Who’s behind the bitcoin attacks?

  • A sinister motive?
  • In the mailbag

Today your editor writes from the English West Country city of Bristol.

It’s your editor’s hometown. And while it may not have been the hometown of renowned engineer, Isambard Kingdom Brunel, the gentleman left a strong legacy in the city.

We’ll send you a few snapshots tomorrow of three of his greatest ‘gifts’ to Bristol: the Clifton Suspension Bridge, Temple Meads Railway Station, and the SS Great Britain.

We’re stopping by on our way to a business meeting in Ireland. You’ll read our reports from there for the rest of this week.

We only landed today, so we’ll keep our contribution relatively short, handing over the lion’s share of column inches to reader mail.

First…

Markets

Over the weekend, the Dow Jones Industrial Average closed up 191.48 points, or 1.04%.

The S&P 500 index closed up 18.62 points, or 0.86%.

In Europe, the Euro Stoxx 50 index gained 41.37 points, or 1.41%. Meanwhile, the FTSE 100 added 0.79%, and Germany’s DAX index gained 1.36%.

In Australia, the S&P/ASX 200 is up 37.89 points, or 0.69%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$41.92 per barrel. Brent crude is US$44.34.

Gold is US$1,333 (AU$1,752) per troy ounce. Silver is US$196 (AU$25.78) per troy ounce.

The Aussie dollar is worth 76.07 US cents.

A sinister motive?

Our discussion on digital money continues. Below is the next batch of reader mail on the subject.

Before that, we will make one observation. We don’t claim that it’s an original observation, as it’s something that thousands of Australians do each year.

It’s that for this business trip to the UK and Ireland, the only pounds sterling we brought with us were two five pound notes, leftovers from our previous trip last year.

As for euros, we’ve brought a grand total of 60 euros in cash.

I’ll be clear on this one. Technologically, I don’t have a problem with innovation, or a problem with the eventual phasing out of physical cash.

Our problem is that governments appear to be taking over the idea of a cashless society.

As long as something remains a private sector initiative, we’re all for it.

We’ve always found it amusing that folks get their pants in a knot about private companies using digital technology to track their movements or analyse buying patterns.

We’ve never understood the fuss. After all, what’s the worst thing a private company can do with your personal preferences? That’s right, they can use the data in order to try to sell you something.

That may be annoying, but is it really so bad?

On the other side, what’s the worst that a government can do? That’s right, jail you, or deprive you of freedom in some other manner (including conscription to the armed forces, or capital punishment).

If the private sector remains in control of digital money, it’s likely that a whole range of new suppliers of digital money would appear. This would create competition. It should also discourage other private suppliers of digital money from doing anything that would jeopardise the reputation of their digital money.

Not that private digital money is 100% secure. The recent theft of US$65 million-worth of Bitcoins from a Hong Kong-based digital exchange, show that potentially all digital money is under threat.

As the Wall Street Journal reports:

Bitfinex, the digital-currency exchange that lost $65 million to hackers last week, plans to spread the losses among all its users, including those not directly impacted by the hack.

The Hong Kong-based digital-currency exchange said in a statement Sunday that the losses from the theft would be shared, or “generalized across all accounts and assets” of its clients, with each taking a loss of around 36%.

“Upon logging into the platform, customers will see that they have experienced a generalized loss percentage of 36.067%,” it said, adding that the company would soon share a fuller accounting of its computation of the losses. “This is the closest approximation to what would happen in a liquidation context.”

Perhaps it’s just a coincidence that hackers are attacking private digital money systems. Only a conspiracy theorist (or your editor) would try to make a link between the hack and national security agencies.

As crazy as it may seem, there may be something to it. Private digital money systems are a threat to the State — especially during a time of crisis.

In order for the government’s money system to get a firm hold and gain acceptance, there can’t be a threat of competition.

Under competing money systems, you will always find at least one system that fails to gain or retain the confidence of users. You can see that throughout history. It has mostly come during the debasement and devaluation of one currency against another.

If the government wants its digital money to be effective in the way it hopes, the government must marginalise all private sector forms of digital money.

The best way to do that is to demean it and display its vulnerabilities. How do we know that?

That’s easy. What the heck do you think governments and central banks have spent doing to gold over the past 70-plus years?

Anyway, we’ll see. In our view, the progress towards digital money is unstoppable. The only issue that remains is whether it’s a government or private-issued digital money that becomes the most dominant.

The resolution of that issue will have a major impact on the success or otherwise of digital money, and whether it becomes a net benefit or a net loss to the economy and the people within.

Stay tuned for more details in the weeks and months ahead.

Now, onto the reader mail.

In the mailbag

First, this note from subscriber, Tim:

On paper digital money sounds compelling, the reality is probably far from it.

Despite the fact that money is currently by and large stored/managed digitally I believe the public on this side of the Tasman would want to retain the right to hold their money in their hot little hands should they choose.

I think the NZ public would be outraged if a government backed central bank suggested digital money and it would become an election issue.

As often written our politicians will do what is likely to keep them in power not what will see them ousted.

Tim could be right about voters not accepting the abolition of physical money. But just remember that an even bigger interest for politicians is the creation of their own legacy.

They want to be known for something after they retire or are thrown out of office.

So, the opportunity to abolish cash and replace it with digital money…that would look pretty good on the CV of almost any politician who is aspiring for greatness!

Subscriber, John N offers this contribution to the discussion:

Lovin’ the commentary. Lovin’ that you’re not backing down on things like climate change and other crap. Stay true. Trade hard.

Digital money if brought about with fiat is crap.

So is helicopter money. However.

I do like the idea of free money that I can go and buy more bullion with. You see.

I’ve put myself on a gold standard.

My currency goes into a bank that is solely backed by gold. There’s no lending. And there’s no interest earned. But there’s more…

They have a debit card. I can buy my morning coffee with gold.

The bank isn’t in the geographical area, governed by the federal mafia that is the entity callin’ itself the Australian government.

Now, I’m betting that as we move to a cashless society, the market will meet the demand. And there’ll be more and more banks that are backed by gold.

You see, as freedom lovers, sometimes during all the oppression, we lose sight of one thing.

…that the free market is the most powerful force made by man.

So, nothing the central bankers can do will be able to tame the free market.

Sure, they can poke and prod it. Make it take on funny shapes, for a certain amount of time.

But on the whole, they’ll run out of steam before the market runs out of power.

No problemo. Problem averted…roll out the ‘copters.

And finally for today, a note from subscriber, Stephen:

I don’t see how digital money differs much from credit. According to current statutes and the Constitution neither is “legal tender”. Both s115 of the Constitution and the Currency Act 1966 make gold and silver coin the only “legal tender” in payment of debt with the schedule in the Currency Act showing what weight and purity the “value” behind the currency needs to be. Along with the Bills of Exchange Act 1909 s32 that shows for an agreement to be valid, “valuable consideration” must be provided.

This brings us back to digital currency and credit. The banks and RBA create credit out of the request for funds without having the actual “legal tender” but only a fractional reserve of cash equivalent (not legal tender but other paper instruments such as bonds, securities). There is no valuable consideration when credit is created as the banks lose nothing of “value” when defaulted upon yet claim to be able to repossess your physical property. This credit appears as digital currency that appears in our bank accounts.

Bank accounts merely hold credit without the backing of cash or “legal tender”. To implement the digital currency all that is required is to alter the “standards” (not laws) that APRA require. APRA’s standards are based on “Basel III” as APRA is a “Basel III committee” member. These standards are not public law as they are not written by the Parliament according to the Constitution but rather by APRA according to the Basel III committee thereby making them private laws.

This means that rather than a public monetary system based upon “legal tender”, it will purely be based upon digital credit created or destroyed due to demand or inflation/deflation requirements. This is much the same as the current fractional reserve system whereby credit is created by demand and destroyed by the payment of debt but  without reserve requirements.

The system is purely a private monetary system run by bankers. As it their money, they will determine the terms and conditions of its use.

In the words of Shang Tsung (Mortal Kombat) — “It has begun”

Without prejudice.

PS: According to the Reserve Bank Act, the Reserve Bank has the ability to collect all gold. Why would they need this in a digital currency world?

That’s all for today’s mailbag. We’ll be back with more letters tomorrow.

Cheers,
Kris