The Unintentional Consequences of a Bitcoin World

I’m a firm believer that Bitcoin is a revolutionary financial technology that in time will change humanity as much as the printing press, electricity, or the internet. This article was an exercise for me to take the other side and argue the counterpoints of what this invention could mean for how money works and the role it has alongside a sovereign government. -Howard Minor

The Unintentional Consequences of a Bitcoin World

“The Big Short” is a fantastic documentary film about the unfolding of events surrounding the financial crash of 2008.  Most of us in this space are very familiar with the essence of that movie since it illustrates some of the most fundamental reasons about why Bitcoin exists.  The massive over leveraging and abuse of the mortgage backed securities market led to the imminent collapse of the entire financial world.  But there is an opening quote in that movie that cleverly points out the dangers of what most of the banking industry was experiencing at the time:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”  -Mark Twain

One of the main themes of that movie is exposing how it was apparent that all the bank executives, politicians, and “experts” in the financial world missed something so obvious and dangerous.  They were so absolute in their convictions and greed that any argument made against their position was laughed at and ignored.  

I can’t help but wonder if the same hidden trap holds true for the proponents of Bitcoin.  We are absolutely in awe of this blockchain technology with very good reason.  We’re drunk on the prospects of finally upending the government monopoly of the financial monetary system.  And our focus is completely fixated on unlocking new human wealth and potential like we’ve never seen before.  Even the best philosophers in the business present very compelling arguments about what our utopian world will be like under a Bitcoin standard.  

But the possible consequences and drawbacks of unleashing this technology onto the world MUST be considered and discussed.  At the very least we need to explore the downsides and risks and be careful not to fall into the exact same trap that our financial adversaries did in 2008.

A good place to start this journey is to briefly revisit the symbiotic relationship between the individual and the state.  As humans collaborate and naturally grow their tribes, most societies inevitably believe that some sort of government is necessary to avoid pure anarchy and chaos.  Do you truly want to live under a society of street gangs and drug cartels?  Is it not better to be civilized?  Even businesses, sports organizations, and rotary clubs naturally develop moderate forms of government with rules and guidelines to simply operate better.

A great analogy for us to imagine is a football game with no rules.  No referee, sidelines ignored, fights, chaos.  Horrible, no fun, and even dangerous.  So we have to acknowledge that rules are not always a bad thing.  They allow us to operate freely and safely so we can enjoy playing the game.  In a way, the referee in our football match functions as the role of a government.  

So whether we want to or not, we are inevitably forced as humans to choose some sort of government to live with.  Even the U.S. founding fathers understood this reality as they were given the unique opportunity of a blank slate to create whatever system they wanted.  They wisely decided on a hybrid model which attempted to pull together the best of both worlds.  The ultimate balance between private individual rights equally balanced with some form of government responsibilities.  They identified certain necessary functions that are needed for a successful society that private individuals could simply not provide themselves.

Preamble to the constitution:

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Therefore it was generally concluded to assign these basic core responsibilities to a well functioning civilized government:  

In order to accomplish these functions, the government must inherently engage in certain actions that are against the best interest of a private individual.  Examples:

This symbiotic relationship creates a delicately balanced system of checks and balances that is continually being tested by both forces.  Sometimes we may hate the referee, but we need him!

It’s also a good exercise to remind ourselves of some possible examples of when a government has taken certain actions in an attempt to serve the population and greater good.  We often forget what our lives would be like without some of these initiatives:

OSHA:  Companies hate complying to the bane of fines and lawsuits.  But how many lives and limbs have been saved by enforcing basic safety regulations?  Overall good or bad?

Traffic Laws:  I personally don’t think it’s a good idea for drunk drivers to be on the road.  And I love the ability to drive peacefully to the supermarket without having to worry about some anarchist who believes his individual liberties are being threatened by stop lights.

Highway speed limits:  I love to go fast but I know it’s not good for me.  This is a great example because there are several aspects and activities in my life where I simply don’t trust myself.  In cases like this, I actually WANT an authority to keep me accountable from doing something stupid and hurting myself or others.

FAA and airline operations:  Airplane safety and air traffic control is simply much safer and efficient when it is controlled and organized by a unified authority.  Flying in an airplane is dangerous enough.  But the entire system functions better with universal cooperation and enforced maintenance standards.

Building codes:  How much property and how many lives have been saved by making sure common elements like building materials, sprinkler systems, and fire escapes are installed and functioning properly.  Yes, they are expensive and a headache.  But the fear of having a building collapse while you’re standing in it becomes abstracted away to the point you don’t even have to think about it.

Education:  It’s not realistic or possible for every child to be homeschooled.  It’s more efficient to have educational services be organized and coordinated by a central authority.  Citizens need to be educated so they can work, contribute, be productive, and add value to the community.  An uneducated population exacerbates poverty!

Of course no government program is perfect and they all certainly have their flaws.  And most of them have organically grown in size beyond any logical reason.  But an argument has to be made that initiatives like these generally help society more than they hurt.  

Another helpful exercise to gain some perspective is to engage in a simple thought experiment by placing yourself as the creator of a small tribe or country.  It’s important for this exercise to now imagine yourself being responsible for a population. You have the opportunity and authority to create whatever government structure you want with whatever rules you seem fit.  (Or maybe you respect total individual liberties and decide to have no government at all!)

And now we play the game:

Hopefully it’s immediately apparent why those core government responsibilities become necessary.  And the basic reality is that providing those services is UNBELIEVABLY difficult.  It’s so difficult that essentially no government has proven they can do it perfectly or even effectively for very long.  Governments collapse and fail all the time either through human corruption, limited resources, wars, or extenuating circumstances.  In most cases, it is literally a situation of life and death as proven throughout human history.  Even in modern times, we see governments struggling with these core problems all over the world.

It also doesn’t help that governments are made of humans.  Much like our referee, they can make mistakes, take bribes, and make poor decisions.  But that doesn’t change the argument that we at least need the concept of a government so we can play the game.  

The reality that we’re dealing with today is the problems that governments are responsible to deal with are getting exponentially much more difficult to solve:

So as much as we hate tools like monetary inflation, KYC/AML (Know Your Customer / Anti Money Laundering) laws, taxes, and the police, it’s critically important to understand why they exist.  From the perspective of a government, it absolutely needs those tools to accomplish their core mandates for the survival of the country and for the betterment of the people.  Remember, the government has also been assigned the daunting task of providing security and safety from bad actors both foreign and domestic.  

Does the government push too far in its tools and methods to accomplish its core goals?  Absolutely.

Is the government entity simply trying to perform its function?  Yes.

Does the government inherently have a constant desire to expand itself to better accomplish its goals?  Yes.

Enter Bitcoin.

Now the entire game has changed and we essentially just snatched away the referee’s whistle.  The scale has now drastically tipped in favor of the private individual.  As much as us private citizens may grovel about the struggle with our government, we have concluded that it needs to exist and do an important job.  So it’s important to take time to consider how it will continue to function and provide those essential services in this new landscape with an uncensorable, limited, fixed monetary policy.  

Let’s take a look at some specific areas where the existence of Bitcoin will have a direct impact on how a government is required to function: 

Sanctions:

Wikipedia Definition:  International sanctions are political and economic decisions that are part of diplomatic efforts by countries, multilateral or regional organizations against states or organizations either to protect national security interests, or to protect international law, and defend against threats to international peace and security. 

In Bitcoin land, we celebrate the ability to securely transact and transmit value across the world without any restraint or intervention.  We now must extend that ability to nation states with psychotic irrational warlord leaders.  Regardless of whether they are effective, warranted, or not.  Sanctions serve an important purpose and exist as one of the key tools that a government can use to keep the peace in the face of serious international threats.  Can that tool be abused?  Yes, easily.  Is that tool at all helpful in attempting to keep international peace?  Overall, I would say yes.

KYC/AML (Know Your Customer / Anti Money Laundering Laws):

It’s commonly agreed that most crimes are prevented and solved by ‘following the money’.  As much as we hate the inconvenience and intrusion on personal privacy by banks and an overreaching government, we have to respect the reasons why these laws exist.  Personally, I don’t like crime.  It makes me nervous and I wish to live in a community where I’m not likely to get robbed or cheated everywhere I go.  Is it a good idea to allow suicide bombers and radical terrorist groups to raise money via GoFundMe?  That’s essentially what this blockchain technology allows.  In regards to KYC/AML, it’s very natural for a government to expand itself and abuse these tools to better fulfill its responsibility.  And it’s important for us to push back against these laws to protect our individual privacy.  But the key question to ask is:  Are we better off as a society with or without them?

Natural Disasters:

Not expected.  Not planned for.  They suck.  They happen.  The cost of recovery and repairs fall way beyond the ability of community donations or good will.  A government currently has the ability to print money and provide emergency humanitarian relief in times of unexpected catastrophe.  If Bitcoin indeed becomes the global standard and only store of value, where does that emergency financing come from?  We point to the reckless money printing machine which leads to problems like inflation and corporate corruption.  But we have to acknowledge that there are very legitimate and humanitarian reasons why it exists.

War:

“War is upon you whether you risk it or not.” – Aragorn: The Lord Of The Rings

In a Bitcoin standard future, are we assuming that all nations will suddenly become benevolent and peaceful?   Wars are awful and unbelievably horrible.  But unfortunately they are inevitable and absolutely necessary to prepare for.  Again, are we to rely on taxes and public donations of Bitcoin to fund a national defense?  What if it’s not enough?  

People usually point to the size of the U.S. military in disgust.  Arguably with good reason.  We have the luxury of our wonderful dollar money printer that currently provides the world with enormous military security.  We do this so other countries don’t have to.  

We are now a generation away from WW2 so people tend to forget the magnitude of what’s actually at stake here.  It is unbelievably imperative that we avoid another global confrontation at all costs.  Bitcoin of course has a fixed supply and would put constraints on the limits of all spending both public and private.

If pushing a money printing button prevents or simply delays another world war.  What would you do?   Personally, I would mash that button.  

Unemployment and Public Assistance

It is simply not profitable for a private company to take care of non-productive people.  The free market and essence of capitalism simply doesn’t allow for it.  There are a whole host of legitimate reasons why many people can’t or are unable to work and care for themselves.  Therefore, providing basic needs for this demographic is an essential service that the government is mandated to provide.  This is another example of where resources must be allocated to keep the peace and to promote the general welfare of fellow humans.  An unbelievably complicated and expensive task.  Committing to a fixed monetary policy may put constraints on the ability for a community to provide for the poor and those who simply can’t provide for themselves.

Capitalism

The general belief in the Bitcoin community is that with a fixed and limited monetary supply, the wealth gap will begin to close.   The elite at the top won’t have as much of an advantage under a new fixed monetary system.  They of course make laws that benefit their interests and do whatever they can to rig the system so they keep their wealth and stay on top.  I mean why wouldn’t they?  Under a Bitcoin standard, what exactly again would cause that to change???   

It’s true that if the rich end up hoarding Bitcoin, that reduces the supply even further making the sats you own more valuable, increasing your wealth.  With Bitcoin scarcity, their corporate greed actually now helps you.  But that still doesn’t stop companies from raising prices to maximize profit to get more of your coin.  Commerce is still needed and those same motivations will exist no matter what the monetary base is.

There is a real possibility that if the government loses the ability to subsidize income and provide basic needs at the lowest levels, the problems of the poor could actually get worse.

Privacy

There continues to be a huge push in the space to make Bitcoin transactions more private and untraceable.  From an individual’s perspective, that sounds wonderful and fantastic.  But from a government perspective, that makes its job unbelievably more difficult for many of the reasons stated above.  It may sound like a great feature on the surface.  But I don’t think people take enough time to think about the broader implications of what pure privacy of a global currency would allow for the world.  It’s one of those things that we need to be VERY careful about what we wish for.  What’s good for Bitcoin may not necessarily be good for our society.

The Unknown

This is actually what scares me the most.  It’s the dark demons we don’t yet know about and simply can’t anticipate.  Bitcoin is notorious for doing the unexpected.  It’s a technology that doesn’t care what we do with it.  It’s naive to think that Bitcoin will solve all our problems and produce nothing but glorious citadels and Lamborghinis.  Nothing like this has ever existed before and we honestly have no idea what this will do to the essence of human civilization.  We can be positive and hopeful all we want.  But history shows us time and time again that humans have a way of doing irrational, dangerous, and horrible things.  Of the many things Bitcoin can and will do, it will never change human nature.  Bitcoin doesn’t fix this.  If it’s possible for Bitcoin to be utilized for pain and destruction, it will be.  

Evil will always exist.  But we shouldn’t make it easy to happen.

In conclusion, it’s very tempting for us to celebrate Bitcoin as the savior of the individual that will make us all rich.  Finally free us from financial government oppression and tyrannical rule!  And that very well may be the case in many parts of the world.  Bitcoin should of course be celebrated as a tool for financial freedom and would immediately help the victims of corrupt governments and predatory banking practices.

But the core services and responsibilities we need an organized government to supply become WAY more difficult to provide without the ability to print their own currency, provide security, and create emergency resources.  

It’s very naïve to think that Bitcoin won’t come with its own dark surprises for the future of humanity.