The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market (opens in new tab)

I'm not a moral realist so I think that libertarian philosophy is nothing but the most venal elements of capitalism congealed in thought, but I should add that the classical formulation of libertarianism is internally incoherent. You omit that for any transaction to be legitimate it must not only be voluntary but must also consist of the exchange of things legitimately acquired in the past, i.e. voluntarily acquired. This chain of voluntary exchange is what is supposed to grant one a title to that thing. But of course, in reality, that does not exist in the least. The distribution of things over history is primarily a function of brute coercion and happenstance. Nozick knew as much, and his suggestion is as pitiful as his scruples: we need to 'reset' society according to the Rawlsian difference principle and then begin our libertarian accounting.

In any case, I can't take seriously anyone who thinks that humans aren't interested in freedom because they want to be free to do things, i.e. I want to be free to see my family not only in that I don't want someone to stop me from doing so, but I also want the means to be able to do so. The one is more or less pointless without the other. And that obviously requires more than negative liberty. Or that, in another vein, that capitalist enterprises are not vehicles of accumulated power that sustain themselves by exploiting workers, ordered along hierarchical top-down principles. One only need step into sociological reality to see as much.

> The libertarian position on wealth inequality is that as long as the distribution of wealth was determined voluntarily (without state privilege, in particular), then there is no problem.

Buuuuut, they bought it with fiat currencies, in many cases USD. So... right there the entire idea breaks down. Still, maybe that's unfair. A valid criticism of this argument is that it's a variant of the the serf comic argument (or genetic fallacy) in which those embedded in a bad system may not question it because they benefit from it.

The real problem from a libertarian perspective is that bitcoin (and really all PoW blockcahins) just encodes how a new State, a plutocratic one based around processing power and energy availability, is formed. This is in a very literal sense what bitcoin encodes, with the miners being the only folks with any real votes (in that if miners as a group refused to mine other currencies and actively discourage others from doing so, other currencies cannot scale and are locked out).

Not that bitcoin is scaling all that well. Or eth for that matter.

As we've seen from recent research, Bitcoin is slightly better than existing systems at discouraging monopolies (because even accidental misuse could crash the currency), but I seriously doubt a mining duopoly dictating most of the future of bitcoin is something that any libertarian actually calls a positive outcome, other than a snarky nod to damaging existing states.

The long term evolution of the system is pivotal on some new, non-PoW scheme. PoS is the major contender right now. There might be other methods as derivations (e.g., PoW coupled with physical location, PoS with term limits, PoS with accreditation, etc). Non-PoW systems will also scale much more effectively than PoW systems, as well.

> The libertarian position on wealth inequality is that as long as the distribution of wealth was determined voluntarily (without state privilege, in particular), then there is no problem. Bitcoin is such a system: all participation in Bitcoin has been voluntary. Early adopters took a big risk on a fledgling technology, and some have been rewarded with handsome returns.

I could never really make sense of that position. Voluntarily by whom? Why would you ever voluntarily agree to a high-inequality society where you are at the lower end?

I don't think bitcoin is a valid example because it's something that (right now) you can choose to ignore completely without any negative consequences for you. Therefore, high inequality is not necessarily a problem.

The moment bitcoin would become the single dominating currency, the situation would be completely different.

>Since taxes are not voluntary

>The libertarian position is that human interactions should be voluntary, so the coercion problem is where libertarians find issue first.

Do you believe obeying property law is voluntary? I find it to be coercive.

> he libertarian position on wealth inequality is that as long as the distribution of wealth was determined voluntarily (without state privilege, in particular), then there is no problem.

I'd like to remind the world there are such things as consequentialist Libertarians who view the value of their policy preferences based on their outcomes rather than the NAP.

I'm sympathetic to the inflation argument, but it doesn't seem to match what actually happens. For example, Bitcoin inflated by about 20% in a 20-minute period yesterday. The theory doesn't seem to match the practice here.

"The libertarian position is that human interactions should be voluntary, so the coercion problem is where libertarians find issue first."

So basically everyone should be armed to their teeth? Because, if there is no state to impose control, a warlord will emerge who will. Or is there some other solution to the problem that humans have known tendencies toward violence and power hunger?

>> Early adopters took a big risk on a fledgling technology

I can't agree with that. Early adopters really didn't take a lot of risk, they ran a mining program for a while, or bought some BTC for a few cents to a few dollars.

"Since taxes are not voluntary, this creates built-in demand for the fiat money."

Not really.

The real underlying demand for a currency comes from the advantage that everyone gets by using the same currency in a common market.

The 'required for tax' purposes is a side-show.

Does anyone with any financial background appreciate that most businesses in the US want to use a single currency for their US transactions, and definitely not a 'grab bag' various currencies?

Nobody wants that. Nobody.

Also, the requirement to 'pay taxes' in a common currency is not coercive.

As long as there is liquidity in currency, then you can exchange whatever asset you want for USD and pay your taxes then.

Libertarians are still free to use whatever they want in their business dealings. Of course, we all use USD because it's pragmatic and useful.

"Capital controls are an artificial construct of the state"

Western nations do not really have 'capital controls' other than for the purposes of taxation and fraud. And sure, you could say 'taxation' is an 'construct of the state' but it's certainly not 'arbitrary'.

"When the money supply of your currency is not constrained (by gold, or otherwise), then it inevitably inflates, often unpredictably and uncontrollably."

Totally false. Inflation is a target by most central banks. They can make it positive or negative, generally, and target specifically 2% for certain reasons. You can argue against the 2% if you want, but not that managed currencies are inherently 'one thing or another'. They are whatever they are designed to do.

By having a 'perfectly hard currency' - you forgo the risk of having some crazy person doing monetary policy - but worse - you lose the possibility for having monetary policy altogether. How could you possibly not mention this as the most obvious drawback to a strict currency (i.e. no monetary policy)?

Monetary policy is a very powerful instrument for helping the economy along. Without it, it would be impossible to ensure enough liquidity as the market expands. Also, the economy would not be resilient to 'shock' events.

The reason zero economies on planet earth used a fixed-currency regime is because it does not work.

"The libertarian position on wealth inequality is that as long as the distribution of wealth was determined voluntarily"

This position is false, as capitalism itself is game of gaining leverage towards monopoly. Without some degree of redistributive taxation, 90% of the US economy would be in the hands of a small group of people. (And P.S. I'm no communist)

"Bitcoin is such a system: all participation in Bitcoin has been voluntary. "

Again, false.

Bitcoin is not a currency. If anything, BTC has proven how ridiculously bad this 'crypto-currency' idea has been as a currency. By it's very own 'relatively strict' status, it has increased it's value ('deflationary' in your terminology) - and has become useless as a currency.

-----> If we were using Bitcoin as a currency, the economy would be tanking due to a deflationary death-spiral <-----

EDIT: by 'death spiral' I'm referring to a common economic idea. As prices of goods go down, investors tend to hoard cash rather than invest it, as holding currency might be a better investment strategy than spending. Without investment, other parts of the economy slow, furthering the impetus to holding cash. The 'mass deflation' we've seen in BTC is equally as destructive as 'mass inflation' we would see from some really poorly managed gong-show currency.

Put another way: yes, you might like it if your 'new tennis shoes' were 1/2 price next week, and 1/2 that price the week after - hey - cheap tennis shoes! But think about it: has the economy just magically been 100% more productive each week? No. Of course not. So - what's happening is a monetary game that will soon hit your paycheque (i.e. your boss can pay you 1/2 your salary each week because that's your real market value). But worse - because of this drop in prices, your boss will be less likely to expand because his cost of capital equations show him it's smarter to hold the cash.

But it's all moot: Bitcoin is not a currency. It could be used as a currency, but it's not. It's just a purely speculative thing that's going on. People trading numbers for money 'because'. There's no rhyme or reason. There is no 'big government vs. small government' ideology here. There is no 'libertarian' behind BTC currency. It's just a meme with money that's interesting to watch.

does libertarianism have any tenets other than "human interactions should be voluntary"?

Yes. Just the same as generational wealth in the real world. The problem with meritocracy is that ocracy implies some power over the system and in a true meritocratic system the first generation would corrupt it to help their kids. Meritocracy is an oxymoron because the difference between equality of opportunity and equality of outcome is a gradient, not a line.

So in order for libertarian society to work as desired we first have to... evenly distribute the wealth? I don't think we'll find any libertarians taking that position.

I consider myself a pragmatic libertarian, which off the top of my head basically means that:

1. I believe very strongly in the sovereignty of the individual.

2. I prefer more open and incentive-driven markets.

3. I’m skeptical of governments, particularly large and powerful ones, because they’re inefficient, rely on coercion, and are too tempting as prizes to be captured for power, prestige, and wealth.

However, these are all on a spectrum and I’m open to trying other points along that spectrum if they work better than our current system. I also recognize that the optimal system may be too distant from where we are today to even move towards it directly.

So for healthcare for example, our system is dreadful, but I’m not sure that pure free markets would be better. But I’d strongly prefer a public option (and maybe even single payer), or a well-designed hybrid system like Singapore or Switzerland has to fully nationalized healthcare like UK.

Similarly, I’m open to trying basic income, a land value or VAT instead of income tax, and other alternative systems. I’m particularly in favor of systems that are more stable and resistant to changing from the whims of the current government.

I personally don’t understand how anyone who thinks the government is awesome can continue to believe that when they watch episode after episode of unchecked police brutality, or constant encroachments on civil liberties, or the entire Trump administration.

Liberterians such as myself, would like to see a more prosperous world. With the technology we have available today, we're 1000s of times more productive than we were millions of years ago, and yet, 99% of society is still stuck working 40-60 hours a week and barely earning enough money to get by. There are many reasons why this is the case: taxes are only 1 reason. But, most of these reasons ultimately have something to do with government. Housing and Healthcare is no-where near as cost effective as it could be, if we were allowed to zone it properly and innovate on it.

Ultimately, Libertarians stand for the freedom of people. Currently, when a government takes and uses 1/3 of every dollar earned, the society is not free. Note: that ratio would be a lot higher in expensive areas like the bay area, etc.

1/3 doesn't sound like much oppression, but when you add in the multiplicative effect on the spending side, it becomes more onerous because everything is more expensive. The day care has to charge 50% more, etc.

It's about Maslow's hierarchy of needs. Most people, 99% are still working on their bottom tier. It would be morally, ethically, and economically wrong to stop their progress, by taking 1/3 of their productive efforts.

As the above posts mentioned, we do differentiate between natural resources and earned resources. Natural resources like Land should be taxed because you didn't create it from your own labor. On Earnings However, if you make your bed in the morning, you should be able to keep that labor - no one should be allowed to come over and use 33% of your bed.

> Anyway, I think most Libertarians would be cool with a handful of ultra-wealthy, because they really think they can conquer the market someday and be one of them.

The existence of ultra-wealthy people isn't inherently bad.

The question is about the alternative. If everyone's quality of life improves (including relative to the ultra-wealthy), I'd rather that happen than reduce everyone's quality of life out of a sense of "fairness."

Claiming most libertarians act against their own interests because they think they can become ultra-wealthy is straw-manning the view.

What you are noticing is that one person's just cause is another person's business model. For many people the call to "have freedom and keep the government out your life" sounds wonderful, even if they either don't know exactly what that means, or if it means 1000 different things to 1000 people. It just sounds good. But it also allows some other people in the process to make more money. e.g. if you make money by digging something out the ground and selling it, you don't want to be told you can't dig any more and you don't want to be told you have to fill the hole in when you're done and put all the plants and wildlife back how it was. So you get a symbiotic relationship emerging between these two groups of folks : the money-makers spend their time and effort pushing "freedom", for purely personal gain, while the freedom-lovers eat it up, improving their self-esteem and feeling good about themselves even though they have very little actual freedom, and a big dirty hole in the ground next to their town.

What's the difference between a government manipulating a currency and a cabal of wealthy individuals manipulating a currency? Or is your problem mainly that businesses have to accept dollars?

So if someone would acquire more wealth than this "limit" you think it's okay to steal it from them? How is theft morally acceptable?

I am a libertarian. I can tell you, for a law abiding citizen, bitcoin is no better than a dollar. You still have to pay taxes on it, report it to the IRS and it's still subject to whatever regulations the government wants to put on it, for example 10k/20k reporting requirements, etc. If the gov wants your money, they will find you, one way or another.

Committed ideological Bitcoin supporters commonly believe in a network effect race condition spiral they call 'hyperbitcoinization' which models a world where a sort of event horizon in market adoption had been crossed, and everyone on Earth is forced to use bitcoin either directly or indirectly.

In this techno-feudalist scenario, being one of the Bitcoin 1% or even 10% means the world is at your feet, and if you've maintained good opsec, nobody may even know how much of their lives are your property.

This is what I don't understand. In the hypothetical case where we switch to using bitcoin won't early adopters be the only people with money? What about the 99.9(9?)% of the population who don't own any bitcoins?

Wouldn't the same scenario play out with any other cryptocurrency? Early adopters will sit on the bulk of it.

Up to 25% lost for good according to this source: https://letstalkbitcoin.com/blog/post/rise-of-the-zombie-bit... & https://seekingalpha.com/article/4082979-many-bitcoins-lost-...

Also many wallets are simply unspendable due to transaction costs.

This is interesting but my understanding of blockchain is limited so: Aren't all transactions 'encoded' in the blockchain? If so why can't the coins be found? If not, what does the blockchain "record"?

Or just pay more to move your money into a country that doesn't care about such things, then buy it truly anonymously.

Or mine it if you have access to cheap electricity and can afford the equipment to be near the top in hashing speed.

In either case, you can see how Bitcoin wealth is biased to people with lots of fiat to begin with. I question if there could be any new currency that would not suffer the same inequality.

Multiple competing privately issued currencies is also a trope of libertarianism; people refer a lot to Hayek's The Denationalization of Money.

How do you know being a good steward of that money doesn't mean just hoarding it and doing nothing?

Bitcoin encourages hoarding while it's going up. Who knows where this runaway phenomenon will lead.

At least the dollars and euros exchanged for it don't go anywhere. Bitcoin has fast become a store of value and redistribution of the world's wealth to early adopters, as any new fixed money supply would be.

Can you clarify what is your definition of "right people" in this specific case?

No central control assuming you ignore the mining pools.

Well that's sort of my point... me a large amount of coins stored in a low-transaction account would to me be characteristic of reserve-type funds stored by big exchanges.

In fact, many parties like Coinbase have come out and openly stated that only a small percentage of their users' coins move around, and therefore the vast majority can, and is, stored in 'air gapped cold storage'. i.e. on private keys that never touched a network of any kind. This could result in a few cold storage addresses which carry funds for orders of magnitude more users, rather than a few individuals.

In fact, if you follow your own link you'll find many of the addresses are in fact identified as belonging to exchanges like Kraken or Bitfinex cold wallets. e.g. the second richest address is a $1.9 billion Bitfinex wallet.

So I don't think the title of the research '1000 people own 40%' is hard to dismiss at all. It could well be true, but a mere list of addresses isn't proof to that claim.

> Only in a context of mutual absolute trust, in both honesty and security competence.

Not at all, look up multi-signature addresses. There are addresses where you need N-of-M signatures to move the coins.

So for example you could have a 6-of-10 multi-sig wallet for a company, so that a majority of the executives were necessary but the money wouldn't be lost if up to 4 of them lost their keys or went rogue or whatever.

> Yeah, I really dislike that the title sounds like it's a fact.

I do wonder how much people try to manipulate perception with media to serve their trading interests... fake news is so easy these days. Just look at what happened yesterday: a bunch of online news outlets output a bunch of speculation about the new 15,000 high, over the next 12 hours it created a sort of bubble going up to ~17,000 that popped and re-established it's original price point at ~15,000.

It's possible the opposite is being attempted here: trying to create a short term crash bubble, so they can get ready to buy on the down, before re-establishing it's original natural market value.

You are right, it doesn't always work, but it can work, and work really well. The way you make money is by creating volume and momentum. You buy in a low volume market, where it's cheaper to move the market, then if volume takes off and price momentum builds, you can sell much more volume without moving the market. We aren't talking about people liquidating their entire stakes, but you can make a few million here and there easy.

There is strong incentive to collude: collusion unlocks the potentially powerful profit engine of market manipulation. You make more money working together than you could on your own. If people try to screw each other too much the whole thing falls apart, as market movements are no longer predictable to the colluders, and their advantage is gone. So yeah collusion can break down in cases but as a rule people understand they make more money together

If you don't buy that theory, id recommend reading about Solomon brothers or even watching the wolf of wall st. Martin shkreli did this stuff too. I think it was Jim cramers tactic for a while (talk your book on tv, get retail volume in small cap stocks and sell into that) JP morgan and other early wall st financiers did this sort of stuff. It happens in the real world even now; I've heard from friends at big banks that they know people who will sometimes do stuff like this

market manipulation is how people make real money in unregulated markets. cornering the market is and always has been the holy grail for market manipulation and profiting in unregulated markets. It's why regulation exists. Its a theory in the same way that evolution is a theory

You don't think the Bitfinex/Tether cats printing Tether and using it to wash trade BTC is manipulating the price of BTC. I don't think the $19,000 price on Bitfinex yesterday was organic.

thats a lot more volume than i thought based on the comment i read yesterday. also just found this site https://data.bitcoinity.org/markets/price/6m/USD?c=e&t=l which has historical price and volume data. looks like 24 hour volume has generally been around 100-150k BTC / day

could still manipulate markets with 40% concentration and that much liquidity, but would be much harder than if the daily volume was on the order of tens of millions like i mistakenly thought

> Untraceable money

Bitcoin is not untraceable money, it can be even more traceable than normal currency. It could be stablished as a law that public money when being spent in the blockchain needs to be auditable by the people (identities of sender and recipient known), and this way you would end up with even less corruption than the current system.

> Deflation means that the rich will get richer

Wrong. Rich people don't have money, they have holdings. Most of the holdings that rich people nowadays have are not money. Deflation just benefits the savers, as opposed to the spenders. Some savers might be rich but not all. Incentivising saving instead of consumption may make the planet a bit greener. Plus, if one day we stop measuring cryptocurrency value with a fiat-unit of measure, maybe we find out that the cryptocurrency value is actually the stable value. The asset that is not stable is the fiat currency because it's being depreciated all the time. The day all stores in the planet denominate prices in cryptocurrency, the bad consequences of deflation (hoarding for the sake of profit) will be almost imperceptible.

I don't completely disagree but I will try to at least bring up some contrary views.

> Untraceable money

Bitcoin is pseudoanonymous with it's public ledger, hardly untraceable. Look into Monero for a proper anonymous coin.

> Untraceable money means that corruption and tax evasion would be easier than ever.

A contrary point is that today corruption and tax evasion is only for the very rich, see the paradise papers for example. In a sick way this could give the common man more power and maybe make the world a little more balanced.

Also tax collection is already heavily based on social pressure and doing the right thing. It's not obvious that the threat of getting caught, compared to the social stigma, weighs more.

> Deflation means that the rich will get richer doing nothing while the poor won't be able to get a loan to bootstrap their businesses. Forget about trickle down economics, this is downright "trickle up".

I also don't like extreme deflation, but I also don't like the inflation based system we have today.

Inflation basically eats away at your savings. This is a bigger problem for everyday poor people compared to the rich as they have more investment options. Their buffer they hold in banks or in cash is smaller percentage wise, they can more easily invest in housing and they can more easily grow their capital as money breads money. The problem with rich getting richer is already present.

Without inflation loans would harder and would combat the very real problems with too much loans (housing bubble, student loan crisis, ...). It could also help to reign in fractional banking as it would get riskier/harder.

BTC is not "untraceable money". Everybody has (or can have) a copy of the blockchain, which is the cryptographically signed and verified ledger.

If anything, it is more traceable and public than physical cash. The difference is that you don't know who 63dca1f6eddfb659d71ec5244ab950a4 or e3557c1e589e2a687f6afe1a253196ca are. But when you do associate a person with a given key, that association probably persists over time.

Bitcoin is not untraceable. It is confidential but it is not anonymous, they are different things.

Most of these people are likely affected by capitalism to an extreme: imperialism. Much larger of an injustice than anything you listed.

The people who are most able to take risks (in the investment sense) are those with the most. An exponential growth system such as this only widens the gap, voluntary or not.

Everyone can get in, but the benefit is unequal. You need money to make money. This does not solve any equality issues on the grand scale, and only elevates a few lucky ones. To expect people to educate themselves on cryptocurrencies and understand the market when half the people in tech don't know what's going on is not reasonable.

> But this time it's voluntarily

Gambling's rarely been mandatory. If you were going to recommend your folks to have a punt, wouldn't a casino be better? You know the odds then.

You know what "risk" means, right?

That's a very intelligent point, but let's think specifically of BTC's utility as a store of value.

A comparable alternative may be gold, and it would be fair to say that the gold market could be heavily impacted by a few large holders who choose to sell their holdings. However, those holders tend to be governments. Many of the top holders are fairly representative governments, so initialization of a mass gold dumping is less likely than if they were individuals or small corporate entities, I think. They would be throwing away value that belongs to a large group of citizens, and there would be trade ramifications because their trading partners would take it in the face on their own reserves.

The real reason many people don't initiate aggressive sales is that, barring a mass exodus from a collapsing financial instrument where the price is going to drop anyway, nobody wants to hurt their own mark-to-market by pushing down the prices. The only exception to this would be a fire sale where there is a mandate to liquidate a holding in order to return value to creditors.

Not only that, but price impact is often reversed by other, later trading. So even if your intention is to put selling pressure on the instrument, it may not have a very lasting impact on the price.

However, if you assume everyone else will follow suit and race to the bottom, then there's a definite first mover advantage. That's almost certainly not the case for precious metals, and generally not the case for currencies issued by stable and relatively uncorrupt governments, but it may be the case for BTC because it is new, volatile, and unsecured/unbacked.

It only happens if the market is not there to "catch" the sell off. Say there are 1 000 000 X and the current market price is $100 each. If I have 40% of all X and I go to sell it, I first sell to everyone willing to buy X at $100 each. Then I sell to everyone willing to buy X at $99.9 each, etc. Once we stop selling at price Y, we've essentially sold X to everyone who would buy X for between Y and $100.

Note that this implies selling off X always decreases its price. This is not true if Y is $100 (people were willing to buy more X at $100 than we had X at all), but even so a market usually has something like a bid-ask spread, so if we were trading a small amount of X we could maybe even sell it all off without moving the big price.

So really, whether this crashes the market for X depends on how much people value X. If only a few people thought X was valuable, they probably all own it, so it's worthless. If everyone wants X and are willing to pay just a bit less to get it, Y doesn't really change much from $100. There are also non-currencies like equities that essentially have a price floor: below the price floor there is basically no risk that the item will ever be worth less than that (this could be determined by something like the total value of property owned by a business).

I'd bet that large holders of gold sell small amounts all the time without the market going nuts and kicking off volatility swings. But I could be wrong.

It's less the mechanism and the implication that people imply by following whales. Why should a store-of-value market react when someone sells a small amount regardless of their current holdings?

Buying any asset pushes the price up and selling pushes the price down. It's a matter of sensitivity. The Chinese government could probably push down the price of USD a few percent by announcing a policy change today, but one guy could potentially push Bitcoin prices down significantly with a keystroke.

the major difference between fiat and bitcoin in this case seems to be that the whales in case of fiat currency are either the central banks (like the FED and ECB) or large international banks who own a lot of currency?

That's a good counter-point, and it's difficult to counter without some knowledge of manipulation within BTC markets.

Not anymore, they all got auctioned off. Cheaply too, they averaged around ~$290 per bitcoin.

https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-att...

These coins were mostly sold off to venture capitalist Tim Draper, for $50m: https://hacked.com/tim-draper-has-made-over-110-million-sinc...

Might sound like a success story now, but at a certain point he was down 70% on his investment!

Right, I wouldn't. Maybe it's better termed cryptomineral instead of cryptocurrency.

the whale metaphor is subject to multiple interpretations and gambling is pretty much what hodl is.

The same can be said of gold, or anything else. I don't see why this is significant. Whales being forced to sell would allow people to buy coins at cheap rate and solve the problem that the article is reporting on.