An on-line buddy of mine, John A. Hardy, shared this article on Medium with me today, and it is a truly fascinating read. One of the Bitcoin software developers and spokes-people, Mike Hearn, has turned his back on the Bitcoin community. This is a strong sign that the Bitcoin social experiment is truly at an end, concluding in failure.
I have tried arguing with Bitcoin proponents over the Internet, but I always ended up arguing with a script. You see they had constructed a wiki full of clever-sounding rebuttals to common criticisms of the system. So as soon as I commented, someone would reply with a link to a page in their wiki, as if to say, "Nope, you're ignorant and this link proves you wrong. Why don't you educate yourself before making outrageous claims about a system you hardly understand." This is hardly surprising as most Bitcoin fans are Ayn Rand-loving college kids from wealthy families who believe that they know a lot about computers and who believe that libertarianism and trickle-down economics actually works.
The party is over. Money is only as good as the people who believe it has value. There are a few hard-core believers, mostly those aforementioned libertarian ideologues who have no understanding how reality works.
There was a wave of hype around Bitcoin round about the year 2011-2012, and it went viral (and that's when I first heard about it). Going viral makes the value of the currency spike upwards. At that time, millions upon millions of people had at least a mild interest in it and were willing to give it a try, myself included.
But that wave of hype has died and all that's left are the hard-core libertarians ideologues. Unfortunately for them, this means their beloved money is now becoming more and more worthless. People who sold and got out early got rich, everyone else is left with worthless ones and zeros. At least with paper money you can use it to wipe your ass, Bitcoin can't even do that.
In short, it was a textbook case of a Ponzi scheme.
I have to say, it is a fascinating algorithm. The biggest problem is that cheating is prevented by making the cost of computing the algorithm more expensive than the cost of cheating, which makes it necessarily a tremendous waste of electricity and computing resources. This alone made it very problematic.
Another technical problem was that the block chain was getting to be too big, dozens of gigabytes. Everyone needs to have a copy of the entire block in order to be able to use the algorithm and participate. Although there are ways to solve the block chain size problem, and the problem of losing bitcoins due to accidentally deleting data (which is what happened in the Mt. Gox incident), or government seizure of disk drives (which is what happened with Silk Road).
I believe one proposal was to essentially flatten the old block chain, and then spin off an entirely new block chain (a new currency) that was initialized with the values of the flattened old block chain. It works sort of like splitting the value of the stock. So the old stocks become worthless, but investors receive a number of new stocks equivalent in value to the old stocks. This would lead to inflation, but at a reasonably low rate.
There were myriad other minor technical problems. I don't recall if there was ever a DDoS committed against the Bitcoin network, but that is also a problem that I don't think was ever addressed. There were clever ways for more powerful sub-networks to produce more than everyone else using a scheme called "dishonest mining," which was never addressed.
The biggest problem, the problem that killed Bitcoin, was that the software was too complicated. Only a few technocratic elites understood it well enough to control it. They paid lip service to it's open source nature; hypothetically anyone could implement their own Bitcoin software as long as it obeyed the network protocol, and the protocol was ostensibly democratic in nature. But in actual fact the protocol was decided entirely by the elite technocrats who were the maintainers of the reference implementation, and this gave them a total monopoly on the currency.
Even worse, good software has to be stupid-proof. Keeping things simple makes them stupid-proof. The cryptography involved in Bitcoin was anything but simple, and idiots who don't know how to keep their computers secure (i.e. everyone) had no good way to protect their Bitcoins from simple, old-fashioned hacks. Simple computer hacks work like picking people's pockets, except now any script-kiddie can run programs that pick pockets for them.
As most intelligent people know, few people are stupider than Ayn Rand-loving libertarian college kids from rich families who believe they know a lot about computers and that trickle-down economics actually works -- the very people who make up the vast majority of the hard-core Bitcoin user base.
So Bitcoin turned out to be yet another in a long list of libertarian social experiments that resulted in *total,* absolute failure.
Following is a quote from the article, and just for some context, the libertarian cult in the United States is powerfully influenced by the Republican Party propaganda machine, especially Fox News. For the past 10 years or so, they have been pushing propaganda that democracy is a bad thing, and that the United States was never a democracy but a republic -- even though the US is a democratic republic, but these people never bother with historical facts. So as a result of this propaganda, libertarian ideologues (especially from the US) hate democracy -- and it shows, by how thy maintain authoritarian control of their properties, like their web forums.
Quoting the article:
By running [the Bitcoin] XT [update], miners could cast a vote for changing [an important technical limitation]. Once 75% of blocks were voting for the change the rules would be adjusted and bigger blocks would be allowed.
The release of Bitcoin XT somehow pushed powerful emotional buttons in a small number of people. One of them was a guy who is the admin of the bitcoin.org website and top discussion forums. He had frequently allowed discussion of outright criminal activity on the forums he controlled, on the grounds of freedom of speech. But when XT launched, he made a surprising decision. XT, he claimed, did not represent the “developer consensus” and was therefore not really Bitcoin. Voting was an abomination, he said, because:"One of the great things about Bitcoin is its lack of democracy"
So he decided to do whatever it took to kill XT completely, starting with censorship of Bitcoin’s primary communication channels: any post that mentioned the words "Bitcoin XT" was erased from the discussion forums he controlled, XT could not be mentioned or linked to from anywhere on the official bitcoin.org website and, of course, anyone attempting to point users to other uncensored forums was also banned. Massive numbers of users were expelled from the forums and prevented from expressing their views.
As you can imagine, this enraged people. Read the comments on the announcement to get a feel for it. Eventually, some users found their way to a new uncensored forum. Reading it is a sad thing. Every day for months I have seen raging, angry posts railing against the censors, vowing that they will be defeated.
But the inability to get news about XT or the censorship itself through to users has some problematic effects. For the first time, investors have no obvious way to get a clear picture of what’s going on. Dissenting views are being systematically suppressed. Technical criticisms of what Bitcoin Core is doing are being banned, with misleading nonsense being peddled in its place. And it’s clear that many people who casually bought into Bitcoin during one of its hype cycles have no idea that the system is about to hit an artificial [software-controlled] limit.