MBMG Flash - Even Bitterer coins & unstable coins
More about crypto
What’s happening with cryptos?#2
Thank you to everyone who responded to last week’s MBMG Flash about the all too predictable happenings in the nefarious world of crypto.[1]
We’ve been overwhelmed this year by responses to three of our articles in particular, last week’s crypto flash, April’s note on why American policymakers seem determined to harm the US economy[2] and the January Insight about the risks of escalation in Ukraine. [3]
We believe that a common thread here is that these are all topics where we wanted to improve our own understanding and then share what we learned with our clients, readers, and subscribers. In a similar vein, we’ll be sending a note next week to explain why gold is glistening more than it is right now when many market participants seem to think that the backdrop of a rapid increase in inflation and geopolitical unrest should be supportive for the shiny metal.
Today though, we’d like to answer three of the most frequently asked questions that we received about last week’s crypto flash. We also received questions about stable coins, alt coins and Non-Fungible Tokens (NFTs), which we’ll revisit in a future flash, although we’d like to tackle the gold issue first as well as our core mission of making sense of a financial world that all too often defies logic.
Q. Thanks for the note about putting the crypt in crypto. That helps to explain a lot about the mania in trading crypto, but forgive me this basic question, but I still don’t really understand what Bitcoin is - what is it?
A. This is a great question - last week’s flash went into a fair bit of detail about what Bitcoin (or BTC as it is typically abbreviated) isn’t but didn’t really say what it is.
We believe that a lot of the confusion stems from the multiple perspectives from which Bitcoin is seen. On a commercial level, Bitcoin is nothing. It has no utility - i.e., it doesn’t actually do anything. On a technical level, Bitcoin is essentially a piece of computer code, in the same way that this flash note, sent as an email, is made up of lines of computer coding (depending on your device and email programme, you may be able to click on ‘Properties’ and see what protocols enable you to read this message and the code that constitutes it). The best analogy that we can give is that Bitcoin is a video game (but without the usual graphics that make video games so compelling). It is most akin to playing online multiplayer ‘Battleship’.
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In Battleship, players ‘fire’ at where they guess their opponents have their ships, on a grid made up of co-ordinates, where each player places his navy, hidden from his opponent. The game Battleship dates back to at least World War I, possibly earlier, during the time when the British, French, German, Russian, US and Japanese navies in particular were vying for supremacy of the seas to sustain their ambitions of imperial expansion. It is said to have been popular with naval officers of the Russian Empire (which may explain a great deal about their defeat to the Japanese navy in 1905) and apparently remains popular with the US navy today.
A Battleship tournament aboard a U.S. Navy vessel
Games manufacturers developed various evolutions of the game, initially consisting of pre-printed paper grids, before a game featuring plastic ships on pegboards - like the one shown in the picture below -was introduced in the 1960s and an electronic version, complete with sound effects in 1977, followed a couple of years later with a computer game version, for the Z80 console.
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In the crypto version, there are 21 million Bitcoins hidden around a huge grid and because there is no real skill involved in finding them, the quickest way to unearth them is to focus huge computing power on basically identifying and guessing the co-ordinates of each square on the grid. If that equates to the presence of a coin, then you basically win one Bitcoin. In this sense, Bitcoin are most like the digital trophies or awards that video game players win, usually at the successful completion of one level of a game. The major difference is that those tokens are usually only sold to other afficionados of the same game (someone who has been trying to ‘crack’ a particularly difficult level of a video game for months without success, might be willing to buy a token or code from someone who has already achieved that, in order to move to the next level of the game). Videogames exploit psychological traits in order to generate an almost cultish addiction or relationship between the player and the game and videogame addiction is an increasing concern, leading to dictates from the Chinese authorities, limiting game screen access for Chinese adolescents.
In the crypto version, the grafting of the kind of capital market processes discussed in last week’s flash has taken the interest in tokens beyond the actual gamers (in the crypto world, the players refer to themselves as miners, and their high-powered computer processors as mining rigs, implying that ‘unearthing’ codes from the hidden grid is analogous to extracting valuable minerals hidden under the earth. We find this insulting to those who have genuinely laboured or continue to labour in dangerous or unpleasant conditions in the mining industry.
In short, Bitcoin are pieces of digital code, that have no purpose, which are generated from a giant multiplayer online game.
Q. Who developed Bitcoin?
A. Bitcoin proponents (known as coiners) favour a mythical origin involving a legendary Japanese visionary called Satoshi Nakamoto. It has been pointed out that the characters that make up Nakamoto Satoshi 平仮名 片仮名 漢字 actually spell out the words Central Intelligence. [4] It’s also been pointed out that hash code for Bitcoin was developed by the US Government’s national Security Agency (NSA). [5]
So, the only thing that we know for certain is that Bitcoin is based on US Government developed programming. That and the fact that an Australian called Craig Wright currently claims to be Satoshi, as several others have done in the past (students of history might be reminded of the pretenders to the English throne or the spate of false Dmitrys in Russia, claiming the Russian crown).[6]
Q. What’s the blockchain and what does that have to do with this?
The blockchain is technically a distributed ledger technology. What this really means is a shared file. We’d compare this to whenever you share a document online, using Windows or Google Documents or some other sharing protocol. Just like document sharing, ledgers shared on the Blockchain have usage rules and rights that are set by the initiator (i.e., who can see them, who can edit them etc). The Blockchain’s greatest utility is in creating a unitary method for sharing something as huge as the Bitcoin ‘file’, making that universally accessible and ensuring that a permanent, and in this case generally immutable record of Bitcoin and every interaction with the file is stored in perpetuity, without anyone actually owning the file itself. It was put on the Blockchain and it, along with the records of everything that has been done on it (including all the ‘mining’) are there for anyone to see. Users who enter the Bitcoin Blockchain don’t have to verify their ID and therefore, this lack of verification purportedly gives the Bitcoin Blockchain the ’anonymity’ that is so important to its adherents. Of course, it also means that when Bitcoin tries to intersect with the physical world, the identities of the holders of the code that represents each Bitcoin are also anonymous, which is why Bitcoin has long been associated with the dark web of organised crime, people trafficking, arms dealing and money laundering.
Conclusion
Bitcoin is a line of digital computer code, generated from an activity analogous to powerful computer processors playing Battleship against each other. This uses extreme amounts of energy to produce game tokens that as yet have no known use or utility.
Bitcoin uses the SH-0, SH-1 and SHA-256 Secure Hash Algorithms developed by the US security agencies but has adopted the origin story of a mysterious Japanese hermit, whose name characters in Japanese can be re-arranged to form the words ‘Central Intelligence’.
The Blockchain is an online sharing protocol that has some attractions but at this stage is generally less useful in the vast majority of situations than Windows One Drive or Google Drive.
[1] https://mbmg.substack.com/p/bittercoin-putting-the-crypt-in-crypto?s=w
2] https://mbmg.substack.com/p/irritable-powell-syndrome
[3] https://mbmg.substack.com/p/existential-risk-why-we-all-need
[4] https://boomfinanceandeconomics.wordpress.com/2021/04/24/bitcoin-heading-south-us-bank-loans-moribund-socialism-for-the-rich-covid-update-dr-harvey-risch-yale-university-professor-of-epidemiology-another-agenda-that-is-not-apparent/
[5] https://adamtooze.substack.com/p/chartbook-newsletter-83-crypto-and
[6] https://www.footnotinghistory.com/home/lambert-simnel-and-perkin-warbeck-pretenders-to-the-throne and https://www.britannica.com/topic/False-Dmitry