This post originally appeared on ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here.
“An honest man is one who knows that he can’t consume more than he has produced.” Ayn Rand, Atlas Shrugged.
Before you take pride in how much wealth your favorite coin has extracted from the real economy, ask what your coin has contributed to the world, or at least will contribute. If you believe it has real productive value, please justify it using an honest theory that makes economic sense.
“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.”– Ayn Rand, Atlas Shrugged
People promote ‘digital gold’ (BTC). But how is digital gold different from ‘paper’ (fiat money) in Rand’s words?
People argue that it is different because the digital gold is not inflationary. But being inflationary is not the most fundamental sin of fiat. Not having an objective standard is (fiat is inflationary because it is not objective).
Gold is objective because it bases its existence on physical reality, a basic attribute of the universe (which has some marvelously stable things, gold being an example).
What makes BTC so objective? People argue that it is its energy consumption. ‘Energy is money,’ it is said. But it is one thing to argue that ‘production of energy’ is money, and it is quite another to argue that ‘consumption of energy’ is money.
But even more important, BTC’s ‘consumption of energy’ itself has no objective foundation. It is not the consumption of energy (hashing power) that determines the price; it is precisely the other way around, that is, the price of BTC drives its energy consumption.
Therefore, the real question is, what is so objective about the price of BTC?
To be honest, nothing. There is hardly anything in this world that is as subjective as the price of BTC.
So again, what makes BTC different from fiat?
You say they (the government) back fiat by guns, while BTC is democratic. But the problem is that an economic model that is based on the extraction from others cannot be democratic, by definition. Because the extraction model works only when a minority finds the majority available to be exploited (extracted from).
For something that does not produce value but only extracts value from other parts of the economy, BTC is not only technically unscalable, but also economically unscalable. It can only exist when it is relatively small. The larger it becomes, the less source of economic energy it can find to extract from. This is exactly the opposite quality of a system that has utility.
Therefore, BTC cannot be ‘democratic’ as a principle.
It may do fine temporarily when (and because) it is enjoyed by a minority. But how can a society sustain itself for very long if the majority of its people hope to live off extracting from others through speculative gambling?
A casino is a fun place only because it is a small part of the whole society. If the whole world becomes a closed casino, it will become dry and dead soon.
Bitcoin must have utility before it can become anything, whether a currency or money.
Watch: Bitcoin tech is all about unleashing potential for small people
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