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By Astrohacker
Saturday, June 4, 2011
http://astrohacker.com/ahc/bitcoin-is-the-economic-singularity
Three weeks ago I discovered bitcoin. It sounded interesting enough that I decided to devote an entire Saturday to it—that was my “day of bitcoin.” My day of bitcoin evolved into my three weeks of bitcoin. In that time, I have been obsessively reading about it, writing about it, buying it, and creating businesses for it. As far as I can recall, I have never been so obsessed about anything. But the reason I am obsessed with bitcoin is simple: it is the most incredible thing to ever happen in the world. I am not exaggerating. We are presently witnessing the most disruptive change to ever happen to collective human behavior. Although there have been other disruptive changes to human behavior in the past, bitcoin is happening much faster than those. Consider, for instance, computing. Charles Babbage invented the mechanical Analytical Engine in the 1830s. It took on the order of a century or more before those seeds of an idea blossomed into something that actually started being used on a large scale. Or consider, say, the internet, which was invented in the 1960s, but took on the order of decades before it saturated the world. That was faster than computing, but still long compared to bitcoin. Bitcoin was only invented about 2.5 years ago. And already, I have been able to ask random people about it, and they know what I’m talking about. If the growth of bitcoin continues exponentially like most widely useful technologies, it will only be on the order of years—not centuries, not even decades, but individual years—before virtually everyone is using it.
The standard term for such a rapid change is a “singularity.” Robin Hanson predicted an economic singularity. Bitcoin, as I will argue, is that singularity. (Hat tip to noagendamarket on the bitcoin forum for reminding me of Robin Hanson’s article.)
What is bitcoin?
Bitcoin is the decentralized digital currency. I say “the,” rather than “a,” because there can only be one. Since decentralized digital currencies rely on computational power to ensure security, the currency with the most computational power is the most secure. If we ever found ourselves with more than one decentralized digital currency, which ever one had more computational resources devoted to it would be the most secure, and thus more people would trust it, and thus more people would use it, and thus it would come to dominate and be the only one. Bitcoin is that currency. (Previously, I argued that there could be a market of currencies. However, I now realize that, while there can be a market of currencies, there can’t be more than one decentralized digital currency.)
Why is it gaining traction?
Bitcoin is useful for all the same reasons that any currency is useful: it is a medium of exchange. The advantage of being decentralized is that you do not have to rely on a third party for security. Thus, bitcoin is more useful than digital dollars for the same reason that digital dollars are more useful than paper dollars, or paper dollars are more useful than gold: it is just easier to pay people with them. No banks means less headaches, in the same way that no gold means there is a lot less weight you have to lug around. Bitcoin is thus a better answer to a problem humanity has been slowly solving for millenia: how do we remove barriers to payment?
There are other advantages to bitcoin too, besides being more convenient. The fact that no central party party controls the supply means no central party can inflate it to redistribute wealth in their favor. No one can debase bitcoin to pay for a war. Also, since it is deflationary (in the sense that prices reliably go down), it encourages savings, because everyone gets richer that way.
Exponential growth
Certainly, then, bitcoin is a candidate for an economic singularity, because everyone has incentives to use it, and it makes the world a better place. That’s great in theory, but the reason why it cleary actually is a singularity is because its adoption is, in fact, growing exponentially. There are at least two exponential curves we can see. One is Google Trends, where bitcoin has crystal clear exponential growth. And another is its value in USD, where again the growth is clearly exponential. Although these quantities are not the same thing as adoption, they are probably proportional to adoption. 2.5 years ago, there was one user of bitcoin. We may estimate that there are somewhere between 104 and 105 users of bitcoin at present. Thus, in another 2.5 years, there will be somewhere between 108 and 1010 users. Since there aren’t even 1010 people on the planet, we may estimate that adoption will be ubiquitous in approximately three years.
Attack vectors
This incredibly rapid exponential growth is being powered by the fact that people around the world are quickly learning about it. Thus, the exponential growth can only last until it saturates the world, at which point it will continue growing only at the rate that humanity grows (which is also exponential, but much slower). At present, there is no reason to think the growth will stop before that. There are no credible attack vectors at all; not even government (the US government or any other) can stop it, because the economic incentives are too large. A War on Bitcoin would have exactly as much efficacy as the War on Drugs: none. Bitcoin is susceptible to DOS attacks, but that would only slow its growth, not stop it. The only credible threat to bitcoin is quantum computers, because bitcoin relies on classical, rather than quantum, cryptography. But that threat is many years away. Bitcoin will be ubiquitous by then.
What will happen?
Bitcoin will take over as the currency of the internet. It will also take over as a store of value; why earn a measly, less-than-inflation interest rate in a savings account when you can have steady appreciation of value if you just keep your money in bitcoin? People will spend less and save more because they know if only they do that, they will be richer in the future. Companies will no longer produce things of no value, because no one will buy them. The world will become more efficient, because there will be less waste. Everyone will realize how much they lose by spending money on valueless things. There will be a more equitable distribution of wealth, because no one can inflate (or, to use a less charitable term, counterfeit) bitcoin at their whim.
Bitcoin will also take over any fiat currencies that inflate too rapidly (think Zimbabwe, Argentina, or any other country that presently has or will have a rapidly inflating currency). Central banks will be under enormous pressure to stabalize their currencies or become obsolete. Many banks will collapse. Many fiat currencies will become worthless. Probably, all fiat currencies will become worthless eventually, because it is only a matter of time before the central banks fall into the temptation of inflating their currencies just a bit too fast.
How to proceed
Since bitcoin appreciates in value very rapidly during the singularity phase, you should convert all of your liquid assets to bitcoin as quickly as possible. Do not keep any cash, savings, or checking beyond what you need to pay for goods and services that cannot yet be paid for with bitcoin. The more things you can buy with bitcoin, the more bitcoin you should keep.
Stop wasting money on excessively expensive meals, televisions, cars, and anything else that loses value quickly or instantly. Instead, put your money into bitcoin. You will be much richer that way. You may think having less stuff is less fun, but actually the pleasure of financial freedom far, far outweighs any losses.
During the singularity phase, you should also take out loans to buy bitcoin, since bitcoin appreciates far more rapidly than interest on any fiat currency loan. When bitcoin gets near saturation, which is the end of the singularity, you should pay off the loans, because at that point the rate of appreciation will probably be a lot closer to the interest on the loans, and you may not be able to reliably earn money that way anymore.
You may also be tempted to convert other assets to bitcoin. If you are invested in anything that is likely to be bitcoin-unfriendly, like a bank, it would be wise to convert those assets into bitcoin. However, if you are invested in companies that actually produce value, those companies will thrive after the singularity, so it is not necessarily a good idea to convert those assets to bitcoin.
If you own assets where the ownership of those assets is certified by a country that is likely to collapse after the singularity, such as if you owned land in a country where the currency is rapidly inflating, you should consider converting those assets to bitcoin, or risk losing it when your country’s government collapses.
If you own a business, you should start accepting bitcoin as quickly as possible to maximize your ownership of the bitcoin economy. If you don’t own a business, consider starting a bitcoin business. See my previous post to learn more about bitcoin startups.
Conclusion
The economy is going to change very dramatically in a matter of three or so years. You are likely to be doing a significant amount, if not all, of your economic activity in bitcoin very soon. The change will be as dramatic as, say, computing or the internet, except that it will happen much faster. The change will be for the better, since it is more convenient to use bitcoin than fiat currencies for digital payments. Fiat currencies may stick around if they do not hyperinflate; they will probably still be useful for buying coffee. The most interesting change is that we will all become more motivated and productive, since we will see very clearly how our work ethic affects how rich we are. And the world as a whole will be significantly more efficient, since it will be extremely difficult to finance huge wastes of money, like wars.
Personally, I have invested most of my savings into bitcoin, and am in the process of figuring out precisely how much more it is wise to invest. I have not yet taken out any loans to buy bitcoin, because that decision is too hard to swallow (I may yet do it if I can stomach it—Falkvinge did.) I have also begun producing bitcoin businesses which I am hoping will support me after I graduate. (My bitcoin savings alone will actually probably be enough to support me, but I will be richer if I work too.) Most of the other ideas I had about what to do with my life after graduation have gone into the toilet—I will probably do something with bitcoin.
In the future, books that summarize the history of money will have a line that says, “and then came bitcoin.” It is the economic singularity. And we are living in it now.
Reprinted with permission. Donations to Astrohacker appreciated: 1CU8KRSTcrYKyjfeGRTjpJ1S57jViwqrnh
From EconomicsAndLiberty.com:
(This article is the third in a series on bitcoin. Read parts 1 and 2 here and here.)
With bitcoin gaining mainstream attention the coming attack on its users is inevitable. In this short piece I will explain how it is likely to unfold and how you can survive it.
First, a little background:
In 1996 E-gold was one of the early entrants to the market with a private, global e-currency. They achieved stellar growth and widespread attention – much like bitcoin today. Accolades came from freedom-lovers everywhere. They were the “Great Gold Hope” that would free the people by freeing the money. Privacy-enthusiasts, libertarians, gold-bugs, autarchists, anarchists, voluntaryists, drug-dealers, and even unsavory types flocked to it with praise and adoration.
Of course, the monopolists of the monetary system didn’t take lightly to this threat to their very existence. They came after the independent exchangers and e-gold with their full force and fury – eventually succeeding in convicting the key players for “conspiracy to operate an unlicensed money-transmitting business” and “conspiracy to engage in money laundering”. E-gold was fairly easy to take down because their operations and data-center were centralized and readily accessible.
Many folks who are now currently acting as currency exchangers for bitcoin will be the first to come under attack. Many will get hurt and possibly even imprisoned but, because of its decentralized nature, bitcoin will survive where e-gold did not.
If any of the large exchangers like mtgox.com are operating out of the US then it won’t be long before they are raided and shut down. Individual exchangers will be targeted as well – just to make an example and to scare others out of the community. This will create a giant “wet blanket” on the current enthusiasm for bitcoin and I expect the currency to take a major drop in exchange value when this happens. Not to fear though. Bitcoin will survive due to its decentralized “peer to peer” nature and it will continue to operate as an “alter-cash” resuming its growth albeit at a slower rate during the immediate aftermath.
To protect yourself I recommend the following:
You probably have a little more time before the attacks come (maybe a couple of months?) to acquire bitcoin with cash – and there are profits in speculation to be made until then but, when the raids come, expect a sharp correction before exchange values move on to new highs over a longer period of time. What you do not want to do is be involved as an “exchange service” conducting exchanges in and out of national currencies and you definitely do not want to have your money sitting in the exchanger’s account when they are raided and shut down.
Remember, e-gold was shut down for “conspiracy to operate an unlicensed money transmitting business”. Do not store any money in online accounts like mybitcoin.com in case they get taken down along with the exchangers. Keep all of your bitcoins on your computer with multiple, encrypted back-ups both on the cloud and on an external thumb drive.
The safest way to acquire bitcoin is to let people know that you will accept it as payment for your products and services. Do not ever exchange it for national currencies. The point that people miss here is that national currencies are the very problem that freedom-lovers are trying to get away from. Instead, use bitcoin to trade with merchants and individuals who accept it as payment. Offer it as payment to those who are unaware of it and explain the benefits to them. This will help develop the market and create a solid economy outside of national currencies. After the initial attack, bitcoin will likely be one of the most powerful and revolutionary tools to bring about more freedom and liberty to humankind.
(Source: The Freedom School)
The Real Problem With Digital Currencies and Privacy
The readily observable problems with digital currencies is that they have two major weak links. The first is the exchangers who convert cash to e-currency and e-currency back to cash again. “Authorities” target these exchangers and the system fails (see the story of e-gold.com). If the “authorities” do not shut them down they then regulate them and privacy is eliminated (see goldmoney.com).
The second major weak link is that the e-currency must be defensible and the asset that backs the e-currency must be verifiable. Systems like Pecunix are excellent but if they were to achieve a meaningful size they (and the businesses that store their gold for them) would come under attack by world powers. These power-hungry “rulers” would attack anyone who threatens their control of the monetary system.
The real problem is the widespread lack of understanding of property rights and individual liberty. It is the pagan faith and belief in “external authority” as described by Rose Wilder Lane in her book The Discovery of Freedom. What is needed is a powerful network of individuals who respect property rights and are willing to defend them. This “territory” is where the asset that backs the e-currency would be stored and defended. The individuals of this territory would reject and repel attempts to violate these property rights. The “territory” need not be centralized if it can be defended. E-currencies like Bitcoin have attempted to address these issues but they still face many challenges.
The ultimate territory is in the individual minds and actions of the masses who have learned, understand, and appreciate what property rights and liberty are all about. An excellent source for this knowledge is The Freedom School (http://www.freedomschool.org). The ultimate state of individual awareness is described as “autarchy” or “self-rule” (see http://centerforselfrule.org specifically the essay A Way To Be Free).
One man alone cannot defend his property but when he and his neighbors have matured to the point where they understand, respect and appreciate property rights; and when they can outnumber the plunderers, they can then repel the attacks of the aggressors.
The answer is Autarchy.
