Bitcoin
The Future Of Money?
Dominic Frisby
Praise for Life After the State
‘Dominic Frisby has gone and done something extraordinary: written a page-turner on the economy. It’s both readable and radical, a serious book that is, by turn, fascinating, alarming and contentious. At times, the book makes you want to shout its message from the rooftops; at others, it just makes you want to shout. Life After the State challenges so much of what we take for granted. It is a wake-up call for politicians, economists and us all, written with clarity, verve and, more than that, the restless passion of an intelligent, inquisitive malcontent. Read it.’
James Harding, BBC Director of News and Current Affairs
‘Congratulations on your brilliant book … it will do more good than all my speeches in Parliament and around the country.’
Steve Baker, MP
‘It’s incredibly readable and incredibly thought-provoking.’
Al Murray, The Pub Landlord
‘An entertaining cogent attack on state power, which should topple the centralist Trots once and for all.’
Tom Hodgkinson, The Idler
‘Congratulations on your cracking book. It’s a great read.’
Liam Halligan, economist and Telegraph columnist
‘I have read your Life after the State with huge interest. It’s a very fine compendium of ideas and stories.’
Matt Ridley, author
‘We can’t go on as we are. All politicians know that. But if they read Life After the State they might also start to understand what they might do about it. A must read for any thinking man or woman.’
Merryn Somerset Webb, FT columnist and editor-in-chief, MoneyWeek
‘The scalpel-brain of an economy geek and the sharp tongue of a stand-up comedian … His arguments are not only convincing in principle … they are also compelling in practice. I loved the book.’
Mark Smith, Herald Scotland
‘If Dominic Frisby was as good a comedian as he is a writer and thinker, then he would be filling arenas … This book is something of a joy … an important book at a crucial time. Politicians should read it but I suspect that they will not. The central message is wealth and prosperity for all at the expense of those who rule and regulate.’
Dominic Holland, author and comedian
‘Thought-provoking and original, anyone concerned how big and bloated government has become must read this book.’
Douglas Carswell, MP
‘Things are so bad that in our time only a comedian can make sense of an economy based on printing money.’
Guido Fawkes, political blogger
‘If you’re still keen on revolution, give Brand a miss and have a read of some genuinely fresh ideas from Dominic Frisby – his book Life After the State … will give you a lot more food for thought than anything Brand trots out.’
John Stepek, editor, MoneyWeek
‘Clear, honest and arguably difficult for an acclaimed economist to mimic … The implications for education, healthcare, enterprise and thereby the general well being of society are clearly profound.’
Amazon reviewer
‘This is a well-researched and referenced work, and despite its radical thesis deserves to have a place alongside other serious books on economics and politics. Unlike many of them though, it is readable, entertaining and inspiring. I would even go as far as to say this is a book that could change the world.’
Amazon reviewer
‘The greatest tribute that I can give to Dominic and his book is that my darling wife, who usually falls asleep as soon as the subject of economics comes up, read his book from cover to cover in a single sitting and was most impressed by it. Thank you Dominic.’
Amazon reviewer
‘Quite simply it’s one of the best, informative, intelligent reads I’ve ever had. Don’t hesitate, just buy it, read it, and see how our modern world works, or rather doesn’t work, with clearer eyes.’
Amazon reviewer
‘This work is revelatory and is essential reading – I wish I had had it available as a young man. I have given copies to each of my children (over 16) and hope they read it – it will make life so much more understandable to them.’
Amazon reviewer
‘The most important book I have read in a long time. I’ve just bought five extra copies, and plan to force it on all I meet, in the manner of a Jehovah’s Witness.’
Amazon reviewer
About the author
Dominic Frisby is, unusually, both a comedian and financial writer.
As a comedian he has been described as ‘viciously funny and inventive’ by the Guardian; ‘very impressive and very witty’ by The Times and ‘masterful’ by the Evening Standard. But his first book, Life After the State, had nothing to do with comedy. Published by Unbound in 2013 to critical acclaim, it is a deadly-serious dismantling of the way societies are run in the West.
Dominic writes an investment column for MoneyWeek and has made numerous popular YouTube videos, including the viral hit ‘Debt Bomb’. He has also worked as a TV presenter, a boxing-ring announcer, a florist, a removal man, an extremely camp theatrical agent’s PA, a sports commentator and a busker. He is a voiceover artist and is an in-demand speaker.
Bitcoin: The Future of Money? is his second book.
With special thanks to Carl Holt
As always
For Samuel, Eliza, Lola and Ferdie.
I love you all more than life itself.
For
Brian Cartmell,
Duncan Black
and
Wade Smith.
And, of course, for
Satoshi Nakamoto.
Pure anonymity provides voice for a wide variety of new kinds of expression that up until now have been suppressed.
Nick Szabo, computer scientist and blogger
Contents
Praise for Life After the State
About the author
Dedication - Title Page
Dedication
Frontispiece
Author’s Note
Prologue
1. What is Bitcoin? How is it Made?
2. The Anarchic Computing Subculture in which Bitcoin has its Roots
3. The Rise of Bitcoin and the Disappearance of its Maker
4. Nerds, Squats and Millionaires
5. How a Computer Nerd became the FBI’s Most Wanted Drug Dealer
6. Who is Satoshi Nakamoto?
7. Why Bitcoin is the Enemy of the State
8. How Bitcoin will Change the World
9. A Billion-Dollar Hedge Fund Manager and a Super-Smart Mathematician Forecast the Future
10. Should You Buy In?
11. The People’s Money
Appendix I: A Beginner’s Guide to Buying Bitcoins
Appendix II: Who Is Satoshi? The Usual Suspects
Acknowledgements
Bibliography
Notes
Subscribers
Author’s Note
I have called this book Bitcoin: The Future of Money? Really, I should have called it Cryptocurrency: The Future of Money?
Bitcoin is just one of many cryptocurrencies (don’t worry, I’ll explain what that means). It is, arguably, not even the first. But it is the first that works. And it is the one that has caught everyone’s attention. Rather as people say ‘Scotch tape’ or ‘Sellotape’ instead of ‘sticky-back plastic’, Bitcoin is the name everybody knows – hence my choice of title.
I have quoted extensively from online forums and chat boards. These often contain spelling mistakes and grammatical errors. For the sake of accuracy, I have made the decision to leave these errors uncorrected. Nor have I acknowledged errors with a ‘sic’, as I felt this wou
ld be both patronizing to those I quote and burdensome on the reader. So, when you come across errors in quoted passages, now you know why.
In researching this book, I have come across entire political and technological movements I’d never even heard of, filled with characters I knew even less about. They might be infamous to a small band of computer coders, but not to most people. What’s more, those who discuss Bitcoin and its associated technology quickly slip into technical jargon, particularly regarding computer code. It can make it all rather baffling and, worse still, alienating. If you think finance and economics are hard to write about in a clear way, try computer code with an all-star cast whose names mean absolutely nothing to most people.
I’ve tried to make it all as clear and concise as possible – to tell this amazing story in such a way that you don’t have to be a 25-year-old computer hacker to understand it – but nor will you be bored if you are one. To get the balance right, I have had it read, at one end of the scale, by numerous computer programmers and, at the other, by my 82-year-old, technologically illiterate dad.
I hope you enjoy it.
Prologue
We have not only saved the world, er, saved the banks…
Gordon Brown, former UK Prime Minister
In September 2008, crisis gripped the world.
Many believed the entire financial system was about to collapse. It was a ‘global financial tsunami’; we were ‘on the brink’ and ‘staring into the abyss’.1 Capitulating stock markets, bankruptcies, bank runs – events came thick and fast and, at first, nobody seemed to know quite what to do.
Then, under immense pressure from the world of finance, governments and central banks reacted dramatically. They created money and credit on a scale unprecedented in human history. Banks were bailed out, interest rates were slashed to levels never seen before and the process of creating money electronically known as quantitative easing was begun.
The result?
The financial system was saved. Central bankers were hailed as heroes. The idea spread that governments and central banks really can operate an economy. Even those who would normally oppose such interventions seemed to think the right thing had been done.
A few dissenters argued that the few were being bailed out at the expense of the many, that enormous problems in the financial system were simply being deferred when they needed to be faced, and that these problems would only come back on a far greater scale. At the heart of the problem is money itself, they said. The way money is created means that banks and governments have inordinate control over our financial system. They profit hugely by it, while everybody else loses. The system actually creates inequality.
But such dissent was ignored – if, indeed, it was even heard.
‘Only a crisis, real or perceived, produces real change’, said economist Milton Friedman. Here was that opportunity for real change – an opportunity to reform our systems of money, banking and finance – our entire economies even. Politicians chose not to take it, preferring instead to save a broken system.
But that badly needed change was taking place – secretly, in a remote corner of the internet, far away from the sound and fury of this great financial crisis.
On August 18th 2008, a domain name is registered – bitcoin.org.
Even today, nobody knows who registered it.
Two weeks later, one Satoshi Nakamoto publishes a nine-page white paper outlining a design for ‘Bitcoin: A Peer-To-Peer Electronic Cash System’.2 Nobody takes any notice.
Two months pass. On November 1st 2008, with the stock market now in full-on crash mode, Satoshi mentions his paper on a mailing list for people with an interest in cryptography.
‘I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party’,3 he says.
Readers throw him various technical questions, which he answers. Nobody seems persuaded. It does not ‘scale to the required size’, says one. The code ‘can’t work on today’s internet’, says another. Governments will close it down if it takes off, says a third.
‘I believe I’ve worked through all those little details over the last year and a half while coding it, and there were a lot of them’, says Satoshi. ‘I appreciate your questions. I actually did this kind of backwards. I had to write all the code before I could convince myself that I could solve every problem’.4
A week later the Bitcoin project is registered at Sourceforge, a website ‘dedicated to making open source projects successful’.5
On Saturday January 3rd 2009, the day UK Chancellor Alistair Darling announces his second bailout of the banks, the first 50 bitcoins are created – or, to use the correct terminology, ‘mined’. A few days later, Satoshi returns to the mailing list and says, ‘Announcing the first release of Bitcoin, a new electronic cash system.’
What had been born was a new form of money – money that could change the world.
1
What is Bitcoin? How is it Made?
Cash is king.
Stock market saying
It was probably the greatest trade in all of recorded history.
In October 2009, a Bitcoin aficionado who went by the name of ‘Liberty Standard’ published the first bitcoin exchange rate. He arrived at the figure by dividing the cost of the electricity consumed by his computer over a 30-day period by the number of bitcoins it generated. 1,309 bitcoins to one dollar was the price.6 Liberty Standard was actually criticized for valuing bitcoins too high.
Four years later, on November 29th 2013, one bitcoin was $1,242 – over 1.6 million times higher. A bitcoin was the same price as an ounce of gold.
If anybody managed to buy the low (which actually came in December 2009 at 1,630 bitcoins to the dollar) and sell the high, they made over two million times their money. In four years, one dollar became two million dollars.
Nice work if you can get it.
The story of Bitcoin is amazing – not just for the gains (and the losses) that have been made, not just because of the revolutionary technology, but also because of the human stories that have come about as a result.
There’s the developer in Finland who, trying out the tech, bought a beer from his buddy for some bitcoins. Three years later, his buddy sold those coins and bought a des res apartment in the trendiest district in Helsinki. There’s the computer nerd with an interest in economics who became the FBI’s most wanted drug dealer. And, of course, there’s the great whodunit.
Who invented Bitcoin? Who is Satoshi Nakamoto?
He has a Japanese name, a German email address and he uses British spelling. He has invented a new form of money that could change the world. He is worth almost a billion dollars. He has computer programmers the world over purring at the unhackable genius of his tech. Half the internet – as well as investigative journalists and forensic scientists, even – have been trying to figure out his identity for over three years. And yet still, nobody knows who he is.
I think I’ve cracked that, by the way.
The story of Bitcoin has everything from the hilarious to the mysterious to the audacious to the calamitous.
Genius computer hackers. Dogs with funny names. Cypherpunks. Cryptography. Financial systems. Governments. Organized crime. Attempted murder. Political insurrection. Inspiring bursts of generosity. Squatters. Poker players. City traders. And people just like you.
How Bitcoin could change everything
Everybody is constantly thinking about ways to make money.
The average American spends more hours of each day attempting to earn it than he does anything else7 – be that eating, playing or even sleeping.
But hardly a soul – not even highbrow economists – stops to consider what money actually is and how it works.
It is hard to overstate how important money is. Like the air we breathe, it is part of almost everything we do. Just about every transaction we make involves money. To use another analogy, what blood is to a body, money is to an economy.
Go
vernments, central banks and private banks create modern money – dollars, pounds, euros and so on. This ability to create money is – as I’m sure you appreciate – an immensely powerful privilege. While most have treated this privilege responsibly most of the time, there are plenty that haven’t. And all sorts of abuses have crept in.
Politicians are forever spending more money than they have – aka running up deficits – in pursuit of some ideology or political agenda (normally popularity and re-election). They might spend the money on bailing out banks, on welfare, on some kind of subsidy; they might even spend it on wars (the US military is the world’s biggest employer). Central banks manipulate interest rates and inflation numbers on behalf of politicians and special interest groups. Private banks, through such means as lending and leverage, perpetrate their own abuses in pursuit of profit. As a result of all this, money gets debased.
Government agencies even use money as a means to control people and spy on them.
Money is supposed to be a means of exchange and a store of wealth, but it is also a political tool. This has been the case throughout history, but the control of governments and banks has grown over the last hundred years and is now unprecedented. It has led to huge concentrations of wealth and power. Both the state and finance now occupy, in the eyes of many, disproportionate territory in our economies.
Meanwhile, over half the world’s population still doesn’t have access to basic financial services and is shut out.
Suddenly, along comes Bitcoin, an open-source currency with no central authority, offering an alternative that could undermine the existing monetary order. Nobody even knows who designed it. It’s by no means the first attempt at digital cash, but it’s the first that works this well. It’s actually more efficient than dollars or pounds. It’s immune to all the manipulation and abuses that go on, there are no barriers to entry, bar internet access, and it has captured a zeitgeist in a way that nobody could have foreseen.
Bitcoin Page 1
