"Bitcoin & Cryptocurrencies"

 Yesterday Punxsutawney Phil saw his shadow, which foretells six more weeks of winter. Now I recognize that “global warming” has morphed into “climate change,” an expression with which everyone can agree. Over the billions of years of Earth’s existence, the climate has changed from extreme heat to extreme cold. And there is little doubt it will continue to do so. Years ago, an expression in New Hampshire was: “If you don’t like the weather, wait five minutes.” Even as a youth I recognized the use of hyperbole. Regardless – and perhaps this is age speaking – I do hope the Pennsylvania groundhog is wrong. It seems to me that, while we have not had much snow in Connecticut, the temperatures have been colder than recent years. As the poet Richard St. Clair wrote”

 

“Every season has its beauty, true – 

Yet greening trees my favorite are to view.”

 

Well, it’s February and we are a couple of months from the first buds appearing, so you will have to make do with this essay on Bitcoins.

 

Sydney M. Williams

www.swtotd.blogspot.com

 

Thought of the Day

“Bitcoin & Cryptocurrencies”

February 3, 2025

 

“Bitcoin is a technological tour de force.”

                                                                                                Bill Gates (1955-)

                                                                                                Co-founder Microsoft

 

“You can’t value Bitcoin because it is not a value producing asset.”

                                                                                                Warren Buffet (1930-), in a 2018 CNBC interview

                                                                                                Founder and CEO, Berkshire Hathaway

 

Wisdom is typically attributed to the elderly, but one of our grandsons, a graduate student in modern European history, recently texted me with wise words: “It’s good to not agree with a President on all things.” He was responding to a text in which I had stated some misgivings about a few decisions made by President Trump during his first days in office, including his enthusiasm for cryptocurrencies, as seen in his promotion of two meme-coins, $TRUMP and $MELANIA issued a few days before his inauguration.

 

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It is my understanding that the argument for cryptocurrencies, and particularly Bitcoin, is based on a preference for a decentralized monetary system. The concern, which even Bitcoin skeptics like me share, is that countries with fiat currencies, and the U.S. with the world’s reserve currency, have rising and unsustainable government spending, which central banks have accommodated with artificially low interest rates. The subsequent debt has led to inflationary pressures. Debt is limiting options for governments, including needed defense spending. Because of its size and interest costs, national debt may become unserviceable. Bitcoin’s attraction includes the claim that the total number of coins issued will be limited. 

 

I don’t pretend to have special knowledge about cryptocurrencies. But this is what I understand about Bitcoins: The maximum total supply of Bitcoin is supposed to be 21 million, a number it is never expected to reach. As of December 22, 2024, according to Investopedia.com, 19.9 million Bitcoins had been mined. At $100,000 per Bitcoin, the total value of all Bitcoins is $1.99 trillion, or almost 7% of U.S. GDP. The smallest unit of measurement in the Bitcoin network is the Satoshi, which equals 0.00000001 Bitcoins. That would suggest that, at a price of $100,000 per Bitcoin, it would take, if my math is correct, approximately 1,000 Satoshis to equal one U.S. Dollar. 

 

Despite my limited technological expertise, I appreciate the development of blockchain technology, which has allowed Bitcoin to prosper. Blockchain technology, as I understand it, allows for a decentralized, tamper-proof, transparent system to record transactions. Buyers and sellers can maintain separate ledgers, but, with the approval of both parties, their ledgers are updated automatically and simultaneously.

 

But will (or even, can) Bitcoin substitute for a currency like the Dollar? First, what is money? Money is a medium of exchange, which people accept for the payment of goods and services, as well as for the re-payment of loans. In order to qualify, it must be stable relative to values placed on goods and services and the expectations of creditors. People would not be happy if the price of a movie ticket, a subway token, or a half-gallon of milk changed daily by five or ten percent.  Money is critical, as economies rely on it to facilitate transactions and to power economic growth. Given its volatility, would Bitcoin qualify as a currency? With its questionable origins and volatility, I suspect no, at least not at present. It is not a commodity, as it has no inherent economic value like a bushel of soybeans, a barrel of oil, or an ingot of gold. Unlike a business, it generates no cash flow. It is “mined” at a predetermined rate, but it cannot be harvested or slaughtered. It is not an equity, which represents a share of a business, with the potential for dividends, nor is it a bond with a stream of interest payments. It is a speculation, not an investment.

 

In the fall of 2012 I attended a colloquium in Vienna hosted by the Liberty Fund of Indianapolis and the Hayek Institute of Vienna. Four years earlier a paper, authored by Satoshi Nakamoto (a pseudonymous individual or group whose identity has never been confirmed) and titled Bitcoin: A Peer to Peer Electronic Cash System, was posted to a cryptography mailing list. One of the attendees attempted to explain the reasoning behind Bitcoins, which were then selling for $7,000. Most of what she said was over my head, and I came away as ignorant as I had arrived. Today, part of me feels like the billionaire investor and philanthropist Stanley Druckenmiller who in October 2023 said: “I don’t own any Bitcoin… but I should.” On the other hand, I agree with Mr. Buffet, who once called it a “mirage.” 

 

Who is right, Bill Gates, Warren Buffett, or Cathy Wood who has predicted another ten-fold increase in the price over the next five years? All three are smarter and wealthier than I am. While the current monetary system has served us well, concerns are understandable, especially regarding years of deficit spending and the blossoming of debt to untenable levels. Politicians, in a desire to please constituents, and central bankers willing to accommodate their every whim, have placed us in an indefensible position. My preference would be for Congress and the President to address the difficult concerns regarding how much welfare can a society afford before destroying the economy. In an unstable world where defense spending must be increased, governments must study “untouchable programs,’ like transfer payments, entitlements, and what the threats from aging and shrinking populations (without immigration) mean for the future.

 

My concerns over Bitcoin are not solely its absence of cash flow or its lack of an underlying asset, it has also to do with the mystery surrounding its founder(s). Who or what is Satoshi Nakamoto? How do we really know that the stated limit on Bitcoin production will hold? The future is never clear, and from my limited knowledge, a fascination with Bitcoins should cause people to read (or re-read) Charles MacKay’s 1841 classic, Extraordinary Popular Delusions and the Madness of Crowds, in which he writes of “Tulipmania,” the South Sea Bubble, of witches, crusades, and prophecies of the end of the world. “Men,” Mr. MacKay wrote in the preface, “it has been well said, think in herds; it will be seen they go mad in herds, while they only recover their senses slowly, one by one.” Any asset that attracts more than two trillion dollars needs investigation. I find it wrong that the President is promoting his own meme cryptocurrencies, while overseeing what may be a speculative craze. Is it herd mentality that is driving the rush to cryptocurrencies? I don’t know, but I advise caution.

 

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I support most of Mr. Trump’s agenda, and I am happy he is President; but the Country does not need obstreperous, ideological advocates who blindly support their side. We need wisdom. We need those who think independently to reflect on events. The ability to think for one’s self is the purpose of education, to be skeptical, to avoid being indoctrinated, to maintain perspective. Divided into polar opposite factions, we have lost that ability. “You are either with us or against us,” said President George W. Bush in the fight against terrorism after 9/11. That attitude persists within the electorate; it is in Congress. Dishearteningly, it is in the media, podcasters and pundits. My grandson was right – we should feel free to disagree with those we support. If the consequence is government inefficiency, so be it. Freedom is worth that sacrifice.

"A Call for Freedom in Vienna"

Sydney M. Williams

swtotd.blogspot.com

Thought of the Day

“A Call for Freedom in Vienna”

April 13, 2019

“The streets of Vienna are paved with culture,

the streets of other cities with asphalt.”

                                                                                    Karl Kraus (1874-1936)

                                                                                    The Kraus Project: Essays by Karl Kraus

                                                                                    Edited by Jonathan Franzen, 2014

We were sixteen. We came from eight countries – Austria, Belgium, the Czech Republic, Guatemala, Poland, Spain, Switzerland and the United States. Our ages spanned forty-five years. We were men and women. What drew us to Vienna was a belief that free societies and free markets are inextricably entwined, and that the key to their success is the individual. The colloquium we were asked to participate in was at the invitation of the Austrian Economics Center in Vienna and the Liberty Fund of Indianapolis, Indiana.

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The Austrian Economic Center, a privately funded, politically independent research institute, is committed to disseminating the ideas of the Austrian School of Economics, which emphasizes the role of the individual and competition in the success of a free, prosperous and responsible state. The Liberty Fund is a privately funded educational foundation dedicated to the study of the ideal of a society of free and responsible individuals. Those sitting around the table at the Hayek Institute had spent their careers as entrepreneurs, foundation heads, academics and journalists. As a retired stock broker, who later in life took up an interest in politics, history and economics, I was an amateur in a sea of professionals.

In preparation for two days of round-table sessions, we read dozens of papers and books written by economists, politicians and historians, including Margaret Thatcher, Edward Gibbon, Adam Smith, Ludwig von Mises, Friedrich Hayek, Luca Einaudi and Alan Milward. We discussed the wealth of nations and questioned the material prosperity of the welfare state. We reviewed the economic origins of the European Community and the challenges it faces as it looks to its future. We talked about the difficulty the right has in disseminating their message, at a time when government has grown ever bigger, more intrusive and less accepting of new ideas – when dependency threatens the freedom that has allowed individuals, markets and societies to thrive.

While some at the table consider themselves libertarians, I dislike labels. Such words purport to be defining, but are, in fact, confining. Better to work with ideas and not feel that because one is a member of an organization, a tribe, or this political party or that, one must conform to what that group’s message may be. (One of us suggested that elections might turn out differently, if people voted on principles, on ideas, rather than for or against a specific party or individual.)

Speaking for myself (and using my definition of terms), I am conservative in my desire to preserve the government we have, one based on three separate, co-equal branches – a limited government that operates under the rule of law and that protects private property, our natural rights and those rights enumerated in our Bill of Rights. I am conservative in that I want to preserve those social institutions that underlie our values and are reflected in our culture and traditions, principles of universal truths that are critical to people living harmoniously, especially family and community civic organizations. I am conservative in that I believe in civility and respect. I believe in the Golden Rule. But I am progressive in that I would like to see us regain the liberty we have lost, to free ourselves from a dependency on government, to take more responsibility and to be accountable for our successes and failures. I am progressive in that I believe in competition, whether it be for goods and services or education, that the consumer benefits when many seek his or her commerce. I am progressive in that I believe innovation and progress stem from an individual’s willingness to take risk, and that he or she does so because of the potential for profit. I am liberal in that I believe individual freedom is the ultimate goal of men and women, especially to anyone who has felt the yoke of oppression. I believe that power concentrated in centralized government, no matter its claims to do good, risks rendering people dependent and, thus, less able to fend for themselves. I am liberal in that I believe colleges and universities, in denying a podium to those with whom they disagree, violate a right guaranteed by our Constitution.

I am realistic in that I recognize that politics is a blood sport, that elections are about power. To gain power, politicians on the left promise gifts of material goods and services, while those on the right promise abstractions, like liberty and freedom, and I know that the latter is a more difficult message in an age of entitlement. I am realistic in that I understand the difference between promises of equality of opportunity and promises of equality of outcomes – that the former is critical to fairness, while the latter is a dream that can never be. And I am realistic in that I know that democracy is under siege by those at home who believe that democratic socialism is a better system than democratic capitalism – that the physical well-being of the people is worth the price of freedoms lost. Also, I am realistic (and concerned) about Russia’s aggression, but I am especially worried about a rising, all-powerful China. In a battle for global dominance, the difference to the world between a democratic United States and an authoritarian China is stark and has real consequences for smaller (and larger) nations around the world. And, I am saddened by the fact that too few of our young study history. We cannot learn from a past with which we are unacquainted.  

I recognize that man is most free when he is left alone – the “noble savage” of Jean Jacques Rousseau. Except I know he is not. He must find water to drink, food to eat, shelter for protection and security from enemies. He is at risk of being robbed or killed by someone, or some group, stronger and more devious. As well, he is ignorant, as there is no one to instruct him. To live in society, to thrive economically, man must surrender some of his freedoms. However, at the other extreme, man is least free when he submits – willingly or unwillingly – to the care and protection to some government or person – a sovereign who, in exchange for obeisance, provides security.

So, it is balance for which we search when we make political choices – how much independence are we willing to give up for a comfortable dependency? Over the past eighty-five to ninety years, we in the United States have relentlessly and insidiously drifted away from independence and personal freedom. Many are happy with the direction we have been moving, but, like the lobster that is ducked into a pot of tepid water before the heat has been turned up, we may find ourselves trapped, like H.G. Wells’ Eloi, unable to extricate ourselves before the water begins to boil. Politicians who promise free healthcare, tuition-less colleges and a guaranteed basic income may be well-intentioned, but that doesn’t make them right. We all know that nothing is free, so we are told that dollar costs will be borne by the wealthy. What is left unsaid is that costs are also measured in freedoms lost, and those costs cannot be passed onto another. Increased dependency means less independence. How valuable is your freedom and independence? No two people will answer that question the same. What is important is to understand that freedom is not free, that dependency has a cost that cannot be measured in dollars, euros, rubles or yuan. 

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In our elevation of the individual, we reject the movement, common among those on the left (especially in academia), that Western society should tilt toward “social justice.” “Social justice” is based on the Marxist precept that the world is divided into oppressors and victims. That vision of a singular moralistic world view is what the ancient Hebrew tribes practiced and what caused the Catholic Church of the Middle Ages to condemn non-believers to Hell and damnation. It was the attitude of New England Puritans who punished women as witches. It was that same divisive, intolerant view of mankind that had the Nazis see the world in terms of either pure or inferior races. And, we see it today in the Islamic view that one is either a follower of Allah or an infidel. These were some of the issues we discussed and debated, based on our readings and our life experiences. We spent a total of nine hours in formal discussions and talked informally over two lunches and three dinners that went late. We were fortunate to be in Vienna, a city that produced two of the most prominent economists of the Twentieth Century, whose works are still read by those who appreciate the connection of free markets to political liberty: Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992).

Why do institutes like the Liberty Fund and the Austrian Economic Center take the time, make the effort and spend the money to conduct these sessions for those who are already believers? Why do participants travel so far to be with like-minded people? The answers have to do with the passion we feel for the cause of freedom – to be re-assured and to be re-invigorated. Every thinking person has moments of doubt. When one spends his days combatting a political and cultural tide that has moved inexorably toward centralization, and away from the shores of individual freedom, it is easy to become wearied. We who speak and write on these subjects need to be re-charged. For we are proselytizers for a cause that says the greatest gift man has ever been given are his natural rights of life, liberty and the pursuit of happiness.

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Vienna is ancient and beautiful, with the Danube running through it. It is filled with unique and attractive buildings; some, like St. Stephens, date back almost 1000 years. It is a city of surprises. It is claimed that one can walk underground from the banks of the Danube to the Vienna State Opera on the Ringstrasse. First known as Vindona, Vienna was where, in 180AD, the Roman Emperor Marcus Aurelius died. Seven hundred years later, in a clash with Bavaria in 881, the name Vienna first appeared. As Jim McKay would have said, it is a city that has“known the thrill of victory and the agony of defeat.”Throughout the centuries, the City has been besieged and occupied by the Hungarians, the Ottomans, the French and the Germans. It was from Vienna that the Hapsburg family controlled the Hapsburg, Austrian and Austro-Hungarian Empires for over four hundred years. Vienna is rich in culture, especially music. Mozart, Beethoven and Haydn all lived here. It is where the psychoanalyst Sigmund Freud first used dialogue to help treat mental illnesses. For over four hundred years, the Spanish Riding School has had skilled equestrians riding white Lipizzaner stallions in the Imperial Hofburg – the once winter home of the Hapsburg family. Today, Vienna is vibrant, with cafes and coffee houses lining tourist-filled sidewalks and streets restricted to pedestrians. Yet a dark cloud of anti-Semitism has periodically visited the City. Jews were expelled in 1421, and their rights were restricted in 1637. However, by late 19^thCentury many had returned, and Vienna became one of the most prominent centers of Jewish culture in Europe. But it didn’t last. In 1938, Austria was annexed by Hitler’s Nazis, in what became known as the Anschluss (a joining). The Jewish people fled, were killed or were sent to concentration camps. Their absence is still felt. In 1923, Jews represented 11% of the city’s population, today about 0.5 percent. Anti-Semitism has not died.

Despite that blemish, Vienna is a beautiful city. I was honored to have been invited to attend what was a fascinating and informative round-table discussion and, in doing so, to make good friends.