Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money by Nathaniel Popper
My rating: 4 of 5 stars

Hacking the Central Banks

If there is only time to read one book about Bitcoin, this should be the one.

Bitcoin is not just a practical technology, it is also a philosophy and an economic ideology. Popper gives a reasonable nod to all three (Arguably it is the last which has proven essential in its initial successes but which has now run out of steam). But like all philosophies it has a problem.

As a self contained system Bitcoin is a masterwork of self-verifying logic. This logic is an ingenious combination of Kantian analysis (the blockchain is a giant double-entry ledger which automatically identifies errors) and Hegelian dialectics (any blockchain can only be integrated into the system through competitive trial and error toward the solution of a mathematical problem) and Lockean consensus (if there is disagreement about who wins in block competition, the consensus within the network rules). There is even a nod to Leibnizian monadology (the encryption of the blockchain allows an extreme compression of the entire ledger so that it an be stored simultaneously throughout the network of Bitcoin users). This combination of four philosophical solutions to the problem of integrity makes Bitcoin itself (but not necessarily its software) tamper-proof.

Economically this means perfect efficiency: zero fraud, virtually no transaction cost, and almost instantaneous execution of transactions (well, ten minutes). Ideologically, libertarians see this as a way to become independent of central banks which may be tempted either to debase the currency (the maximum Bitcoin supply is 21 million, an amount which will be approached only asymptotically at a predictable rate) or to control where and when it can be used (there is no effective way to control cross-border flows of Bitcoin since they never leave the ledger).

The problem arises not within the system but in the relation of the system to any other monetary system. This connection inevitably involves brokers and dealers and exchanges and traders which are not covered, as it were, by the Bitcoin guarantee of integrity or insulation from outside authority.

So to the extent Bitcoin is accepted as a convention it is indeed significant. But getting into it or out of it is fraught with the same dangers, inefficiencies, and regulatory arbitrariness as any other currency. And as long as governments don't accept Bitcoin in payment of taxes (which makes fiat currency currency), Bitcoin is a monetary sideshow mostly of interest to the underworld (not necessarily criminal) which is forced to hack the currently dominant monetary system to survive. This alone is likely to be sufficient to ensure Bitcoin a place in economic and social history.

Postscript: After posting this review, this one day conference at MIT was announced. The technology is clearly advancing way beyond Bitcoin. https://www.technologyreview.com/s/60...

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