Bitcoin Third Party Dependency
Image Credits: Marco Verch, Flickr .
Is it really smart or is it really dumb… for millions to be expending all the effort and energy – currently about equal to the power requirement for the whole country of Ireland – in “mining” nothing but digits and characters from the ether?
Could all that struggling and expense of itself make a crypto-currency intrinsically worth something?
Of course not…
But still, we can make good use of the payment system while it lasts and those who want to, can go ahead and speculate. Given the existing payment and banking cartels, the transfer mechanism is certainly a very useful service, not unlike the ancient “hawala” arrangements of the Middle and Far East – except that without extra steps, Bitcoin has somewhat less privacy.
Just don’t be left standing and holding a large empty bag when the music eventually stops.
Mind you, one way the music could be kept going for an extended period, is if a cartel of governments took over the whole thing. No doubt the technology would then form part of their cashless agenda and so, in one stroke, reverse all the initial plans of early Bitcoiners for cashless to be private.
Trust and Dependency
One good thing about physical cash is that it has very little third-party dependency on the currency issuer, except at a distance – and unless it is printed by maniacs.
This is why it is hated so much by governments, now that gold is no longer widely used as legal tender.
Gold, of course, has no third party dependency at all.
Any that is imposed – e.g. via minted legal tender coins – is of limited importance and adds only marginal value for the standardization of weight and for identification, convenience, reduced taxation, and transportation.
Bitcoin however, is not only completely dependent upon internal consensus, but also externally.
That includes: electricity, internet access, electronic integrity/security, software integrity/security, exchange availability, legalities, politics, sanctions, war/peace – and all that on top of the wildly changing whims of buyers and sellers.
Even offline “cold” or “hard” storage on a device or on paper is useless without that umbilical cord to the online Blockchain to test and verify keys and transfers.
Such third party dependency necessarily means trusting in those third parties.
And even if the Blockchain record itself is somewhat (certainly not fully) decentralized and so trustless, all major exchanges into or out of fiat currency are highly regulated and demand private information for inevitable government fishing expeditions .
Most exchangers and online Bitcoin “wallets” are very intrusive and only becoming more so as they seek “respectability” as part of the system.
There are always person to person exchanges, of course.
But just as individuals are forbidden to act as private currency exchangers, they are also now increasingly forbidden to act as Bitcoin to currency exchangers.
There is a very useful online facilitator of personal transactions called, “Localbitcoins.com.”
The problem here is that once a private exchanger exceeds a certain turnover (as revealed by the number of trusted reviews etc.) that places his head straight onto the block and under the regulatory axe.
One such “agent” was recently arrested in the US as an unlicensed money service, over a measly $150,000 or so turnover. The intent, of course, is to make an example for others and so herd business to the regulated exchanges.
Young people, and many older ones too, are now almost welded to their smart-phones, to the point that they have become a constant fixture in life. This has made them vulnerable to a bait and switch maneuver:
The bait is freedom with convenience; the switch is abandoning cash – or far better, gold as a base of value – in favor of third parties that are easily controlled by the state and can be used to promote the cashless society.
At least with the earlier offshore based “e-gold” type e-currencies, users knew that if this third party service failed, they could eventually go and collect physical gold.
Although, when e-gold finally was placed on the regulatory chopping block and then beheaded by the central bankers; those few that ever got anything back had to go through intense ID and regulatory hoops to get it. Many – like myself – never bothered.
In summary, there is little enough security in this world without deliberately trusting unknown third parties, when there is an alternative. Where it has to be done, such as for banking, let it be kept to a minimum.
As far as possible, reliance on others should be kept where it belongs – with those we know and trust, and with whom we can hopefully create private freedom networks of business and fellowship.