Bitcoin and the Blockchain
by John Lawrence, April 2, 2018
One of my favorite shows on RT is the Kaiser report, mainly because Kaiser is such a nut and Stacy Herbert is so cute. They are big proponents of Bitcoin. It took me a long time to figure out what Bitcoin is all about. Supposedly, it is an alternate form of currency that has some specific properties. I must say right off the bat that I'm not a big fan, and I'll tell you why in this report.
The blockchain is a computer program that traces every bitcoin throughout its whole life. Every transaction is recorded and it's possible to go back through the blockchain and see every transaction that every bitcoin has ever been involved in. So what? Is that really necessary in order to have a viable alternative currency? Every bitcoin user has a wallet that's encrypted so nobody but you can get at your money. If you lose your key, however, you've lost your money because only you possess this private key. Anyone can deposit money in your wallet, but only you can take it out. That's where the term "cryptocurrency" comes from.
Kaiser makes a big deal about how the dollar is a fiat currency, but bitcoin is not. Since the dollar is not backed up by gold or another precious metal that is "mined," the dollar is just as good as the American government says it is and people believe it to be. That's the meaning of fiat. Now bitcoin is supposedly not a fiat currency because bitcoins are "mined" through some computer algorithm that makes it difficult to get at them. Really? Not fiat because they are "mined"? That seems to me like a lot of hogwash. Then I've read that they are also given as rewards to computer programmers who "verify" the transactions. These guys are volunteers. Really? A financial system run by volunteers?
Bitcoin transactions are favored by criminals laundering money and more white collar types trying to escape paying taxes because supposedly the government has no way of finding out what's going on with buying and selling. But the government would have as much access to the blockchain as anyone else so those that think that the government has no way of monitoring these transactions have another think coming. Just because bitcoin transactions are not routed through a bank does not mean that they can't be monitored, taxed and traced by government.
So how does bitcoin differ from Paypal or M-Pesa, the Kenyan mobile phone based money transfer and microfinancing service? Or how does it differ from a simple debit card? The answer you mostly get is that bitcoin is a store of value just like the dollar and it's not a fiat currency. It's a store of value only because a number of people have invested in it and driven up the price of a bitcoin just like a stock. Its value can rise and fall just like a stock. You need an exchange to convert bitcoins to dollars just like with a stock. Paypal and M-Pesa are financial services based on the local currency. But although the transactions are digital as are most banking transactions these days, they are easily convertible to the local currency.
One of the advantages in bypassing banks when doing financial transactions is getting away from the finance charges that banks impose on every financial transaction. This could be accomplished, however, by means of a public bank that imposed more moderate charges or no charges at all for certain transactions. Certainly it would be more convenient if financial transactions could be accomplished using a mobile phone. There are some proprietary platforms for this today such as Apple Pay. Apple Pay is similar to M-Pesa. Of course Apple takes a cut of every financial transaction, and the technology is similar to a credit card.
I would like to see a public bank like the Bank of North Dakota develop a digital technology that could be used for financial transactions bypassing the traditional banks and their credit cards which still charge exorbitant interest rates while the banks themselves pay no interest on savings accounts and get their money for free by means of quantitative easing from the Fed.
