Dr. Craig Wright has previously referred to most digital currencies as “old wine in new bottles.” What he means is that it has been done before. Many of these are the same old scams that have always existed dressed up as something new.
In October, Dr. Wright released a blog post on “Banking Old Wine in New Bottles.” It explores how companies like Coinbase (NASDAQ: COIN) and Square attempt to hijack Bitcoin and create a new banking system (that looks a lot like an old one) for personal profit. Let’s explore the post in more detail.
No need for trusted intermediaries
The opening paragraphs of the blog cover the fact that Bitcoin was designed specifically to eliminate the need for trusted intermediaries. However, “bucket shops” like Coinbase and other digital currency exchanges have begun acting like old-fashioned banks that hold people’s money and act as the very thing Bitcoin was supposed to eliminate.
The blog highlights how rather than settling in Bitcoin on every transaction, exchanges instead settle daily, operating in a manner similar to the SWIFT banking system. It highlights how this suits many of the beneficiaries of the old system, such as PayPal’s Peter Thiel, who don’t want Bitcoin because it would make their businesses obsolete.
What these incumbents really want is a system they can control and make money from, such as the digital gold system promoted as BTC. This would lead us back to a system similar to the one we had a century ago, where Bitcoin replaces gold as the interbank settlement system rather than something used for daily transactions by everyday people.
Dr. Wright points out that back then, most people never saw gold in their lives, and if BTC proponents have their way, most people will never see Bitcoin either. This would ultimately lead to a system where Bitcoin is subverted.
Gold and banking
In the next section of the blog, we get a brief history of how the gold-backed banking system worked. The reality is, Dr. Wright tells us, that gold rarely moved.
Doesn’t this sound familiar? It’s exactly what those behind Blockstream and other BTC-affiliated businesses promote. Just as gold was held in vaults and notes were swapped to keep track of ownership, Bitcoin would work in the same way if Square’s Jack Dorsey and friends had their way.
Dr. Wright goes on to emphasize that Bitcoin makes such efforts futile. It removed the need for these intermediaries. They no longer need to exchange cash-based assets, and better yet, other assets that can be traded directly can also be created. He explains that in his white paper, he defined a purely peer-to-peer electronic cash system. He emphasized that systems like the Lightning Network are not Bitcoin at all; they are the very same financial systems that Bitcoin was supposed to make unnecessary.
The desire to capture and control the market
Many new entrants to the digital currency industry, and many who have been in it for years but don’t think for themselves, get their ideas about what it is from thought leaders like Square’s Jack Dorsey and Coinbase CEO Brian Armstrong.
However, Dr. Wright highlights how these people are building companies that intend to capture Bitcoin and profit from it. He notes how they want to make money from exchange fees and by collecting data from users, the exact sort of poisonous business model employed by Silicon Valley tech companies that he has spoken out against many times. When you use these companies, he says, you are not using Bitcoin at all. Instead, you’re using a modern version of an ancient banking system in the form of a “low-grade Silicon Valley application.”
Dr. Wright then goes on to point out that this account-based system is not at all secure and is easy to hack. This is evidenced by the multitudes of exchange hack stories we have seen over the years. Indeed, as reported in CoinGeek’s Crypto Crime Cartel, it seems that another digital currency exchange is hacked every other week, and the users are led to believe that their funds are unrecoverable.
This new system is unregulated and offers none of the protections of the old banking system. It’s designed to be this way, and the actual exchange of Bitcoin isn’t even necessary in this system. Instead, the exchanges can operate based on monthly offsets in a system that allows them (Coinbase, Square, etc.) to keep a record of the digital gold. However, Dr. Wright points out that nobody has any way to verify what they actually hold. This could lead to fractional reserve banking based on digital gold.
Getting to the heart of the matter, the blog informs us that when we transfer coins between exchanges, no coins need to actually move. Instead, all exchanges must do is update the ledgers they maintain, and settlement can occur at some time in the future. This is evidently not the Bitcoin system outlined in Satoshi Nakamoto’s white paper. The true Bitcoin has been subverted.
BTC is a regression
In the final part of the blog, Dr. Wright points out that BTC is a regression back to a gold-based banking system. It’s one more akin to a free banking system with no government regulations. Such a system could never allow you to make the sort of small, casual transactions Satoshi Nakamoto talked about (Dr. Wright gives the example of buying a coffee) because the BTC system could never scale to deal with the necessary transaction volume. This is where Square or Coinbase come in to make their money; offering apps that allow you to “spend” your Bitcoin when in reality, nothing has happened other than a change in digits on a screen. This is effectively a BTC-denominated bank account.
Finishing up, Dr. Wright reminds us that the gold-backed banking system led to far more notes existing than actual gold. This is the same type of system vested interests are attempting to build to subvert Bitcoin. Since Bitcoin threatens many industries, these industries are responding by turning Bitcoin into digital gold. But Bitcoin is not digital gold; it’s peer-to-peer electronic cash.
Watch CoinGeek’s special coverage of the Kleiman v Wright trial here.
See also Dr. Craig Wright’s keynote speech at the CoinGeek Conference New York:
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