Section 1 : The Trusted Third Party Problem
Chapter 3: Trying to Undo Satoshi
by Wendy McElroy
Wall Streeting Bitcoin (Chapter 3, Part 5)
Bitcoin was supposed to demonstrate the power of a true free market. Instead it’s full of scams, rent-seekers, theft, useless for real purchases…. Mission accomplished.
Blaming the free market is a tried-and-true excuse for government wedging itself into situations that would normally resolve themselves. The free market is also a reliable scapegoat for messes created by government and its crony capitalists. Many people believe in the turpitude of the market place because the accusation is so often repeated and because it has a surface credibility. Financially awful things happen to people in the free market. It cannot be denied. But who or what is to blame?
The free market is nothing more than individuals exchanging with each other in the absence of the state and other forms of force, including fraud. Some individuals will act badly because that is a choice human beings make on occasion. Not all bad behavior will involve force or fraud. For example, opportunists may prey on the vulnerable and convince them to make poor investments without necessarily misrepresenting them; the investor does not perform due diligence because some individual will behave foolishly.
If force (theft) or fraud does occur, then no real true exchange is present, and the interaction ceases to be a free market act; it becomes a criminal one. The free market corrects for criminal behavior in many ways, including a court system for redress and ruination of the criminal’s reputation. The faux exchange is often one-on-one, which further limits damage because the injured party can refuse further contact and proceed with greater caution.
This is not a market failure; it is a reflection of human nature, which would haunt any economic system. Otherwise stated: human beings are fallible, and some are given to vicious behavior. The free market is a massive collection of individual choices that are driven by an almost infinite number of motives upon which no ban is passed as long as the expression is peaceful and not fraudulent. Overwhelmingly, people will act in their own rational self-interest. But a significant minority will act like fools or like rogues. The free market is not to blame; they are.
The question is not whether the free market is perfect; it is not. No human arrangement is utopia. The question is whether any other system is better. More pointedly, does a centralized system under government control contain more or less force and fraud than a free market one? Consider only one issue. The free market allows individuals to assess situations and decide the best course for themselves. It allows them to learn from experience and mistakes. It allows individuals to take control of their own lives.
The Argument for Exchanges
There are good reasons to use exchanges. And good reasons to decry their use.
The good reasons: modern finance leaves little option for those who wish to conduct complicated exchanges, like futures trading or currency exchange. But everyone should be clear. This is the anti-Satoshi because it drives people back to trusted third parties, who are the government or its equivalent. The smartest among us hold as little wealth with trusted third parties as possible for as short a period as possible. They achieve their goals, and leave.
But it is important to note that centralized exchanges that report to governments and function as banks, albeit under a different name, are the reverse of the freedom promised by Sataoshi.
Choose for yourself. Stories abound about exchanges confiscating accounts, being hacked, turning people into the government, collapsing into oblivion, and generally screwing their customers. They are the “trusted” third party Bitcoin was designed to avoid. A return to them is the death of community, which the crypto-economity evolved to provide; it is the antithesis of individuals supporting each other in pursuit of the knowledge and independence. Satoshi and core developers knew that centralization and government control were the cause of economic injustice, and that the central banking system was its engine. If people wish to be part of that system, if they don’t believe in the promise of Bitcoin…then, so be it. But those who still have the vision will not join you.
Allow me to sketch how we arrived at a juncture at which an immense tool of personal freedom is being converted into an immense tool of government control. It cannot happen without the complicity of average people. Caveat: crypto is still the best community I’ve found, with many people committed to helping others for nothing other than the ideal of helping others. I salute everyone who does so, and I thank you for the benefit to my life.
The Argument Against Exchanges
Forget government. Government will always want to control. It produces nothing but control; it consumes productivity and freedom, impoverishes all it touches. Government succeeds because people cooperate. Some do so because they believe in social control. Not for themselves, of course. No one you ask says that they personally need a gun pointed at their head to keep them from raping, stealing, murdering, plundering. It is everyone else they wish to point the gun at.
Satoshi’s game-changing brilliance lay in his understanding that the trusted third party was the control mechanism by which the individual was owned by the system. Again, how did this occur? In a word, convenience. And this weight of decision is on the people who make it. Or, rather, it would be on them if their decision did not, ultimately, fall upon the rest of us through force of law. Ultimately, their choice – your choice – becomes law under which those who wish to trade freely become outlawed, arrested, persecuted. And you don’t escape responsibility for that.
Satoshi and Bitcoin’s core developers argued that centralization and government control were the overwhelming cause of economic injustice, especially theft through the central banking system; inflation is only one form of theft. Unlike the free market, however, there were no corrective mechanisms: no court of redress, no reputations to ruin, no chance of avoiding the thieves in the future because government and central banks are monopolies.
Chalmers’ assessment of cryptocurrency’s dangers has some merit, but little of the risk should be ascribed to the free market. Some is due to cryptocurrency straying from the decentralized, peer-to-peer path of Satoshi Nakamoto and returning to trusted third parties, like centralized exchanges that retain private keys. Another risk factor is the panic or recklessness with which people dive into crypto, with no knowledge of what it is.
Satoshi expressed the essence of Bitcoin when he wrote, “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” The trusted third party in question was the collective financial system that was highly regulated by governments in order to benefit politicians and the elite. By establishing “peer-to-peer” electronic cash, individuals could bypass the financial system and still make long-distance transactions for which cash was cumbersome or unfeasible. By sidestepping trusted third parties, individuals maintained considerable privacy and control of their own wealth. They were freed. But, apparently, many people love their shackles.
With that sentence, Satoshi announced a gift to mankind. He didn’t ask for payment, he didn’t seek patents or copyrights, he didn’t want personal recognition. It was a gift. His one sentence embodies what Bitcoin was meant to be. It expresses the essence that made people so excited that they devoted their lives to a cause. The words to focus upon are “peer-to-peer,” and “no trusted third party.”
The next column will deal with how exchanges are a huge threat to economic freedom and a betrayal of all that Satoshi offered the world.
[To be continued next week.]
Thanks to editor/novelist Peri Dwyer Worrell for proofreading assistance.
Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters
Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.