Bitcoin, The New Instrument of The Rich

When Wealth Remains In The hands of The Few, Is Power Truly Decentralized?

Cryptocurrency has long been touted as the great harbinger of equalization, a decentralized, anti-authoritarian tool that would see the control of our monetary system wrangled out of the hands of government entities and large corporations into a libertarian’s fantasy of decentralized anonymity. In implementation, however, for all the real advancements that blockchain technology brings us, a handful of monetarily influential market participants thus far have treated crypto as a relatively manipulable investment class, one existing in a world with almost no rules, no regulations, and no oversight.

Doctors in training have an expression, “when you hear a hoofbeat, don’t look for the zebra (it’s probably a horse).” It’s a cautionary adage suggesting prudence and pragmatism, to think before acting, to analyze a situation before getting carried away with a heretical diagnosis. It seems the crypto world could learn a thing or two from medical residents, as the Segwit2x inspired Bitcoin civil war has many investors chasing after zebras at an alarming rate.

Last week the entire crypto world waited with baited breath for the release of B2X, the Segwit2x implementation of the Bitcoin protocol. The new fork aimed to address some of the myriad issues endemic to Bitcoin (BTC), chiefly relating to transaction speed and pricing. While months ago, most of the Bitcoin community had reached consensus in support of the new protocol, notable miners began pulling out of the non-binding agreement, with massive mining conglomerate F2pool declaring they weren’t going to support Segwit2x at all. This lead to more miners pulling out, until eventually some key exchanges decided such was the uncertainty regarding Segwit2x, they’d have to consider it a separate coin altogether, dubbed B2X, and keep the regular BTC chain unaffected. This meant there would be a new B2X coin, a fork of Bitcoin using the updated protocol while BTC remained unchanged. To some, this was bad news, as it meant Bitcoin was stuck with a crumbling, non scalable architecture, and signified the increasing difficulty and unlikeness of reaching consensus on proposed upgrades to Bitcoin. With no underlying governing body to make decisions, it appeared the future of BTC was facing a mounting battle.

Yet, the market sored. Pricing and volume reached all time highs as investors poured capital into Bitcoin. While the news was ostensibly negative, (with a new Bitcoin fork meaning the original BTC chain wouldn’t experience any upgrade), the way in which B2X was to be distributed meant anyone holding BTC would get an equal amount of “free” B2X in their trading accounts, in a similar fashion to the implementation of Bitcoin Cash. Ultimately, this outweighed considerations for Bitcoin’s future. The notion of Bitcoin as digital gold, a store of value rather than something intended to be a means of monetary transference, became the chief argument regarding the irrelevance of Bitcoin’s ability to scale. Rather, some levied, it was a good thing that Bitcoin wouldn’t change, as this ardent immutability was the very characteristic that fostered trust in the system.

In a Shakespearean style turn of plot at the 11th hour, right before Segwit2x was to be implemented, the team behind it released a statement conveying that the lack of agreement in the community had shown them it wasn’t the right time to go ahead with the launch, cancelling an event many thought was all but certain to transpire. When the news broke, it seemed to some that Bitcoin might increase in value still. After all, the shock of this announcement only solidified the argument that Bitcoin is best utilized as a store of value rather than a means of monetary transference, and that changes to the protocol are increasingly untenable. And for a moment, it did shoot up, almost breaking the 8K barrier.

Then it happened. Social media became riddled with flagrant messages beseeching all who would listen that Bitcoin Cash (BCH) was the new Bitcoin. After all, Bitcoin Cash, an earlier fork of BTC, has implemented changes that make it faster to transact and sometimes more profitable to mine than Bitcoin. That is has its own potential security issues was a consideration heavily drowned out by the frenzy. Telegram groups were bursting with directives warning followers that BTC was over, and to climb onboard Bitcoin Cash, the new rocket to the moon. A core Bitcoin developer tweeted that Bitcoin Cash was the true Bitcoin, something he had worked on for years and always intended to be Bitcoin’s replacement. The market went into a state of mania, sending Bitcoin cash soaring over 400% as some exchanges had to halt BTC trading as the system couldn’t keep up. Miners, easily able to switch between BCH and BTC, started mining for Bitcoin Cash as the block rewards were greater, sending Bitcoin transaction pricing to unseen levels and leaving people trapped with incredibly long transaction times as precious few digital cryptographers (miners) were working on the once unassailable king of crypto.

To an outside observer, this behavior seems more than a little suspect. It’s important to remember that cryptocurrency is an almost completely unregulated market, with no rules for things like insider trading and direct market manipulation (yet). For some “whales” out there (influential investors, via capital, clout or the amalgamation of both), this uncertain news could have been nothing more than a way to make another fortune, dumping billions at a suspiciously quick rate following the B2X news, resulting in massive market swings and the incredible pump of BCH values. Might it be possible that the deluge of the pro Bitcoin Cash propaganda push and eye watering movement of capital could be the results of a few puppeteers pulling at the strings of the market, taking advantage of an “unexpected” situation to prop up their earnings? How many billionaires normally move that much money around on a total whim following unprecedented news?

While it remains unclear who knew what before the news broke, it seems that the fundamental implications of what this all meant for the health of Bitcoin were lost in the wake of yet another pump and dump, showing that even the highest market cap coin can fall victim to incredible manipulation in an ecosystem that makes all manner of traditionally illicit trading possible. Indeed, while cryptocurrency may be lauded as the great equalizer, for the few controlling much of the supply, it is yet another instrument for the uber wealthy to manipulate markets in their favor more quickly and anonymously than ever possible in any other system. As such, even a 9 figure market cap entity like Bitcoin is extremely susceptible to rampant volatility.

Bitcoin probably isn’t going anywhere for now. The actions of the last week do little to obviate the fact that thousands of merchants around the world accept BTC, Bitcoin continues to have implementation into global finance (like the recent Chicago Mercantile Exchange Bitcoin futures announcement), and BTC is still by far the highest market cap coin and the only trading intermediary in many cases. Issues behind the protocol are still very real and could plausibly force a switch to a more transaction friendly alternative like Bitcoin Cash, Ethereum, or perhaps the next unforeseen fork of the Bitcoin protocol but a fundamental shift is likely to be more gradual.

What remains clear after the events of the last few days is that arguments over utility are easily drowned out by monetary gains, and the market that propped Bitcoin up in weeks past over notions of its immutability transferred billions in capital when there was money to be made, directly contradicting the very ideals many vehemently professed made BTC so valuable. People wanted their free B2X, and when the rug got pulled out (assuming the B2X team themselves had nothing to do with the timing and nature of the announcement resulting in the massive BCH pump) they found a new argument for investing in Bitcoin Cash. Blockchain technology and the mediums of exchange built atop it will continue to change the world. But for those who have the capital to move markets, notions of idealism are easily drowned out by the insatiable lure of green digits on a screen.

While the mysterious architect(s) of Bitcoin appeared to have visions of a world where wealth was truly controlled equally by those that participate in the system — free from the grip and artificial influence of manipulation by centralized entities — the very tools that were created to allow for such an environment have now been utilized to engender a situation all too familiar to those acquainted with economics. Though Bitcoin may be in the hands of millions of people, the underlying ecosystem can, has, and will continue to be coerced by the very few who control significant portions of capital. The fact that blockchains allow for any one player to hide under the veil of anonymity provided by a randomized hash address makes it even easier to crassly and most intentionally pervert the market to their inkling. Free from government purview, baseline protective measures designed to curb such activity are notably absent, and until their implementation and a hefty dose of market maturity, radical swings like the ones witnessed this week are a matter of inevitability. Rather than large banks or federal reserves, the reviled centralization cryptocurrency was designed to curtail is being carried out by those with the biggest pockets, parties whose interests are as unaligned with those of the many as in any other financial system.