Bitcoin Lecture Panel, Glasgow University, 30 January 2014

Lecturer: Michael Parsons (chartered accountant, banker)

Bitcoin is decentralised digital (non-fiat) currency. It is driven by a reaction to three separate developments: centralised monetary authority; diminishing financial privacy; dominant legacy infrastructure. Dominant fiat currencies traded in the bitcoin marketplace are USD and CNY. Mining difficulty has exploded in the past year, along with the bitcoin exchange rate. Bitcoin is electronically equivalent to cash or gold and can be stolen (via hacking).

Lowdown on software, payment processing options, and regulatory issues (especially regarding bitcoin exchanges).

Bitcoin is a currency, commodity, store of value and payment network – a non-political unit of account. While it may present competition to fiat currencies, it does not automatically replace them and could easily be used in tandem with them, as today. Why should the State have/enforce a monopoly on money? Fiat is debt printed out of thin air, with no limits.

UK context – The Bitcoin ecosystem would benefit from a UK regulated exchange “anchor” to provide world-class security and develop mainstream usability and acceptance. And, better to have Bitcoin exchange transfers on the inside rather than (unregulated) outside. (eBay will allow classified bitcoin sales Q1/2014.)

Lecturer: Garrick Hileman (Adam Smith Society – University of Glasgow)

Bitcoin should not be dismissed as a passing fad. But there are real risks and reasons to consider as to why Bitcoin might not take over the world. Bitcoin investors obviously have vested interests in promoting the currency's use; are bullish.

Price increase makes bitcoin look like the biggest bubble ever; cryptocurrency is the most bullish commodity market ever. And who is Satoshi Nakamoto anyway?

Brings up Wörgl's Freigeld (non-fiat démurrage currency of the 1930s), and its “death by regulation”, whereby the Austrian Central Bank succeeded in getting it shut down in 1933. Non-fiat currencies can die three ways: “death by regulation” (the least common!), death by technology (e.g. merchant tokens became obsolete; can altcoins supersede bitcoin?) and death by insufficient demand (e.g. LETS, a UK-based barter system, though that has not completely died out).

The success of dogecoin highlights how people are seeking to form an emotional connection to currency and money. Dogecoin began as a joke but jumped more than 300% in price, and has an active development community.

Another hurdle for Bitcoin is that convenience trumps anonymity/pseudo-anonymity for most consumers. It seems that few women use Bitcoin at the moment.

The ability to speed up global remittances and reduce fees is a huge plus for Bitcoin.

Bitcoin is malleable – programmable money can be reprogrammed.

Lecturer: Javier Martí (bitcoinglobalinvestments.com)

We are at the end of an economic phase, Martí refers to this as “predatory capitalism” (really corporatism). Corruption and debt crises abound; banks are insolvent. Printed money = rising inflation, shows through in costs of basic staples. Economies are collapsing. Low-quality media not informing the public.

High unemployment (for multiple reasons, technological and otherwise) is the big deal.

Bailouts transfer wealth from the working/middle classes (“the 99%”) to the rich. Much of the privileged class is over fifty years old and “technologically illiterate”.

Banking system today is very weak and no economy is immune to possible crisis.

The main strength of bitcoin as a currency/money is its limited supply - ฿21 million cap. Paul Krugman knows “nothing” about bitcoin. Bitcoin, as programmable money, has tremendous versatile utility: dozens of possibilities.

Bitcoin can be stored in one's head and is “perfect” for growing the shadow economy (aka black market, free market, underground market, System D).

Capital could flow into bitcoin from PMs?

Government threats? Propaganda “Bitcoin is evil” and associated marketing campaigns; could be banned (will that be effective or not?) with potential confiscation (probably not effective or enforceable?). A government that is broke, however, will struggle to fund enforcement of such bans or anything else.

The Bitcoin network can theoretically be “51% attacked”, likewise any blockchain-based cryptocurrency. A competing crypto or black-swan event could theoretically kill Bitcoin.

The Bitcoin network requires the Internet to function, but should the Internet or the power grid fail, we face bigger problems than merely Bitcoin's functionality.

Because Bitcoin is open source, it really does not matter who Satoshi is.

Bitcointalk and Reddit could be conceived as “information points of failure”, centralised sources of information. There are also potential technical barriers to entry for new Bitcoin users.

Price is more or less irrelevant: Bitcoin is either a good idea, or it isn't. The black market reduces the risk of bitcoin price falling to zero.

Day Two, afternoon session

First we have Juraj Bednár, a bubbly Slovak anarchist speaker. His topic: free markets, e-money and cryptocurrency. He rightly recognizes that our current socioeconomic system is not capitalist. Money in itself is not wealth, because we don't become richer simply by printing money. Printing money (counterfeiting) is fraud. Bednár points out the moral superiority of voluntary exchanges in lieu of government violence. The current model (statism) erects major barriers to entry for small private business and thus favours larger corporations, who in many cases have lobbied successfully for more regulations that they can afford to comply with but which force smaller competitors out of the market. Free markets are not just about reducing taxes but reducing regulatory burdens generally. Then there's one more reassertion of the sanctity of the non-aggression principle.

Next up we have Frank Braun, IT security consultant and self-described “privacy extremist”, wearing a fully-fledged face mask, not to protect himself from swine flu (haha) but state surveillance (CCTV). Why is Bitcoin an important step towards a free society? A free society needs a free market and a free market needs sound money. Bitcoin is such money.

“No state, no banks, no OTC”: in the Bitcoin community we should not focus on interoperability with the old state/bank/over-the-counter trifecta. Braun's firm anarcho-voluntarist-revolutionary roots are clearly displayed in his use of such colloquialisms as banksters and sheeple.

A key point is that Braun believes Bitcoin will fail if it remains too dependent on exchange with the legacy banking system. The Bitcoin economy needs to flourish in its own right, perhaps with underground face-to-face exchanges to physical monies, bypassing the state-monitored banking system. He's making the entire world feel like the former East Germany! I had the audacity to pose this notion as a question and he replied that in some ways he thinks today's surveillance state is worse than the apparatus of the former east German régime! This is a seriously sobering thought.

The sound-money theme continues with a talk by Charles Vollum comparing bitcoins with real gold. Gold is precious but bitcoins share similar properties as sound money. Both are limited-supply, unforgeable, durable, divisible, free-market currencies. However, bitcoins are much more versatile as means of payment; Vollum points out you could wire bitcoins to Mars in a quarter of an hour!

One weakness of Bitcoin is its poor liquidity, resulting from a small economy at present and no easy instant means to exchange large volumes of legacy monies into bitcoins. Vollum does, however, believe that Bitcoin offers huge potential to develop into a store of value possibly superior to physical gold. The future of Bitcoin is obviously still uncertain (but it is that very uncertainty that opens up opportunities).

Vollum produces a few graphs quoting price changes in gold grams as well as US$, showing how the bankers have robbed everybody blind via inflation, debasement of the paper currency. Yale tuition, for example, priced on a gold basis, has experienced a few peaks and troughs, but today is almost exactly the same price as in 1900! In dollar terms it costs over $55k annually today compared with $700 in 1900. “Free your mind from fiat currencies” - Vollum.

A brief interlude brings on the BFL auction, the main highlight of which is their current FPGA rig, with a retail price of US$15000 or so. Josh is auctioning off one such system (with a faulty display!) and it finally sells for BTC 1070.

4pm sharp, and finally! It's the famous/notorious (delete as appropriate) Max Keiser! Yes, the guy on RT! He's a huge supporter of, and believer in, the bitcoin currency and is representing himself at this conference for no pay.

Keiser opens by pointing out that barter is once again all the rage in this new age, as the fiat banking system breaks down. Communities trade with detergent or even chewing gum. Think what Bitcoin could achieve. As Keiser points out, finance has become more abstract and elastic since the globally dominant US$ detached from the theoretical gold standard in 1971. The fiat system is no longer fractional reserve but fictional (zero) reserve. Keiser has repeated all this well-known fact on his RT show many times already.

In under an hour's talking time, Keiser's given us a showdown of a lot of the malfeasance the global banking élite constantly get up to. They're robbing the lot of us blind, and sooner rather than later the house of cards known as fiat money and the global banking system is bound to come tumbling down. This sounds catastrophic but it will open up a big opportunity and finally relieve the world of the bankers' fraud. Max Keiser never pulls a punch, he calls a spade a spade and so he also calls fraud what it is: fraud. He claims London, as a major banking centre, is the fraud capital of the universe. He tells us a little story of a Chinese woman sentenced to death for bilking about $57 million in assets from her investors. “Now that's a deterrent!” he says almost gleefully.

Max Keiser's lecture has brought the conference to a timely end, and I “sneakily” film a few snippets of him and his now fiancée, Stacy Herbert, together answering a few questions in the hotel lobby. Skip forward a few hours after I had a nice dinner on Tottenham Court Road with my uncle, and I find myself here in the dingy environs of the Star of Kings pub in north London, a few blocks north of Kings Cross rail station. It is a slightly odd anticlimax to a slightly hectic weekend. I've enjoyed myself reasonably well on what has been, after all, a semi-serious business trip. Maybe I deserve a day or two to mess around London seeing a few sights, but there'll always be a chance for that in future.

From the conference's end, it's over and out. Amir certainly did a good job on the organizational side of things. Me, I shall try to keep blogging on Bitcoin-related material. Don't take this as online panhandling, but extra money flowing toward my “donations” address (q.v.) will certainly help in keeping the blog taps flowing! However, money or no, I will make my best effort to post something of note here periodically, especially at future Bitcoin-related events.

Satoshi!

Day one, afternoon session

Birgitta Jónsdóttir MP

This Icelandic heroine gives a speech about the importance of online privacy. At the start of this lecture, conference organizer Amir Taaki mentioned the excellent point that today's politics are not so much about left versus right, as liberty versus tyranny. Last year, Iceland was ranked as the country with the best press freedom on earth. (China, Singapore and North Korea are among the worst. These are differing degrees of totalitarian régimes.)

Birgitta explains that Internet privacy is so important it drove her into politics. It is therefore a little ironic, by her own admission, that she hitherto considered herself pretty much an anarchist (as far as I'm concerned, there's not much wrong with that). She says that if we allow tyranny and censorship to blossom online, it will adversely affect our lives offline too. Many countries are at the very minimum authoritarian states that have already passed laws requiring people unlock their private-encryption keys on request by the authorities so as to prove innocence. Birgitta believes we in the Bitcoin community need to forge our own paths and write and establish our own basic rules of operation before our currency really becomes entrenched.

Now, new speaker “jaromil” speaks on the challenges for Bitcoin to become a fully-fledged mature economy in its own right. The bankers currently shaft as many people as they can, and the poorest get shafted the most. He says the biggest challenge is to get the bitcoins circulating (this seems obvious but sometimes that needs to be stated).

After a brief intermission I move rooms to hear economist/programmer Peter Šurda and what do we have here? He's reiterating elements of Economics 101 – but that's ok! What is money? Why does money become money? People base their decisions on what to use for money on transaction costs. But don't confuse transaction costs with specific transaction fees. A key feature of money is elimination of the double coïncidence of wants. What are the merits of inflation versus deflation? Transaction costs/opportunity costs are influenced by state/cartelized price fixing, barriers to entry, capital controls, regulations, etc. Most significant in the context of Bitcoin: “Economic development tends to reduce [economic sacrifices], with the result that even between the mosts distant lands more and more economic exchanges become possible which previously could not have taken place.” (Menger, 1871) Bitcoin can improve liquidity through more trade and value-added services.

I award bonus points to Šurda for quoting the great Ludwig von Mises in regard to commodity money (sound money!) vis-à-vis the intrinsic monopolistic tendencies (via the state directly or state backing of private central banks) of fiat currency. I consider Bitcoin to be an electronic version of sound money, and for me and presumably a large portion of the Bitcoin community this is essential. Here's a debate on the Bitcoin forums about the value of bitcoins: https://bitcointalk.org/index.php?topic=109746.0

Šurda maintains that a moderate long-term deflation of the money supply will not turn consumers into misers. A real-life encapsulation of this is seen in Moore's Law of computing power (and especially computer power per unit of currency). People aren't dissuaded from purchasing computers because there'll be better computers offering three times as much value for money a couple of years down the line. So it is thus that deflation does not automatically induce major hoarding of currency.

Day One, morning session

On this heady morning we begin gently in the cheekily named Satoshi conference room (in honour of Bitcoin's still-unidentified creator) at the Royal National Hotel, with a little lecture from Eli Sklar about the possible future of a moneyless society with almost limitless basic resources. Hopefully this isn't going to end up in ideas extracted from The Communist Manifesto, but I don't think so. He discusses economic changes over time and the shift away from traditional labor toward an information economy, borderless both physically and financially. He sees Bitcoin as a key cog in this, of course, because it eliminates financial borders.

On the overhead projector comes a mini history lesson depicting the advancement of our economy from an agrarian, intensive-manual-labor-based society 200+ years ago, through mechanization and industrialization in the late 19^th century, through modern infotech and agribusiness nowadays. The headline is “Increased Productivity”. The production of food has risen almost 250% in less than sixty years. “Not only do we produce a lot more with the same amount of work as we needed to do sixty years ago, but we produce more than we actually need.” - Eli Sklar.

In the absence of monetary incentives (because, presumably, the cost of living is so low), Sklar says we can extract value from social interactions and convert gaming activities into productivity. But the moneyless society will be an evolution rather than an overnight revolution. This is for me still an idealistic vision but in principle we should have the tools to move in this general direction; we just have to believe in the future and shape it accordingly?

Next it's Caleb James DeLisle, on for a discussion about “the sociopolitical effects of network protocols”, i.e. the Internet, security issues, service providers, intellectual property philosophies, and so on. Now he fires up the Internet on his Linux-equipped (kudos) laptop and gives a brief demonstration of IPv6. I guess this truly is the future: eat your heart out, Marty McFly! :)

Then we are blessed with Mike Hearn for a lecture specifically recommended by the organizer (it's thus one of “Amir's Picks”). Mike is discussing practical applications and improvements of Bitcoin to improve the efficiency and security of transactions, ideas he says are implementable now by sufficiently determined and capable programmers, not hypothetically n years ahead. A lot of this focuses on escrow and trust between parties, which is critical because regular two-party bitcoin transactions are cash-like and irreversible.

A particularly interesting idea is “smart property”, in which physical items can be computer-linked to Bitcoin thus permitting loans and some level of electronic recourse by the lessor in the event of default. Also, there's the idea of creating a Bitcoin bond market. It sounds all eminently doable... eventually.

Now, people are asking questions to the speakers and soon it's time for lunch and hopefully some coffee. The afternoon lecture No Privacy – No Freedom by Icelandic MP (?) Birgitta Jónsdóttir sounds slightly mouthwatering.