Consequentialism is a category of ethical theories purporting that the outcome of a set of conduct by an individual or a group, are the ultimate denominator of judgment about the rightness or wrongness of that conduct. I think it’s about time we collectively, look identify the zero-sum consequentialism of Bitcoins.
In 2008, the Lehman Brothers collapse triggered a global economic crisis with effects that reverberated around world markets. What followed was a period of economic slowdown that challenged people’s faith in the existing financial infrastructure. When Bitcoin was launched in such a politico-economic setting, Blockchain became media’s darling, generating unprecedented user interest. Initial investments drove the prices and the opportunity of quick returns accompanied by continued public intrigue which has remained steady for the last decade.
Satoshi Nakamoto got behind the Bitcoin with the intention to fight central authority’s control over money, which had led to the financial crisis of 2008. In the Bitcoin paper, Satoshi describes a purely peer-to-peer version of electronic cash which can be transacted without financial institutions. The creation of Bitcoin opened up cross-border transactions and peer-to-peer transfer without any fee. Bitcoin solved the long-standing problem of double spending by time stamping and adding proof-of-work. The decentralisation of Bitcoin was due to the work-intensive nature of the proof algorithm. This would prevent a large corporation from gaining control of the network. These transactions are verified via network nodes that depend on Blockchain Technology.
Bitcoin was officially launched in 2009 as open-source software while existing cryptocurrencies were primarily associated with black market trades owing to the anonymous and untraceable nature of the transactions. Bitcoin remains the first decentralised, and most widely used and accepted cryptocurrency.
Bitcoin blockchain is a public blockchain. Public blockchains are anonymous and immutable. Blockchain technology is the most exciting innovation since the internet. The popularity of Bitcoin is what drove up its price. Even after the adoration that Bitcoin receives, it is unimplementable for having several issues including scalability. Bitcoin storage is a significant problem, and nobody has found a way to compress the data. With only 2-7 transactions per second, there isn’t a way to have faster transactions. Miners are paid to speed up these transactions and are charged upwards of $20.
As for what it really ‘costs’ to mine a Bitcoin, one would have to look in places that might seem irrelevant. The daily consumption of electricity used to mine Bitcoin is five times more than 100,000 Visa transactions. That is the magnitude of the situation. Bitcoin mining is also inherently biased towards privilege. China has 60% of the world’s Bitcoin miners merely for having heavily subsidised commercial electricity. The opportunity to access and possess the Bitcoin is not equally distributed to everyone in the world, and one reason why it cannot be regulated is that it would give no economic advantage to a country. Satoshi never foresaw this.
Then again, Bitcoin is only successful as an asset and has failed as a currency. It has a niche user base and is not used in places where trade or transactions happen. The lack of mass adoption keeps governments from regulating the Bitcoin, at the same time, non-regulation leads to speculative pricing and a further decrease of adoption. In the meanwhile, it has been entirely unhelpful to discover Bitcoin frauds. Although patches are periodically released, and the codebase is well-maintained, the exponential rise in cash-flow through Bitcoin trading has invariably opened massive opportunities for hackers to exploit.
The fallacy of Bitcoin as a currency is its transaction fee which is typically above $20. The transaction fee is paid to ensure convenience and security in the exchange. This is not only higher than the transaction fee paid for regulated currency but is also an indication of the security risk it holds. Even small transactions take about 78 minutes to complete, and the technology is not convenient to solve payment related problems. Bitcoin network has a maximum throughput of approximately 4 transactions per second. This causes Bitcoin to fail as a currency as it can’t handle a large number of transactions. The number of Bitcoins that can be created are fixed and is hardcoded into the network, this was to prevent hyperinflation.
The least user-friendly aspect of Bitcoin is how its users must be well versed in cyber security. It’s challenging to have non-specialists get a grasp of a currency that has no physical presence but is also difficult to use. Unlike fraudulent credit card transactions that can be reversed, there is no added security to protect Bitcoin transactions for its consumers.
Bitcoins have been stolen from local cryptocurrency exchanges. Since the Bitcoin operates on a public blockchain and never reveals the identity of a user, it is possible for one person to operate from multiple user identities. This is just the tip of the iceberg when it comes to concerns about Bitcoin being used for money-laundering and other scams.
In the nine years since Bitcoin was introduced, governments all over the world have been scrambling to find a regulatory framework for it while it bypasses their existing financial infrastructure. In India alone, the GST was levied on Bitcoin trade which was counter-intuitive since cryptocurrency is neither a good nor a service. Formalizing the Bitcoin would also take away any leverage the Indian rupee has in cross-border trade.
The economy would be at a complete loss to effectively realize any taxes on a cryptocurrency in domestic trade. Financial technology is certainly needed to disrupt the way people transact but the Bitcoin has by far been the least implementable solution.
Meanwhile, countries like Zimbabwe and Venezuela are open to transacting in Bitcoin because it is not subject to inflation, and it provides them with a way out of the economic damage they’ve taken due to hyperinflation. However, Bitcoin has made its mark on the dark web in illicit and black-market trade.
No matter how much the technology of it can be innovated, the fact still remains that it is completely counterintuitive to socialism and social good, while at the same time destabilizing a country’s accountability for its FDI and cross-border money flow.
Bitcoin started as a novel idea, to set up a new financial ecosystem that eliminates intermediaries and gives transaction powers directly into the hands of the masses. Anonymous, instantaneous transactions with universal acceptability were the goals of Bitcoin, one would assume.
The anonymity of Bitcoin transaction also helps Bitcoin to be used for illegal activities. Bitcoin as a currency that isn’t backed by anything. Its value is purely speculative. Despite nearly 10 years, the adoption of Bitcoin has been very slow as a global currency. Bitcoin fails several features of a fiat currency
Bitcoin – the artist formerly known as the unyielding instrument for and by the masses for social good, one that will do away with power structures that have been created by institutional structures bound to capital are all seemingly fading quick. As of 2018, Bitcoin has miserably failed at achieving these social good goals. Despite a socialist vision, the implementation has been exceedingly capitalist. It is anything but agnostic to class and privilege barriers, helping only a few reap its benefits at a massively unjustified cost to the environment.
Bitcoin in the modern world is a lucrative venture that rides media-hype to yield quick earnings in a very speculative market. It’s a not a currency that has been mass adopted; it’s not suitable for retail or everyday transactions by the ordinary consumer owing to the patchy implementation and structural issues of Blockchain. One can argue that the democratisation of data via Blockchain is to a significant extent worse than the established traditional capital.
The grand intent behind creating the Bitcoin will never be delivered at this rate, and to hope that it will still be the disruption we need for the future is certainly hamartia on our part. The presupposition to a zero-sum game in society is that the problem of wealth lies in distribution, not the production of it. This is how Bitcoin was birthed. And this exactly where it has failed.
Jay Krishnan is the CEO of T-Hub, India’s largest startup incubator & venture advisor to SRI Capital. Jay is a successful serial entrepreneur who founded two startups in IoT in the U.S. & India.