Yesterday I did an intro post on my view of the current reality of cyrptocurrencies. For part two I’ll be discussing considerations on durability and integrity, and pose some possibilities of why the hype around them is somewhat overblown. I’ll be using bitcoin as an example in this post, but most of the concepts here are applicable to any crypto available today.

I’ve already gone over what these currencies are – bits of some length that are encrypted based a specific algorithm. In the case of bitcoin, the cipher is pretty strong. But the assumption of uncrackability of a given cipher is generally due to the cost of present computing power required to do it in a reasonable amount of time being prohibitive to attempt to crack it because it would take the fastest available computing farms something like a thousand years and a day, for example, to do it successfully. And that is one aspect of bitcoin that that provides some level of confidence that they can’t be duplicated, forged or otherwise abused and that there will ever only be so many – at least for today.

But consider the then awe-filled supercomputers of 50 years ago, bigger than a house and so expensive only government could afford them, that are today scoffed at as relics of a technological stone age that belong in a museum because our smartphones accomplish in half a second what it took these supercomputers a month to do.

Technology simply refuses to stand still. Microsoft has recently claimed to have a quantum computing lab that is running some portion of Azure, a claim I believe is entirely overblown. They may indeed have something in that space that is recreatable though great pain that might last for a minute or two, but to have a functioning and durable quantum computing farm that is able to be commercialized and used for prime time Azure is an entirely different plane of readiness that likely doesn’t exist. But that does not mean it won’t ever exist, or perhaps it may not be that far off into the future if Microsoft is willing to make such a bold claim. At the time it does become real, however, I’d say that bitcoin’s assumption of security will entirely evaporate because a development such as this would blow the lid off any assumption of computing capabilities that went into the creation of bitcoin’s cipher.

There are other issues regarding the integrity of bitcoin besides front door cracking that advancements in computing technology will eventually make as quick and easy as falling off a log, things that exist today and are much easier to accomplish. One of them is that bitcoin and others are created by human beings. And being human comes with the limitation of not being perfect and therefore unable to imagine every possible vulnerability and plug all of the holes. To maintain the claimed integrity, not only would bitcoin’s creator have had to imagine all of the vulnerabilities that might exist in the creation itself, the specific technology pieces that go into bitcoin, but all of the ones existing in every possible hardware and software combination that would go into mining, holding and making transactions with them. A very tall order by any stretch of the imagination and it would be a complete failure of imagination to believe that bitcoin will stand up to the test of time outside of things we’ve already heard about like editing the ledger being possible and things that are seemingly unrelated such as memory snooping through hardware vulnerabilities, etc.

There is also at least one person alive today who is aware of the algorithm used to create bitcoin among other aspects of the infrastructure that would only been known by him or her. And this person who has wisely chosen to remain anonymous is probably the most sought after human being on the planet just for what they know – backdoors or ways to undetectably extend and or duplicate, etc… While it is probably in order to wish this person well, I would probably have to put some thought into why the claims of integrity behind bitcoin are taken at face value where is the simply no way to judge the personal integrity of Mr. Anonymous.

Overall, whether participating in crypto-mania is for you probably depends on what you hope to accomplish.  If you look at it as a short-term speculation, be aware that bad news could come at any moment and make it all worthless. If you intend on buying them and putting them away for posterity, they will eventually be scoffed at, probably more quickly than we understand, and as in speculation, bad news on the security front will dash that hope in an instant.

PS: By the way, I believe I have a healthy skepticism of the current structure of the most popular of cryptos available today, both technological and administrative. But make no mistake, they are probably more secure to store and use than what we do with digitized fiat money today with the added bonus of low regulatory overhead… if you know what I mean.

I’ve suggested a rough outline of how individual states in the US could sponsor their own versions that could pass constitutional muster and would provide some additional credibility to the output without creating a centralized money monopoly that can be and has been mismanaged and abused to the amusement of intellectual curiosities of the few to the detriment of society as a whole such that resulted in experience of the Great Recession that easily could have been equal in severity to the Great Depression, but only by luck was not. In learning the right lessons from that calamitous episode, I firmly believe that decentralized currency management is likely the best firewall available in the absence of seriously needed modernization, reform, and accountability of the Federal Reserve System, and state-based cryptos are probably the first step in making this a reality without the need to ask permission.

There is no longer anything special about the Fed that makes it fit enough to be the enduring and essential element for well being in a large, technologically advanced, fast moving and dynamic economy. It is impossible for a handful of individuals who meet officially once per quarter to timely keep up with needs in rule by committee fashion where everyone makes the decision and nobody is responsible for it, even if they were all genuinely open minded, objective individuals who do not have so much more adoration for their own ideas than they have compassion for their fellow countrymen, and always own up to their mistakes and fix them. These people are, after all, human and nothing more than being human with all of its inherent fallibility can be expected from them.

We can no longer ignore the obsolescence of the Federal Reserve System and fail to strive to reform it, making it better, faster, stronger, more responsive, and more humble if nothing else. Yet time marches on and we see little more than rearrangement of the deckchairs on the Titanic to address this seriously dire situation of obsolete monetary management practices causing more harm than good. If we cannot get needed reform from the Federal government, we need to look for remedies elsewhere because I am sure we are in general agreement that if the Great Recession was preventable by more appropriate monetary practices, we cannot allow it to happen to us again. Cryptos could possibly be the answer this problem, and I’d prefer for the states to sponsor them since they the legal authority to establish the appropriate legislative framework for governance of them. And the states should sponsor them because they have a constitutional obligation to protect each and every one of their citizens from the gross ongoing Federal neglect and abuse of their rights effected by the obsolescence of the monetary administrative practices of the Federal Reserve.

 

 

Advertisements