IEET > Rights > Economic > Vision > Contributors > Technoprogressivism
Bitcoin - a Means for Redistribution of Wealth
Rüdiger Koch   Sep 27, 2012   Ethical Technology  

Amazing things would happen if a large percentage of transhumanists were financially independent. How can this be done?

Many Transhumanists have great ideas but they never get to work on them due to lack of time and money. Only the most uncompromising and dedicated H+ individuals ignore all liabilities and proceed. Encountering great difficulties, many give up, but a few receive funding and continue. A handful also find jobs that permit them to pursue their dreams…

Clearly, amazing things would happen if a large percentage of transhumanists were financially independent. How can this be done?

There is a way…

We need to redistribute wealth! Here’s how:

Open P2P currencies running wild on the Internet represent a coming paradigm shift for the very bloodstream of our economy - it’s money. After 400 years of nearly uncontested control over the money supply, central banks of the world now face formidable competition, threatening to make them obsolete altogether. And it’s not only central banking - any form of money transfer does not require the help of a payment processor any more. No need for banking networks such as SWIFT or SEPA, no need for any proprietary e-money - many of the traditional banking business models will become obsolete. Once again, it will be possible to live your life without ever entering a bank, if we so choose. Nothing short of taking control over the Internet by almost all governments worldwide or removing the Internet altogether can stop this development. The djinn is out of the bottle.

Bitcoin is the first of these P2P currencies. Like P2P filesharing, anyone can participate by simply downloading a client, of which there is a rich selection. Bitcoin has properties designed to empower it’s users and give advantages to it’s early adopters:

1. Bitcoin is oblivious of national borders. A transaction to your neighbor is the same as a transaction to a user at remotest location of the networked world.

2. Bitcoins are not created out of thin air in arbitrary amounts like fiat money. They are created at a predictable rate through a process called Mining. At the time of this writing, 10 Million are in existence and there will never be more than 21 Million.

3. Bitcoin addresses have no obvious connection with their owners. Unless such a connection can be constructed by other means, Bitcoin transactions are anonymous.

Redistribution of wealth is powered by 2: As the supply is very limited, Bitcoin value has to rise if demand increases, in a quite predictable way: Early adopters benefit if the number of users increases because their demand for Bitcoin will drive the price up. How much can the price increase? We’re currently at 50,000 users and a market cap of $100 Million. Should 1 Billion people use Bitcoin in the future, the price will have to rise 5 orders of magnitude to compensate. In other words, if you buy a Bitcoin today, you have $12 to lose, should the project fail entirely. But you have $100,000 or more to gain should it succeed.

This already suggests how redistribution of wealth works in favor of early adopters. Early adopters are able to acquire Bitcoins cheaply. Network effects are expanding the Bitcoin community and the Bitcoin price will rise. The question is now, if one gains, who loses? After all, all monies today are purely virtual, so this must be a zero sum game. If Bitcoin gains, capital must flow into the Bitcoin economy. The losers are those who hold other currencies because they will lose capitalization. At present prices, this is completely negligible since the market cap of Bitcoin is next to nothing compared to the 10 Trillion Euro in M3 and a much higher amount for US Dollar - which the FED wisely decided not to publish any more since 2006. But it is doubtful that users of those currencies will feel the loss - the ECB and the FED will screw them much harder, by means of inflation.

Image: Bitcoin price since 2010. Ignoring the bubbles, particularly in mid 2011, it nicely fits an exponential.

Since the Bitcoin community now has learned a lot about how to make the best use of Bitcoin, this price is increasingly driven by use, not just speculation. The single biggest user still seems to be SilkRoad, a site to purchase illegal drugs, but there is now also online gambling such as SatoshiDice, the first online game which can mathematically proof that it is honest. Bitcoin also solves the biggest problem of online Poker - transferring money from and to the site. At some point of market penetration, Bitcoin will take on Western Union and other money transfer services because this is what Bitcoin has been designed for from the very beginning. And once the Bitcoin flow gets closed i.e. businesses can pay their bills with Bitcoin and have their revenue in Bitcoin, Bitcoin use will explode. Putting your money on further growth seems a very good bet - much better than USD or EUR denominated papers like life insurances which are almost guaranteed to lose value and possibly turn out to be just - paper.

Of course Bitcoin received quite some criticism after it gained popularity last year. Here are the most relevant, with refutations:

*  Bitcoin is a Ponzi scheme: Like a Ponzi Scheme, Bitcoin rewards early adopters. The important difference is that Bitcoin has utility as a method of payment and it does not promise interest payments so there is no obvious point where investors run for it. Ponzi schemes also never come back once the bubble bursts. Bitcoin had a bubble in 2011 which burst in July, but it recovered beautifully since.

*  Bitcoin is an HMLM scheme: As above, there are similarities, but there are also important differences. There is no individual reward for winning a new Bitcoin user like in MLM and if you own Bitcoins, you don’t need to do anything to profit from rising prices.

*  Bitcoin has no intrinsic value: Nothing has intrinsic value. Everything is valuable only to the extend people value it. People tend to think that objects with a tradition of being valued have intrinsic value, such as gold. Bitcoin has no long tradition yet, but this will obviously change in time.

*  Deflation is bad: If falling prices were bad, the semiconductor industry would be in a crisis since it’s beginnings. What is bad in a Fiat system is a credit contraction: If everyone starts paying back their loans instead of investing or consuming, productivity goes into destroying money (this is what paying back a bank loan is in essence). Hence the economy suffers and the deflation caused by market forces and defaults forces people to try even harder to pay back loans. The myth that deflation as such is bad is spread by governments to justify the creation of fresh money and the earnings from seigniorage and monetizing government debt - inflation tax - under the euphemic name “monetary policy”.

As with any investment, there are risks:

*  As Bitcoin is nearly anonymous, it has obvious applications for criminals. Should it get confined in this “community”, it’s value will get stuck. The investment won’t be lost, but it won’t be the 5 orders of magnitude of profit either.

*  Elliptic Curve encryption or the used hashing algorithms get broken: Depending on how that happens, it can be a total loss or only an outage until a replacement is implemented. There are already plans for this case.

*  Governments ban Bitcoin: This is a very real possibility since many governments plan cashless societies with proprietary e-money where every transaction will be monitored, taxed and possibly vetoed in real time. A ban may be a major setback, but in such an environment, Bitcoin is also very attractive for everybody as cash replacement. It may even profit from such a ban.

*  The Bitcoin price can be quite volatile at times. There is at no time a guarantee that you won’t get coins later at a cheaper price. As a long term investor, you must be able to ignore such short term fluctuations.

There are many ways to acquire Bitcoins. You can sell stuff for Bitcoins or you can work for them. The most common way to get a reasonable amount is to buy them at an exchange. MtGox is the biggest. Once you have them, you want to withdraw them. If you only want to save them, create a paper wallet, print it out and store it in your safe. Don’t forget to print another copy for backup. Then withdraw the coins to the address shown and delete the paper wallet from your computer so no malware can steal it. That is all! When the time comes to use your Bitcoin, you can redeem the private key at an exchange or scan the QR code into your wallet on your computer or your mobile device.

Cryonicists will find the option of a brain wallet interesting: As a private key is simply a very large (256 bit) number, it can be deterministically created from a pass phrase. This is a string of words that have meaning to you, possibly salted with things like your social security number. Since you can remember the string now, you should be able to remember it after your reanimation. So as long as you keep your memory, you can access your funds even if everything else has been taken from you during your time in the dewar. What’s more, it is possible for you to prove that you are the owner of a Bitcoin address and hence the funds on it so people in the future can be sure that you can pay for your reanimation once you are back and can access your funds. This is done by signing a message with your private key. Anyone can now verify your ownership with that message and your public key. Depending on how Bitcoin develops, even a single Bitcoin can be a fortune at the time of your reanimation so it seems prudent to invest that little sum now to give the future a real incentive to reanimate you.

The true value of Bitcoin lies in using it as a method for payment. You need an electronic wallet to spend anything. My recommendation is Electrum on Linux, Mac and Windows, and BitcoinSpinner on Android.

Transhumanists tend to be freethinkers, which means they usually can’t agree on anything. This is both the greatest strength and the greatest weakness of the H+ movement. But if we can agree for once to use Bitcoin and use our personal networks to spread it, there are enough of us to make Bitcoin’s success and hence, rising prices, a self fulfilling prophecy.

Disclaimer: The opinions stated above are the author’s and are not necessarily endorsed by IEET. They do not constitute investor advice of any kind. IEET cannot be made liable for any loss (including lost opportunities and profits) resulting from following these opinions.

Rüdiger Koch is CTO and founder of the first African Bitcoin exchange, Fikisha Africoin. He previously worked as an IT Consultant in the banking industry in Germany, Switzerland and Singapore.


This is such a good article, will have to read it over ‘n over till it’s understood—it is too rich to digest in one reading. At any rate, Pete Wicks and others offline have reminded me of the existential threats to the biosphere: it isn’t merely how much is being produced (and of course what services are available) but also what; everything from baby food to WMDs is made in factories—as well as free lunch, there’s no moral compass in economics. In the market, everything is for sale.. from aspirin to methamphetamine.
The way we think and act has to be revolutionised, however the majority are so stuck in the past they would have to be grabbed by the shoulders and shaken before they might pay attention to such important—and rather obvious—facts.

YOUR COMMENT Login or Register to post a comment.

Next entry: Could Aliens have Created Life on Earth?

Previous entry: Dr. Manhattan: Transhuman Hero