Yes! The European Central Bank Gets This Right About Bitcoin!

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Euro­pean cen­tral bankers, on brand as ever, have shared a terse­ly word­ed cope-memo decry­ing bit­coin and its das­tard­ly ways — and inad­ver­tent­ly made the case for nev­er reg­u­lat­ing it.

The essay dou­bles as a no-coin­er bin­go card of sorts. It’s a string of sil­ly mis­nomers and half-truths: “Bit­coin is rarely used for legal trans­ac­tions” and “the mar­ket val­u­a­tion of Bit­coin is there­fore based pure­ly on speculation.”

But with­in the ECB’s mus­ings, first pub­lished in Ger­man finance press Han­dels­blatt, there are a few points that actu­al­ly ring true.

Direc­tor gen­er­al Ulrich Bind­seil and advis­er Jür­gen Schaaf rat­tled off an oft-cit­ed crit­i­cism that says Bit­coin gen­er­ates as much e‑waste as the Nether­lands (a sta­tis­tic based on hot­ly debat­ed mod­el­ing from for­mer Dutch cen­tral bank col­lab­o­ra­tor Alex de Vries). 

Dove­tail­ing with that tid­bit, the pair right­ly point out that depre­ci­a­tion of min­ing hard­ware (described as an inef­fi­cien­cy of the sys­tem) is not a flaw, but a fea­ture. “It is one of the pecu­liar­i­ties to guar­an­tee the integri­ty of the com­plete­ly decen­tral­ized system.”

That’s entire­ly true. Cap­i­tal­is­tic game the­o­ry dic­tates the bit­coin indus­try relent­less­ly devel­op faster and more ener­gy-effi­cient min­ing rigs. Min­ers want to spend the same amount of ener­gy for more bit­coin, so they’ll invent new min­ing rigs that will gen­er­ate more hash rate with less energy.

Min­ers that can’t afford them (or can’t access cred­it) will inevitably fall to the way­side, pri­or­i­tiz­ing effi­cien­cy across the board above all else. 

In fact, the val­ue propo­si­tion of the net­work relies heav­i­ly on its claim to decen­tral­iza­tion; a bit­coin min­er monop­oly could very well ren­der the net­work less valu­able than if it were shared more equal­ly — espe­cial­ly if they wield more than 51% of the hash rate.

This makes bit­coin min­ing as much a team game as it is a solo sport. 

The free­dom to devel­op, invest and accu­mu­late bit­coin min­ing rigs direct­ly inspires decen­tral­iza­tion. Chi­nese chipset mak­er Bit­main was once a pow­er­house of bit­coin min­ing, and some might argue a deeply cen­tral­iz­ing fac­tor, con­trol­ling almost 51% of Bit­coin hash rate in 2018.

But infight­ing, restric­tive reg­u­la­tions at home, and an unten­able posi­tion in Bit­coin Cash has all but scrubbed Bit­main — which bases its entire busi­ness on the “inef­fi­cien­cy” of the Bit­coin sys­tem — from the min­ing map, with an array of bit­coin min­ing com­pa­nies and pools tak­ing its place.

The authors fol­low up that right­eous Bit­coin fac­toid with anoth­er: Bit­coin should not be reg­u­lat­ed as a form of pay­ment or investment. 

Schaaf and Bind­seil actu­al­ly jus­ti­fy nev­er reg­u­lat­ing Bit­coin by claim­ing it “appears nei­ther suit­able as a pay­ment sys­tem nor as a form of invest­ment. But few­er words from a cen­tral banker have rung as sound­ly as Bit­coin “should be treat­ed as nei­ther in reg­u­la­to­ry terms.”

Yes. That’s an excel­lent Bit­coin mantra: Do away with gov­ern­ment-pow­ered, Sauron-style sur­veil­lance of the Bit­coin net­work. And while you’re at it, scrap the tax regulations.

The Inter­nal Rev­enue Ser­vice con­sid­ers BTC an asset just like prop­er­ty, which ren­ders every trans­ac­tion a tax­able event. This obvi­ous­ly ren­ders some cryp­to-folks’ quests to pay for cof­fee and burg­ers with bit­coin a pain in the ass

Let’s hope the ECB’s wise sug­ges­tion of keep­ing big gov­ern­ment out of lit­tle bit­coin catch­es on.


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