SO JP Morgan’s CEO Jamie Dimon has told us he regards the cryptocurrency Bitcoin as a fraud, and that he will fire any of his employees who are caught trading in it.
In much the same way that turkeys would argue Christmas dinner is a terrible feast, Dimon is deriding what is actually a brilliant technological innovation that threatens to transform the banking sector for the benefit of consumers and society at large.
It could also help make the worlds of finance and public spending generally more honest and less corrupt.
But before we examine the virtues of Bitcoin – both the currency and the network that supports it – let us not forget that Dimon is well qualified to talk about fraud. While he is revered by a fawning mainstream media as one of the smart guys in the room, his bank is also one of the most criminal enterprises on the face of the planet and one of the most bailed out.
It has been hard to keep count of the felonies committed by ‘the Morgue’ over the years, but one can only imagine that if executives like Dimon (pictured) were properly punished for the offences their organisations committed – instead of being served meaningless, easy-to-pay fines – this guy would be on death row. However, there is little hope of ever seeing Jamie Dimon in an orange jumpsuit, or for that matter any of the CEOs of our endemically criminal and parasitic too-big-to-fail banks, since white-collar crime within them is now routinely ignored by weak and corrupted regulators and politicians for fear of sparking another global financial crisis.
The rule of law no longer applies to these people, but it seems the universe is serving up its own kind of justice courtesy of Bitcoin, a cryptographic currency invented in 2009 by the pseudonymous Satoshi Nakamoto.
For Bitcoin – or more accurately the blockchain invention that supports it – today puts the bankers and their 20th-century profit model exactly where the newspaper industry found itself once the internet was rolled out. They are already dead men walking, since with the blockchain and a mobile phone you can be your own bank account and send a transaction all the way across the world in a matter of seconds for the cost of just pennies, in some cases for free, without needing to use the banks at all.
To quote Dimon when he spoke about Bitcoin back in 2014, it really does threaten to “eat his lunch”.
Bitcoin doesn’t do bailouts
The power of Bitcoin is actually far greater than that, as this form of currency has properties that make it superior to our existing means of transacting.
There is a finite, limited number of 21 million Bitcoins, of which around 16 million are currently in circulation with the rest yet to be ‘mined’. Control of the system is also intended to be decentralised, in the hands of many participants rather than in the hands of the few who have become accustomed to running the show – people who are privileged, but who often show themselves to be lacking in both integrity and talent.
So, unlike our paper currency, which is serially abused by governments and central banks who can produce it at will to save the least deserving in society from bankruptcy – such as Dimon’s JP Morgan – Bitcoin cannot be used for bank bailouts.
Bitcoin’s blockchain – the distributed ledger that records every transaction that has ever taken place in Bitcoin – is designed to be immutable and visible to see by all. Forever.
So the blockchain could be used to force the banking sector to become more transparent, and stop those within it skimming and scamming from the clients they serve in the financial markets.
This technology is also potentially empowering for taxpayers since in theory public sector spending could be put on to a blockchain as well, helping to eradicate malfeasance while forcing private sector firms bidding for public sector contracts to be more open about their charges, costs and profits.
Under the current monetary system, the pieces of paper and computer digits we use to transact are mostly brought into being as debt when banks make loans, creating new money out of thin air in the process. Yes, the banks are given a licence to do this, so this fraudulent act is not a criminal one, but the process of allowing banks to create currency from nothing and then charge interest to borrow it does conflict with the fundamental legal concept of consideration, is utterly immoral and turns the monetary system into a destructive Ponzi scheme.
Bitcoin, however, is a currency that has been spawned through the use of energy and computational work. In much the same way as gold needs to be dug from the ground and minted into a coin, the limited number of Bitcoins in existence must be mined by computers performing mathematical tasks in order to be found.
Crucially, Bitcoin is not created as a debt to the banking sector, and this experiment in debt-free money creation has already sparked off a revolution in financial technology that would not otherwise be taking place, with many early innovators in Bitcoin using the gains they made from mining to invest in numerous entrepreneurial endeavours elsewhere in the fintech sector.
Throughout thousands of years of history our rulers and governments have shown themselves to be dismal stewards of any monetary system, consistently debasing currencies to the point of worthlessness.
But Bitcoin can also protect the individual from both the stupidity and tyranny of such authority, by virtue of its portability. All anybody needs is a wallet address and the private keys to it and they do not need permission to take their Bitcoins with them when they leave the country or if they want to send their Bitcoins to someone in another nation.
So if you are Venezuelan and you want to escape currency controls designed by your government to steal your wealth, you can. And if you want to get around what you regard as illegitimate sanctions that have been placed by your government unfairly upon another nation, you can do that too.
Bitcoin has thrown a grenade at the very heart of the idea that money should be controlled centrally by a handful of individuals in banks and governments, and justifiably threatens to take away that power from them.
In short, it’s a huge middle finger to the establishment’s mismanagement and abuse of the financial system. Bitcoin makes banks and, arguably, even governments redundant when it comes to what we call money, since we no longer need them in order to have a currency for transacting.
Reasons to be careful
And here is where one should sound a note of caution, since Bitcoin’s success at challenging the status quo will inevitably lead to a fightback by those who want to maintain control for themselves.
In addition to all manner of propaganda about how Bitcoin is the currency of extortionists, hackers, terrorists and drug dealers, we can expect a concerted attempt to regulate cryptocurrencies and control them as governments and bankers belatedly wake up to the existential threat posed by them.
One can have little doubt that bankers and politicians will try everything they can to co-opt blockchain technology for themselves, with centralised blockchains and full control over them. Bankers will want to keep the cost savings, without passing them on, while governments will want to use the power of the blockchain to monitor every transaction every person makes – and in the process perhaps fulfil the worst kind of Orwellian vision for society’s inhabitants, in which the desire for any kind of financial privacy by the individual is regarded as some kind of offence by the Big Brother state.
While one might hope the momentum behind this new technology is now unstoppable by governments, we cannot yet be certain that decentralised cryptocurrencies will not eventually be legislated out of existence altogether. China is one example of a nation that is currently doing its best to stop its citizens fleeing from their fiat currency into a tide of crypto alternatives.
Assuming cryptocurrencies do survive and thrive, there is also no guarantee that Bitcoin will remain the top dog either. While it has a major advantage as the first mover in the space and an incredible global network of miners supporting the system, it is slower and more expensive than scores of its competitors, of which there are already more than 1,000 to choose from. Defenders of Bitcoin, however, argue their network has simply been a victim of its own success, with too many people wanting to use it, and that scaling issues will be overcome over time.
There are also critics from the sound-money community who insist that Bitcoin can never be regarded as real money since it is not physically tangible in the same way as gold and silver, which have been money for 5000 years.
Cryptocurrency advocates are quick to point out the electricity and equipment costs of mining are today more than $1,000 per Bitcoin – compared to the cost of zero to create billions of dollars or pounds or euros at a keystroke – and they argue it does represent a store of value in the same way that an ounce of gold stores the energy and machinery costs of getting it out of the ground.
At this point environmentalists would chime in with concerns about the incredible energy consumption of the Bitcoin network, which apparently by 2020 can be expected to use as much electricity as the state of Denmark. Crypto protagonists counter with the fact there are more eco-friendly alternatives to the proof-of-work algorithms used by Bitcoin and others. Energy-efficient proof-of-stake algorithms can, they say, be used instead to make cryptocurrencies viable in an energy-constrained world.
Even if the electricity requirements of more than 1,000 competing cryptocurrencies can be overcome, perhaps the most valid and convincing criticism from sound-money advocates is that while the number of Bitcoins may be finite in supply, the number of cryptocurrencies that can be created is not.
Like the paper money we can print to infinity today, there is no limit to the number of blockchains that can be created out of the ether.
Sound-money people argue the creation of each new blockchain backed by nothing tangible serves merely to dilute the value of Bitcoin as a transaction network. Quite reasonably, they expect the vast majority of cryptocurrencies to fail and denounce the sector as being in a bubble that will end badly and hurt lots of investors. It is hard to disagree with this assessment.
Perhaps the logical outcome of this dilemma will be a smaller number of cryptocurrencies that marry the game-changing functionality of the blockchain with the tangibility of gold and silver. Although, having said that, it is hard to see how any currency that requires the vaulting of precious metals to back it can also be properly decentralised.
Long live the blockchain
All of that said, the blockchain behind Bitcoin is arguably the most important technological innovation since the advent of the internet. Satoshi Nakamoto, whoever he or she is, seems certainly more deserving of a Nobel prize in economics than some of the previous recipients.
Whether Bitcoin ends up being worth $500,000 per coin, as the internet security expert John McAfee believes, or $0, as sound money advocates such as Peter Schiff and Alasdair Macleod would wager, is anyone’s guess. Either could happen, but it is arguable it does not matter which of those eventualities transpires. Ultimately the blockchain genie is now out of the bottle and it represents an unstoppable demand for more honesty and integrity in a financial system that has been so comprehensively gamed by a few at the expense of society at large.
The fight now is to make sure the blockchain works for the good of all and is not corrupted or neutered by the crooks in finance and the idiots in government.
Currency requires trust. When it comes to the currency we use today, bankers and governments have lost our trust and there is nothing they can do to get it back.
If people choose to give Bitcoin value, then it can serve as money. Until the immutable number of Bitcoins is changed from 21 million, until the cryptographic code that protects Bitcoin’s architecture is breached and until the internet is ever turned off worldwide or global governments unite to outlaw it, trust in Bitcoin can be maintained.
To that extent Bitcoin, which Dimon tried to argue was “not a real thing”, is actually a far more real and honest form of currency than the cash in our pockets.
Compared to the Federal Reserve and its dollar, the Bank of England and its pound, the European Central Bank and its euro and the People’s Bank of China and its renminbi – all of which can be manufactured indiscriminately to reward failure among society’s elite – the Bitcoin network and its currency are anything but a fraud.
Bitcoin is actually a fraud killer. And you can be sure Jamie Dimon and all his pals in high finance understand that full well.