If you’re a bitcoin user, you’re probably aware of the frailties the system has shown since the big bitcoin bubble of last year. There have been several huge bitcoin heists, a couple of exchanges have gone down, malware has stolen unencrypted wallets, and so on. Most of these issues have been fixed, or are being fixed. While the bitcoin bubble did, in fact burst—as all bubbles must—bitcoin’s trumpeted demise by so called economic experts not only seems to have been wrong, but in the after math of its publicity, the digital currency is actually gaining real traction.
Unfortunately, that real traction has exposed a very real problem with the digital currency that could end up killing it. Not quickly, mind you, but slowly, by a thousand cuts. Or maybe I should have said, a thousand fees.
Let us suppose I receive lots of small, ฿1 payments, and then wish to make a larger purchase. For example, let’s say I receive one hundred payments of ฿1 each, and then want to purchase something that costs seventy bitcoins. I could end up being forced to pay nearly ฿6 in processing fees—that’s an 8% surcharge!—for the transaction to go through. Failure to pay the fee cancels the transaction. This is exactly what happened to one bitcoin user last year. Just yesterday I wanted to test a new savings wallet on my system and was told I would have to pay a ฿0.0005 transaction fee, that’s 2.5%, to move ฿0.02 from my online wallet to my savings wallet. Why? Fragmentation. The bitcoin fragments in my wallet that make up the 2 bitcents are (apparently) very, very small indeed, which means that lots of transactions have to be processed by the miners—the volunteer computers who clear all bitcoin transactions. Apparently, the new bitcoin clients force users to pay fees when a transaction is comprised of a large number of small coins: a 70 bitcoin transaction comprised entirely of single coins, or a very small transaction, like my ฿0.02 transaction made up of even smaller bits of bitcoin.
Why is this problem appearing now? Well, I’m no bitcoin expert, but I suspect it’s because bitcoin has now been around for awhile and, given the very serious economic problems around the world, it’s growing in popularity. With greater use comes increased fragmentation, and there doesn’t seem to be a way to reassemble the fragments back into easily processable transactions. Let’s remember: bitcoin started as an experiment. I seriously doubt anyone believed it truly could become a global currency. Hence the relatively small cap on the number of bitcoins that will ever be created. Hence the complete lack of any mechanism to deal with attrition as wallets are lost (and so the bitcoins within them). Hence the complete lack of security in the original releases of the bitcoin client and the wallet.
The security issues are being fixed. Today, if you lose your bitcoins due to theft, it’s due to a lack of care on your part. Popularity has forced exchanges to ramp up their security to that of a bank. All of these measures are to the good.
But the fragmentation issue is another problem entirely. In the first place, bitcoin is supposed to be “cash.” Hard money that, like dollars or euros, can be handed to anybody else free of charge. While tipping the miners has always been considered the polite thing to do, it was never supposed to be compulsory. Nor was the amount to be “tipped” supposed to be a set fee. Yet slowly, the “tips” are becoming transaction fees that there’s no easy way for the average user to escape. John Doe may be paid his ฿5 in a single block, or his ฿5 may be made up of hundreds of coin fragments. He has no way to know until he tries to buy something with them and is hit with an 8% surcharge for using his money. Worse, unlike being handed 500 pennies, he can’t simply run down to the bank or local grocery and exchange his pennies for a $5 bill, free of charge. He’s literally stuck with five hundred pennies and the best he can hope for is that he might be able to make his purchase free if he breaks his ฿5 down into several smaller transactions.
Which leads us to the second issue, and the one that could end up killing bitcoin. If inflation heats up, sending the world economies into a second recession as many experts believe is likely, bitcoin will once again rise in value. That is only going to increase the rate of fragmentation which, in turn, could end up subjecting a greater percentage of bitcoin transactions to mandatory processing fees. This will set off a twenty first century version of Gresham’s Law. “Clean” bitcoins—those that are freshly minted and so not yet fragmented—will be horded because they’re not debased: There will be no transaction fees attached to using them. Whereas the “old” bitcoins that have been fragmented will be shunned because they’re no longer worth their “face value.” They’re worth their face value less the price of the mandatory transaction fee associated with their use.
And that could kill bitcoin!
I’d like you to meet someone. Let’s call this person “Charlie.” Not a real person, of course. Charlie represents millions of people. You probably know someone just like him or her: S/he was doing fine, until the Great Recession. Not rich, but then s/he never wanted to be rich. S/he’s right in the middle of his or her working life, and is now middle aged. S/he’s married, but the kids are now grown and on their own. The parents are now elderly and getting on to that time when they’ll replace the children in needing regular time and attention.
Unfortunately, Charlie happens to be in one of those industries hit hardest by the Great Recession. Now unemployed, and pretty much unemployable, Charlie decides to do what a lot of people in mid-life are having to do: Go back to school. Charlie wants to retrain into a field that decades of life experience has proven s/he loves. S/he wants to become a scientist. A researcher like the ones you see on PBS’s Nature, or Secrets of the Dead, or Nova. That means, s/he needs a Ph.D.
Charlie has had some college, but never finished. So s/he knows that s/he’ll have to start at the beginning. That realization soon leads to some shocking truths about the American post-secondary education system. Truths that can be summed up as: Everybody wants their cut. They don’t put it that way, of course. Like all bureaucracies, the system is too well oiled a money making machine for that. It’s always couched in the flowery and self important language of “a well rounded education” and “a requirement” or a “prerequisite.”
The first thing s/he learns is that s/he may as well be eighteen again, not in mid-life. In the American college world, thirty years of life experience means nothing—even when it comes to a test like the SAT or ACT. A test designed for, as one testing expert put it, seeing how well high school graduates can process information. Charlie, as this expert explained to me, has been processing information for thirty years. S/he’s still alive and functional in the world, that means s/he passed. At Charlie’s age, the SAT is pointless—except for the money the College Board makes from their defacto monopoly that requires every would be college student take the test regardless of age or background.
The second thing s/he learns is that the “liberal arts” approach to education dominates the accredited college system. An approach that requires every student to take more general education classes in history, literature, philosophy, music, art, and so on than it does classes in their major. All for your own good, of course. That nobody else on the planet wastes everyone’s time and money on such nonsense is of course, to the arrogant American academic elite, nonsense! In Europe, for instance, with few exceptions, the liberal arts is, itself, a degree track. But America, as always, knows best. And as a quick web search will prove, much ink is spilled in defending the benefits of the liberal arts approach to higher education. That it makes a degree from an American college cost twice as much and take twice as long; that there’s no way out, even for older students who are already “well rounded— ” yes, Charlie could CLEP the general ed, but that would still costs as much as taking the class—well we don’t talk bout that.
With the average time to receive an undergraduate degree in the U.S. closer to six years than four (thanks to the liberal arts mandate), it was quickly becoming obvious to Charlie that s/he couldn’t go to school in the U.S. S/he’d be sixty five before s/he had a Ph.D! And a sixty five year old was a liability, not an asset, to an employer. So s/he began looking overseas, where college is treated as tertiary (career-directed post high school) education, not an opportunity to milk families of their hard earned money in the name of creating “well rounded individuals.” In the EU, s/he could earn the degrees in half the time and, because valuable time and money wasn’t being wasted on “music appreciation” and “critical thinking”, s/he would actually end up with twice as many credits in the major as s/he would in the U.S. liberal arts system. In other words, s/he would learn twice as much about the major, albeit at the expense of learning about “underwater basket weaving.” Even more exiting, s/he discovered a school in the UK that was accredited both internationally and in the U.S. that had a distance learning program. S/he could take care of mom and dad, work part time (if s/he could find a job) and still go to school full time.
Under this plan, if s/he hustled, Charlie could have a fully accredited, internationally recognized Ph.D in as little as six years! All other things being equal, that left twenty useful years to work in the new field and earn a retirement pension. This was exiting.
Then dropped the other shoe: While the school s/he’d chosen, and had been accepted by (without an SAT score, thank you very much!), was fully accredited, and entitled to U.S. Federal Financial Aid if s/he attended classes at the school, the U.S. Congress refused to fund those same classes when taught remotely by “a foreign institution.” For funding, s/he was on her own.
And, thanks to the recession, s/he was also bankrupt. Private loans were out of the question. They all required at least a moderately good credit score, which the recession had destroyed. Further complicating things, s/he was Caucasian, married, middle aged, both parents were college graduates, and s/he was enrolled at a “foreign” institution but was not “studying abroad.” Cumulatively, those facts disqualified Charlie from ninety nine percent of all grants and scholarships. In point of fact, after weeks of looking, s/he found only one real scholarship. And, though it didn’t explicitly say so, the application was so focused on high school seniors and recent graduates s/he doubted s/he’d be selected. S/he applied anyway, and while s/he was at it s/he also applied for two tiny lottery style grants, though s/he doubted whether it was worth the time.
The game, it appears, had been rigged by College Inc. It was beginning to look like Charlie might be stuck in a no win situation: S/he could either find a way to game the system and go on welfare and disability, like many people s/he knew had already done, or settle for a lesser goal in a field s/he wasn’t really interested in and endure the drudgery until retirement. Maybe. Statistically, time servers see their health fail long before those who work at jobs they love. S/he doubted that, by following the latter course, s/he’d survive twenty years in the new “career.” More likely, s/he’d end up being a drain on society anyway.
In today’s economy, Charlie’s isn’t alone. Roughly twenty percent of the U.S. population is Charlie’s age and hundreds of thousands, maybe millions, worked in the construction industry and related fields. The hardest hit sector of the economy. (19.6% of the U.S. population will be 65 by 2030. Statistically, that population is “Charlie” today.) They are an overlooked demographic that is not only under-served by the current post secondary education system, but that is dis-served.
Readers of this blog know that in my view the best thing that could happen would be for the government to butt out of higher education—or at least limit its involvement to the roll of fairness and guidance to ensure American post secondary degrees are comparable with those in the rest of the world. For the rest, the only thing Federal Student Aid has proven to provide is a ready cash cow for universities both public and private to milk at will. In the private sector the money goes to stock holders and investors, in the public sector it pays for platoons of bureaucrats who feed uselessly at the public trough. Private financing through corporate sponsors, scholarship and grant programs through foundations, and other creative methods such as human capital contracts would soon eliminate all patience for such fat and force universities to get back to the business of serving their customers, the students, rather than their investors or bureaucracies.
Unfortunately, such radical change is unlikely. The only thing the Charlies in America can hope for is that either Obama or Obama II (Mitt Romney) will address the inequities of the system so that older Americans don’t get left behind in the political, money grubbing dust that is College Inc. Because if they do, they will only add to America’s already out of control financial problems.
But in today’s crony capitalist system, I wouldn’t hold my breath.
I just had to do it. I’ve through about it for a long time now, and I just had to finally break down and start this blog.
You see, I’ve had it about up to my neck with all the partisan bullshit that has replaced real thought on issues of the day. It seems to me that all this stupid ass bickering has managed to accomplish is for our rights – some of them granted by the constitution – to be increasingly flushed down the toilet just so some politician or other can gain political points.
That had been grating on my nerves for months, but the straw that broke the camel’s back was when my son was stopped by a cop and the first words out of the officer’s mouth was “do you have a lawyer?” When my son answered “no” he was cuffed and stuffed and treated as bad (or maybe worse) than some of the prisoners in ancient Rome! It took ten days for the wheels of justice to order his release. During those ten days other inmates tried to rape him. The guards answer: “What do you want me to do? You’re in here to be punished.”
Punished? For what? He hadn’t even been tried, never mind convicted. And in the end never would be. But never mind, in America you’re apparently guilty and are to be punished until you’re proven guilty so you can be punished.
Further research into how our system of processing those who are accused of crimes in this country left me appalled. And to add insult to injury, my wife’s car was impounded – illegally. And even a phone call from an attorney who had won a land mark case for this very thing couldn’t get the vehicle release. The department was so arrogant they told the lawyer he didn’t know what he was talking about. They then proceeded to ignore the letter of appeal the attorney told me to write. (The attorney said they would.) Why? Because my wife is guilty until proven guilty and the police department feels it’s its job to mete out punishment. The car is, unfortunately lost and we now have to sue the department for damages in order to get justice – and hopefully to discourage this kind of behavior in the future. We lost our car. Maybe we can save someone else’s.
Then last month the Supreme Court decided that a search warrant is no longer needed for law enforcement to enter your home. Any old excuse will do, apparently, especially if they have even a whiff that they’ll find something after the fact that they can use to justify having invaded in the first place. One state already takes cell phones from drivers during routine traffic stops, and dumps the info onto this nifty little device that can steal the entire contents of an iPhone in a matter of seconds. And cars? Oh you lost your right to the privacy of the contents of your car a long time ago.
Is that the way this country was meant to be?
Well, I don’t think so. If you agree, then you mght want to bookmark this blog. I don’t guarantee I’ll post every day, but I do guarantee that when I do post, it’ll at least be an interesting read.