By Izzy Otomakan
I recognize the irony that barely a few months after I shared The Power of Money: A Case for Bitcoin I am now releasing this piece - critical of Bitcoin . I wrote TPOM largely because I was fed up with people and institutions claiming Bitcoin was a fraud, ponzi scheme or bubble. It is none of those things. It is however, in a critical respect, over.
Bitcoin has been beaten.
We don’t need to wait any longer for further evidence of this fact.There is sufficient evidence now. At this point, what we see playing out is largely pantomime - as governors of the status quo introduce more mechanisms to increasingly neuter Bitcoin and enforce control over it – whether the general public is aware of it or not. Bitcoin has been compromised as the standard bearer for cryptocurrencies, and the wound is mortal.
I recognize this may sound outlandish, so please allow me to explain.
No matter what anyone may try to convince you of, the single most historic purpose of blockchain hasn’t to do with smart-contracts or disruption of the wire-transfer industry. Those are elements of secondary importance at best – and in proportional value to the larger purpose, pale by comparison. The historic purpose of Bitcoin is that it strives to be the highest quality money, and as such enables modern society to peacefully and effectively throw off the shackles of a corrupted system of unsound money that poisons everything it touches.
I spent time in The Power of Money discussing the 3 elements that are required for something to be successfully used as money. These may have been familiar to many already exposed to modern academia’s core economics curriculum. But this is where I went wrong. There are other rules necessary for ‘sound money’ besides those three. Thankfully, it wasn’t long before I was informed of my oversight by several in the Monero community. I had missed a critical element that contributes to something’s ‘moneyness’ and this makes all the difference. Whether it was intuition, luck, serendipity or some combination that I included an addendum which discussed a cryptocurrency which contains this feature I don’t know – I’m just glad that I mentioned it.
This 4th attribute of sound money is fungibility, and is an aspect that while subtle enough to escape notice (as it did with me), is also critical to determining whether a money is ‘sound’ or not. The repercussions for money not being fungible are significant, despite potentially being delayed for a time. But first, a definition:
Fungibility is a feature of money which declares that any transactional unit of the money is entirely indistinguishable from any other transactional unit of the money.
This has never really been a problem when using physical things like gold as money. After all, gold can always be melted down, and carries no recoverable history in itself to tell you where it’s been or who has held it.
But what if I could tell you with 100% certainty that a particular gold piece was kept by Napoleon Bonaparte as a good luck charm? That gold piece would surely be worth far more than the ‘average other’ gold piece that had no such impressive history. In a similar vein, what if I told you that another particular gold piece was used to launder drug money across the U.S.-Mexican border? Once the novelty of its association wore off, you might realize that because that gold was used in committing a crime, government officials could seize it at any time. You might in this case value it lower than an otherwise unburdened gold piece.
What these two examples show is that if a unit of money has an identifiable history associated with it, it can be 'different' from other units that don't share that history. As such, different units of a single money type may have significantly
In order for money to achieve and maintain fungibility, it must maintain its anonymity.
And this is where Bitcoin’s flaw presents itself.
But that has changed.
There already exists technology to ‘decipher’ the public blockchain – and it’s getting more accurate with each passing day. For those at the helms of government (and money) institutions, they sit in a sea of associative information. Everything from names/addresses of Coinbase users to geolocation’s of those same people’s whereabouts (by tracking cellphones) to voice and facial recognition algorithms - all ensure that the ability to attach names and details to most Bitcoin transactions (or similar-types of blockchain) are but a matter of time. All it takes is one vulnerability in the information chain for someone’s digital identity to be compromised, opening up entire financial (blockchain) histories to be deciphered.
I’m guessing not very excited by the prospect.
Now what if I told you that in addition to your name, it was also your home and email addresses?
A little weirder, right?
Although it’s not advertised, to those with the proper technology– this is basically what can happen when transacting in Bitcoin. Do not be lulled into a state of false security by the fact that these abilities to ‘decipher the blockchain’ haven’t been made widely known. It takes only a little bit of research to realize that the identity security of Bitcoin (the ‘anonymity by obscurity’ feature) has been compromised.
For those who would seek to undermine cryptocurrency as an alternative to Fiat, it is not in their best interests to announce to the world that they have ‘cracked the code’. Did the British announce to the Germans in WWII that they had solved the mystery of the ENIGMA encryption machine? Of course not. In fact, they hoped that the Germans would continue using the ENIGMA machine, as so long as this was the case the British could maintain a strategic advantage.
Currently, there are a handful of coins that claim to be private or anonymous. There are also functions like coin-mixers that serve as anonymizing services. Do not be fooled into complacency with these – they all have limitations, and this essentially comes down to a critical difference between Monero and these other coins.
Either of these is all that is needed to destroy a money’s fungibility. For instance, if you send your Bitcoin to a ‘mixer’, either the mixer itself could be compromised (in which case the coin’s history is recovered) or at the very least the coins you get out are easily identifiable as having gone through a mixer (and you the owner – and the new coins themselves - are identified as having used a mixer). It would take only the stroke of a pen to institute a ‘tax’ on any business that accepts coins that have passed through mixers at any point in their history. Given the nature of Bitcoin’s blockchain, this would be relatively easily enforced, and isn’t even the nastiest version of how this could play out badly for users.
Monero though, is different. In Monero, each coin transaction is born anonymous – never even existing anywhere in the system as anything else. If you want to make your transaction public, you can – but you need to take steps to make this happen. No other coin exists with this functionality, and it all stems from a brilliant methodology called ‘ring-signatures’ (which I won’t go into here). While other coins are attempting to copy Monero in this regard, they cannot help but fall short, as this is built into the core Monero architecture.
I don’t expect Bitcoin to stop going up in price anytime soon – and I’m quite OK with that. Bitcoin is currently the standard-bearer for Cryptos, and is probably the coin that most ‘newbies’ will first buy while they are learning about crypto. As a Monero investor, I’m happy for people to invest in Bitcoin, as I know that sooner or later, the money they invest in Bitcoin will come to Monero. The reason for this is simple:
Anyone who thinks that law enforcement, tax authorities, and the full apparatus of the state has ‘given up’ on Bitcoin is kidding themselves. We know as a matter of fact that state sponsored agencies are tracking virtually every aspect of our modern life, and that they increasingly have the means to track Bitcoin transactions at their disposal.
I don’t know what form ‘the audits’ will take – but when they begin, and people realize that their Bitcoin transactions make them vulnerable to any number of problems, people will transfer – potentially en masse – to the coin with the undeniably best form of anonymity, and hence, fungibility (e.g., Monero).
What are some of the possible types of ‘audit’ that may come? I’ll suggest just two to give you an idea (in addition to my earlier comment suggesting a ‘tax’ on coins that have passed through mixers). There are, no doubt, many more possibilities which would at the least cause a headache for holders, and at worst – significant losses.
There is of course, the simple tax audit. As most of the tax rules surrounding Crypto have yet to be written, and considering that it is in government’s interest to maintain a tight grip of control (not to mention get a piece of the now nearly $200 billion pie) we may expect simple tax audits – especially for those with large value balances. These audits may range from casual to predatory. While I do not advocate for tax avoidance in any way, it would be unrealistic to not expect people to do everything they can to avoid paying taxes (never mind if they perceive the tax-process as in any way troublesome, unfair or harassing).
So back to the header of this section – what it means for Bitcoin’s price: whether it happens slowly or ‘all at once’, when people begin realizing that holding a money that doesn’t have fungibility exposes them to all sorts of risks, they will sell their Bitcoin (and ETH, etc.) and swap into a coin that provides these features: Monero. As such, while at the time of this writing Monero is only about 1/50th the market value of Bitcoin, I personally forecast it to reach a 1/10th level of value in the next 6-18 months. This means that even if Bitcoin stays the same in value, Monero will rise 5 times. If Bitcoin doubles, Monero will go up 10 times.
While there are other benefits to Monero, I will not address them here with the exception of one - as it relates to the need for privacy (away from criminal use cases) and so supports the adoption case quite strongly. Bitcoin, and any non-private coin, will be increasingly troublesome to adopt for businesses. After all – do you as a business owner want everyone in the world to be able to see how much money you have and when/where you move it? In Bitcoin, if anyone has your wallet address (say from doing a small transaction with you), they can see exactly how much money you have in total – never mind track the money from that point on. While there are many complicated hoops you might ‘jump through’ to avoid this situation as a business owner, you could do just one – adopt Monero – and rest easy.
Secondly, if you haven't yet done so, I highly encourage you to read The Power of Money: A Case for Bitcoin . While I will make an edit at the beginning to note that this piece (on Monero) is effectively the successor coin, all the arguments made about Bitcoin can (and should) be extended to Monero.
Finally, as always, constructive feedback is welcome. As I think I've made abundantly clear via my about-faces in Ripple and now Bitcoin, I am not shy about admitting I am wrong. If I have erred in any part of this analysis, I genuinely appreciate being corrected along with an explanation. It was just such a correction to TPOM that facilitated my understanding of fungibility and Monero.
Monero sati ci <3
"Monero Loves you" In Esperanto the language of the world
The name of Esperanto derives from Doktoro Esperanto (Esperanto translates as "one who hopes"), the pseudonym under which Zamenhof published Unua Libro.
Zamenhof had three goals, as he wrote in Unua Libro:
"To render the study of the language so easy as to make its acquisition mere play to the learner."
"To enable the learner to make direct use of his knowledge with persons of any nationality, whether the language be universally accepted or not; in other words, the language is to be directly a means of international communication."
"To find some means of overcoming the natural indifference of mankind, and disposing them, in the quickest manner possible, and en masse, to learn and use the proposed language as a living one, and not only in last extremities, and with the key at hand."