s life, take them [to vaccinate] at the right age ”.

The news comes via The Rio Times, which describes the Bolsa program as “a social welfare program for the poorest families in Brazil” and “a kind of Universal Basic Income”.

Lula says Brazilians can receive financial aid only if they have taken the vax. Bolsa Família will require vax certificates from participants & their children: We can’t play, it’s a question of science. If I have 10 covid vaccines to take, I will take all that is necessary. pic.twitter.com/hqrYq4jO6r

— Geopolitics & Empire (@Geopolitics_Emp) February 7, 2023

UBI is considered by many to be beneficent and inevitable. I personally believe the latter but not the former.

However it shouldn’t surprise anyone that if you’re dependent on The Saviour State for your sustenance (as Charles Hugh Smith calls it),  you are, in effect, their chattel.

CBDCs will be the rails for UBI programs

The emergence of Central Bank Digital Currency (CBDC) initiatives in nearly every nation on earth clearly signals the direction this is going. Nearly every CBDC white paper or proposal I’ve come across have the following three characteristics spelled out in plain text, and I expect every CBDC to have these five capabilities baked-in, whether or not they are initially enabled (or  documented).

#1) Expiry dates / use-by dates

CBDCs will have expiry dates after which their value will evaporate or erode. What I’ve noticed is white papers coming out of central banks started framing it as a feature, not a bug, to facilitate “recovery of lost funds”.

Abstract
An important feature of physical cash payments is resilience, which is due to their indifference to power outages or network coverage. Many central banks are exploring issuing digital cash substitutes with similar online payment functionality. Such substitutes could incorporate novel features, making them more desirable than physical cash. This paper considers introducing an expiry date for online digital currency balances to automate personal loss recovery. We show that this functionality could substantially increase consumer demand for digital cash, with the time to expiration playing an important role. Having more information available to the central bank improves accuracy of loss recovery but may decrease welfare.
— Best Before Expiry? Expiring Digital Currency and Loss Recovery, Bank of Canada Staff Paper, December 24, 2021

However the real reason CBDCs will have expiry dates is to stimulate money velocity and keep recipients dependent.

#2) “Anti-hoarding” features

Saving for the future is being rebranded as “hoarding” and it is becoming officially unfashionable because personal savings reduces dependancy on the state. The easiest mechanism for achieving this will be through negative interest rates on savings accounts, as per this IMF white paper,

…which goes on to outline the challenges there would be in eliminating the “arbitrage” between digital and physical cash:

A zero lower bound can be broken through a combination of (1) adopting or strengthening an electronic money standard in which electronic money is the unit of account and (2) implementing a time-varying interest rate (or more generally, rate of return) on paper currency (cash). Then, as the interest rate on cash moves in line with the official policy rates, there is no arbitrage between cash and money in the bank. Operationally this can be done while remaining quite close to the current monetary system, but there are several legal, communication, and political challenges to a transition to such an electronic money standard (Agarwal, and Kimball 2019).

(Despite the current rise in rates, once the money printers fire back up, this is where we’re headed).

#3) Total Information Awareness

Once it’s digitized in a centralized database (central banks) as opposed to being cryptographically secured on a decentralized blockchain (Bitcoin) – everything becomes known to central authorities instantly. Taxation can be applied per-transaction, but more interestingly – prices can also be modified on the fly.

If you’re behind on your property or income taxes – or have an unpaid fine (maybe because you’re fighting it), for example, they could simply enable a rolling garnishee on your wallet until it’s paid off.

While all transaction signatures are public on Bitcoin – they are pseudonymous and more importantly, unalterable. It’s true it may be known or discoverable that A sent sats to B, but there’s nothing any third-party can do about it. With Lightning on the ascent, combined with  various privacy enhancements there – Bitcoin development is moving in the direction of more freedom and more privacy – which is the opposite direction of most CBDC initiatives.

Finally, whether CBDCs are launched with the noblest of intentions, there will at some point arise “an emergency” which will make it necessary for The People in Charge to “flip the switch” and turn them into:

#4) Social Credit Systems

Imagine if “LoonCoin” was a thing last year when the #FreedomConvoy hit Ottawa (and signalled the beginning of a worldwide revolt against Covid tyranny). Instead of emailing a list of bank accounts to be frozen that were cribbed from a (hacked) spreadsheet, they could simply direct the Bank of Canada to turn off everybody’s digital wallets who were in the vicinity of the protest, or who contributed to their crowdfund, or who retweeted the #HonkHonk hashtag.

Do you think they wouldn’t have done it?

Covid vaxports have already been weaponized in China, Brazil is doing it with their UBI program and when this is all formaized into a CBDC, they will probably not launch it without the framework for widespread social credit and control systems being part of the plumbing.

We all know from our experience with the pandemic, emergencies tend to drag on in perpetuity. The “War on Terror” is still in effect, and there are still legions of collectivist automatons tweeting #CovidIsntOver.

So when “The Long Emergency” (to use James Kunstler’s term) becomes a never ending, rolling climate crisis, the social credit systems built into CBDCs will be used to enforce:

#5) Carbon footprint tracking

Back in Carbon Rationing, CBDCs and Sound Money I wrote how this trajectory is more or less baked-in now, and that the state-run financial system is undergoing a shift from a debt-backed monetary system to one based on carbon quotas.

This is the ultimate end-game of CBDCs. There is no hidden agenda or conspiracy around this (there’s already a Mastercard that cuts off your spending when you exceed your carbon quota), and globalist elites are quite up front about it….

Notice how he pitched it as “track your own footprint” then described it as “track their”, “what they’re eating”, “where they’re travelling” https://t.co/omHLzwqJAZ

— Mark Jeftovic, The ₿itcoin Capitalist (@StuntPope) February 9, 2023

Why CBDCs will ultimately fail

The developments of CBDCs is something we monitor in The Bitcoin Capitalist (formerly The Crypto Capitalist). Every month we put out our coverage of CBDCs  in the “Eye On Evilcoin” section and it’s not always bad news:

There is still  some time to stop CBDCs

Despite all the jawboning about CBDCs, nobody has really deployed anything viable. It’s all still design and planning – with some test beds going on. The few projects that have launched formal, actual CBDC’s have largely stiffed: Nigeria’s Enaira, Venezuela (lol). Even China’s much vaunted Digital Yuan had an underwhelming reception at last year’s Olympics (my suspicion is that the global financial system is unraveling faster than CBDCs can be developed, so they may have to go with something already out there, like Ethereum).

Worth noting, is that Brazil plans to deploy its CBDC next year.

I should note one exception to all the proposals out there in former CFTC Commissioner Chris Giancarlo (a.k.a “CryptoDad”) and the Digital Dollar Project. So far it’s the one proposal I’ve seen bucking the trend among all CBDC specifications in that there is no talk of expiry dates, and an actual emphasis on tokenization, custody and privacy.

CBDCs will not be permanent

It amuses me that when I read these plans around social credit flavoured CBDC’s, policy makers still continue to believe that by hobbling “cash”, making it impossible to save, eliminating privacy and layering on Orwellian levels of social control, they still get something that the public will prefer to cash, crypto or Bitcoin.

Only a central banker would be worried that people are going to want to hoard a statist shitcoin. (Especially after they put expiry dates on it).

— Mark Jeftovic, The ₿itcoin Capitalist (@StuntPope) February 8, 2023

It’s delusional.

Incentives matter, and that’s why nobody in their right might isn’t going to hold any wealth in CBDCs and keep their transactions within it to the lowest practical level.

The overall global system of governance is in a Fourth Turning style restructuring. With institutional legitimacy in tatters and public trust plummeting, CBDCs are typical and symbolic of the last gasp of industrial era, centrally planned economies.

The transition period between where we are now (Late Stage Globalism) and where we are headed – decentralized Network States, is going to be rough, so I advise battening down the hatches and reducing one’s reliance on government entitlements as much as possible…

Pro Tip: Don’t be poor

This is where we’re headed folks, so at the risk of sounding flippant, the solution is not to need financial aid.

Anybody depending on state entitlements or financial support will be CBDCerfs, their affairs fully regulated by the state, their carbon footprints metered, and rationed, while their lives are gamified through their smartphones.

Among the affluent G20 nations where woke-ism reigns supreme and neo-Marxism is still fashionable,  a lot of them may even like it.

But for the rest of us, who would prefer not to “own nothing and be happy”, it’s imperative that you have zero reliance on government subsidies, entitlements or support payments.

If you haven’t already:

1. Start a business. (Even a kitchen table business or an online venture)
2. Start stacking sats (Bitcoin) – get off zero, today.
3. Start taking sats at your business.

If you already own or run a business, buy, start or invest in another one.

It’s going to get a lot more expensive to be free. It’s not right or fair, but that doesn’t matter.

The good news is there’s never been a better time in history to learn, create, innovate and grow and these are the dynamics and incentives that will ultimately prevail. We’re in a period of Peak Collectivism and Peak Centralization now (for the next few years). This dominating ideology is ultimately an anti-human philosophy and this too shall pass.

Be ready for it, either way.

Follow me on Nostr , Gettr, or Twitter. For new pieces sent straight to your inbox subscribe to the Bombthrower mailing list – and receive a free copy of our long term thesis on Monetary Regime Change. Our premium newsletter, The Bitcoin Capitalist, covers CBDCs, digital assets and publicly traded crypto stocks using a distinctly value oriented approach. Try it for $2. 

When money is untethered from reality, you wind up in clown world.

Lately I’ve been drilling down on the difference between Proof-of-Work and Proof-of-Stake. Why does it matter?

I used to think it didn’t matter too much. My view toward the entire burgeoning asset class of crypto was “let a thousand flowers bloom”. I still think that way to some extent. If you want a proof-of-stake system for an application, a game or a project token, be my guest. It works in some circumstances.

But as a base layer for sound money, it’s an abomination. The reason why has been articulated in innumerable places, but it recent times it was George Gilder who really nailed it in The Scandal of Money: Why Wall Street Recovers but the Economy Never Does. The book unpacks the consequences of untethering money from solid anchors to reality:

“With no [hard] dollar anchor for long-term investment, financial horizons shrank and markets dissolved into trading over bets on bits….The collapse of productivity growth after 1972 must be deemed just another of the cascading effects of the destruction of money as a metric”.

He was talking about high time preferences, as do a lot of the Bitcoiners. What exactly the consequences of untethered money and shrinking “investment” horizons would mean when it became systemic,  saturating all avenues of traditional finance conventional economic thinking.

“[Where there are] no limits to the tempests of short-term trading and trafficking in a surf of meaningless money values.”

This expression of short term trading within meaningless monetary values found no greater expression than during the blow off top of The Everything Bubble that occurred under lockdowns, stimmies, SPACs, meme stocks, Davie Daytrader, and even crypto moonshots like LUNA and NFTs. Possibly the best phrase I’ve heard for it was Hidden Force’s Demetri Kofinas’ term, “financial nihilism”. 

That’s what you get when you untether money from any foundational anchor to the real world.

Hold that thought.

The decision (top down, non-consensus driven) to move to PoS on Ethereum’s part, to solve a largely non-existent energy consumption problem, got me thinking about this and researching it a lot more. 

Let’s start with the rationalization direct from Ethereum CEO Vitalik Buterin, 

“To summarize this in a more philosophical way, Proof-of-Work is based on the laws of physics, so you have to work with the world as it is. You have to work with electricity as it is, hardware as it is, what computers are.

Whereas because Proof-of-Stake is virtualized in this way, it’s really cool, you get to create a simulated universe that has its own laws of physics. And that just gives us protocol developers a lot more freedom to optimize the system to give us all of the security properties that we want. 

If we want the system to offer a certain security guarantee, that means we can modify the system in way that lets us achieve it.”

Buterin is making our point for us, without realizing he’s making our point for us. He is expressing the ultimate technocratic fantasy: the ability for managerial experts from on high to reorder reality according their own whims and priorities. Where models can be created on whiteboards and reality is expected to conform to these models. It never does, yet we live in a world where people who point out that the models are flawed are demonized while those who bear no consequences for being wrong, double down and are awarded Nobel Prizes.

But when whiteboard economics inevitably collides with reality – those pesky laws of physics – the models never hold up. Reality intervenes, and the modellers either double-down or create some new set of policy responses to “fix” the latest , self-induced, crisis.  

The economic and societal chaos we are in the early innings of experiencing today is a direct result of iterative cycles of “money” being detached from the laws of physics, a.k.a. reality.

This is why we can’t have nice things.

In order to regain a tether to reality, we need a monetary hard asset that can’t be arbitrarily modified by anybody, let alone a nation state, central banks, Klaus Schwab, PayPal, big tech in general, or a pyjama boy with a hard-on for virtual reality. 

It’s that anchor to reality, to the laws of physics, that make Proof-of-Work such a breakthrough innovation. At the risk of expending too much airtime on it here in the portfolio update, I will direct you to two episodes of The Investors’ Podcast network with Preston Pysh:

#1: BTC098: Proof of Stake (PoS) Versus Proof of Work (PoW) w/ Jason Lowery

It’s over two hours long and it takes Lowery a long time to lay the foundation for his case. Hang in there. Once he squares the circle you’ll get it. When I finished this episode it gave me absolute clarity on why this is such a fundamental issue and why Proof-of-Work is an unassailable and superior innovation vs. Proof-of-Stake in every way. At least it is when you want to create a base layer for sound money.

#2 BTC099: Michael Saylor’s Deep-Dive on Bitcoin Energy Misconceptions

Saylor extends the understanding in this interview, especially where it comes down to the difference between securities (Ethereum) and commodities (Bitcoin), and why this is such a big deal. The conversation then moves into why the anchor to physics is a feature, not a bug. 

The interview helps reconnect us to the reality that energy usage (or cost inputs) to build something useful are necessary, not evil. In Ethereum’s case, the impetus for the merge was to reduce its power consumption. Why?

In last month’s letter I did some back-of-the-napkin calculations showing that Ethereum’s total power consumption worldwide was about 2/3’s the total consumption of US electrical vehicle deployment. Why is it A Bad Thing when you use the energy to run an ostensibly distributed, universal Turing-complete super-computer under Proof-of-Work, but then it’s celebrated as a milestone when you use even more energy to run a bunch of EVs  – which end up being charged by coal and built with lithium and cobalt sourced from child labour?

95% coal, actually. Love this clip. “The elEctrIcitY cOmeS fRoM iNsIde tHe bUIldiNg!” https://t.co/hP2dgHn32e

— Mark Jeftovic, The C̶r̶y̶p̶t̶o̶ ₿itcoin Capitalist (@StuntPope) June 8, 2022

What makes each one so? Without looking at the energy consumption and benefits or drawbacks of comparable systems (i.e. the energy consumption of maintaining the petro-dollar empire), looking at an amount of energy consumption unto itself is meaningless.

Further, once you concede that any given activity’s energy consumption is within the purview of societal moderation or judgement, you just ceded authority over all energy consumption.

People seem to be clamouring for this, we’ll see how they like it when CBDCs finally show up with Personal Carbon Allowances baked right into their wallets.

Bitcoin is the most viable base layer today for re-attaching money to reality. It does that through Proof-of-Work, not in spite of it. We already know that total Bitcoin energy usage worldwide is less than tumble dryers, and that Bitcoin mining is incentivized to use waste, renewable and stranded power sources. It’s the tie between energy input and digital output that tethers the base layer to the laws of physics, which is out here in real world, where (everybody outside of the pod), spends their everyday existence.

Without that tether, we eventually wind up in a clown world where central bankers get Nobels for blowing up the financial system, where climate alarmists want to end oil on one hand yet advocate for nuclear warfare on the other.

Today’s post was an excerpt from The Crypto Capitalist mid-month portfolio review, our premium newsletter. To get the core investment thesis free, subscribe to the Bombthrower mailing list. Follow Mark E. Jeftovic on Gettr, Twitter or join the Telegram.

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.

Ironically, the push toward carbon-rationing and CBDCs is based on the same insight by sound money advocates: Fiat is worthless.

Let me tell you a parable about value. It’s about how the “thing” that everybody assumes has value can change over time, and by the time it changes, people have completely lost touch with the original measure of value.

In the early 00’s, easyDNS was getting ready to move our servers out of our physical office and into an actual data colocation center in downtown Toronto.

When we got our first cabinet, we were billed in terms of how much rackspace we were using, and what our bandwidth consumption was. In those days, the servers were trying to pack themselves into smaller enclosures and compress the data payloads to reduce bandwidth. There were 2U boxes, the bleeding edge stuff coming out was 1U, and if you were a dinosaur from late-90’s, you might have some legacy 4U servers, which were costing you a fortune to rack.

What was missing from that equation?

Power. There were no power costs, or if there were, they were negligible to the point where I can’t even remember having them. The power costs were just built into the price of the rackspace and bandwidth.

Fast forward 20 years, and it’s inverted completely. The number one cost when you provision new cabinet space these days is typically your power commit. Then bandwidth and transport. Now the rackspace is practically a throw-in. In many cases, what people think of as “servers” today are just virtualized images that don’t even take up any physical space.

What changed? The world did.

Who cares? Mostly nobody.

What I mean by this, is nobody thought that switching to charging for power consumption instead of rackspace was a big deal. The overall economics of the space changed, and as a result so did the pricing model. In other words, the underlying value commodity switched from Thing A (physical space) to Thing B (power). Other than adapting to it, nobody really cared.

The same thing happened with “money” -and it’s about to happen again

Money used to be backed by gold (Thing A) and then by a national currency exchangeable for gold (Thing B). In practical day-to-day terms, most people didn’t care and continued to use whatever they had in their wallets for currency.  Thing B even became the global reserve currency.

Then in 1971, it switched again and that reserve currency could no longer be exchanged for gold (Thing A) while Thing B would henceforth be …nothing. It was supposed to be temporary. 

People continued to use the reserve currency to denominate exchange and found that using nothing to back the value of the currency actually made life better, for awhile. At least for those who were in close proximity to the people who were able to mint more of this new “nothing money” out of thin air (they’ve come to be known as Cantillionaires).

Since all the other currencies were backed by the reigning reserve currency, this meant that they were now all backed by Thing B as well. And Thing B was nothing.

There were people who sounded the alarm that the the new Thing B (nothingness) was unsuitable for backing a currency, let alone a global reserve asset. Over time, they warned, it would create ever-increasing wealth inequality, blow up serial asset bubbles followed by ever worsening financial crises and probably end in a hyper-inflationary blow off.

They were dismissed as cranks and conspiracy theorists. In more recent times, right-wing extremists or Kremlin stooges.

Even so, as ignorant and retrograde as these people were and still are, today even mainstream commentators and anointed experts realize we’ve more-or-less run out of runway for having a global reserve currency backed by nothingness.

The fiat currency era is essentially over.

Goldbugs knew it wouldn’t last and invested in gold for centuries. They still do today. Now there is also Bitcoin, which captures the same mechanism: in this case using energy to back currency.

But globalists and central bankers are in a conundrum.

There is the realization that the fiat era, backing money with nothing is about to hit the wall.

But even central bankers know they can’t print energy out of thin air.  It would render Cantillionism obsolete overnight, and we can’t have that.

What is needed is some basis to backstop that currency that has some kind of value, a perceived scarcity or cap attached to it, in order to reestablish faith and legitimacy in the “money”. Further, it needs to be something that can be controlled and distributed from within the central bank / state mechanism – it must be entirely outside the influence of market forces.

Finally, it has to have an ideological pillar that can be used to shape public opinion around its acceptance.

The New Thing B is Carbon

The last legs of the failing monetary system will see another of these transitions where the value medium shifts from Thing A to Thing B.

There will at least be an attempt to implement one. Whether they get it out the door before  the monetary end-game plays out remains to be seen.  The destruction of the current system has been so accelerated by the ubiquitous mishandling of the Covid pandemic by policy-makers that the current system may come off the rails entirely before a new one can be implemented (subscribers of my premium newsletter have been getting our coverage on CBDCs and how far behind the curve nation states and central banks are in actually developing them. This why I think, ultimately, they try to go with something that already exists, like WEFereum Ethereum).

But the plan from on high is that we will go from pricing goods and services based on their input costs of production and distribution (Thing A), to pricing privileges and consumption based on their perceived carbon emissions (Thing B).

We’ve all seen the latest think piece out of the World Economic Forum, characteristically shrouded in their benevolent-sounding euphemisms, pushing for individual carbon rations and justifying it that because the world’s population sat still for, and complied with, global lockdowns. They suggest that the plebes are ready to accept having their individual carbon footprints metered by unelected bureaucrats and opaque AI-driven algos.

The WEF piece linked to a 2021 paper by Nature that mapped out Personal Carbon Allowances, and the impetus to define one’s  “fair share” of carbon emissions and the “setting of acceptable levels of carbon emissions”.

When you set aside (for a moment) the totalitarian implications of this,  it does make a certain amount of sense. In its own way, it proves the point that hard money advocates have been making for decades, if not centuries: fiat money is valueless.

Beneath all this climate alarmism driving the move to carbon rationing, there lies an implicit admission, conscious or not, that for money to be viable it has to denominate an economic trade-off.

You cannot print value ex-nihilo. In so doing these last 50 years (since the commencement of the fiat era in earnest), we’ve gotten to a world where the price of capital – and thus, time, if you read Edward Chancellor’s latest book (and you should) – is nominally zero, which collides with the reality of the finite (or with the laws of physics – as somebody like Doomberg would say).

The central bankers of the world made one big divide-by-zero error, and the result is what we actually see playing out across many dimensions, right now. Bitcoin and the coming CBDCs are both reacting to the same thing, but what’s different about them is who would be served by the adoption of one mechanism over the other.

What’s important to understand is that, similar to the Cantillion Effect, when the underpinnings of a monetary system transition from Thing A to Thing B, the outcomes are non-neutral. One example of this is the Gini Coefficient, which is a measure of wealth inequality.

In the chart below via @WTF_1971 we see how after a period of secular decline under the Bretton Woods system, it suddenly reversed and blasts off right at the inflection point where the global monetary system abandoned its last link to hard money (Thing A) and the fiat era began (Thing B).

All indications are that the coming CBDCs will be carbon-based, social credit schemes, and they are being promoted and implemented by the same vested interests who profited and consolidated unimaginable wealth throughout the prior 50 years of the fiat era – the Cantillionaires.

This path is ultimately doomed, because as I frequently point out, it seeks to extend an industrial era worldview (top down, centrally planned and linear), onto a new architecture: one that is decentralized, self- organizing, adaptive and non-linear.

Because it’s one iteration behind in the level of mental abstraction, it’s like breeding faster horses in an era of cars. No matter how good you get at it, you’re still playing the game on an obsolete playing field and will ultimately be unable to compete on the new one (if you’re wondering why I frequently reference the level of mental abstraction as being such a game changer that ensures the eventual supremacy of networks over nations, I refer you to a relatively obscure book by W R Clement called “Quantum Jump: A Survival Guide For the New Renaissance“).

The only advice I can offer for navigating the coming transition is to be as financially independent and resilient as possible. Do not allow yourself to become reliant on government entitlements and if you are now, figure out a way to end that reliance immediately. That these systems will become tightly coupled with CBDCs and carbon footprint rationing is a foregone conclusion.

You’re going to have to be ready for at least a transitionary period where the lifestyle choices you take for granted today will be priced in terms of carbon credits in the future. If you are reliant on government entitlements, get used to eating plant-based protein patties. If you aren’t, get ready to have to pay more for those Wagyu burgers. A lot more.

Hold as much of your wealth outside of the state run banking system as possible. Bitcoin (off the exchanges, I also like Monero), hold gold, silver, and own cash-flow producing businesses, and multiple revenue streams. If you have a job, start a business on the side. If you own a business, start another one.

Start connecting with people and tribes who are opting out of the current system, because the one we’re in now is either going to come off the rails entirely or try to go full CCP in the near-term.

Outside of China, no major nation has anything else ready

Imagine if you will, persistent double-digit inflation, energy costs soaring, shortages causing blackouts across Europe, bond yields spiking uncontrollably, supply chains grinding to a halt while sovereign debt crises erupt the world over…

Then one Friday after the markets close, heading into a long weekend, an emergency broadcast occurs in which the President, the Chairman of the Federal Reserve and the Speaker of the House appear on national TV to announce  that pursuant to the Statutory Bail-Ins provision of the 2010 Dodd-Frank Bill, a banking holiday would take place over the following week. During that holiday, certain bank liabilities would be converted into FedCoin (FED), an ERC-20 token on the Ethereum blockchain, at the rate of 10 FED per $1.

Every depositor would have an NFT issued to their Social Security Number – and that would give them access to their FedCoin via the Sign-On-With-Ethereum protocol. Depositors would have to “stake” their Ethereum to access the “full benefits” of FedCoin, however any sub-optimal social behaviours, (such as being behind on current vaccinations, or running your air conditioner too cool) could result in “slashing” – having a portion of their staked assets “burned”.

Similar announcements are being made elsewhere: in Canada Prime Minister Freeland and her Finance Minister Steven Guilbeault announce the creation of LOONCoin, invoking the The Bank Recapitalization (Bail-in) Conversion Regulations from 2018 while in Australia they refer to Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill of 2017.

Across the G-20, each leader is calling their national initiative part of The Great Restructuring…

We’re into the Endgame for Late Stage Globalism and things are moving fast. Decades of increasingly centralized, fiat-based plunder are now coming to a head and the system is unraveling quickly:

• Energy costs are skyrocketing thanks to ESG-inspired shortages.
• Inflation rates exceeding the stagflationary 70’s are hitting across the board and in some areas (Turkey, Argentina, Sri Lanka, Lebanon) verge on hyper-inflation .
• The global bond markets could come unglued at any moment as trapped Central Banks are trying to hike into a global recession.
• Geo-political tensions (even amongst NATO allies) eerily reminiscent of the months leading up to 1914, when the world “sleepwalked” into the first industrial scale global war.
• Political and cultural elites the world over have never been more unhinged and detached from reality.

Many commentators are positing a monetary end-game scenario in which the Fed and other central banks really do lose control of the bond market, the 150 to 300 trillion (depending on what you include) global debt implodes, and the financial system itself enters the collapse that has been serially postponed since the dotCom bust….

The mini-parable in the opening paragraphs outlines the situation many of us who are skeptical of the current system anticipate: that there will be an inevitable move toward Central Bank Digital Currencies (CBDCs). It will be seen as a way to extend the lifespan of fiat-based financial system by a few critical decades while presenting an irresistible mechanism for asserting China-style social control in a way previous authoritarians could only dream of.

There have been plenty of government white papers issued (which we diligently cover in The Crypto Capitalist Letter), which uniformly outline the aspirations of CBDCs, namely:

• Expiry dates on “cash”.
• Negative interest rates on savings.
• Programmability over where, when, who and why money gets spent
• Transaction level reporting, tracking and taxation
• Quotas, limits and restrictions
• Ability to add or remove funds remotely by central authorities

There’s only one problem…

No nation or central bank outside of China is anywhere close to actually deploying a national Central Bank Digital Currency that is capable of doing these things.

For awhile it looked like maybe Facebook’s Diem would be at least a temporary FedCoin, until Facebook scrapped the project (they’ve since sold the intellectual property to Silvergate Bank).

But in practical terms, nobody is ready. The countries that have deployed a home-rolled CBDC have flopped (i.e, Nigeria, Venezuela,) even China’s Digital Yuan debuted during the Olympics to ho-hum reviews.

A national CBDC would be impossible to develop in secret and then spring on a population out of nowhere. Whatever gets adapted to be the rails for globally inter-connected CBDCs will leave footprints, big ones. People who pay close attention to Bitcoin, crypto-currencies, digital assets and blockchain would hear about it and see it coming from a long way off, and nothing that’s known to be in development (like Canada’s Project Jasper) is ready (or stalled).

However, the financial system is now coming unglued so quickly that there probably isn’t time to develop national CBDCs from scratch anyway, at least not for an advanced G-20 economy.

The solution may be to co-opt an existing crypto-currency that is already deployed, already has market share and a brand, and is more or less signalling an amenability to the notion.

Enter Ethereum: The Preferred Crypto-Currency of Central Banks (and The WEF)

The advent of Bitcoin was a shot across the bow of all central banks and fiat money.  We see, for example, a near visceral reactions toward the threat posed in various Bank of Canada documents (obtained via an ATIA request):

At the supra-national and NGO level, everybody from the World Bank, to the IMF to the World Economic Forum is somewhat hostile toward Bitcoin. WEF articles about Bitcoin typically end with “problems” associated with it and what the alternatives are , going so far to declare in 2017 that by 2020 “Bitcoin would consume more power than the entire world does”.)

Fact check: #Bitcoin did not consume more power in 2020 than the entire world did in 2017. @wef pic.twitter.com/1nTwi99Xgp

— Mark Jeftovic, The C̶r̶y̶p̶t̶o̶ ₿itcoin Capitalist (@StuntPope) September 5, 2022

So it is interesting to notice a crypto-currency that these international bodies and central banks are not openly hostile to, and that has always been Ethereum.

The main thrust of Canada’s CBDC development has been (thus far) “Project Jasper”, a partnership between the Bank of Canada, Payments Canada, R3 and the big banks, and note that Phase 1 was built atop Ethereum:

(Phase 2 was to be built on Corda “a leading Distributed Ledger System for regulated industries”).

So far Norway and Israel have started their CBDC development using Ethereum. In 2021 a Chinese banking official made the case for deploying a CBDC on Ethereum, and in at the WEF meeting in 2020, one of the Ethereum co-founders and Consensys CEO Joseph Lubin presented a white paper making the case for Ethereum to be the rails for CBDCs.

“As the World Economic Forum meets in Davos for the 50th time, it does so against the backdrop of a sea change in the mechanics of money

Below we provide both an overview of CBDC and a concrete example of how a CBDC might be implemented on the Ethereum blockchain. We believe that Ethereum is the best-suited blockchain network for the kind of maximally secure, global-scale, interoperable settlement platforms that CBDCs require. But we are well aware that there are many other possibilities”

To be clear, I am not one of those people who thinks the WEF is some all-powerful cabal that Controls Everything, because the reality is that the world is inherently uncontrollable at a macro level (we live in an out-of-control world, and for many, the prospect of that is more terrifying than dystopia).

But what happens in Davos doesn’t stay in Davos. The WEF agenda truly does exert outsized influence (at least for now), and they do set tone for what is fashionable among technocrats, authoritarians and the sundry Malthusians that permeate elite circles.

Ethereum (or maybe “CBDETH”) is well suited for the use case of global CBDCs:  different ERC-20 tokens can be issued for multiple uses:  stablecoins, UBI, food stamps, carbon quotas, social credit – all underpinned by Ethereum on the base layer. One that has a proven track record of being willing to switch monetary policy on-the-fly, and isn’t afraid to hard-fork itself out of a jam.

For the push into Digital-IDs, ERC-721 style NFTs are well suited. Your Bored Ape not only telegraphs how cool you are, it can signal if your COVID boosters are up-to-date, for all to see, on the blockchain.

At first glance this runs counter to what I’ve been saying in The Crypto Capitalist (our premium letter) for over a year. My theory was that in the future, the way you would be able to differentiate between a decentralized, digital bearer asset and a CBDC would be whether it would be possible to self-custody your private keys or not.

Maybe I was wrong about that, since anybody can hold their own wallets for Ethereum.

However, we should expect that the plebes would be incentivized to custody their private keys with banking partners of the CBDETH system (“safely and effectively”). There might even be incentives for doing that, like extra meat allowances, or permission to take an additional flight each year.

The Ethereum ecosystem is already telegraphing a willingness to comply with central state dictums: embracing OFAC compliance with a hamfisted stab at protocol level transaction censorship, rather than arguing about it too much. The coming move to PoS is flat out ESG-inspired (this is not the place to argue the energy policy of PoW other than to say that the alarmism around it is based on pure ignorance and FUD; but at a minimum I would recommend Alex Gladstein’s “Hidden Costs of the Petrodollar” and Nic Carter’s “Last Word on Bitcoin’s Energy Consumption“)

After The Merge (a.k.a Ethereum’s Great Leap Forward), if we can envision a scenario where most of the ETH is locked up in centrally operated validators, and a huge chunk of the system having already enacted protocol level transaction censorship, it would be perfect. Outwardly it could be the branded as a decentralized, inclusive digital money while in reality being highly concentrated and censored at the transaction level.

Similar to how the WEF brags they’ve “penetrated the cabinets” of many world governments, the Venn diagram of WEF and upper echelons of the Ethereum Foundation already intersect in a few places. In addition to the aforementioned pitch by Ethereum co-founder Joseph Lubin, the Ethereum Foundation’s Executive Director is “an agenda contributor” to the WEF.

The there’s the Enterprise Ethereum Alliance is a who’s who of big tech, Wall St and corporate big wigs, including JP Morgan, Microsoft, Accenture, Bank of New York Mellon, Ernst & Young and even Fedex Corporate Services Inc.

Contrasting Ethereum with Bitcoin

With EIP 1559, Ethereum ostensibly adopted a “ultra-sound” monetary policy where the supply of ETH would actually plateau and then begin to decline as more ETH gets “burned” than minted. However even this update, combined with the looming switch from Proof-of-Work to PoS shows: The Ethereum core devs have no issues radically restructuring its underlying fundamentals to suit the winds and the whims of it’s circumstances.

From its initial ICO to insiders, launching with an unlimited supply, to bailing themselves out after their DAO was hacked, Ethereum has a “whatever it takes” approach that is the opposite of an immutable, hard asset with a finite supply like Bitcoin.

If circumstances arise where an infinitely expandable money supply is desired or required, they can just change the system again. And again.

Contrast with Bitcoin, which is truly decentralized, with an immutable hard cap that cannot be changed. If there are dissident factions, like during the  Blocksize Wars, for example, it gets settled with a hard fork where users choose which way to go and market forces settle the rest.

On that note there is even already  a Proof-of-Stake version of Bitcoin.

So if we truly value democracy over coercion, and if Proof-of-Stake is demonstrably better than Bitcoin core’s Proof-of-Work, then we should see “Bitcoin-2” flippen Bitcoin in due course (similarly, and this is my main beef with The Merge, the more democratic way to undertake it would be with a user-selected hard fork, leaving both chains and options available afterward).

Of course, nobody seriously expects Bitcoin2 to do that. Nor does anybody expect Ethereum to postpone the merge or do it in a more democratic manner . But we can expect Bitcoin to be the one, immutable digital bearer asset in the coming era of Central Bank Digital Currencies.

Conclusion

In The Crypto Capitalist Manifesto, I built on my previous work around The Great Bifurcation and theorized a coming two-tier society. I posited that UBI would be inevitable and the rails would be a CBDC that doubled as a China-style social credit system. Everything that’s unfolded since then has reinforced that belief.

What I may have not foreseen was what the rails for CBDCs could very well be Ethereum, or a co-opted version of it. Beacon Chain (the post-merge chain) may be that version.

It’s too early to say how to feel about that. I’ve always had a soft spot for Ethereum, and admired what they’ve done in decentralized naming with ENS. My main business has been involved with that effort for some time. I guess watching it position for mainstream / corporate / government  acceptance is somewhat disorienting.

(Maybe it’s a good thing that the fiat-era’s last ditch iteration of state-sponsored money will have to be, out of necessity, built on something beyond their absolute control… another marker of the decentralized revolution?)

However, where Bitcoin reached escape velocity and broke the “here to stay” barrier through sheer honey-badger belligerence, Ethereum seems to be getting there by “playing the game”.

That’s also not to say that with our investor hats on, there aren’t going to be huge gains to be made within the Ethereum ecosystem even if it goes that way. If Ethereum becomes the rails for global CBDCs (CBDETH), owning the infrastructure components of it (oracles, validators, exchanges, dapps, naming platforms) would be the analogous to owning a small slice of the Federal Reserve, or the global ACH payments system.

But I stopped thinking of Ethereum as immutable some time ago, and certainly not as a digital hard asset, the way I do Bitcoin.

Cryptos are the antidote to repressive Central Bank Digital Currencies

Yesterday I wrote up why I don’t think any kind of China-style ban on Bitcoin and cryptos would be tenable in (so-called) liberal democracies here in the West. It referenced an earlier piece that described the threefold governance structure I see competing for relevance over the coming decades.

Somebody linked to those in the comments from a Tom Luongo piece (which I rather enjoyed enough to subscribe to his newsletter) but when I read through some of the other comments around Bitcoin, how it’s a globalist Trojan horse for surveillance capitalism and social credit I realized I needed to get a piece out to speak specifically to this aspect of future governance.

I cover this a lot in The Crypto Capitalist Letter, in fact it’s a pillar of our macro economic thesis (which you can download free here). It all comes down to the differences between real crypto currencies like Bitcoin, Ethereum, Dash, Monero, et al and coming Central Bank Digital Currencies (CBDCs), like China’s Digital Yuan, like the coming FedCoin, and anything else that will be issued by central banks, directly from governments or even in conjunction with Big Tech platforms.

There are the two main types of digital money that will co-exist in the future.

Each type of digital money corresponds to a governance mode of the future. Which type of this money you make your own or your business’ financial centre of gravity will have an outsized impact on whether you live in the future as a neo-Feudal serf or as a sovereign individual.

Each one has its own fundamental architecture, and the governance and economics that result from those architectures reflect the governance models of the mode that is built on them. This is critical and builds on what I’ve been writing about for  years now, drawing on the work of relatively obscure commentators like Vincent Locascio and Steven Zarlenga. The latter who wrote in his Lost Science of Money, whoever controls the monetary system, controls society.

“a main arena of human struggle is over the monetary control of societies and that control has been and is now exercised through obscure theories about the nature of money. If it had to be summarized in one sentence, it is that by misdefining the nature of money, special interests have often been able to assume the control of society’s monetary system, and in turn, the society itself. ”.

It is because of how fundamentally the monetary architecture is reflected in the governance stack that sits atop of it that I can make the case with rather high confidence that Bitcoin and cryptos are not Trojan horses for globalist control. They are the opposite – they are the mechanisms through which people, all people, any person, the masses – can reclaim their own economic autonomy and become self-ruling and free.

The defining feature that makes them so is simply that a liberating crypto-currency is designed such that

• the blockchain is decentralized
• anybody can take part in validating the blockchain
• the possessor controls the private keys to the units he or she owns

This is Bitcoin. These are cryptos in general. They may also contain other features that confer a “sound money” status on them, like Bitcoin’s 21 million unit hard cap or Ethereum’s EIP 1559 protocol. But it is these three attributes, especially the last one, of holding one’s own private keys, that make them emancipatory monetary technologies.

The crypto folks have an expression: “Not your keys, not your coins”.

I expect this to be the defining feature that demarcates the difference between a bona fide crypto currency that empowers its holders and centralized digital cash (tokens) that governments and central banks run to control the populace.

Those skeptical of Bitcoin, who suspect a globalist, Davos-inspired regimen of surveillance and social credit are correct about digital cash being the conduit for those, but they’ve simply conflated all forms of digital money and view Bitcoin as typical or a test-run of them.

This misconception arises simply from not knowing or understanding the differentiators between a crypto like Bitcoin and a Central Bank Digital Currency (CBDC), like a coming “FedCoin”.

CBDCs will very much be tools of elitists to implement top-down command-and-control economics and even Great Reset-style social management through monetary policy.

CBDCs will in all likelihood not be designed to put the private keys over the currency units into the hands of its possessor.
Digital “cash” under CBDCs will be centrally programmable and implemented without end-user consent across all national governance and Davos-inspired initiatives.

CBDCs will be the rails of all manner of economic programs (like UBI and MMT) and social policy objectives which simply are not possible, or desirable under cryptos:

• Expiry dates on “cash” in your wallet
• Negative interest rates if you try to save any of it
• Social credit objectives (no jab / no stimmie)
• Instant taxation on transactions and payments
• Social justice pricing (cup of coffee costs 10X if you’re in a higher tax bracket)
• Built-in climate tariffs
• Capital controls
• Infinitely inflatable, issue on demand

If you thought the Federal Reserve was suffering from mission creep now that they’ve decided to tackle climate change and social justice, just wait until they get the ability to program what you can do with the money that’s already in your wallet.

That is what we’re looking at with CBDCs and if that’s your dystopian vision of what digital cash means, you’re not wrong. You’re just misdirecting your apprehensions if you think that’s what Bitcoin means. This is because it and most of the other digital currencies are the antidote to CBDCs. Which is why they are subject to such hostility from policy makers, the corporate press and elites.

This will be a battle. A never-ending tension between these two digital money systems – crypto currencies, which are actually fungible, inelastic, deflationary (purchasing power increases over time) and which gives their holders economic autonomy in this new era.

On the other side we’ll have these centrally issued, programmable digital tokens.

Which side of the ledger the majority of your economic activity happens on will govern your future status as a Neo-Serf or an autonomous Sovereign Individual. If the dynamic becomes extreme it could even result in a kind of monetary Apartheid.

The good news is that today, at this moment in time, it’s still largely self-selecting.

I’ve written many times, that crypto’s (real cryptos, not CBDCs or even stablecoins) are all about optionality. Crypto’s like Bitcoin confer options on their holders (HODL-ers), while the coming CBDCs will be all about limiting them.

I cover this dynamic extensively in The Crypto Capitalist Letter, a long with a tactical focus on publicly traded crypto stocks. Get the overall investment / macro thesis free when you subscribe to the Bombthrower mailing list, or try the premium service for a month with our fully refundable trial offer.

Bitcoin is De-dollarization. Ethereum is DeFi-nancialization.

Lately I have been thinking a lot about the difference between Bitcoin and Ethereum. At the same time the world is witnessing the inexorable move to crypto in realtime. Some may question that assertion, given that the latest FUD cycle against cryptos has been one of the most intense that I’ve witnessed since getting involved in the space in 2013.

Behind the FUD we see actions. We see Russia dumping dollar assets (is that suprising?).

We hear Charlie Munger making almost childishly uninformed remarks on crypto, yet BRK is investing in one of the world’s most crypto friendly banks.

We see El Salvador as the first country in the world to make Bitcoin legal tender.

In my mind this has not only sounded the starting gun on de-dollarization in earnest, it goes beyond that. Back in the late 90‘s people like me were about the age of many of the crypto kids today, and we were talking about the Internet Asteroid headed straight at the telecoms and traditional media.

Today, pretty well everybody is aware of Bitcoin. They may have positive or negative opinions on it, but most people are figuring out that it’s here to stay and there is a spectrum of sentiment around that ranging from enthusiasm to denial. But I get the sense that traditional institutional finance sector doesn’t even see another asteroid coming, and it’s coming straight at them.

The new 60/40 portfolio will mean Bitcoin/Ethereum

Or maybe Ethereum/Bitcoin. Whatever your risk tolerance and investment objectives entail. I’ve been listening to the Bankless podcast lately and in more than one episode they’ve said something about Bitcoin as compared to Ethereum that I think is quite astute. It’s really helped me think about the two in terms of construction of a crypto portfolio.

They’ve said, in essence, that Bitcoin is for when you’re bearish on society and Ethereum is for when you’re bullish.

It’s not that I agree with that literally (I don’t), but it helped me refine the distinction I’ve always had around Bitcoin being the value and Ethereum being the execution in a coming tectonic shift into crypto.

In the olden days, bonds and equities had an inverse correlation. Bonds kept your portfolio afloat when the economy hit a soft patch and stocks went down (yes, in the olden days, stocks could experience bear markets, sometimes for months or even years). Conventional wisdom was to have a portfolio mix between equities and bonds, along some rule of thumb like 60/40 adjusted for your age, risk tolerance, etc.

We’re headed into a world where Bitcoin and Ethereum will fulfil the roles that bonds and equities did traditionally.

The basic thesis of my Crypto Capitalist Letter is that Bitcoin will be on the receiving end of an impending mother-of-all wealth-transfers. Many Bitcoiners think that if Bitcoin is “digital gold” then that means the incoming funds flow will be from the 10 Trillion dollar gold market. I think this is wrong.

Bitcoin’s looming funds inflow isn’t going to come from gold. Maybe some will, maybe some shorter term gold holders will jump ship to Bitcoin in much the same way that this latest down cycle since April has been driven largely by younger coins (weaker hands) selling out. (Overall I think gold and silver will also be a beneficiary of this great transfer).

But Bitcoin’s inflow will come largely from the more than ten times larger bond market. Not gold. Not 10 Trillion. 120 Trillion, of which 20 trillion of it already yields negative returns ( “return free risk”). A simple layer 1 Bitcoin lending program with an institutional level custodian like Gemini or Galaxy (whom we hold in our TCC portfolio) would yield 400 basis points right there, and that’s without even counting the price appreciation.

“The TAM is Everything”

But what I didn’t realize until the Bankless panel this week about the current state of DeFi is that there’s another 100 Trillion-plus market, and it’s going to be sending its value in a parallel mother-of-all wealth transfers. That wealth transfer is the flight of assets from the traditional banking system into Ethereum and into DeFi.

In my mind this is what DeFi actually means. Where financialization is the widespread hollowing out of all value and turning it into multiple layers of rehypothecated debt, DeFi is De-Financializing assets.

DeFi is where money gets intelligence and value can compound and where tokenized assets increase their purchasing power over time. It’s where savers are rewarded, instead of penalized and demonized. It’s where capital formation is possible.

Most institutions won’t be making this transformation. The majority of them will gravitate toward the Central Bank Digital Currencies (CBDCs), which as we say in The Crypto Capitalist Manifesto, CBDCs will be specifically constructed to preclude savings, make capital formation impossible and will be a honeypot of dependancy for the masses who allow their economic lives to be bounded by them.

But many of those institutional clients, the ones that see The Great Bifurcation coming, will make this shift, and they’ll bring their capital with them.

“I’m not excited about institutions in DeFi at all, I think they are just not the right users for this. This is about giving individuals financial tools that they’ve never had before such that they don’t have to go to an institution that rips them off”
— Spencer Noon

I see this playing out in real time in the world and in my personal experience, here’s three quick data points

1. Trying to set up a simple USD/CAD hedge with my bank for the business, something I had already done 10 years ago when the CAD strengthened above the USD. This time it took months of meetings and they want me to put up 4.5X collateral on the hedge and sign off on a personal guarantee.
2. Setting up that same business for EFT transfers for a large client and the bank solemnly informed us “you must possess a fax machine to use this system”. Uhm ok. I’ll see if I can dig one out from the back of my storage locker. Until recently their online FX system also ran only on Internet Explorer (which goes end-of-life next year)
3. My credit card company, until recently, charged me a fee when I overpaid my balance they owed me money in terms of an “inactivity fee”.

It is this is the type of institutional lethargy that is all tailwind and gasoline for DeFi.

In the case of the forex hedges, I’m now looking at places like Synthetix and hiring a smart contract developer to simply create the hedges for me. The way I envision it, anybody would be able to earn a return on their assets by staking the liquidity pool for USD/CAD, and Canadian businesses with exposure to USD currency weakness would be able to easily hedge for that without pledging their house (if you know anybody who can help me out here, my DM’s are open).

I’m cancelling that credit card and getting set up with one of the many new crypto backed credit cards that give you cash back on every purchase in crypto.

One of the reasons people are skeptical of crypto and fool themselves into thinking it’s some kind of passing fad (“ponzi” or the negligently uninformed “tulips”) is because this is happening so fast. In realtime. (They didn’t read Future Shock back in the 70’s, 80’s or 90’s or if they did, they either forgot about it or didn’t fully understand what it meant).

Bitcoin is going to eat the bond market and capture the flight from fiat currencies. It will become that digital gold or bond equivalent in a crypto portfolio.

Ethereum is going to demolish the financial institutions and probably be the front line against CBDCs, functionally.

CBDCs will be disposable money. Get it, spend it, use it on disposable stuff (if it’s algorithmically permitted) and that you don’t mind being surveilled buying.

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[ 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….