Bitcoin is the car, look under the bonnet

[9 min read]

Dear Reader,

I’ll start today’s Rum Rebellion by imploring you to read yesterday’s edition if you haven’t already. Written by my mate Vern Gowdie, it’s a cracker. It’s a good reminder that money and wealth only accrues and remains with those people and families who work hard and smart, who operate with humility and have respect for their capital.

It’s also a reminder that family comes first. Always. So I’ll reiterate Vern’s message and wish you and your families a happy and peaceful Easter break.

It’s certainly a beautiful time of year where I am, on the south coast of NSW. The sun is warm, not hot, and the air is dry, not humid.

And of course, Easter is a time for reflection. In the past I have been cynical of the Easter tradition. You can thank going to a Catholic boy’s school for that. But at the heart of it, we are celebrating the death of a man who left a very, very big mark on this world.

Jesus taught us to be more human, and that love trumps all. It’s a solid message, and one that should rightly be celebrated. My beef is with organised religion.

I’m tipping Jesus would be with me on that one…

So happy Easter everyone!

Vern’s bitcoin bashing essay, published on Tuesday, was also a good one. I agree and disagree in equal parts. And that’s what I’m going to talk about today. I rarely mention bitcoin. But I’ve been working hard to understand it better since 2020, so I feel like I actually know what I’m talking about.

I agree with Vern regarding price. How do you value it? Is it worth $10k, $60k, or $500k? I don’t know. He also made some good points about the concentration of ownership. How can something be money when most of it is owned by relatively few players?

All good points that I don’t have answers to. It’s why I don’t own any. Which is kind of annoying…

But there is another side to bitcoin and cryptocurrencies in general, that you absolutely must understand before you even get to price. When you look at it through this lens, it becomes much more interesting.

Bitcoin isn’t just electronic money. It’s underpinned (and given value) by blockchain technology. Another word for this is distributed ledger technology. So what, you might ask?

Well, distributed ledger technology can do a few things.

It can facilitate transactions between two parties directly, no middleman required.

It can record those transactions (and the ownership trail) without the need for a central party to ‘keep the records’. The record is maintained on the blockchain. And no one can mess with it. It’s ‘immutable’.

To put it simply, this is a free-market system that has developed in response to a corrupt and broken monetary system. As I often say, that system broke in 2008. It no longer works. It needs constant stimulus to prop it up. It is simply a legacy financial system run by the elites, for the elites. Us plebs still have to use it, but all it gives us is zero interest rates and depreciating currencies.

The key thing to understand is that cryptocurrencies and the blockchain technology that underpins it is a genuine alternative financial system. It is decentralised, meaning there is no third party (like broker, clearinghouse, custodian, market maker, etc) to facilitate payments.

Transactions that occur on the blockchain are quicker and cheaper than those made through the traditional financial system. That’s because there are no third-party money leeches to pay.

So who owns and maintains the blockchain?

In the traditional financial system, it is the banks/central banks/governments that have a monopoly hold on the payments system. And they are the prime beneficiaries.

The beauty of the blockchain system is that it is open-source. Everyone and no one owns it. It is maintained via the age-old principle of self-interest. That is, the bitcoin ‘miners’ (or etherium miners, or whatever) need to devote significant computational power to ‘mine’ a bitcoin. And there is good competition for it. It is this competition that constantly strengthens the blockchain system.

In this way, the new money system is reinforced and strengthened by miners acting in their self-interest. This creates an almost frictionless system that is devoid of ticket clippers and parasites.

But you ask, how can bitcoin or other cryptocurrencies be money when its value is so volatile? It’s a good point. Cryptocurrencies are clearly in the price discovery phase. I honestly have no idea where the price will settle.

But ultimately, the price will represent the value of the underlying blockchain system. As the price is the means of incentivising the maintenance and strengthening of the system, the two are tied together.

But the market is coming up with solutions for this. ‘Stablecoins’ are proliferating as a means of payment through this new money system. A stablecoin is basically a cryptocurrency tied to the value of a fiat currency. (There are other types, but we’ll keep it simple for now.)

In order to buy stablecoins, you first must buy bitcoin or ethereum (the two main cryptocurrencies). They are like the gateway to get you onto the new money system.

So if you want to do business this way, you can have the features of a stable currency for payment/transaction purposes, but do so on the blockchain. This allows you to bypass the legacy financial system and all the parasites that clip your ticket for doing very little.

To say this is the ultimate disruption is an understatement. This technology strikes at the heart of power and influence in the world of banking and finance.

The empire will strike back at some point.

But short of shutting down the internet, there’s not a lot they can really do to stop it. Maybe they’ll try and tax it out of existence.

Who knows? I just know this is a great development for humanity. For the past 100 years, the sociopaths running the world have increasingly centralised power structures. Money, banking, media and information have all become far more concentrated.

Concentration of power leads to greater control. And the control of money is the ultimate goal. So make no mistake, this is massive. Don’t be fooled or put off by the soaring price of bitcoin, or the fact that many of its supporters have no idea what they’re supporting.

Look under the bonnet. It’s huge.

For today though, I’ll leave you with a chart of the bitcoin price. There is a concern that the strength of the price surge is beginning to wane. You can see that in the divergence between price and RSI, which is a momentum indicator.

Whether this means bitcoin is going into a deeper correction, time will tell. But it’s something to keep in mind…

Cheers,

Greg Canavan,
Editor, The Rum Rebellion

A Long Time Forgotten
By Bill Bonner

‘We shall soon be in a world in which a man may be howled down for saying that two and two make four, in which people will persecute the heresy of calling a triangle a three-sided figure, and hang a man for maddening a mob with the news that grass is green.’

English writer and philosopher GK Chesterton

Long-suffering Diary readers have accompanied us for the last two days…wandering in and out of the woods…back and forth in history…wondering how come people forget the things that are most important to them…the things that make them successful.

Well, today, we reach our destination — or at least, as far as we’re going to go: The wild weeds grow every day. Give them a chance, and they take over.

Getting weedier

By our reckoning, the US seemed to run out of ‘roundup’ around about the turn of the century — in 1999. Since then, by almost every measure, the country has been getting weedier. Here’s the latest from Harper’s:

‘The United States fell 11 places below its 2010 position, to just below Argentina and Mongolia, on a watchdog’s annual ranking of countries according to political rights and civil liberties; worldwide, freedom declined for the fifteenth consecutive year.’

What seems to be happening is a general dumbing down…so that important insights and the hard-earned lessons of the past are forgotten…neglected and abandoned.

Balance the budget? The expression hasn’t been heard in Washington for many years.

Free enterprise…free markets — yes, of course, but with federal guidance!

Real money? What’s that?

Work for a living? Why not just hand out more stimmy cheques?

More women in the Cabinet? That’s what we really need!

Even the most fundamental brick in the whole social edifice — the family — has been cast aside. Marriage rates in the US are at their lowest level on record.

Weeding and pruning

Civilisation is restraint, said Sigmund Freud. But it’s more than that. It’s callouses. It’s planting and building. And it’s pulling out the weeds and pruning off foolish ideas.

It requires discipline and a willingness to make distinctions — between what is true and what is false. Two plus two must equal four. Not seven. Words must have meaning; they can’t mean anything you want.

And money must have value; it must represent real wealth, not just pieces of paper you pass out on street corners.

Robbers and counterfeiters should be hung, not hired to run government. Murder ought to be punished, not disguised as ‘war’.

Spending must be controlled, and debt must be limited…not allowed to run wild until the country is bankrupt. Two plus two must equal four.

Civilisation requires learning, too…and relearning…

It means finding out what works and cleaning out what doesn’t…and always maintaining, shoring up…fixing and protecting.

Weeds take over

But the weeds don’t stop growing. And when the civilising energy is spent, they soon take over. Then, a few generations go by, and soon, nobody remembers anything.

In the jungles of Central America, for example, there are vestiges of a powerful civilisation — including vast stone temples and sculptured heads. But by the time the Europeans arrived…nobody knew who made them…or how.

The same could be said about dozens of ‘lost’ civilisations — the Zapoteca, Hurrian, Punt, Harapan…and so forth.

On Easter Island in Polynesia, magnificent statues face out to sea. But the locals still don’t know why.

Even here in Ireland, there are ruins that have been here for thousands of years. Who built them? When? Why? Nobody knows.

Within a mile of our house, there is the Molana Abbey. It is in ruins. And there is a Norman castle nearby, also in ruins.

There are ruins on our property, too. Maps from the 19th century ignore them…as if they didn’t exist. The cartographers must have thought they weren’t worth noting.

Our house here was the ‘rectory’ of the church down by the castle. The church itself is fairly recent — from the 19th century. But it too is abandoned and covered in vines.

Lost civilisation

This past weekend, we cut into the laurel, the trees, the vines, the weeds, and the underbrush to try to re-establish a road that led from the old ‘lodge’ (which must have functioned as a gate house) to the rectory.

The lodge was barely visible when we arrived — completely covered in vines.

The farm itself is about 60 acres. Before the Great Famine in the 19th century, the area had more people…and much more human activity. The fallen-down walls and houses attest to a more carefully planned and tended property, with large families and many hands at work.

The old Ordnance Survey map from 1837 shows roads, houses, walls, orchards, and gardens that no longer exist. Back then, local people lived off the local produce that the farm supplied; it had to be productive. They couldn’t ‘print’ bread, apples, or potatoes.

Today, much of Ireland’s GDP comes from high-tech businesses centred around Dublin. Rural areas have been relatively neglected, except for the remaining farmers, who rely on the latest in farm equipment to make up for scarce, and expensive, labour.

Exploring the woods

Unable to penetrate the thick underbrush on the old road coming up from the lodge, last Saturday, we brought in reinforcements — one of the O’Keefes with a backhoe — and Matt, who helps around the house.

While they continued working on the road, we decided to explore from the other side, leaving from the house, crossing the cow pasture — hopping gingerly over the wire so as to avoid electrocution — and then entering the woods.

At least, this time of year, we can see much more; the trees and brambles have not yet set out their leaves.

Once over the wire fence, we came to a stone fence, only about three feet high, with big gaps where the stones have disappeared. On the other side, a short, steep hill led down to a small stream, easily forded by stepping on stones.

Up on the other bank was a large beech tree, so grand and thick, it had killed the competition, leaving only a carpet of ivy on the ground.

It was not hard to see where the Celts got their weavy patterns — they are on display, natural expressions of the vines.

Hidden portal

Crossing over the ivy, we ducked under a laurel limb, and there it was — one of two large portals in an ancient wall.

This wall — hidden in the woods — is higher than others in the area — about 12 feet tall. And it was built to a different standard. The stones are tighter, more carefully laid up than most.

The entry passageway — big enough for a horse-drawn carriage — was sculpted with cut stone.

Going inside, we saw that the wall continued around in a horseshoe form, with another large passageway on the opposite side and two doorways in between.

The two large portals were in good shape, with scarcely a stone out of place. But a big stone must have recently fallen from the arch of one of the doorways; it lay naked on the ground, unclothed by moss or vines.

We ducked under more laurel limbs…some growing over or into the high walls. A sycamore tree, too, has grown up in the middle of the horseshoe.

What was it? An entry…but to what? And why was it open on one side, while seriously closed on another? When was it built? By whom? Why?

Ancient enemies

We walked back down the hill to where we heard a chainsaw at work. Matt was cutting a big tree that lay across the road. Pat O’Keefe stood by his machine, waiting to push the debris down the hill.

The O’Keefes have been in this area for ‘donkey’s years,’ we were told. ‘They were a powerful family. And they probably know more about local history than anyone.’

So we asked Pat about the ruins.

‘Do you know anything about them?’

‘Yu blwa vul ashn crotrech’ said Pat, a thin man with a thin beard.

We don’t know what he said, either.

So we turned to Matt, our regular translator.

‘What did he say?’

‘I don’t know meself. He’s from the other side of the river. And over here, we don’t talk to the O’Keefes.’

Regards,

Bill Bonner,
For The Rum Rebellion