Russia Russia Russia

Posted: July 1, 2023 in Geopolitics
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by Richard Martin

There are NO, I repeat, NO, independent power sources in Russia. In that it is a typical autocratic dictatorship. Anyone who opposes Putin and the Kremlin apparatus, openly or secretly, gets “fallen” out of a window, poisoned, arrested on trumped up charges and sent to Siberia. That includes the robber baron oligarchs, all news and media, the judiciary, governors and assemblies of the so-called republics, oblasts, cities, towns, etc.

He has numerous agencies, official (e.g., the armed forces and FSB) and unofficial (Wagner, the Internet Research Agency) in competition vying for his approval and attention. They have overlapping functions, which is completely intentional. They are run by people who are personally loyal to Putin or to people who are.

All individual wealth, influence, and power is held at the sufferance of Putin. As soon as someone with official or unofficial delegated powers steps out of line, they are warned or disappeared in some way. Their wealth is confiscated and distributed to other cronies.

Ukraine’s Summer Offensive

Posted: June 27, 2023 in War
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by Richard Martin

What we know: Prigozhin made a play for power and failed. Everything else in the public domain is pure speculation, most of it fuelled by rumours and intentional disinformation.

Regarding the offensive. The Ukrainians appear to have the initiative, therefore they are on the offensive. How that plays out tactically and operationally is another matter. The Russians have been trying different things, e.g., blowing the dam, but so far only to hinder and slow down movement. The Russian obstacles are, by all accounts, formidable.  It is a truism that obstacle breaching by forces under fire is the most complicated operation of all.

However, obstacles that aren’t covered by fire, direct and indirect, are merely a nuisance and will slow movement and manoeuvre, but only up to a point. It’s also important to point out that all fortifications are eventually defeated, either through destruction, breaching, or bypassing (therefore making them irrelevant).

I believe the Ukrainians are being very prudent in their tactical approach. They are unwilling to throw troops into battle without careful preparation and reconnaissance, and will substitute firepower and attrition as much as possible. They appear to be using small units to probe Russian positions and to draw out artillery fire so they can attack it with counter-battery fires. Over the last month or so, it seems that the number of Russian artillery systems destroyed has gone up significantly. The Ukrainians also seem to be focusing on destroying dual-capable systems, i.e., those that can fire nuclear as well as conventional munitions. The Russians call artillery the “god of war” for a reason. The Ukrainians appear to be wearing it down as much as possible.

The Ukrainians are also seeking to wear down Russian forces in depth, and command and control points. They are also attriting Russian logistics and supply capabilities, especially rail hubs, bridges, and other lines of communications, as well as ammunition dumps and troop concentrations.

I am more and more of the opinion that the Ukrainian strategy is to cause as much attrition as possible until such time as the Russians collapse somewhere. Then they can pour forces into the breach and seek to envelope enemy groupings and try to cut them off from retreat. A main objective must be to destroy as much Russian combat capability and kill or wound as many Russian soldiers as possible. This serves the tactical purpose of creating breakthrough opportunities. But, it also serves a longer term purpose of preventing the Russians from starting again if they are completely expelled from Ukraine. This is what they did to reconquer the Kharkiv and Kherson areas, and I see no reason for them to change their overall approach now.

Operationally, informed opinion converges around the idea that the Ukrainians would seek to cut the Russian forces in half by heading to Berdyansk and environs. This would isolate the Crimea from the rest of Russian occupied territory and make the situation there even more precarious.

Prigozhin’s Putsch

Posted: June 25, 2023 in War
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By Richard Martin

Thanks to Professor Sean Maloney of RMC for naming what happened in Russia on 23-24 June 2023. We can analyze the events, but we can’t apply a Western framework or look at them through a liberal-democratic lens. 

Putin, Kremlin operators, siloviki, Wagner and other mercenary groups, are nothing but opportunists seeking power and wealth. There are multiple security agencies and forces within the state apparatus which can play a part. People are loyal to individuals, not the constitution or the people or even the state. The state for these strongmen is a means to an end. When they can no longer get what they want from the existing network, they will make a play to rearrange it in their favour, or at least position themselves to wait out the changes.

What this is not: a mutiny, popular uprising, foco, or a coup d’état. Mutiny may be feeding the putsch, but if the troops had wanted to mutiny en masse (it has happened in pockets prior to the Wagner putsch), they would have done so by now. Mutiny also implies that the troops are no longer okay with the mission, and just don’t want to be slaughtered or treated like cattle for nothing. There is no indication, yet, that there is sufficient discontent or organized resistance within the ranks.

There is also no uprising on in Russia, although there may be much popular discontent and rebelliousness and the situation can change quickly. Most people, including local and provincial government authorities will wait to see which way the wind is blowing. As for a coup, that would be staged from within the immediate circle of power, the Kremlin, or at the most Moscow, and would have to involve those closest to Putin and within his security apparatus and network.

This is a putsch, a push for power by a group, usually from outside the capital. It involves turning groups and leaders against the central government, especially those in control of security and military forces. A historical analogy is to be found in imperial Rome, where rebellions almost always started in the provinces, usually Gaul, Hispanic, or Syria, because there was a good wealth base, and during a period of instability or a losing war/battle.

Soldiers in various legions would proclaim their general as imperator, which means victor, or great commander. Then they would march on Rome or to meet opposing forces in battle who trying to do the same thing. Sometimes, there would be forces loyal to the reigning emperor who would try to support him. The motivation was a play for power and wealth. Those supporting the leaders throw in with the one they think will guarantee them the best spoils or, alternatively, avoid them being killed.

Another analogy is a game of musical chairs. The music is cacophonous, with instruments out of tune, multiple scores, and several conductors. No one knows when the music will stop. Some key players are jockeying for position, while others are waiting in the wings to try to get to a chair or to fall in behind the winner(s).

I think the trigger for Prigozhin to launch his putsch was the incursions in the Belgorod region a few weeks ago by Russian rebels supported by Ukrainian capabilities. When he saw how weak the forces outside of Ukraine were, he felt he could reach Moscow quickly if he could rally enough support.

When Prigozhin realized he didn’t have enough units coming over to him, and especially the internal security forces, that’s when he called off the march on Moscow. It had nothing to do with buses and trucks blocking the highway or “negotiations.” His putsch failed, as most do, because he gambled and lost.

It’s also interesting to note that the Kremlin keeps its best forces to protect Moscow and the Kremlin (which literally means fortress). In Russia, all roads lead to Moscow, so it’s part of the mentality that it must be protected at all costs.

None of these strongmen are democrats or true reformers. They are fighting to see who will be on top of the pyramid, nothing more. And that includes Saint Navalny and Khodorkovsky the former oligarch. They have no honour and will throw each other under the tank if they think it will advance their chances of moving up the hierarchy.

It’s also important to mention that none of these men thinks the idea of invading Ukraine was a bad idea. They all want it and will do everything they can to continue the war. And can we finally lay to rest the idea of peace feelers, peace talks, giving peace a chance? They need to be wiped out.

© 2023 Richard Martin

Why and How I Experiment with New Technology

Posted: March 26, 2023 in Productivity, Technology and Innovation
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By Richard Martin

Fortune favours the bold. Not the timid.

We do ourselves a disservice if we don’t at least try to experiment with new technologies and new approaches. I ordered my first book on the topic of Bitcoin on Amazon on 28 Feb 21 (The Bitcoin Standard, by Saifedean Ammous), ordered a hardware wallet on Amazon on 19 Mar 21, then acquired my first BTC on a Canadian exchange on 23 Mar 21. It was only about $200 but it was enough to get started and to learn what it was all about. It’s funny what happens when you have skin in the game.

This has made me realize that I’ve taken this approach all of my adult life. I find the best way to learn is to invest a bit of resources and take it from there. If it’s not for me, the cost was minimal and bounded in time and space. I can move on having acquired more knowledge. If I continue to find value or be intrigued, I go deeper down the rabbit hole until I’m satisfied I’ve learned enough or want to go even further.

It’s the same with machine learning models like GPT and DeepL. I subscribed to DeepL after experimenting with the free version a bit and now use it for all my translation tasks. It’s almost perfect for English to French, less so for the opposite. But it’s great productivity boost. I can generate a reasonably accurate translation and take it from there. Now DeepL also has a writing engine as a beta and I’ve started experimenting with that.

I was wondering about how I could raise my productivity for cognitive tasks when I heard about GPT-4. I hadn’t paid much attention to ChatGPT before that, but version 4 seemed compelling. I invested a whopping $20 for a month of access and started experimenting with it. Is it perfect? No. Can it tell jokes like Seinfeld? Who knows and who cares. The important point is that GPT presents another opportunity to boost my productivity, save time and effort, and focus on more high-value areas for me and my clients.

But to get those advantages, it’s not enough to sit there and wonder how a new approach, technology, or product could be of benefit. We have to try it, or at least experiment a bit to see what it’s all about. And stop asking “what about this and what about that” type questions. There are ways to achieve this without betting the farm. Learn about them and start applying them.

My Conversation with ChatGPT 4 About Bitcoin and Other Cryptocurrencies

Posted: March 26, 2023 in Economics, Powerful Ideas
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By Richard Martin

I started this Q&A chain this morning with GPT 4.0 just to see how it would do. The more I asked, and it answered, the more I went down the rabbit hole. All in all, I think GPT 4 did a pretty good job of answering my queries in a fair and comprehensive manner. My questions are highlighted in bold typeface.

WARNING! Do your own research.

NOTE: The knowledge cut-off date upon which the GPT-4.0 model is based occurred in September 2021. The model can’t answer questions about anything that happened after that point in time. Anything it reports concerning relative valuations and comparisons of advantages and disadvantages of different types of cryptocurrencies and actual tokens should be taken as out of date. I know for a fact that Solana, Cardano, and others have since crashed. Ethereum is also now operating under a Proof of Stake (PoS) protocol, which has massive implications which should be researched on their own.

None of this is meant as specific advice, much less financial advice, but it does show two things. 1) ChatGPT 4 is quite good as a means at least to start researching a topic by asking general questions and then more and more specific ones. But you still need to know something about the topic to ask relevant questions and validate the results. 2) It gives a good overview of various Bitcoin-related topics, including countering much of the misconceptions and FUD – Fear, Uncertainty, Doubt.

What are the 5 best reasons to own and use Bitcoin?

There are several reasons people may find Bitcoin attractive as an asset or for conducting transactions. Here are five of the most commonly cited reasons:

  • Decentralization: Bitcoin operates on a decentralized, peer-to-peer network, which means it is not controlled by any single entity or government. This independence from centralized authorities can offer users more control over their financial transactions and assets.
  • Limited supply and deflationary nature: Bitcoin has a fixed supply cap of 21 million coins, which can make it an attractive store of value. Its deflationary nature, in theory, protects it from inflation, making it potentially more valuable over time as traditional currencies lose purchasing power due to inflation.
  • Lower transaction costs: Bitcoin transactions can have lower fees compared to traditional banking and payment systems, especially for international transfers. This can be advantageous for both individuals and businesses, as it can reduce the cost of sending and receiving payments across borders.
  • Privacy and security: Bitcoin transactions are pseudonymous, meaning that while the transactions are recorded on a public ledger (the blockchain), the real-world identity of the users is not directly tied to their transactions. Additionally, Bitcoin’s underlying technology, blockchain, provides a secure and tamper-proof way to store transaction data, which can minimize the risk of fraud or hacking.
  • Investment and speculation: Many people see Bitcoin as an investment opportunity due to its historical price increases and the potential for future growth. As a result, they buy and hold Bitcoin in the hopes of profiting from its long-term appreciation.

It’s important to note that Bitcoin also has its share of risks and challenges, such as price volatility, regulatory uncertainty, and environmental concerns related to the energy consumption of Bitcoin mining. As with any financial decision, it is crucial to carefully weigh the potential benefits and risks before deciding to own or use Bitcoin.

What are the five best reasons not to own Bitcoin or use it?

There are also several reasons people may find Bitcoin unattractive or unsuitable for their needs. Here are five of the most commonly cited reasons:

  • Price volatility: Bitcoin’s price has experienced significant fluctuations since its inception, leading to substantial gains and losses for investors. This volatility can make it a risky investment for those who cannot tolerate large swings in value or who are seeking stable returns.
  • Regulatory uncertainty: Bitcoin and other cryptocurrencies face an uncertain regulatory environment in many countries. Governments may impose restrictions, taxes, or even bans on cryptocurrency usage, which could impact the value and utility of Bitcoin and make it difficult to use or access your funds.
  • Limited mainstream adoption: Despite the growing interest in cryptocurrencies, Bitcoin is not yet widely accepted as a form of payment by most merchants and service providers. This limits its utility for everyday transactions and makes it less practical as a currency compared to traditional fiat currencies.
  • Environmental concerns: Bitcoin mining, the process of securing the network and creating new coins, is energy-intensive and relies largely on non-renewable energy sources. This has raised concerns about the environmental impact of Bitcoin mining, contributing to climate change and resource depletion.
  • Technical complexity and security risks: The management of private keys, wallets, and other aspects of Bitcoin can be complex and confusing for those without a strong technical background. Moreover, the irreversible nature of Bitcoin transactions can lead to loss of funds if the private keys are lost, stolen, or not properly secured. Additionally, the pseudonymous nature of Bitcoin transactions, while offering privacy benefits, can also facilitate illicit activities and make it difficult to recover funds in case of fraud or theft.

As with any financial decision, it is essential to carefully weigh the potential benefits and risks before deciding to own or use Bitcoin. Understanding your own financial goals, risk tolerance, and technical expertise will help you determine if Bitcoin is right for you.

What distinguishes Bitcoin from all other cryptocurrencies?

Bitcoin, as the first and most well-known cryptocurrency, has several unique characteristics that set it apart from other cryptocurrencies. Some of these distinguishing features include:

  • Pioneer status: Launched in 2009 by an individual or group of individuals under the pseudonym Satoshi Nakamoto, Bitcoin was the first successful implementation of a decentralized digital currency. It introduced the world to blockchain technology, which underpins most cryptocurrencies today. As the original cryptocurrency, Bitcoin has a strong historical significance and a proven track record.
  • Network effect and market dominance: Bitcoin has the largest market capitalization among all cryptocurrencies and enjoys a strong network effect. This means that as more people use Bitcoin, its value and utility increase. This network effect has helped Bitcoin maintain its position as the dominant cryptocurrency and has led to greater acceptance, visibility, and liquidity compared to other digital assets.
  • Robust security: Bitcoin’s network is the largest and most secure among all cryptocurrencies. It is secured by a vast amount of computing power contributed by miners worldwide, making it extremely difficult and expensive for any attacker to manipulate the blockchain. This high level of security has helped Bitcoin maintain trust among its users.
  • Decentralization and community governance: Bitcoin has a decentralized development community, with numerous contributors working on its open-source code. While there are other cryptocurrencies that also have decentralized development, the extent of decentralization and the number of developers contributing to the Bitcoin project remain unparalleled.
  • Limited supply: Bitcoin has a fixed maximum supply of 21 million coins, which will be gradually mined over time. This limited supply is intended to make Bitcoin a deflationary currency and potentially a store of value. While some other cryptocurrencies also have capped supplies, Bitcoin’s supply limit is one of the most well-known and widely recognized.

While Bitcoin has several distinguishing features, it’s important to note that other cryptocurrencies have also introduced innovations and improvements to address specific issues or cater to particular use cases. As the cryptocurrency market continues to evolve, it is crucial to assess the unique characteristics and value proposition of each digital asset before making any investment or usage decision.

How is Bitcoin being used in novel ways to better manage energy usage?

In recent years, there have been several novel ways in which Bitcoin and its underlying technology have been utilized to better manage energy usage and promote sustainability. Some of these innovative approaches include

  • Energy arbitrage: Some Bitcoin mining operations take advantage of periods of low energy demand and excess supply, such as during off-peak hours or when renewable energy production is high. By mining Bitcoin during these times, miners can utilize the otherwise wasted energy and potentially stabilize grid demand.
  • Renewable energy integration: Many Bitcoin mining companies have started to invest in renewable energy sources, such as solar, wind, or hydropower, to power their operations. This not only helps to reduce the carbon footprint of Bitcoin mining but also promotes the adoption of clean energy technologies.
  • Waste energy utilization: Some mining operations are situated near sources of waste energy, such as natural gas flaring sites or industrial plants, to capture and use the otherwise wasted energy for Bitcoin mining. This process can help reduce the overall environmental impact of energy production.
  • Demand response programs: Bitcoin mining operations can participate in demand response programs by adjusting their energy consumption in response to grid conditions and pricing signals. This can help balance the electricity grid, reduce strain on the infrastructure, and contribute to overall energy efficiency.
  • Heat recovery: Mining Bitcoin generates a significant amount of heat as a byproduct. Some mining facilities have developed innovative ways to capture and utilize this waste heat, such as heating nearby buildings or greenhouses, which can help increase overall energy efficiency.

While these initiatives are promising, it’s important to note that the overall environmental impact of Bitcoin mining remains a concern. As the industry continues to grow and evolve, it will be crucial for stakeholders to prioritize sustainable practices and invest in energy-efficient technologies to minimize the environmental footprint of Bitcoin and other cryptocurrencies.

You should consider Bitcoin’s energy impact in comparison with other ways to produce money and conduct international finance.

When assessing the energy impact of Bitcoin, it’s important to consider its energy consumption in the context of other methods of producing money and conducting international finance. Here are some points of comparison:

  • Traditional banking and payment systems: Traditional banking and financial institutions also consume significant amounts of energy for maintaining data centers, branches, and ATMs, as well as processing transactions. While Bitcoin’s energy consumption per transaction can be higher than that of traditional payment systems, the overall energy consumption of the global banking system is much larger.
  • Central bank currency production: The process of minting coins and printing banknotes consumes energy and resources. While it’s difficult to make a direct comparison between the energy consumption of Bitcoin mining and physical currency production, it’s worth considering that cryptocurrencies like Bitcoin do not require the same level of physical resources.
  • Gold mining and storage: Gold, often considered a traditional store of value, has a considerable environmental impact due to the energy-intensive nature of mining and refining. Comparing the environmental footprint of Bitcoin to that of gold can provide another perspective on the sustainability of various stores of value.
  • Cross-border transactions: Conducting international transactions using traditional banking systems can be slow and expensive due to multiple intermediaries and currency conversions. Bitcoin, on the other hand, enables fast and relatively cheap international transactions, potentially offsetting some of its energy consumption by providing a more efficient alternative for certain use cases.
  • Energy consumption trends: As awareness of Bitcoin’s energy impact grows, the industry is increasingly focusing on adopting renewable energy sources and improving the energy efficiency of mining hardware. These trends could help mitigate the environmental impact of Bitcoin over time.

It’s important to consider the energy consumption of Bitcoin and other cryptocurrencies in the broader context of the global financial system. While Bitcoin does have an environmental impact, it’s essential to weigh its benefits, such as decentralization, borderless transactions, and financial inclusion, against the energy costs associated with traditional financial systems. Balancing these factors can help in forming a more comprehensive understanding of the overall impact of Bitcoin and cryptocurrencies on the environment and global finance.

What are the proven failings, if any, of Bitcoin?

While Bitcoin has been a ground-breaking innovation, it is not without its challenges and limitations. Some of the proven failings of Bitcoin include:

  • Scalability: Bitcoin’s transaction throughput is limited by its block size and block time, which can lead to slow transaction processing and higher fees during periods of network congestion. This limitation makes it difficult for Bitcoin to compete with traditional payment systems like Visa or Mastercard in terms of transaction volume and speed.
  • Energy consumption: As discussed earlier, Bitcoin mining consumes a significant amount of energy, raising concerns about its environmental impact. The Proof-of-Work consensus algorithm used by Bitcoin requires miners to perform energy-intensive computations, which contributes to its high energy consumption.
  • Price volatility: Bitcoin has experienced extreme price fluctuations throughout its history, making it a highly volatile asset. This volatility can be a barrier to its widespread adoption as a stable store of value or medium of exchange.
  • Usability and user experience: For many users, Bitcoin can be difficult to understand and use, especially when it comes to securely managing private keys and wallets. This complexity can be a barrier to entry for non-technical users and limit its mainstream adoption.
  • Regulatory challenges: Bitcoin and other cryptocurrencies face an uncertain regulatory landscape in many jurisdictions. Governments may impose restrictions or taxes on cryptocurrency usage, which could affect the value and utility of Bitcoin.
  • Illicit activities: The pseudonymous nature of Bitcoin transactions has been exploited for illicit activities, such as money laundering, ransomware attacks, and dark web transactions. This association with criminal activities can tarnish Bitcoin’s reputation and hinder its mainstream acceptance.
  • Centralization risk: Although Bitcoin was designed to be decentralized, mining has become increasingly centralized over time, with a small number of large mining pools controlling a significant portion of the network’s hashing power. This centralization can potentially compromise the security and decentralization principles of the network.

Despite these challenges, the Bitcoin ecosystem continues to evolve, with ongoing development efforts aimed at addressing its limitations and improving its utility. The future of Bitcoin will depend on the ability of its community and developers to overcome these challenges and adapt to changing regulatory, technological, and market conditions.

What is being done to improve its usability and user experience?

Improvements in Bitcoin’s usability and user experience are crucial for its mainstream adoption. Several ongoing efforts and developments are addressing these challenges:

  • User-friendly wallets and applications: Many wallet providers and developers are focusing on creating intuitive, user-friendly interfaces for managing Bitcoin transactions. These wallets often include features such as simplified backup and recovery processes, clear fee structures, and seamless integration with popular applications and services.
  • Layer-2 solutions: Technologies such as the Lightning Network are being developed to address Bitcoin’s scalability issues and improve transaction speeds and costs. The Lightning Network allows for the creation of payment channels between users, enabling faster and cheaper transactions off the main blockchain. This can improve the user experience for small, everyday transactions.
  • Educational resources: Numerous educational resources, such as articles, videos, and online courses, are being created to help people understand and use Bitcoin more easily. These resources aim to demystify the technology and provide guidance on best practices for securely managing Bitcoin wallets and transactions.
  • Streamlining onboarding: Many cryptocurrency exchanges and services are working to simplify the process of buying and selling Bitcoin, making it more accessible to non-technical users. This includes improving the user interface and reducing the complexity of the onboarding process.
  • Integration with existing financial services: Some banks and financial institutions are exploring ways to integrate Bitcoin and other cryptocurrencies into their existing services, such as offering cryptocurrency trading, custody solutions, or integrating Bitcoin payments into their existing payment infrastructure.
  • Merchant adoption: As more merchants and service providers accept Bitcoin as a payment method, users will find it easier to use Bitcoin for everyday transactions. This can be facilitated by payment processors and point-of-sale systems that streamline the process of accepting Bitcoin payments for merchants.
  • Open-source development: The Bitcoin development community is continuously working on improvements to the core protocol, addressing security and performance concerns, and proposing enhancements that can make the technology more accessible and user-friendly.

These ongoing efforts aim to make Bitcoin more usable and accessible to a broader audience. As the technology matures and its ecosystem evolves, it is expected that the user experience will continue to improve, potentially driving further adoption of Bitcoin and other cryptocurrencies.

How are Bitcoin’s supposed scalability issues being addressed?

Bitcoin’s scalability issues are a concern for its long-term viability and mainstream adoption. Several approaches are being pursued to address these challenges:

  • Segregated Witness (SegWit): Implemented in 2017, SegWit is a protocol upgrade that helps increase the number of transactions that can fit into a block by separating the transaction signatures from the transaction data. This allows more transactions to be processed per block, thus increasing the overall throughput of the network.
  • Schnorr Signatures: This cryptographic signature scheme can help reduce the size of transaction signatures, allowing more transactions to fit into a block. By decreasing the amount of data required for each transaction, Schnorr signatures can contribute to improved scalability and reduced fees.
  • Layer-2 solutions: These are off-chain protocols built on top of the main Bitcoin blockchain, aiming to provide faster and cheaper transactions. The most prominent layer-2 solution is the Lightning Network, which enables the creation of payment channels between users, allowing them to transact off the main blockchain. When the channel is closed, the net result of the transactions is settled on the main Bitcoin blockchain. This approach significantly improves transaction speeds and reduces fees, making Bitcoin more suitable for microtransactions and everyday use.
  • Block size and protocol optimizations: Some proposals aim to increase the block size to accommodate more transactions per block, while others focus on optimizing the Bitcoin protocol to improve its efficiency. However, increasing the block size remains a controversial topic in the Bitcoin community, as it may lead to further centralization of mining power and increase the resource requirements for running a full node.
  • Sidechains: Sidechains are separate blockchains that are interoperable with the main Bitcoin blockchain. They allow users to move their bitcoins between the main chain and the sidechain, enabling faster and cheaper transactions on the sidechain while still benefiting from the security of the main chain. Examples of sidechain projects include Liquid Network and Rootstock (RSK).
  • Future protocol upgrades: Bitcoin’s development community is actively researching and proposing additional protocol upgrades and improvements that could further enhance its scalability. These improvements may include changes to the consensus algorithm, network structure, or other aspects of the technology.

It’s important to note that addressing Bitcoin’s scalability issues is a complex and ongoing process. As the technology and ecosystem evolve, the community will continue to explore and implement solutions that can improve Bitcoin’s capacity to handle more transactions and cater to a broader range of use cases.

How do side chains work?

Sidechains are separate, independent blockchains that run parallel to a primary blockchain, such as Bitcoin or Ethereum. They are designed to enable new features, improve scalability, and facilitate faster and cheaper transactions without affecting the security and stability of the primary chain. Sidechains work by allowing users to move assets, such as tokens or cryptocurrencies, between the primary chain and the sidechain. Here’s a basic overview of how sidechains work:

  • Two-way peg: A two-way peg mechanism is used to establish a fixed exchange rate between the primary chain and the sidechain. This allows users to lock their assets on the primary chain and receive an equivalent amount of assets on the sidechain.
  • Asset transfer: To transfer assets from the primary chain to the sidechain, a user first sends their assets to a special address or smart contract on the primary chain. This locks the assets and signals the sidechain to create a corresponding amount of sidechain tokens. The user can then use these tokens on the sidechain, taking advantage of its features and capabilities.
  • Sidechain consensus: Sidechains can use their own consensus algorithms, which may be different from the primary chain’s consensus mechanism. This allows sidechains to experiment with new algorithms and optimize their performance without affecting the primary chain’s security.
  • Sidechain security: Sidechains often rely on their own network of validators or miners to secure their transactions. However, some sidechains may use more advanced mechanisms, such as merge mining or federated security models, to leverage the security of the primary chain’s network.
  • Asset redemption: When a user wants to transfer their assets back to the primary chain, they first need to initiate a transaction on the sidechain, destroying the sidechain tokens. This signals the primary chain to unlock the corresponding amount of assets, which are then returned to the user’s primary chain address.

Sidechains can provide several benefits, such as enabling faster transactions, reducing fees, and allowing for the testing and implementation of new features without affecting the primary chain. However, they can also come with their own set of risks and challenges, such as potential security vulnerabilities or the possibility of reduced decentralization.

Could sidechains facilitate Bitcoin lending?

Yes, sidechains could potentially facilitate Bitcoin lending by creating a separate, parallel blockchain specifically designed for lending purposes. This sidechain could implement smart contracts and other features that are not native to the Bitcoin blockchain, making it possible to create more sophisticated and flexible lending platforms.

Here’s how a Bitcoin lending sidechain might work:

  • Asset transfer: A user locks their Bitcoin on the main chain and receives an equivalent amount of sidechain tokens, which represent the locked Bitcoin. This process is enabled by a two-way peg mechanism, ensuring that the value of the sidechain tokens is directly tied to the value of the locked Bitcoin.
  • Smart contracts: The sidechain can support smart contracts that define the terms and conditions of the lending process, such as interest rates, loan duration, and collateral requirements. These smart contracts can automatically enforce the agreed-upon terms, reducing the need for intermediaries and making the lending process more efficient and transparent.
  • Collateral management: Borrowers can lock their sidechain tokens as collateral in a smart contract, which can automatically liquidate the collateral if the borrower fails to repay the loan as agreed. This helps to protect lenders from the risk of borrower default.
  • Interest payments and loan repayment: The sidechain can facilitate interest payments and loan repayments through its native tokens or other supported assets. Smart contracts can automate these processes, ensuring that lenders receive their interest payments on time and that loans are repaid according to the agreed terms.
  • Asset redemption: After the loan is repaid, the sidechain tokens can be transferred back to the main Bitcoin blockchain, where they can be redeemed for the original locked Bitcoin.

Using sidechains for Bitcoin lending can help to overcome some of the limitations of the Bitcoin blockchain, such as its lack of native support for smart contracts. However, it’s essential to consider the potential risks and challenges associated with sidechain-based lending platforms, such as the security and decentralization of the sidechain, regulatory compliance, and counterparty risks.

Could such lending practices lead to a kind of fractional-reserve banking?

Fractional-reserve banking refers to a banking system where banks hold only a fraction of their customers’ deposits as reserves and lend out the remaining amount. In the context of Bitcoin lending and sidechains, a similar scenario could theoretically emerge if lending platforms or intermediaries engage in practices that resemble fractional-reserve banking.

For instance, a platform could lend out more Bitcoin than they have in their reserves, using the sidechain tokens as a representation of the locked Bitcoin. If borrowers default and the platform doesn’t have enough reserves to cover the loss, this could lead to a solvency crisis similar to what can happen in traditional fractional-reserve banking systems.

However, there are several factors that could mitigate the risk of fractional-reserve banking practices in the context of Bitcoin lending:

  • Transparency: Blockchain technology allows for greater transparency in lending practices. If implemented properly, users can verify the amount of locked Bitcoin and the loans issued on the sidechain, making it difficult for platforms to engage in fractional-reserve lending without being detected.
  • Smart contracts: The use of smart contracts in lending platforms can help automate and enforce the lending terms, including collateral requirements and liquidation processes. This can reduce the likelihood of platforms engaging in risky lending practices, as the smart contracts can be designed to prevent over-leveraging and ensure that adequate collateral is maintained.
  • Decentralization: Decentralized lending platforms can help to distribute risk across a network of participants, reducing the concentration of risk in any single entity. This could make it less likely for fractional-reserve lending practices to emerge, as individual participants would have a greater incentive to manage their risk exposure carefully.
  • Regulation and oversight: As the cryptocurrency industry matures, it’s likely that regulatory oversight will increase, potentially helping to prevent risky lending practices like fractional-reserve banking. However, this will depend on the specific regulatory frameworks adopted by different jurisdictions and their effectiveness in overseeing lending platforms.

While the risk of fractional-reserve banking practices in Bitcoin lending cannot be entirely ruled out, the unique features of blockchain technology and the potential for greater transparency, automation, and decentralization can help to mitigate this risk. It will be crucial for the industry to adopt best practices and responsible lending standards to maintain the trust and stability of the ecosystem.

How do Layer-2 solutions and sidechains differ?

Layer-2 solutions and sidechains both aim to enhance the scalability and functionality of a primary blockchain, such as Bitcoin or Ethereum, but they differ in their architecture and implementation.

Layer-2 solutions:

  • Layer-2 solutions are built on top of the primary blockchain and leverage its security and decentralization properties without requiring a separate consensus mechanism.
  • Layer-2 solutions operate off-chain, meaning transactions occur outside of the primary blockchain but are eventually settled on-chain. This enables faster and cheaper transactions while maintaining the security of the primary blockchain.
  • Examples of layer-2 solutions include the Lightning Network for Bitcoin and the Optimistic Rollups and ZK-Rollups for Ethereum.

Sidechains:

  • Sidechains are separate, independent blockchains that run parallel to the primary blockchain. They have their own consensus mechanisms and can be customized to support unique features or capabilities.
  • Sidechains use a two-way peg mechanism to allow assets to be transferred between the primary chain and the sidechain. Transactions on the sidechain are processed separately from the primary chain, allowing for improved scalability and potentially faster transaction processing.
  • Examples of sidechains include the Liquid Network and Rootstock (RSK) for Bitcoin and the xDai chain for Ethereum.

In summary, layer-2 solutions work on top of the primary blockchain and focus on off-chain transactions that are eventually settled on-chain, while sidechains are separate blockchains that interact with the primary chain through asset transfers. Both approaches have their advantages and drawbacks, and their suitability depends on the specific use case and requirements of the project or application being built.

What is Tether?

Tether (USDT) is a type of stablecoin, a cryptocurrency designed to maintain a stable value by pegging it to a reserve of assets, typically a fiat currency like the US dollar. Tether, in particular, is pegged to the US dollar on a 1:1 basis, meaning that one Tether token (USDT) is intended to always be worth one US dollar. This peg is maintained by the company Tether Limited, which claims to hold reserves of US dollars in a bank account to back the circulating supply of USDT.

Tether aims to combine the stability of fiat currencies with the advantages of digital currencies, such as fast transactions, low fees, and accessibility through cryptocurrency exchanges. Since its value is tied to the US dollar, Tether is often used by traders and investors as a way to hedge against the volatility of other cryptocurrencies, park their funds during market turbulence, or quickly move funds between exchanges without having to rely on traditional banking channels.

Tether is available on multiple blockchains, including Ethereum, Bitcoin (through the Omni Layer Protocol), Tron, and others. As a result, USDT exists in different versions, such as ERC-20 tokens on Ethereum or TRC-20 tokens on Tron, but they all represent the same US dollar-pegged value.

It is important to note that Tether has faced controversies and criticism regarding its transparency, auditing practices, and the accuracy of its claims about the reserves backing the USDT tokens. Despite these concerns, Tether remains one of the most widely used stablecoins in the cryptocurrency market.

So, a stablecoin is a type of cryptocurrency? What are the others? Also explain their characteristics and advantages and disadvantages.

Yes, a stablecoin is a type of cryptocurrency. Cryptocurrencies can be broadly categorized into the following types, each with its unique characteristics, advantages, and disadvantages:

Bitcoin and Bitcoin-like cryptocurrencies:

  • Characteristics:
    • Bitcoin (BTC) is the first and most well-known cryptocurrency. Other similar cryptocurrencies, such as Litecoin (LTC) and Bitcoin Cash (BCH), are often referred to as Bitcoin-like cryptocurrencies.
    • They are primarily designed to function as digital currencies for peer-to-peer transactions.
  • Advantages:
    • Decentralized and resistant to censorship.
    • Limited supply, which can protect against inflation.
    • Wide adoption and acceptance, particularly for Bitcoin.
  • Disadvantages:
    • Scalability issues, leading to slow transaction times and higher fees during peak periods.
    • High price volatility, which can make them less suitable for everyday transactions or as a store of value.
    • High energy consumption in Proof-of-Work mining, particularly for Bitcoin.

Altcoins (Alternative coins):

  • Characteristics:
    • Altcoins are cryptocurrencies other than Bitcoin.
    • They often include improvements or different features compared to Bitcoin, such as faster transaction speeds, enhanced privacy, or different consensus algorithms.
  • Examples:
    • Ethereum (ETH)
    • Ripple (XRP)
    • Cardano (ADA)
    • Monero (XMR)
  • Advantages:
    • Potential for innovation and unique features.
    • Can address specific use cases or target particular industries.
    • Sometimes faster or more efficient than Bitcoin.
  • Disadvantages:
    • Lower adoption and acceptance compared to Bitcoin.
    • Can be more susceptible to market manipulation and price volatility.
    • Some altcoins may not have a strong development team or long-term viability.

Stablecoins:

  • Characteristics:
    • Pegged to a stable asset, such as a fiat currency or a commodity, to maintain a stable value.
    • Often used to hedge against volatility in the cryptocurrency market.
  • Examples:
    • Tether (USDT)
    • USD Coin (USDC)
    • Paxos Standard (PAX)
  • Advantages:
    • Reduced price volatility, making them suitable for everyday transactions and as a store of value.
    • Can facilitate trading and moving funds between exchanges quickly.
    • Bridge between traditional financial systems and cryptocurrencies. 
  • Disadvantages:
    • Often rely on a central authority to maintain the peg, which can introduce counterparty risk.
    • May require regular audits to ensure transparency and trust, which is not always guaranteed.
    • Susceptible to regulatory scrutiny due to their ties to traditional financial systems.

Utility tokens:

  • Characteristics:
    • Tokens designed to be used within a specific platform, ecosystem, or decentralized application (dApp).
    • Can serve various functions, such as access to a service, voting rights, or as a medium of exchange within the platform. 
  • Examples:
    • Chainlink (LINK)
    • Filecoin (FIL)
    • Basic Attention Token (BAT)
  • Advantages:
    • Can provide incentives for users to participate in and contribute to the platform.
    • Potential for value appreciation if the underlying platform or dApp gains adoption and usage.
  • Disadvantages:
    • Value and utility are often dependent on the success of the underlying platform or dApp.
    • May face regulatory scrutiny, particularly if they resemble securities.

Governance tokens:

  • Characteristics:
    • Used to participate in the governance and decision-making processes of a decentralized platform or protocol.
    • Holders can propose, discuss, and vote on changes to the platform.
  • Examples:
    • Maker (MKR)
    • Compound (COMP)
    • Uniswap (UNI)
  • Advantages:
    • Empowers users to have a direct say in the development and management of the platform.
    • Can align the interests of users, developers, and other stakeholders. 
  • Disadvantages:
    • Value can be dependent on the success and adoption of the underlying platform.
    • Possibility of low voter participation, leading to centralization of decision-making

Could a stablecoin be backed by or pegged to Bitcoin?

Yes, a stablecoin could be backed by or pegged to Bitcoin, but it would have some inherent challenges due to Bitcoin’s price volatility. A stablecoin pegged to Bitcoin would be a cryptocurrency designed to maintain a stable value relative to Bitcoin rather than a fiat currency like the US dollar.

In this case, the stablecoin’s value would fluctuate in relation to fiat currencies, as it would be pegged to Bitcoin, which is known for its price volatility. This would make it less effective as a stable store of value compared to traditional stablecoins pegged to more stable assets like the US dollar or other fiat currencies.

However, such a stablecoin could still have some use cases within the crypto ecosystem, such as providing a way to hedge against the volatility of other cryptocurrencies in relation to Bitcoin or facilitating transactions within platforms that primarily deal with Bitcoin-denominated assets.

Creating and maintaining a stablecoin pegged to Bitcoin would require a mechanism to adjust the stablecoin supply and manage reserves, ensuring that the peg remains stable despite Bitcoin’s price fluctuations. This could involve complex algorithms, smart contracts, or other mechanisms to track and adjust the value of the stablecoin relative to Bitcoin.

In summary, while it’s possible to create a stablecoin pegged to Bitcoin, it would have limited utility as a stable store of value due to Bitcoin’s price volatility. Instead, such a stablecoin would likely find niche use cases within the crypto ecosystem, where stability relative to Bitcoin is desired.

How does the Lightning Network work?

The Lightning Network is a Layer-2 solution built on top of the Bitcoin blockchain, designed to enable fast, scalable, and low-cost transactions. It achieves this by creating off-chain payment channels between users, allowing multiple transactions to occur off-chain before being settled on the Bitcoin blockchain.

Here’s an overview of how the Lightning Network works:

  • Opening a payment channel: Two parties, Alice and Bob, create a multi-signature (multisig) wallet, which requires signatures from both parties to spend its funds. They then create and sign a transaction that funds this multisig wallet on the Bitcoin blockchain. This transaction is considered the opening of a payment channel between Alice and Bob.
  • Updating the channel balance: Once the payment channel is open, Alice and Bob can make multiple transactions between them, updating the channel balance without recording these transactions on the Bitcoin blockchain. They do this by exchanging signed transactions that redistribute the funds in the multisig wallet. These transactions are not broadcasted to the network and can be updated as many times as needed.
  • Closing the channel: When Alice and Bob want to close the payment channel, they can agree on the final channel balance and sign a transaction that distributes the funds in the multisig wallet accordingly. This closing transaction is then broadcasted to the Bitcoin network and recorded on the blockchain, effectively settling the net result of their off-chain transactions.
  • Routing payments: The real power of the Lightning Network lies in its ability to route payments between users who do not have a direct payment channel. If Alice wants to send funds to Carol, but they don’t have a direct payment channel, the Lightning Network can find a path through a series of connected payment channels (e.g., Alice -> Bob -> Carol) to route the payment. This process uses a routing protocol called the “Onion Routing Protocol,” which helps preserve the privacy of transactions and allows for the efficient routing of payments.

The Lightning Network significantly improves Bitcoin’s transaction throughput, speed, and cost by allowing multiple off-chain transactions to occur before settling on the main blockchain. It also enables micropayments and cross-chain atomic swaps, further expanding the utility of the Bitcoin network. However, it’s worth noting that the Lightning Network is still a developing technology, and some challenges remain, such as liquidity, routing efficiency, and user experience.

It sounds like Layer-2 solutions, sidechains and stablecoins offer tremendous potential to build out a whole new international financial system.

Indeed, Layer-2 solutions, sidechains, and stablecoins offer significant potential to transform and enhance the international financial system. These technologies aim to address the limitations of existing blockchain networks, such as scalability, transaction costs, and volatility, while preserving the core benefits of decentralization, security, and accessibility.

Layer-2 solutions and sidechains can dramatically improve transaction throughput, speed, and cost, enabling a wide range of use cases that were previously not feasible on the base layer of blockchains. They allow for the creation of decentralized applications (dApps), financial services, and various other innovations that can interact with and complement traditional financial systems.

Stablecoins offer a bridge between the traditional financial system and the cryptocurrency world by providing a stable store of value and medium of exchange. They can be used for remittances, cross-border transactions, and a variety of other financial services, often with lower fees and faster processing times than traditional banking solutions.

Together, these technologies can help create a more inclusive, efficient, and accessible international financial system by:

  • Expanding access to financial services: Cryptocurrencies and blockchain-based solutions can provide access to financial services for unbanked and underbanked populations worldwide, enabling them to save, invest, and transact digitally.
  • Facilitating faster and cheaper cross-border transactions: By leveraging the global nature of cryptocurrencies and blockchain networks, cross-border transactions can be executed more quickly and cost-effectively than traditional methods, benefiting businesses, individuals, and the global economy.
  • Increasing financial transparency and security: The use of blockchain technology can help increase transparency and trust in the financial system, reducing fraud, money laundering, and other illicit activities.
  • Fostering innovation: Layer-2 solutions, sidechains, and stablecoins enable new business models, financial products, and services that were not previously possible, driving innovation and growth in the financial sector.
  • Enhancing financial resilience: Decentralized financial systems can provide increased resilience against single points of failure, reducing systemic risks associated with centralized institutions.

While these technologies hold great promise, it is essential to address the challenges and risks associated with their widespread adoption. This includes tackling regulatory compliance, ensuring the security and privacy of users, and fostering the development of user-friendly interfaces and applications. By overcoming these challenges, Layer-2 solutions, sidechains, and stablecoins can help build a more efficient, inclusive, and innovative international financial system.

Bitcoin Can’t Be Stopped

Posted: March 24, 2023 in Economics, War
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By Richard Martin

There is Bitcoin, and there is everything else. The legacy financial system is a dead man walking. Banks and other financial institutions must start adapting now or the same thing will happen to them as happened to the old media businesses with the invention of the world wide web and social media.

I think that may be one of the reasons that the Fed, SEC and other federal agencies are clamping down on crypto exchanges. There’s also a concern that this is part of attempt to choke crypto on-ramps and slow down transactions. I think they will succeed in eliminating most of the dubious players, but they won’t be able to stop Bitcoin.

It is my considered opinion than Bitcoin is unstoppable. There is no founder, no organization, no board, no CEO, no centralized system or hoard to seize. It’s a transparent, decentralized, open-source protocol spread around the world. Its tokens are completely fungible and can be taken off exchanges. They can be safeguarded in cold storage in multi signature hardware wallets, and even exchanged by hand on small thumb drive like devices. Transactions can’t be censored.

The aptly named Lightning Network is designed to facilitate and accelerate Bitcoin transactions worldwide at the speed of the Internet at a fraction of the cost. The significant proportion of people on the the planet who are still unbanked now have a means to become banked. Think of the Kiva model and the Grameen Bank, but on steroids.

There are companies building micro hydro power stations in Africa and using the electricity to mine Bitcoin and as local market demand ramps up, they can shift to that and move to other projects. People in the developed world can’t see that and can’t see the need for it. But for the rest of the planet it is a massive opportunity.

There’s a US company called Strike that provides fund transfer services for cash remittances to El Salvador, the Philippines, Ghana, and Kenya, and more will be coming online in the next few years. Funds can be transferred directly between family members around the world instantaneously and for pennies.

The Bitcoin Network can’t be controlled by the United States or any other state. The bad guys are starting to cotton on to that fact, so it’s going to make economic warfare a lot harder, for example against Russia, Iran, and North Korea as it can probably be used to get around sanctions and export restrictions.

Ukraine Situation Report

Posted: March 24, 2023 in Geopolitics, Readiness & Strategy, War
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by Steve Young, Lt Col (ret’d), Canadian Army

The following is a guest post by my good friend, Steve Young. It’s his estimate of the situation, and pretty darn good. Enjoy. And please let me know if you like these guest reports. I have a lot of friends and colleagues who can provide unique and deep insight into the war in Ukraine and other strategic topics.

Executive Summary

Ukraine has strategically held their lines since reclaiming land in the fall, preparing for a counter-offensive against Russia. Ukraine’s plan involves a highly coordinated assault using various military assets to break Russian defences and exploit the breakthrough. The operation requires significant resources and coordination. Ukraine’s forces are better trained and globally supported, while Russia faces challenges with poor equipment, training, and leadership. The conflict’s outcome looks unfavourable for Russia, with the situation in Crimea remaining uncertain.

Ukraine Estimate

I have been getting some questions on what is happening, so I thought I would post something a bit long. 

So what has been happening since Ukraine took back a large chunk of land back in the fall?  Well, basically, Ukraine chased the Russians back as far as they thought prudent without exposing themselves to counter-attack. Russia went on the defensive and managed to stabilize their lines. When the New Year began, Russia started attacking all across the lines of contact, but more particularly in the regions of Bakhmut and Vuledar. Vuledar didn’t go so well – the Russians lost the bulk of their mechanized forces in several amateurish attacks that failed spectacularly. They had some limited success with dismounted infantry in Bakhmut but have lost most of their gains over the past week. And Russia is losing between 750 and 1,000 soldiers a day with little to show for it. Bakhmut holds. 

Ukraine is caught between trying to hold their lines with as few resources as possible while building up for an eventual counter-offensive. It must be heartbreaking to see all the casualties come back from the front lines while fresh troops and equipment are not committed to the fight, but Ukraine has a sound plan and they must persevere.  We call such operations Economy of Effort, but that doesn’t make it any easier to see the casualties pile up. 

The eventual counter-offensive will require a mix of reconnaissance, combat engineers, heavy tanks, artillery, mechanized infantry and wheeled logistics, plus any air and aviation assets they can muster. I figure Ukraine will require somewhere North of 500,000 soldiers, likely double that if they can field that many forces.  Offensive operations, properly done, are resource intensive. Some of the initial moves may have already begun. You may have noticed that Ukrainian reconnaissance activity has picked up of late, and that they are targeting artillery and air defence assets as a priority. 

The first step will be a highly choreographed assault to break through Russian defensive positions.  They’ll likely try to break through in two places, hoping to get at least one. You will see the heaviest equipment used here:  Abrams, Challenger and Leopard tanks, Bradley and Marder fighting vehicles, lots of artillery and even air support. My guess is that they have been practising all winter. It takes training and a lot of coordination to get everything done properly. That part should go well, and Ukraine is likely to slice through the Russian lines without much difficulty, albeit at the cost of considerable expenditure of scarce resources. 

The next step is to try and exploit the breakthrough, to change the initial tactical success into something more, hopefully something that would cause the Russian line to collapse entirely. This part will see the older Leopard 1 tanks, the French AMX-RC wheeled “tankettes”, jeeps, armoured personnel carriers and anything armoured and fast. All supplies, fuel and ammunition will need to be on wheels, so a lot of trucks will be required. The job of this second force is to destroy supply dumps, staging areas, repair depots, command posts and, most importantly, air defence systems. They’ll need to move quickly but should be mostly unopposed since Russia hasn’t kept much in Reserve for such contingencies. I am guessing that there will be no small amount of partisan support to assist along the way. 

Importantly, they’ll need to do something decisive such as cut the Russian forces in two or surround a large number of troops.  

This second part can’t be rehearsed as much. Commanders will have to rely on the initiative of their subordinate leaders, and trust that they will do the right thing. It will likely be quick and chaotic, hopefully causing the poorly led Russians to cut and run and/or surrender.  If, somehow, that second part doesn’t work out, it might be some time before Ukraine could muster the necessary resources to try again. For me, I’ll be watching this second part closely. 

My guess is that they’ll head to Mariupol.

Anyway, for what it is worth, some things have not changed much. Russia has poor equipment, little to no training, poor leadership and poor doctrine. They have quantity on their side, which has a quality all its own (Stalin’s words), but little else. The only possible way they could capture Kiev is to walk the whole 600 km. They continue to commit war crimes and crimes against humanity, breaking conventions to which they are signatories. Ukraine has the support of most of the world, their training outclasses the Russians and they are unified in their aim to expel Russia. This isn’t going to end well for Russia. 

And what about Crimea? If indeed the the Russian defence collapses, it may not be necessary to fight over Crimea. Let’s hope so.

©️Steve Young

The Consequences (and Costs) of a Fiat Money System

Posted: March 23, 2023 in Economics
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by Richard Martin

This post continues the discussion I started yesterday. You can read that here: How We Ended Up with a Fiat Money System.

All I’m advocating is full transparency of risk and reward and maturity matching. If someone wants to take a risk beyond that, they should be fully informed. Sort of like mutual fund ads that say past performance is not a guarantee of future performance.

Demand deposits such as checking accounts shouldn’t be lent out. Businesses can acquire startup capital from equity investments and/or loans. Anyone partaking in equity ownership gets the ups and the downs. Loans that are generated from actual savings of depositors that are maturity-matched to time deposits would have some risk of default, but that would be priced in to the fees and interest rates. There could also be default insurance provided by other financial institutions, such as Lloyd’s.

In a free banking system, which is what I’m presenting here, there is nothing stopping a lender from advancing funds that are not fully backed by reserves or allocated from savings, either their own (i.e., from their own capital) or from depositors, as long as they realize the level of risk they are assuming and that they are fully responsible for any losses. Same goes for the borrower. With less credit-induced spending and investment, there would be less buy-now-pay-later. It would be like our parents: save up for an appliance and then purchase it. The big difference also is that fractional-reserve banking would be much more limited and not underlie the entire financial-monetary-banking system, as it does now.

The question of how economic growth occurs is a whole different matter. Any credit based money system is liable to booms and busts. The question is how much credit-based money there is. As long as there are central banks backed up by government fiat, there will always be a lender of last resort to offer bailouts. That causes inflation of the money supply, which in turn has many other effects in the economy, on real people.

One of these is that there are too many marginal buyers of, say, houses. These are people who wouldn’t normally rate a mortgage but get one because of artificially low interest rates and government-sponsored mortgage insurance, which in turn are politically motivated to gain votes and pretend there is no problem. With the house held as collateral, this can be a break on housing booms and busts. But we have to admit what happens: the equity in the house is effectively monetized and tokenized which adds to circulating money supply, thus contributing to inflation. Even if that continues, which it probably would (see my comments above about transparent risks), then we can surely do better than the current system by tightening conditions and letting the free market decide, rather than Congress or Parliament.

Another effect of credit-induced inflation and lower than natural interest rates is that investment projects are started that really shouldn’t. Production processes are also lengthened. In both cases, you end up with too much malinvestment which then leads to a boom and must be washed out by a credit bust. That is disruptive to the economy if it was encouraged and enabled for too long for political reasons. But, just as it is better to prune trees and underbrush regularly to avoid a major conflagration, it is better to allow businesses and projects to fail and for their investors or creditors to lose their funds than to end up with a massive boom and bust cycle that inevitably ends in disaster, depression, poverty, and conflict.

How We Up Ended With Fiat Money

Posted: March 22, 2023 in Economics, History
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By Richard Martin

An acquaintance asked me how money backed by gold or any other commodity can be more stable than fiat currency. Here is part 1 my answer.

Money started as commodities that were used in exchange to resolve the coincidence of wants problem. If I have apples and you have oranges and someone else has bananas, but the quantities, qualities, and timings don’t match, we can use a neutral commodity as a medium of exchange. That commodity then becomes independently valued for its saleability and marketability and eventually is considered a monetary good.

Commodities that have served as money include seashells, quipu (Peru), wampum, beads, tools, jewelry, iron, bronze, glass, copper, silver, and of course, gold. And also livestock, which is reckoned as heads — caput in Latin — whence the words cattle, chattels and capital. In other words, commodity moneys are nothing but  liquid wealth.

In the early modern period in Europe, banks developed as money warehouses. People deposited their holdings of precious metals for safekeeping and convenience. Banks would issue certificates of deposit, letters of credit, and banknotes, all of which could be used as money substitutes or fiduciary media. Depositors could also draw funds by writing checks. 

But that was too enticing to bankers, who started issuing banknotes and various certificates on credit under the assumption that they would not all be exchanged for physical money on deposit. They were then commandeered by governments, primarily in Great Britain, or set up various private rackets and cliques to issue loans to friends and family without full backing.

Through a series of factors including influence peddling, bribery, fraud, jurisprudence, and legal chicanery, over 400 or so years we have gotten to the current monetary system where all official currencies in the world are entirely fiat and we have a full fractional-reserve banking system. This leads to credit bubbles and the cycle of boom and bust.

More to follow.

Au Canada, le Parlement est souverain, pas le Premier ministre

Posted: March 18, 2023 in Leadership, Philosophy, Political Philosophy
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Par Richard Martin

Un « rapporteur spécial » n’est nullement nécessaire pour enquêter sur l’ingérence chinoise dans la politique canadienne.

Les élus de la Chambre des Communes disposent des outils nécessaires pour faire leur travail par le biais des commissions parlementaires. La loi prévoit également des dispositions pour les commissions d’enquête, les enquêtes publiques, les enquêtes judiciaires, ainsi que les commissions royales. Elles peuvent citer des témoins à comparaître, les obliger à témoigner sous serment, organiser des séances à huis clos pour obtenir des preuves et des témoignages confidentiels.

Trudeau invente tout cela au fur et à mesure. Même l’idée d’appeler la mission “rapporteur” pue la maskirovka, la mauvaise direction et la désinformation. Si le Premier ministre n’a rien à cacher, il ne devrait pas avoir à s’inquiéter, n’est-ce pas ?

Le Parlement approuve actuellement sans discussion les directives de M. Trudeau et du cabinet du Premier ministre, sans procédure régulière ni examen public. Nous devons nous rappeler que le gouvernement, c’est-à-dire le Premier ministre et le cabinet, est responsable devant le Parlement, et non l’inverse. Ce principe est inscrit dans notre constitution depuis l’avènement du gouvernement responsable dans le Canada d’avant la Confédération.

Malheureusement, le caucus libéral, aidé et encouragé par le NPD, est rempli de flagorneurs sans envergure. Ils ne s’intéressent qu’au maintien de l’illusion de la suprématie parlementaire, et non à la substance.

Il suffit de voir les tactiques de blocage et d’obscurcissement que les membres libéraux de la commission ont utilisées ces derniers jours et ces dernières semaines pour empêcher le CEM de Trudeau, Mme Telford, de témoigner devant la commission parlementaire tentant d’élucider la question d’ingérence du gouvernement de la République populaire de Chine et le Parti Communiste chinois dans les affaires électorales et et gouvernementales du Canada.

C’est là le vrai problème, et non pas de savoir si David Johnston est suffisamment “honorable” pour accepter la mission de « Raconteur spécieux » !

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