Bitten by Bitcoin - Village Magazine

July-August 2024 51

Bitten by

Bitcoin

Progressives should embrace crypto as

opportunity-egalitarian and because they eliminate

the cut to the dollar-US, but they’ll need to get over

its capitalist associations

By Jillian Godsil

ryptocurrencies are virtual

currencies serving as a new

money.

Starting at the beginning:

not all crypto is created equal

and Bitcoin was the ﬁrst and biggest, now

comprising about half of the market.

Others include Ethereum and Tether.

The eight-page White Paper for Bitcoin

was posted in a cryptography mailing list

in 2008 — at the beginning of the global

financial crash — by the confusingly

pseudonymous Satoshi Nakamoto and

came into being, when its ﬁrst ‘block’ was

‘mined’, on January 3, 2009. The White

Paper noted that: “A purely peer-to-peer

version of electronic cash would allow

online payments to be sent directly from

one party to another without going through

a ﬁnancial institution”. Nakamoto remains

elusive: If you were following a legal case

in the UK recently you might have

discovered that Australian scientist Craig

Wright is not Nakamoto despite all his

claims.

Bitcoin depends on blockchain

technology. Each blockchain block

contains information about the previous

block: forming a chain. Each additional

block links to the ones before it making

blockchain transactions irreversible since,

once they are recorded, the data cannot be

altered retroactively without altering all

subsequent blocks.

Bitcoin is a mathematically derived

digital currency. The scarcity is driven by

the fact that blockchain technology has,

embedded in its computer code, a strict

production limit of 21 million Bitcoins.

New Bitcoins are created by rewarding

cryptocurrency miners for completing the

complex computational functions

underlying the system’s cryptographic

technology. The creation of these new

coins and the validation of all transactions

is decentralised and relies on public

ledgers. Instead of a single authoritative

institution, such as a Central Bank

controlling the currency, Bitcoin is

validated by its participants on a peer-to-

peer basis. Every four years the reward is

halved and typically the price increases.

The last halving was at the end of April.

Blockchain operates as a digital ledger

of account which eliminates the need for

intermediaries, such as banks, to verify

the presence of assets. Blockchain also

eliminates the digital double spend which

can render digital transfer of assets

problematic and non-unique.

Blockchain technology has been around

since the late 1990s, but Bitcoin was the

ﬁrst time it was used to underpin a digital

asset.

So it’s all driven by maths not people!

This is very important. The decentralised

nature of Bitcoin means that no one entity

has altered the course, or hacked the

protocol, or increased the number of

tokens. Many people have tried — as the

value of Bitcoin goes up — so too do the

attempts. People hear about Bitcoin being

hacked but in fact what is hacked is

cryptocurrency exchanges or personal

wallets.

A short history of modern money

systems points to the importance of this

integrity. Because ﬁat currencies (regular

state-sponsored money such as the dollar

or euro) are no longer linked to the gold

standard their rates vary and can be

manipulated. For example in 1992 George

Soros famously shorted Sterling out of the

European Exchange Rate mechanism,

netting an unethical billion.

After World War II, the American dollar’s

position as the global reserve currency

was institutionalised by the Bretton

Woods institutions and, through the

mechanism of the gold standard, became

the measure by which all other national

currencies were valued. This system had

many problems caused, in part, by the US

running large and persistent balance of

payments surpluses. Charles De Gaulle’s

government noted — because the rest of

the world had to sell goods and services

to earn dollars — that the US obtained

what it memorably called a privilège

OPINION

52 July-August 2024

Each additional blockchain block links

to the ones before it making blockchain

transactions irreversible since, once

recorded, the data cannot be altered

without altering all subsequent blocks

exorbitant.

In any case, this came crashing down

when President Nixon decoupled the

dollar from the gold standard in order to

pay for the Vietnam war and successive oil

crises. He did it by printing more dollars

— now commonly known as quantitative

easing — which has the eect of increasing

the money supply and simultaneously

reducing its value. If an individual did it, it

might be termed counterfeiting money.

I didn’t enter this space as a raving

anarchist and still don’t think of myself as

‘anti-government’, but Bitcoin does make

you think about money and how it is made,

shared and earned; and, most importantly,

about who beneﬁts: cui bono.

Recently I pitched a crypto story to a

local Irish ﬁnancial broadcaster and I

quote the response here:

“If [NAME of PROJECT] uses

cryptocurrency I won’t cover it as it is not

a suitable product for small savers”.

This was unfair. The small investor is

much more likely to beneﬁt when the US’s

advantage does not have to be paid as a

cut by the currency.

On the other hand it is certainly true, as

shown for example in a 2023 study by

Harvard Business School professor Marco

Di Maggio, that, on average,

cryptocurrency investors have higher

household incomes, live in wealthier and

more educated areas, like to gamble,

frequently use credit cards, and often

overdraw their checking accounts. And the

ordinary citizen is less likely to invest than

those individuals who can be described as

adventurist individualists. A 2022 article

in The International Review of Financial

Analysis, reviewing 59 million US

consumers, notes “a significant and

positive relationship between

individualism and Bitcoin activity”. No

doubt all this will be a negative for Village

readers, sceptical of capitalism and

individualism, but it is equal opportunity

and at least it is not providing a currency

premium to America just for being America.

The upper percentiles of richest people

can access famously better returns than

ordinary people. In the US, only accredited

investors can participate in, for example,

high-value IPOs where the returns are

much higher than high-street bank interest

July-August 2024 53

rates. Their accreditation depends on the

scale of the assets they own and their

money in the bank. In other words, only the

rich can beneﬁt: a potential which has

nothing to do with knowledgeable investor

skills and everything to do with exorbitant

privilege. It is the very heart of the

complaint Thomas Piketty made about

how capital returns will always outrun

labour returns and so the wealthiest will

always get wealthier: the root of the

ascendancy of inequality.

We all live in a capitalist world but

cryptocurrencies are more egalitarian than

dollar-deferential ﬁat currencies.

So for the Village reader Bitcoin oers

transparency, integrity, a departure from

dependence on both the US and the

world’s richest people — and some degree

of fairness and equality of opportunity.

The fact that it is not anti-capitalism is

little to the point. Nearly nothing is.

Perhaps then the sceptical broadcaster

was concerned with crypto’s volatility. But

that is not intrinsic, and is certainly less

ingrained than the volatility of the US, all

it stands for, and its currency. And it is not

unfair to note that Bitcoin stands near an

all time high around €60,491.35, nearly

double its rate when the broadcaster

voiced concern and up 17% since this

article was ﬁrst commissioned. For your

information, according to Nasdaq.com,

“Bitcoin appears to be attracting an

unusual level of demand from bull traders

in the derivatives markets. This move

could propel Bitcoin into an upward

trajectory as June 2024 unfolds”.

I am not blind: there are of course bad

actors in crypto but wherever there is

money there are people looking to make a

buck. Most of the cryptocurrency projects

are high-risk startups — some 90% will fail

for the usual bad ideas and bad execution;

and yes there are a fair complement of

chancers in the mix.

Nor am I mad about ‘crypto bros’

wagging their oversized wallets in a

testosterone fuelled display (early

We all live in a capitalist

world but cryptocurrencies

are more egalitarian than

dollar-deferential ﬁat

currencies

adopters tend to be predominantly male).

The arrogance can be quite overpowering,

like spiked aftershave, and I just want to

shout in their faces - you bought some

bitcoin early and didn’t manage to lose it

- well done!

To be fair, there are also many people

who bought early who had much more

philanthropic ideals such as providing

fresh water to disadvantaged communities

or helping women gain a financial

education to better help support their

families.

Another thing about Bitcoin is its

privacy. As we race to more and more

digital pathways from identity to payments

to grocery shopping habits, there is less

and less to keep private.

But I favour Bitcoin not any old cryptos.

Some are admittedly lethal like Central

Bank Digital Currencies when used the

way they are in China. They are

government-issued and -controlled

programmable money using blockchain

technology. In China, it is used as a rating

system allowing the Communist party to

decide literally what type of life is open to

you based on your spending, eating or

drinking habits.

Here in Ireland we learnt to our cost last

century that the separation of church and

state was not only advisable it was

necessary. It is the same about money and

state - we just haven’t as a collective

nation made that adjustment yet. We still

believe in Central Banks although they

have not been what we think since the

second world war.

I have outlined Bitcoin’s upsides and its

downsides are all ones shared with the

fiat currencies that we all, including you,

dear reader, use all the time. Time for

egalitarians to open their minds on

Bitcoin.