The Effete Rebellion of Bitcoin by Ben Hunt, Salient Parthers

Neil McCauley: We want to hurt no one! We’re here for the bank’s money, not your money. Your money is insured by the federal government, you’re not gonna lose a dime. Think of your families, don’t risk your life. Don’t try and be a hero!

Bitcoin: The The Effete Rebellion of The Cryptocurrency

“Heat” (1995)

Butch Cassidy: What happened to the old bank? It was beautiful.
Guard: People kept robbing it.
Butch Cassidy: Small price to pay for beauty.

“Butch Cassidy and the Sundance Kid” (1969)

John McClane: Why’d you have to nuke the whole building, Hans?
Hans Gruber: Well, when you steal $600, you can just disappear. When you steal $600 million, they will find you, unless they think you’re already dead.
“Die Hard” (1988)
“The Town” (2010)
“Point Break” (1991)
“The Dark Knight” (2008)


Cobb: What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient…highly contagious. Once an idea has taken hold of the brain it’s almost impossible to eradicate.

– “Inception” (2010)

Jimmy Dell: I think you’ll find that if what you’ve done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is that they will give you nothing, and they will begin to act cruelly toward you.
Joe Ross: Why?
Jimmy Dell: To suppress their guilt.

“The Spanish Prisoner” (1997)

“Is it true that you shouted at Professor Umbridge?”
“Yes.”
“You called her a liar?”
“Yes.”
“You told her He Who Must Not Be Named is back?”
“Yes.”
“Have a biscuit, Potter.”
J.K. Rowling, “Harry Potter and the Order of the Phoenix” (2003)

I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.
Thomas Jefferson (1743 – 1826)

I really can’t think about kissing when I’ve got a rebellion to incite.
Suzanne Collins, “Catching Fire” (2009)

In the day we sweat it out on the streets of a runway American dream.
At night we ride through the mansions of glory in suicide machines.
Sprung from cages out on Highway 9,
Chrome wheeled, fuel injected, and steppin’ out over the line.
Bruce Springsteen, “Born To Run” (1975)

So few want to be rebels anymore. And out of those few, most, like myself, scare easily.
Ray Bradbury (1920 – 2012)

Every act of rebellion expresses a nostalgia for innocence and an appeal to the essence of being.
Albert Camus, “The Rebel: An Essay on Man in Revolt” (1951)

I used rebellion as a way to hide out. We use criticism as fake participation.
Chuck Palahniuk, “Choke” (2001)

One of the first Epsilon Theory notes I wrote, and the one that really put this effort on the map, was about the modern meaning of gold. “How Gold Lost Its Luster” argued that gold today is not a currency or some sort of store of value; instead, it is an effective insurance policy against central bank error. That’s an Important Thing, just not as important as it used to be or as its more ardent proponents would have you believe. Today’s note is about the meaning of Bitcoin. Not its technical construction or its formal market interactions, but the behavioral WHY that gives Bitcoin its ultimate value. I caught a lot of flak for “How Gold Lost Its Luster”, and I expect some multiple of that for this note. So be it. The core tenet of Epsilon Theory is to call things by their proper names, even if that’s not the best way to make friends here in the Golden Age of the Central Banker.

Like gold, Bitcoin is neither a currency nor a store of value. Bitcoin is the cautious expression of a rebellious identity. Using Bitcoin is an effete act of rebellion, a weak signifier of resistance like wearing a hoodie or getting a tattoo that’s well covered by your work clothes. Bitcoin is fashion, more than a fad but less than lasting. Now fashion can be lucrative and fashion can be fun. Fashion is one of those intersections of art and commerce that I personally find fascinating (go ahead, quiz me on “Project Runway”). But fashion is not an Important Thing. Sorry, but it’s not.

As for the blockchain technology that underpins Bitcoin and is trumpeted as both an Important Thing and the Next Big Thing in every venture capital conference of the past two years, it’s a modern twist on the “technology” of the letter of credit. Color me unimpressed.

Strong words. Let’s dig in.

Bitcoin’s greatest attribute – its independence from every manner of organized social control – is also its fatal flaw. Bitcoin is a bearer bond. We all know what a bearer bond is, because we’ve all watched heist movies like “Heat” and “Die Hard”. Bearer bonds are the MacGuffin of choice for so many screenwriters because they side step all of those annoying plot questions when it comes to the logistics of stealing cash ($600 million in $100 dollar bills weighs more than 6 tons) or fencing stolen goods. By definition, there’s no registered owner of a bearer bond. If you possess it, you can trade it for value without your trading partner worrying about whether or not you are the “rightful” owner.

Bearer bonds have a very similar legal foundation to a bank letter of credit, where the bank will release the contracted funds to anyone who presents the documents required by the letter of credit, regardless of whether or not there was fraud or theft associated with the underlying real-world transaction or sales contract. This so-called “abstraction principle”, where the bank is only responsible for validating the documents defined in the letter itself and has no responsibility for validating the underlying transaction, is what makes a letter of credit work. The abstraction principle limits the liability of the letter issuer when faced with an unscrupulous beneficiary (the person receiving cash from the issuer) and places that liability squarely on the applicant (the person giving cash to the issuer in exchange for the letter). For those who are interested in such things, the abstraction principle is a fundamental concept in German common law and has lots of interesting twists and implications. I can just imagine some clever merchant guild master of the Hanseatic League coming up with this idea in the 13th century and transforming international commerce for the next 1,000 years.

The abstraction principle is Bitcoin’s fatal flaw. If I possess the private key associated with a Bitcoin address, then I can trade that Bitcoin with any counterparty for value without the counterparty worrying about whether or not I am the “rightful” owner of the Bitcoin. The private key is the only “document” required to satisfy the abstraction principle at the legal heart of Bitcoin,

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