A few thoughts - Friday, April 25, 2014

[Steve Sokolowski]

I wasn't going to post any thoughts today, because it didn't seem like there was much to discuss. But now there is.

1. Yet another reminder that the Chinese government sees a threat to their order. If it weren't clear before, it should be now. All the stuff people said in 2011 about bitcoins posing a threat to governments is happening already. Three years ago, programmers laughed at bitcoins as a waste of computational resources that could otherwise be spent on folding@home. Now, the People's Republic of China is timing news releases in an effort to destroy bitcoins. One of the most repressive regimes in the world is worried that, for the first time, people can use money without them being able to do anything about it. This is truly remarkable.

2. On the other hand, Chinese officials are at risk of overplaying this. There's not much more panic that can happen. Eventually, some people in the media are going to pick up on this, and then people in the West, especially in Washington, are going to see what's going on. You can't give something legitimacy in the eyes of Senators any more quickly than China banning it. Every time China puts more restrictions on bitcoins, Washington is incentivized to put fewer restrictions on them. Today's news has almost certainly gotten the attention of people who are realizing that there is really something here that can be used to destabilize the Chinese system.

3. Yes, there are Chinese officials who are probably reading your posts right now.

4. A friend sent me an E-Mail yesterday asking me "why would you use your real name on the Internet?" It got me to thinking about privacy and what information is important to protect. My conclusion is that many people worry about posting information on the Internet because they separate their lives into compartments, which are all inconsistent with each other. They put up fake personas. For example, some people give the impression to their bosses that they are professional ambassadors for their companies, but they smoke weed at night and lie about it. These sort of people get freaked out when they see pictures of themselves holding bags of marijuana on facebook and cry "privacy!"

5. That said, if you aren't one of these types of people, then I was only able to come up with two pieces of information that are not in the public records and which are really critical to protect. Bank account numbers and credit card numbers, while desirable to keep secret, are not game-enders because the financial institutions are required by law to reimburse fraud. The two pieces of information people should be protecting are social security numbers (or the equivalent) and bitcoin keys (both public and private). SSNs can be used to create fake accounts in your name, and revealing your public key now means that, even in 10 years when bitcoins are used for most purchases, people can trace everything you buy all the way back to the post you made today - even if you send those coins to a new wallet first.

6. Notice that the bad Chinese news barely moves the markets now, which is just in line with the bubble cycle. The bubble cycle always reigns supreme. Two weeks ago, rumors about one exchange discontinuing one type of payment caused $200 drops. Now, rumors of a complete ban of bitcoins caused a $50 drop.

7. If you still don't think this is a purposeful manipulation by people who take this very seriously, imagine this stuff happening in the West, and the public uproar that would result. Think about FinCEN producing six different regulations that change every two weeks, and before they produce them, they release rumors that contradict what they are going to release. Those officials would be fired or indicted for abuse of power, and there would be lawsuits flooding the courts.