Joseph H Sadove
8 min readJan 7, 2020


In the Beginning

The Big Bang

I was running technology for Credit and Rates trading at MerrillLynch in January 2009 when BankOfAmerica completed its takeover. This was arranged in the fall of 2008 a day before Lehman Brothers declared bankruptcy and as Merrill’s stock was going into free-fall. (For those new to investment banking, “Rates” means government and semi-governmental debt and derivatives. “Credit” means corporate debt and derivatives, including the now-infamous credit default swaps (CDS).)

The takeover completed at the time the mortgage-driven crash was accelerating to its bottom. Perhaps not so coincidentally, January 2009 was when “Satoshi Nakamoto” posted version 0.1 of his software and the first Bitcoin was issued.

Since I was a long-time reader/user of SlashDot and SourceForge, I probably first read about Bitcoin at this time. Just as likely, I purposely ignored it since there was a lot of mixing of pseudo-political software evangelism that seemed a little too self-important for my tastes.

I am nevertheless certain, however, that the first time I really paid attention to Bitcoin was in 2011 when Gawker wrote about SilkRoad. For those who may not know, SilkRoad was the eCommerce website that specialized mostly in drugs, as in, heroin, opium, pot, hash, meth, etc. It and its follower sites were the largest, deepest and possibly only users of Bitcoin at the time. The site was seized and shutdown 2 years later and the owner/operator, Ross Ulbricht, was captured, tried and sent up for both operating the site and soliciting murder for hire.

I recall very clearly thinking in the aftermath of SilkRoad that “Satoshi” must be horrified and that this was the end of that experiment. I was wrong, it seems. I was wrong because SilkRoad might easily be seen as the very manifestation of what he believed: no regulation, no government intervention, no right or wrong.

It’s the Economics, stupid.

The brand of economics and politics that “Satoshi” and most of his enthusiastic “followers” share is very similar to that of the traders I worked with. This was a mix of libertarianism and explicitly or implicitly anti- “socialist”. Most of the traders were either Econ or Business grads. They seemed, mostly, to come to their views as a mix of anti-regulation and masters-of-the-universe dispositions. However, they can hardly be lumped with haters of fractional reserve banking since that system provided their very rich livings. Still the convergence of these views and political tendencies aligns with the so-called “Austrian” school of economic thought.

For those who are unfamiliar with the “Austrian” school, the holy quad of this school is comprised of Carl Menger, Joseph Schumpeter, Ludwig von Mises and Friedrich Hayek. Although they are somewhat heterodox, there are a number of features of their work that appeals to crypto/decentralization believers [To simplify the reference, let’s refer to these as “CDs”].

Primary and foremost of these shared beliefs is the belief in gold as a model store of value. This aligns with the real or assumed characteristics of crypto-currencies: transnationality, policy-immunity, and limited supply.

The secondary reason why I observe that CDs are most attracted to the Austrians is their clearly stated ideological orientation. This tends steeply towards individualism, laissez-faire governance and free trade. In their view, the less policy governance of an economy the better for freedom. Freedom for the Austrians meant the absence of economic “tyranny” in the form of socialism or communism or anything like it.

To explain their view of “freedom” it is best to look at the context of the time. The Austrians began writing and wrote most at a time when communism and socialism arose in their most menacing forms: National Socialism and Bolshevism/Leninism. These theorists of “freedom” also notably came from places most affected by these twin evils. Somewhat paradoxically, however, none of the “holy quad” had any direct experience of liberal democracy except in their later careers when, apart from Menger, three of them fled to the USA and the UK.

To complete the context and contrast the views of crypto-decentralization skeptics such as myself, the “opposing” school of economic theory is dominated by John Maynard Keynes and Paul Samuelson. The shorthand reference to this school is Keynsian economics. The other names that are applied to it are empiricism and econometrics. This strain of economic thinking arose in western capitalist democracies and came to dominate in these places along with the institution of fractional reserve banking, the bogeyman of Satoshi and others on the Austrian side.

Apart from the institutions that are associated with Keynesians, the main feature of this school is the modeling, testing, applying, verifying, revising approach to economic governance. This means that government and economic management are empirical and active in trying to understand and solve the problems of everyday human society. These problems are defined very broadly as improving the general well-being. Key also to this outlook — in contrast to the Austrians — is an aversion to abstraction and widely generalized outcomes and/or political objectives.

Back to Schools.

To further understand this, it’s important to reference the intellectual origins of the two schools. The Austrians come out of a long middle European history of teleological philosophy. Adam Smith’s “Wealth of Nations” and DesCartes rationalism were not their points of intellectual origin. For the Austrians, it was more Hegel, Schopenhauer and Marx. Whereas Smith’s and DesCartes’s starting points are rational and analytic, Hegel, Schopenhauer and Marx project an imagined perfect end state that is then theoretically reverse engineered.

In addition to the intellectual origins of the Austrians, capitalism, ironically, was not the context where their theories developed, Instead, they wrote during the late feudalism of Kaiser Wilhelm’s Germany and the Hapsburg Austro-Hungarian Empire and their aftermaths. In contrast to the Austrians, Keynes and Samuelson were from the oldest democratic and most purely capitalist political systems.

So how does this apply to crypto-decentralization proponents and the skeptical view? Just as libertarianism originated from political and social anarchists seeking to create a “perfect” or “freer” society for the individual by theory, decentralization proponents use similar terms and objectives. And much like Austrian teleology, the ultimate benefits that are supposed to accrue from a decentralized world are purely theoretic and impossible to model, test, measure or prove. Political systems of governance (democracy vs. autocracy) and deliberate empirical economic decisions and the system’s projected benefits are decoupled. Even more, there is either a belief that economic freedom equates to political freedom or that political systems are irrelevant to the discussion entirely.

At the same time, much of what comes out of the CD world sounds both right wing and anti-authoritarian. The concerning feature of the targeted “authoritarian” institutions is that they are almost exclusively western democracies. Although authoritarian governments such as China and Russia operate their economies using fractional reserve banking (more or less) and other Keynesian mechanisms, none of these are targets for criticism of the decentralizers’ contempt. I will return to the paradox of this odd feature in more detail in a coming essay.

The Formula For Success.

Vitalik Buterin’s variation of Fisher’s Quantity Theory of Money stands out as the only attempt to explain crypto’s value from a usage perspective. Buterin’s very self-justifying explanation of how ETH’s value is derived and would behave points at “utility” driven by usage on a platform, such as the Ethereum eco-system. The publication of this, however, permitted a thousand flowers and whitepapers to bloom in the CD space. It provided a seemingly rigorous explanation of value and, in general, “neutralized” further the discussion of the actual source of value: many more SilkRoad v2.0’s and untrackable illegal activity as still the primary source of demand for crypto.

Nevertheless, since this explanation has proven seriously inadequate (see ETH price excluding Apr-2017-Dec-2018), Vitalik the Economist has now come up with another variation based on prior economic research, “The Signaling Theory Model”. My basic assessment of this is that it seems like another attempt to continue the project of suggesting that usage on the platform ( explains the source of crypto value rather than demand for illicit activity coupled with Ponzi-Scheme-style get-rich marketing.

Back to the Future.

So, where are we? The future of Crypto and the vast horde of beneficiaries is still growing. Autocratic countries divide between those (mostly failed or failing states) where only the elite benefit from its availability and those, such as China, that can and will control or suppress it as their need requires. And China’s ability to do this by both law and internal control of the Internet is becoming a model for others.

In the west, where most of the hordes of proponents still live, there is unending optimism and boosterism. This is invariably coupled with the belief that crypto is useful and protects against the “predations” of fractional reserve banking along with decentralization opening up vistas of greater “freedom”. At the same time, however, the institutions and models of political and economic governance that back the western liberal democratic order are most under attack by these same people.

If anything is shared between the boosters in the west and the rest of the world, it seems to be an interest in undermining the western liberal democratic order. Lenin was quoted as saying that western democracies (aka capitalists) would sell him the rope with which he would hang them. He was wrong, but is there a new “Lenin” and a new rope?

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After this, the next 3 articles will delve into the technical and practical issues of DDLT and token/crypto-economics. I am nevertheless interested most at this point to start a discussion and determine if there are things missing or inaccurate or if there is stronger evidence for the massive movement in the space besides opportunism, FOMO or ideology. But please, no problem that it’s forceful, just keep it clean.

#crypto #bitcoin #eth #btc #decentralization