As I See It: Delusionware
July 19, 2021 Victor Rozek
Currency has always been the product of mass hallucination. From shells to spices, bottle caps to urine, what people decide is valuable, and what they are willing to trade life energy for, is as varied as imagination and circumstance. (In case you’re wondering, clean urine is used in prisons to pass drug tests and can be bartered for goods and services that are best left unnamed.)
All that is required for a currency to have value is that enough people share the same delusion. And suddenly, little pieces of paper with numbers and the faces of departed presidents (and lesser politicians) can be exchanged for real goods. Although, objectively, bottle caps and paper money are of little value, at least they are tangible. Then, there’s cryptocurrency.
Basically, cryptocurrency like bitcoin is nothing more than computer code, created by an algorithm available for download on developer websites. Like the Federal Reserve that controls the money supply, the creator of the bitcoin algorithm, Satoshi Nakamoto (an alias), acts as his own little Fed, determining how many bitcoins can be created. In accordance with Nakamoto’s whims, only 21 million bitcoin will ever be generated, and at that point the gravy train stops.
Like gold, its rarity gives bitcoin a wholly underserved value. And, wild fluctuation, depending on who gives a damn at any given time. A single bitcoin first hit the $1.00 mark just ten years ago. At one point it topped $63,000, and as of this writing is worth about $33,000. (Note that all the valuations are in dollars, which it purports to replace.) But lest you want to download the algorithm and create value out of smoke and mirrors, be prepared to invest in some heavy-duty computing power because the process is highly competitive and the software code controls the speed at which new bitcoin can be created. It takes progressively more computing code over time to make a bitcoin, so it has compute inflation built in.
Delvin Brown, writing in the Washington Post’s financial section, reveals that: “These days the system allows the creation of 6.25 bitcoins every 10 minutes, and the code halves that number every four years.” And because there’s a limit, there’s a rush. As with all things financial, them that already have are most likely to get more. “Creating new currency requires enormous computing power to solve the complex mathematical equations that generate a unit of cryptocurrency,” writes Brown. And bringing bitcoin into existence ain’t cheap. “Globally, the process devours more electricity than the Netherlands in a given year, according to an analysis by the University of Cambridge.”
So why would El Salvador become the first country to adopt this volatile currency backed by nothing more substantial than collective delusion? Who the hell knows. Very likely the privacy and anonymity built into bitcoin plays a part. Bitcoin has become the go-to currency for those who don’t want their transactions traced. Digital currency has made it possible to shroud the identities of users from financial institutions and governments alike. Great news for crooks. Without a mechanism for making relatively untraceable and irreversible payments it would be much harder, if not impossible, for criminals to profit from ransomware.
And ransomware is a going concern. In Russia it’s a full-blown industry that operates with the government’s blessing. The country is full of bright, young people facing miserable, dim futures. The lack of meaningful career opportunities, and the need for money drives some of the most skilled into hacking. There are some rules, however, which need to be followed in order to keep the secret police from making unwanted visits. Namely, Russian enterprises cannot be targeted, nor can the businesses of Russia’s allies. Investigators have actually determined that those instructions are hard coded in the invasive software. Apparently, the ransomware will not even load on a system with a Russian language keyboard.
Not a major deterrent, however, because the United States and Europe are target rich environments. It is estimated that “global ransomware damage will reach $20 billion by the end of this year, which is 57 times the number just six years ago.” The actual figures, however, may be higher and are impossible to know because many ransomware victims prefer not to report they have been hacked.
But the privacy, anonymity, and secrecy that makes all this possible is showing signs of push-back. China’s determination to regulate cryptocurrencies had an immediate effect of dropping bitcoin’s value – and desirability. So far China has shut down about 90 percent of all crypto mining. At home, the Internal Revenue Service has expressed concern that bitcoin facilitates tax evasion, and the government is worried that it may undermine the dollar as the world’s leading currency. It’s fair to say that a number of governments are exploring how, and how far, to regulate this latest challenge to the status quo.
But perhaps nothing has had as shocking an impact on potential future cybercrime as the FBI’s ability to recover most of the bitcoin paid in the Colonial Pipeline attack. Bitcoin uses a 256-bit private key password, encrypted, nearly impossible to crack, and irretrievable if lost. People can be permanently locked out of their account if they somehow misplace their password. Regardless, there’s not much point in extorting bitcoin if the government can steal it back.
So how did the FBI crack the uncrackable? They’re not saying. But it’s a safe bet it took some astonishing cyber forensic skills, coupled with some kick-butt computing power.
There are now thousands of lesser-known cryptocurrencies that are traded around the world. Where the bitcoin saga will ultimately end is anyone’s guess. But there is a story that dates back to the Weimar Republic that may prove instructional for both traditional currency advocates and cryptocurrency defenders.
After the World War I, Germany experienced horrific inflation. Money all but lost its value and common groceries cost more money than a person could comfortably carry. The story goes that a man with a wheelbarrow full of money arrived at a bakery first thing in the morning before it opened. He parked the wheelbarrow at the front door and went through a narrow alley to the back of the building where the bread was being baked hoping to conclude his purchase before crowds started cueing up.
The baker said he would meet him at the front of the shop, but when he returned he found someone had dumped the money on the ground and stolen his wheelbarrow. The best thing about bitcoin may be that when it becomes worthless, we will still have our computers.