Bitcoin and modern government
So Bitcoin has reached one thousand dollars, and suddenly everyone out there is freaking out. Early adopters rejoice, crazy bullshit marketers change their minds, smug bullshit marketers don't, tenured bullshit marketers keep their options open. Everybody's onto it.
It seems that the sudden spike owes a lot to the sudden increase of Chinese people buying into Bitcoin, with Bitcoin China having become the biggest exchange worldwide as of now. Why did this happen? Bitcoin certainly is a godsend for Chinese people who like to save money, but are victims of rampant inflation, and have nowhere to stash their savings beyond real estate, which has fueled a really insane housing bubble, with whole million-strong cities made of crappy apartments being built just to absorb the demand for storage of value. Bitcoin solves the problem and it is also easily transferable, which is also a godsend for China where capital controls make moving money abroad a real hassle.
One, which is prone to think of modern government as a rapacious Leviathan who uses its tremendous power to prey upon their citizens as matter of instinct, would think that the Chinese government must hate Bitcoin and everything it stands for. Hence it must crack down on it. Moldbug and Handle think the same way of USG. No way the erosion of state power which Bitcoin represents will be allowed to survive.
Yet the whole Chinese Bitcoin craze only started when months ago Bitcoin miners were shown on national TV news (which is broadcast forcibly in all channels, i.e. everyone has to watch it), making much fanfare of all the money they were making with Bitcoin. It didn't stop there. Baidu, the Google of China, i.e. a company which could be construed as being part of the government, started accepting Bitcoin in October. And this week, China Mobile started accepting Bitcoins for some campaign. China Mobile is state owned.
Now this is of course doesn't mean the government is going to start accepting tax payment in Bitcoin. But they are tolerating the thing, which they don't really have to. The same could be said for governments worldwide. Why did Bernanke come up and more or less say that Bitcoin's pretty cool? They know what it all means, they could have shut it down months ago, shut down MtGox and send the guy to Guantanamo. I'm sure that's what FDR would have done. You don't play with the money supply.
There's some interesting speculation on why China would tolerate Bitcoin, and both domestic and international politics have interesting angles. But I wonder if it isn't simpler than all this? That it's not the result of Machiavellian calculations by the powers that be, but the mere result of the dysfunction of the modern world order.
One thing that bugs me, and I'm sure it bugs more of the less capitalism oriented, not necessarily traditional but let's say more rustic side of neoreaction, is the modern cult of growth. Now that the financial sector has grown out of all proportions to become the center of the economy and politics of any country, the investor mentality has become pervasive. Now it's all about growth, about return. I put cash in, and I want to make money out of it, and that's all that matters. Nobody gives a shit anymore about the fundamentals of any company or country. Nobody gives a shit if a company makes money or not, or if a country is being run over by Africans in boats; all that matters is GROWTH. The left has tainted the word, but sustainability is not a concern for an investor who wants to cash out and buy a bigger house in the Hamptons. He wants Greece to Grow, even though it has no industry and 25% native unemployment; the population must be increased for investors to make money. He wants Japan to Grow, even though it has been losing working population for 20 years. Interest rates are on the floor for governments to pay for their debts, so financial return has come the holy grail that everybody seeks after.
Well if you're obsessed with Growth, hell Bitcoin is growing like crazy. 10x a year! And if it gets popular a single coin might be work billions in some time. That's some serious ass-kicking GROWTH for ya. The state must not like it, but lay finance men should be in love with this insane growth generator. What if our new ruling class of finance jocks are so stupidly short-termist that they are joining bitcoin to make money, even if it kills the finances of the governments that sustain them? Lenin said the capitalists would sell them the rope with which they hang them. It is not implausible that the financial state will buy his way into his own demise.
By the way might I remind my readers that my bitcoin address is on the right column. It is probably a bit selfish of me to ask for donations, but a crowdfunded NR think tank is an idea that has been floating around for some time. If gaylord Peter Thiel isn't likely to fund us, maybe some new NR bitcoin millionaire would like the idea.
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replyThe PLA3 is also helping the MSS by running ip-correlators and network-analysis peer-identification and deanonymization on all Chinese BTC transactions. Apparently they think that kind of information will be very useful one day. Blackmail, seizure, funding agents and proxies, who knows. Of course, if Chinese people start using Zero-Coin techniques, that attitude might change. The top nation states in the world could bring down the whole network anytime they wanted (at least, currently) by concentrating their whole computing power for a small amount of time to be a majority of the bitcoin network and destroy the blockchain integrity. They can also spam the network with countless tiny transactions (something Ripple, owned by the guy who sold Mt Gox to Karpeles, tries to fix with its security cost) But in general Bitcoin isn't 'money' so long as people don't denominate their transactions and obligations in terms of numbers of Bitcoins. 'Accepting' Bitcoins is meaningless if all you do is immediately convert into fixed amounts of the national legal tender - that's not much of a challenge to national power, so long as most of the commerce stays internal and there isn't too much capital flight. It's just another class of speculative asset for which the Chinese have an insatiable fondness. What's special about the asset is its liquidity (but even here, bitcoin conversions can take a long time to clear). Finally, I tend to think a lot of Chinese elites that are cozy with the government are also going to ensure the government stays tolerant of ways for them to smuggle their wealth out of the country in case things go South. Post-Chavez Castro-Commie Venezuela, now resorting to complaining about 'wreckers', allows the same thing for its elites - special artificial conversion rates to dollars, and special privileges to take larger amounts of those dollars out of the country. Billions leave this way every year, meanwhile the citizens can't even get toilet paper anymore.
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I have a speculation. Chances that it's right are small, but it's still fun, so why not. At this point, an ascendant Bitcoin would hurt the US a lot more than it would hurt China. The US could literally blow up; it's been exploiting its global reserve currency status pretty hard lately, so an underdog currency would be the perfect cause to champion. It promotes your own ambitions and it couldn't even be properly construed as a casus belli. If USG points its finger at China, China can shrug its shoulders and say it only adopted a Western-style policy of tolerance for the currency. That it happened to disadvantage the USG (and advantage China's Communist Party, by extension) is only a happy accident. In order to position itself to the greatest advantage-disadvantage ratio with the USG it should not promote it so much as not try to hinder it. The USG has a very disadvantaged position. It can't try to stop Bitcoin without thereby also promoting it, unless it were to engage in another drug war style policy.
PLA3 and MSS=?
Chi. Equiv. "NSA & FBI"
You mean they know how the Sheep Marketplace thief is? Gasp!
I doubt it. They're not focusing any significant resources on it - just tracking and recording in data repositories for now. Look, Bitcoin has not gone prime-time, so it's perceived as nothing to worry about by top executives. The people who are thinking about it, in any government, are usually just a few mid-level geeks toying around with it, writing reports and rules, occasionally facilitating a show trial / demonstration prosecution or seizure event. It's just too new to matter much, for now. What do I mean by 'prime-time'? Most governments have decent ways of controlling and monitoring money flows to assist with general law enforcement. It works pretty well - it generates a lot of prosecutions and keeps a lot of heads down. Bitcoin just isn't facilitating enough of these exchanges to make a dent in current forensic capabilities. But it could. I would guess there are three categories of Bitcoin holders in the following proportions: Speculative Asset - 90%, Illegal activity (either contraband, tax evasion, or capital control / regulatory avoidance, some mischief by nation state actors) - 9%, perfectly legal money alternative - 1%. That criminal activity is, presently, a negligible fraction of the total amount of crime, most of which remains actionable via conventional means. It's all about government effectiveness. If, all of a sudden, Bitcoin criminal use 'breaks out' or 'goes viral', and effectively diminishes law-enforcement capability to detect and prosecute, then it is bound to diminish deterrence and will encourage people (who were keeping their heads down) to engage in a lot more crime. It's an arms race, like any competition. Non-petty-thug criminals are pretty good at monitoring the government pressure, they will adjust if they think that they have a way to get away with more lucrative activity. If this happens, it will happen very fast, faster than most governments can adjust. At some point of diminished state control, governments will become desperate and overreact and make the use of bitcoins increasingly annoying / illegal and even shut the whole thing down through prohibition if they think they have to. Hell, FDR confiscated all the gold in the country via a simple executive order. Here's the thing. Every country is vulnerable to this phenomenon, so the usual alliances are likely to work together to try and stop it, probably collectively through their intelligence services and the FATF as well as through their own individual efforts. It will be very hard to find a forum or jurisdiction of convenience if all the rich countries decide to effectively ban virtual currencies.
Maybe North Korea keeps the network alive, the same way they fund themselves with cocounterfeit dollars.
I've heard that the BTC traffic thru Pyongyang is mostly associated with the Russians.
Tell me you're also rooting for Putin.
I can't think of anyone better to run Russia. Russia is also the key to a coalition containment of China, so making friends is a good idea.
Good luck with that. If Putin has half a brain he won't cross China.
I agree with Luttwak in "The rise of China vs. the Logic of Strategy" (review soon) and think a concerted effort to try and contain China is inevitable. If push comes to shove with regards to choking off imports of commodities, Russia's participation is indispensable. The 20's will be an interesting decade.
China isn't invading Russia's neighborhood nor subverting their politics. They're not migrating to Siberia. Why would Russia make friends with the Cathedral to cross a good customer?
Exactly. That's the whole problem for the Anti-China Coalition (ACC). That's why Russia is the pivot point. Both China and the ACC will be trying to sway Russia to their side. Russia then has a good strategic position to play both sides off against each other, and you know they'll play that game well. And Russia is perfectly happy with a China that is strong economically. But the long run, Russia will probably not tolerate that economic strength translating into rapidly expanding massive military strength. Yes, they have nukes,but at some point even conventional strength (or anti-missile capabilities) can hit a comfort-level threshold.
If the West is trying to sway Russia to their side they're doing it wrong. China might be ripping off Russian weapons and cannibalizing their weapons exports, but I have a very hard time seeing China invading Siberia. But hey don't let me disturb your scaremonging to lobby bigger budgets for the military industrial complex.
Heh, I wish! A guy's gotta eat! But the days of bigger budgets for the US military are over. The force is shrinking quickly and kicking good people out the door. Gotta pay for Obamacare somehow! Maybe I can carve out a little anti-Bitcoin niche for myself and pay for the operation through asset seizures.
Fuck, that's evil. Get yourself a job advising the Japanese military on how to undermine the Chinese funded Okinawa independence movement. They'll write epic poems about you.