Ransomware is Bitcoin’s IRS

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If that sounds far-fetched, support me. Before we get into the full explanation, we need a brief overview of money theories. Most widely accepted is that money was created because early humans found it so embarrassing to barter with pigs, llamas, or berries. It would be much easier to trade my llamas for widely accepted items, cowries, feather boas, or carved stones, and then swap those items again for grain than to find someone with grain who would like llamas.

Money was also a means of recording debts; even easier than using cowries would be to take the grain now, get a few notches on a counting stick, and later provide llamas, or grain, or whatever was promised to pay off the debt .

The first of these theories focuses on money as a medium of exchange, an area where bitcoin has floundered due to the cost and hassle of actually buying something in bitcoin. It is only when its anonymity and international nature help enough to offset these drawbacks, for example by avoiding money laundering laws, taxes and capital controls, that it is used a lot. The rest of bitcoin trading is speculation and exchange arbitrage.

The second theory focuses on the role of money as a unit of account, an area where bitcoin has had no success so far. Even in El Salvador, where bitcoin is legal tender, prices will always be billed in dollars first and then translated into bitcoin for anyone who pays in crypto.

A third theory is increasingly popular thanks to modern monetary theory and puts the IRS at the forefront. One of the founding principles of MMT is chartalism, the idea that money has value because we have to pay our taxes on it. The government issues paper (or coins) and because it requires that we return certain amounts of that currency each year, we must acquire it. In other words: Fiat dollars are guaranteed by the IRS, which has armed men and women.

Cryptocurrency buyers often cite ways to spend MMTers on the left of the Democratic Party for free as a reason to dump dollars, but the theory also supports the idea that bitcoin is backed by ransomware. Think of the ransomware that encodes your hard drive and demands payment in bitcoin as the crypto version of a tax claim and the IRS application came together.

If enough people have to go out and buy bitcoin to pay ransoms, others will produce it and hold it ready to sell because the demand is constant. If you have it ready to provide ransoms or taxes anyway, you can choose to use it for other things as well, just like people do with dollars.

It doesn’t matter how awkward it is to pay in bitcoin when you have no other choice and the same goes for even less useful forms of money, such as the 44 pound copper coin used in Sweden as a great denomination in the 17th century.

Like taxes, the forced use of bitcoin by ransomware victims creates a need for at least some bitcoin. Ransom payers have to buy it from someone else, who is either in the energy-intensive business of operating it or who is speculating on its future value. So far, it has not laid the groundwork for wider adoption, not least because the dollar is much better for most people as a medium of exchange and a unit of account. But the ransomware provides a basic level of demand and plays the same role as taxes in the traditional system.

Unfortunately for Bitcoin, the Colonial Pipelines hack went too far. Governments have realized they need to take tackling ransomware threats seriously, while the recovery of around half of the Federal Bureau of Investigations’ colonial payment appears to have pushed hackers into other more cryptocurrencies. secret.

Many bitcoin buyers don’t care whether bitcoin is widely used for spending, preferring to view their string of numbers as a store of value rather than a medium of exchange or a unit of account. This argument says that like gold, bitcoin is valuable because others think it has value. While bitcoin does not appeal to our love of shiny things, or has no history of using it as money, it will act as a store of value if enough people believe it is a store of value.

It is clearly not true that enough people think of bitcoin as a store of value, although some HODLers clearly do in the long run. Regardless of its insane price swings (ideally stores of value wouldn’t double or halve every two months), it’s full of people trading it in to try and get really rich real quick. quite different from buying it to protect one’s fortune if everything goes wrong, which is the usual justification for investing in gold.

Perhaps we need to add a new section to the theory of money: the volatility reserve. Think of bitcoin as a gambling token, and that makes perfect sense. Calling on get-rich-quick merchants and scammers could be a reliable source of buyers to support the price. Get enough people and maybe enough people will want to spend their earnings to support its use as cash. Of course, the IRS will want its share of the profits, regardless of their denomination.

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