‘Alan, Alan, who the f#ck is Alan?’ — You’d have to be an Aussie growing up in the 80s to know where that line comes from, but there is no doubt many in the cryptocurrency community will be thinking something similar after reading the latest Bitcoin hit piece from Australian financial journalist Alan Kohler.
In the article titled “Cryptocurrencies created by anarchists to bring monetary system down”, Kohler wrote:
And having watched it for a while, and considered the matter carefully, I think the analogy is apt. That was a bubble then, and this is one now. In fact it’s worse: it’s a giant scam.
He then insinuates anyone who gives cryptocurrencies credibility is crazy — including the Japanese government:
They are hoping that the world’s governments and central banks take leave of their senses and make cryptocurrencies legal tender. In fact one government — Japan — has already lost its mind and started to do it.
and then even more oddly, gives this reason for his mistrust:
And what about the weird mining process, in which algorithms churn through trillions of calculations, burning gigawatts of power. That’s no way to run a monetary system, you would think.
One of Australia’s most respected economic voices, Kohler founded The Constant Investor and is editor-at-large of The Australian Business Review. His recent opinion piece calls Bitcoin out as a scam, and postulates that cryptocurrencies have been created by anarchists to destroy the monetary system.
When Capitalism Worked Properly
But where does the expletive laden lyric in the first paragraph fit? It’s from a crude Australian parody of the song ‘Living Next Door to Alice’ that centered around the residence of failed Australian tycoon Alan Bond.
Once fantastically rich, Bond was a highly-leveraged businessman who grew his empire by making a number of speculative business deals. In time he spectacularly went bust, losing millions of dollars of investors money and ending up in prison with a seven year conviction for fraud.
In this instance, the checks and balances of the capitalist system worked: the Bond Media empire disintegrated and investors lost their money. A few decades later however, things had changed. When in 2008 large financial institutions failed for the same reasons as Bond — greed, leverage and fraud — the system was not allowed to right itself. Governments and central banks of the day bailed out the failures at the expense of the common man.
Bitcoin Is Real Capitalism, Not Rock Throwing
It is from these ashes that Bitcoin was born. However Kohler sees this as anarchists trying to overthrow the system. Minus the associations that come with that, he is right — for the wrong reasons.
Or else it’s a sort of global counterfeiting conspiracy, carried out by anarchists intent on bringing down the global system of money and government.
To be fair, Kohler is not the first financial journalist to level such charges at Bitcoin, but it is certainly revealing that as recently as May 22nd he admitted to being “wide-eyed, awe-struck and more than little bit left behind” in relation to Bitcoin. In that piece, entitled Bitcoin: Bubble or Money, Kohler’s conclusion was that “I’m afraid I simply don’t know”. However now, only a few short weeks later, he is seemingly convinced it is both designed to steal your money and part of a global conspiracy.
But… Only Government Money Can Be Money!
That’s not to say blockchain, the technology behind cryptocurrencies, is also a scam, far from it. In fact, it looks a truly revolutionary technology that is likely to change the world through mass disintermediation — but not disintermediation of government.
Kohler’s conviction is exemplified by his argument that “the problem is that money can’t have a limited supply, can’t be unstable and can’t be separated from government and central banking.” This statement is sure to create discussion between economic theorists, but it can be easily put to bed by stating that Bitcoin is all these things — despite not being money by the standard definition. Instead, Bitcoin is software that happens to act like many things, including money.
But when you look past Kohler’s clickbait headline and accusations, he is clearly confused and reveals how little he has learnt about cryptocurrencies in the few weeks between late May and early July. His arguments go some way to making the case for Bitcoin, whilst trying to discredit it.
Bitcoin Is Not an ICO, Governments Are Not Always Good With Money
Right off the bat, Kohler shows his confusion by referring to ICOs and stating that Bitcoin is the “oldest and largest” with a 42 percent market share. This misrepresentation could easily have been avoided with just a modicum of research; the launch of Bitcoin, with no premine and requiring no monetary investment besides electricity consumption, is diametrically opposed to the current ICO launch craze.
There are plenty of other misconceptions, but from here, Kohler provides an analysis that would not be out of place in Orwell’s “Nineteen Eighty-Four”, where the ability to believe two contradictory ideas to be true at the same time is admirable.
Kohler argues that governments and central banks are trustworthy and inseparable from money, despite admitting their mistakes have led to instances when depositors lose savings and financial institutions need to be “implicitly guaranteed by taxpayers”. That notion is also sure to rile up the goldbugs, as gold was certainly used as money previous to the creation of central banking.
Similarly, Kohler argues that the legal tender system works because of the trust placed in government to honor payment in full, but fails to mention any number of examples where sovereigns have defaulted, like Argentina or Russia. He does mention however that the “price stability mandates” of the 70’s only led to more inflation.
Kohler Should Admire Japan’s Bad Economic Policies
Then without a sense of irony, he goes on to state that Japan has “lost its mind” after legalizing the use of Bitcoin as a payment method.
Kohler should admire Japan — whose government owns over 30 percent of its own bond market. The country has been mired in decline and stagnation for 30 years following the spectacular real estate and stock market crash of 1989. In the intervening years, they have had almost as many Q.E. programs as Prime Ministers, and none of them have worked as intended. They are a shining example of the Krugmanesque version of insanity (“moar”) whereby doing the same thing over and over does not change the result.
The same applies to trusting that swiping his debit card will pay for his coffee — Kohler wonders if he could ever trust a blockchain over a government. And while this was formerly an argument against Bitcoin’s legendary volatility, the question of trust is indeed laughable considering that the processing power securing the Bitcoin ledger is magnitudes stronger than even the most advanced supercomputer.
Motive: Be Better Than Banks, Not Destroy Them for the Sake of It
It seems like Kohler is completely misunderstanding the technology; compared to the numerous hacks of financial institutions and credit card networks, along with the associated fraudulent transactions that need to be reversed, it is clear that an irreversible, public blockchain is significantly more trustworthy.
The schadenfreude keeps coming. Kohler goes ‘blockchain not Bitcoin’ and believes the Bitcoin mining process — an incentive based security measure — is “weird” and that the significant use of electricity “is no way to run a monetary system”. But then he goes on to detail that currently money is created by “economists in ivory towers”, lent out via fractional reserve lending and is devalued by “deliberate inflation”.
So my message to Alan Kohler is that if you’re looking for the motivation behind Bitcoin, read Satoshi Nakamoto’s message embedded in the Genesis Block. It isn’t presaged by anarchy or destruction, but by the fact that governments and central banks worked in unison to bail out financial institutions while leaving regular people — as us Aussies would say — “up sh*t creek without a paddle”.
Did Kohler make any valid points or is he way off? Put your opinions in the comments below.
Images via icmi.com.au, ABC, Pixabay, Jon Southurst