Phoebus Cassandra (OP)
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March 09, 2013, 10:09:45 AM
Last edit: March 13, 2013, 06:25:22 AM by Phoebus Cassandra |
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So I guess this is where I can start my time at the famous Bitcointalk forum. I hope everybody can see this post and read through it. Anyway, hello to everyone. This is Phoebe. Some of you might know me from reading my blog "Analysis of Bitcoin and the Atlas Project". It was a reflection of my entire time as a civil consultant at the US Joint Warfare Analysis Center (JWAC) for the Financial Warfare Program. DOD (Department of Defense) initiated this program to educate the military officers about this new kind of warfare fought without missiles and how it may pose an imminent yet virtually invisible threat to the National Security. Homeland, NSA, and CIA joined later for counter-terrorism practice. Treasury and Federal Reserve cited financial security and economy stability as a reason to dip their fingers in as well, although they hardly ever contributed to any project except for the separate chapter upon Digital Currencies, i.e. Bitcoin. (Odd isn't it? You'll see why later.) Bitcoin was generally considered a potential threat since for obvious reasons - terrorists can transfer funds with BTC across borders under no supervision, and there's nothing US can do to uncover it, let alone stop it. But after some time participating this program and seeing what they are actually doing, I fear the real purpose is not as simple. They didn't intend to destroy Bitcoin for merely safeguarding the country against some exaggerated terrorist threats that's not happening at all (the current scale of Bitcoin is by far not enough to move the funds needed for a terrorist attack), but to decapitate the entire ideology of developing a P2P currency, stopping not just Bitcoin but also any potential successors. In other words, it's not the anonymity of Bitcoin they're really concerned about, but the decentralization. They are concerned about what changes (or devastation shall I say) Bitcoin, a currency out of their control and have no inflation, will bring to the treacherous, hardly honest currency and economy system they enforced upon the public to serve their interests of invisible exploitation. Super-inflation may be catastrophic for the public, but definitely not so for the government and bankers. Just watch what happened in Germany after WWII. When people are forced to give up their fiat money and properties fleeing from a country plagued by inflation, "only a few dollars can make you live like king" - people will sell their valuables at an astoundingly low price, even stuff that is normally cherished and otherwise unavailable, just to get a little money to get them out of there. This process is called "fleecing the flock", which is an intentionally designed process manipulating the economy to crash so as to purchase assets at a much lower price after a man-made recession, stealing all the hard-earned savings from the public. They can only do so with the power of issuing currency and creating inflation in their hands, and the emergence of Bitcoin is a direct threat to that. That's why the Treasury and Fed Reserve are particularly interested in this.
I felt obliged to warn the good innovative enterprising people of the BTC Community about their intention and planning after seeing what I saw. The entire program in Bitcoin is never as simple as it seemed, and a plan on uprooting Bitcoin and any other digital currency has been brewing. It is called the "Atlas Project". Bitcoin is far from a perfect system, but as a precursor of the idea, it is doing a great job. It may have been related to online drug trafficking and money laundering, but as the hope of a new era without inflation and such exploitation, Bitcoin is worth saving and needs to survive to serve as an inspiration. That's why I wrote "Analysis of Bitcoin and the Atlas Project". I elaborated upon the macro effect of Bitcoin, picked some of the excerpts from JWAC reports, and adapted them into an article in plain English. That blog is removed now due to censorship. I didn't have a backup, which is a shame, but fortunately, one of the readers and a friend of mine "Bulldogge" saved a copy, re-adapted it, and sent the first part to me. The second part about Atlas Project is much complicated and the major reason it triggered censorship, so there might need to be some more work done before it can be posted. Bulldogge insisted that I should post this in my name, but I have to acknowledge his efforts. Without him, this article will be gone forever. I think it is a good time to post this again after the recent price fluctuation. Maybe it will provide some thoughts and inspirations.
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Analysis Of Bitcoin And The Atlas Project in Plain English
Note to readers: The basic principals and theories of Bitcoin is very well-explained elsewhere on the Internet already, and I assume all readers of this article hold such knowledge. This article is NOT about the technology of Bitcoins whatsoever. It is purely about the economical and political effects of BTC. The author, Phoebus Cassandra, once served as a consultant for the US Joint Warfare Analysis Center (JWAC) upon Financial Warfare Research. Her real identity is unknown. These passage were taken from an article for public audience originally posted in her blog which is now censored. I made some adaptation to make things easier to understand (and may cause some inconsistency in literature which I have to apologize for). I basically swapped some elusive terms and edited out some part requiring extensive knowledge of economy. Due to the controversial nature of the material, I tried to present it in a most neutral way possible. But I feel obliged to convey the urgence of the matter so forgive me if it's not appropriate in some part. Anyways, everybody just try to take in some knowledge from this. If you don't like it, just take it as an FYI. The government mentioned in this article is basically US government, but it can also be a reference to any other government. Judging from how US enforces their way around the globe to protect their interests, it is reasonable that the actions of US government against Bitcoin will be mirrored globally. Thus, for all intents and purposes, the governments in this article are mentioned regardless of nation. - Bulldogge
BACKGROUND KNOWLEDGE ON ECONOMICS
Bitcoin is a decentralized digital currency that allows anonymous payments to be made online. It is a currency that goes around just like USD, GBP, EUR, etc. and can be changed into those through multiple means. The one thing that sets it apart from others is its total anonymity. This is where the value of Bitcoin lies. No other currencies or payment methods can offer the same kind of traceless, totally anonymous, regardless-of-border funds transfer as Bitcoin. It is virtually immune to investigation as long as the user has some basic sense of internet security.
Since Bitcoin is a currency first and foremost, we have understand currency first to understand Bitcoin. In the early ages before currency was invented, people trade in a method called "bartering" - they swap one product they have for another product they want. This method is not efficient since often times, the seller of the stuff you want doesn't want the stuff you have to offer. So in order to solve that problem, they used certain goods that everybody wants as a medium so that when the seller doesn't want your stuff, you can offer him that medium instead. This medium evolved into very different forms and became what we call currency today, but deep down it is just some goods that everybody wants. And since all currencies are goods originally, it may have an internal value in itself as goods (like gold or silver coins), or just a token as currency (like paper money only accepted because it is wanted and comes with a promise to be accepted for its face value when spent). And that is the essence of currency - desirability, or as economists call it, confidence (in that the currency holds value). Without it, fiat money worth no more than a pile of very nicely painted paper. Usually, the government uses law to ensure that it is accepted everywhere within the border of its sovereign - in some ways, we are forced to accept fiat money by the law. (Sometimes these laws go so far as US prohibits any transaction settled in anything other than USD just so as to ensure the maximization of USD use and desirability, not to mention all international oil trade is settled in USD as well. More USD use around the world will raise the demand for USD, increasing its economical value, and granting US certain political influence and control at the same time.) But under certain circumstances, law still can't prevent the loss of confidence as what happened to UK in 1992 and Thailand in 1997 when George Soros hit. As for Bitcoin, there is no government or law behind it, and the only thing backing it up is the confidence of the entire Bitcoin community without the enforcement of law. This is a very big amount of trust since the value of Bitcoin is not guaranteed by any authority (which sometimes matters a lot more than you might think despite all the unruliness), and is not even tangible like paper money - it's just bits and bytes of random data. The value Bitcoin holds in itself is even less than paper money and the promise of its value is not even backed up by any concrete physical organization. In some disturbing ways, BTC is not that different from those ugly funny fiat money, if not even worse, only that it has a cap of total quantity eliminating inflation, which, as I'll show a little later, doesn't guarantee any value anyway. (I know that there are reasons for people to believe otherwise, which I don't deny at all, but we still have to see that this is a huge weakness in BTC objectively there.) I'm not saying that Bitcoin doesn't have any value. It does for its function as an advanced and anonymous payment method. But that is not due to its status as a currency but to its function as a piece of tech, as goods, just like anonymous banking and other financial services of such. And as such a little perk is valuable only when BTC is circulated around like a currency because if it's not circulating, it can't fulfill the purpose of moving money around anonymously and thus totally worthless. (In fact, anything that doesn't buy and sell in market, however significant it is, doesn't have a price at all. Like air, which is essential - you trying living 10 minutes without it - but doesn't worth a penny since it is not bought and sold in market.)
Now we've analyzed the value of Bitcoin as currency and as financial service, let's look at its price. (Note that value and price are two different things. Value is based upon the usage and function of the goods and is an internal characteristic unaffected by market, while price is how much people pay for it and entirely decided by market, or specifically, Supply & Demand as in a free market. As Warren Buffett puts it, "Price is what you pay. Value is what you get." All prices will reach their true value someday. The way guaranteed to make money is to buy in at a price lower than the value.) If you know a little bit about economy, you would have heard that price of any goods is determined in free market by Supply & Demand (S&D). Currency, as a form of goods, follow this rule just as well. In real life, supply of currency is controlled by the government or (privately-owned) central banks issuing paper money, and demand is based on the confidence people have in this currency. And since the confidence in a currency decides its value, which in turn effects people's confidence in it, the price, confidence, value, and demand of any currency, including Bitcoin, is intricately related. When the price is going up, confidence boosts, value increases, attracting more demand, and price goes up as long as the supply doesn't screw it up. This is an upward viral and vice versa. As for Bitcoin, there is a little difference from just about any currency - paper money worth little as goods and thus its price/value/supply/demand is merely as a currency; but for Bitcoin, it acts as an anonymous payment method, a security measure/financial service apart from being a currency so its p/v/s/d is two-fold, one as goods and one as currency. The value of Bitcoin as goods has been fully discussed already, and the supply is the same both as goods and as currency. The demand, however, is different in the two scenarios. The demands for BTC as a currency is little, since people don't need much in another (unfamiliar) currency - people could well use fiat money for now. The significant portion of the BTC demand lies in the demand of it as goods, the demand for the anonymity it provides. That being said, BTC demand is largely based upon how many people needs to make secret payments i.e. SilkRoad Black Market, etc. (No discussion of legal problems intended here. I know this may sound uncomfortable to BTC fervents, but if you think about it objectively and practically, you'll have to agree. There's really no point in using Bitcoin if the payment is entirely legal and can be done fair and square through PayPal. The ONLY perk BTC has to offer is secrecy for the shady stuff, and that's what makes it special. It says a thing or two when the average John and Jane always associate Bitcoin with drugs when they hear about it. After all, not everyone is interested in the ideals. They want practical benefits, and secrecy is what they're after.) When you look at SilkRoad, you found that the absolute number of Bitcoins in there is not necessarily overwhelming compared to the overall number of BTC out there, which means that the REAL need for Bitcoins is not as large as it appears. Many people are lured in by the constantly increasing price seeing it as an investment and will run away like rats in a sinking ship as soon as anything against BTC emerges. Those demands are unstable and will vanish just about any second. (I know many people will beg to disagree here but this is not the main point of argument. All I'm saying is that the REAL demand for Bitcoin is not that high, which makes it very interesting why the price of BTC is going up.)
STATUS QUO
Now let's take a close look at the current market situation for Bitcoins. If you look up "Supply and Demand" on Wikipedia, you'll see the 4 basic laws of S&D in the opening paragraph:
1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.
It's quite self-evident that a price increase is normally caused by a shortage. But in the case of Bitcoins, the price is going up without any obvious shortage (the trading volume on Mt.Gox is rising - multiplying 10 times in early March - which is not possible if there's a shortage; the mining speed is picking up and the newly developed Butterfly ASIC is about to hit the market), which begs the question: what is driving the price up?
Some say it's the rarity of Bitcoin that promised a future. There is a theoretical cap on the total amount of Bitcoins mined, eliminating inflation. A theoretical cap ensures that the total supply is limited, but that alone can't dictate the price. Gold is a precious metal due to the tiny amount present in Earth's crust. However, that's not the only reason why it is so expensive (around 1,600USD/ozt. currently). The amount of Osmium on Earth is only half of that of gold, and as the heaviest metal in the universe, Osmium is used in many industrial alloys, but the price of Osmium is less than one quarter of gold (under 400USD/ozt.). Gold is hardly the most useful metal in this industrial world (due to its price and rarity, there are substitutes found for most uses of gold), but it has a very beautiful reddish-yellow look making it fit for fine jewelery and was considered the symbol of wealth since the early ages. This perception has stayed long in people's minds, giving rise to terms such as "He is golden.", etc. This cultural influence has made sure that gold is always desirable - the demand is always high up there no matter what. The demand of Osmium is not even close, and thus a much lower price. The price is an act of both supply and demand. A limited supply can lead to a potential shortage, but it won't occur without a large enough demand. And from what we've discussed about the nature of BTC demand, and the fact that BTC is still far from hitting the cap, a rapid surge of BTC price at this moment when most people don't want to get involved with this "shady Bitcoin thing" is definitely not normal. This soaring price will be very much unstable, especially when much demand is created by profiteers. (A wide gap between Mt. Gox High and Low Price is a good demonstration of this instability and fluctuation.) The entire Bitcoin system is not perfectly mature yet, and before that, any surge like what we witness now is probably just a bubble that will burst. (Strong words here.)
Some say it's the decentralization that make it immune to the "conspiracy of governments and bankers". It's always controversial when it comes to the debate of the role governments play in economy - capitalism, socialism, conspiracy theory... There's never a full story of the truth, the whole truth, and nothing but the truth about this issue. Everything we can see, even what I can see as kind of an "insider" I suspect, is just a tip of the iceberg. It's hard to produce any general rule on this matter. But in the case of Bitcoin, it is reasonable to believe that decentralization made all the difference - including both the benefits of a surging BTC price (at least for now) and the chaos of non-regulation (e.g. mybitcoin.com). BTC fervents believe that in the long-term, this decentralization, stripping governments and bankers of the monopoly on currency supply, will ensure the prosperity of Bitcoin. Even if that is true, whether BTC can stay decentralized is very hard to say.
Yes, you read it right. Bitcoin may be insusceptible to many things, but definitely not centralization. BTC supporters believe that with the P2P origin of Bitcoin, government control can be banished forever. Sadly, this is not the truth. In order to encourage mining, the mechanism of Bitcoin production is designed in such a way that have miners competing against each other. And that is exactly THE BIGGEST WEAKNESS OF BITCOIN - THE MECHANISM THAT GIVES MOST BITCOIN PRODUCTION TO THE MINER WITH THE MOST COMPUTING POWER. AND YOU HAVE ONE GUESS WHO THAT IS? BINGO! THE GOVERNMENTS! News just in, governments got lots of supercomputers built for military, scientific research, etc. at their disposal; their computing powers are classified information and of course way bigger than those commercial ones the public know of. Beating our petty little Butterflies? Easy like killing a moth. A CURRENCY WITHOUT INFLATION IS THE BIGGEST ENEMY OF OUR GOVERNMENTS' FIAT MONEY SYSTEM, AND I GUESS IT IS ALREADY COMMON SENSE THAT GOVERNMENTS ARE MORE THAN HAPPY TO DESTROY BITCOIN. So imagine what will happen if those supercomputers start mining. GOVERNMENTS WILL EASILY TAKE OVER ALL THE BTC PRODUCTION AND MONOPOLIZE BTC SUPPLY (WITHOUT THE PUBLIC EVEN KNOWING IT), AND BITCOIN THE "DECENTRALIZED" CURRENCY WILL BE EASILY CENTRALIZED BY THE GOVERNMENT IN A MATTER OF HOURS. WHEN THIS HAPPENS, BITCOIN WILL LOSE ALL ITS SPECIALTY AND ITS VALUE. AFTER ALL, THE VITALITY OF BITCOIN IS SET ON TWO THINGS AND TWO THINGS ONLY - DECENTRALIZATION & SECRECY. ONCE THE GOVERNMENT TAKES OVER, BOTH WILL BE LOST. R.I.P. BITCOIN.
In fact, there are two major weakness in BTC. One is the P2P confidence. The other is the above mentioned mechanism. Either of the two can be easily exploited by the government. Apart from the usual legislation methods to outlaw Bitcoin and banning all Bitcoin-fiat money trading and virtually abolishing the value of BTC (It may be technically impossible to stop a bitcoin transaction, but they can seize Mt.Gox servers and prohibit cashing out and buying in Bitcoins - as long as there are websites, fiat money, and banking involved, they can control it. Businesses will stop accepting BTC as payment since they can't cash it out, decimating the demand of Bitcoin. Maybe people can still do underground P2P transaction which is pretty much impossible without a price indicator like Mt.Gox, but that won't be anywhere close to the prosperity BTC supporters imagined.), they can destroy Bitcoin using financial methods. BTC is a currency and a financial product after all, and governments have WAY more experience and tricks up their sleeves playing this game than the public can even imagine. Monopolizing BTC supply is just a first step. Once that is achieved, the possibilities are limitless. They can dump at a low price to cause panic, or they can be horde the coins they produce and buy everything they can while creating shortage, driving up the price, and suck out circulation... The financial terms may be confusing, but it is obvious that once they had that monopoly, which is so easy and so undetectable that it could well have happened already, they have the absolute upper hand that is just impossible to turn around. Even without this monopoly, they can still attack the market like George Soros did, only smarter and more subtle. And when the destruction came, it will be two-fold - not just wiping out Bitcoin as a currency, but also crushing the public confidence in all digital currencies including BTC's successors. IN A NUTSHELL, IF THE GOVERNMENT IS DETERMINED TO DESTROY BITCOIN, YOU BET THEY WILL FIND A WAY TO DO SO. (THE THREAT OF BITCOIN MAY BE POTENTIALLY HUGE, BUT FAR FROM UNPRECEDENTED. IF THEY CAN'T HANDLE THAT, THEY WOULD BE GONE ALREADY.) AND WITH THEIR INTERESTS SEVERELY AT RISK, THEY ARE MORE THAN DETERMINED. SO DETERMINED THAT Department of Defense (DOD) ACTUALLY HAD A WHOLE PROGRAM IN JWAC SIMULATING THE CONSEQUENCES WHERE I WAS ASKED TO BE A CONSULTANT.
(To be Cont.)
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