Alan Kohler on Bitcoin

Alan Kohler is one of Australia’s better business journalists – so this piece on Bitcoin is uncharacteristically bad.

And having watched it for a while, and considered the matter carefully, I think the analogy is apt. That was a bubble then, and this is one now. In fact it’s worse: it’s a giant scam.

Or else it’s a sort of global counterfeiting conspiracy, carried out by anarchists intent on bringing down the global system of money and government.

Now Kohler is talking about so-called ICOs (Initial Coin Offerings) and cryptocurrencies – where Bitcoin is the most well-known of these.

I think to argue that a market may be over-heated and to argue that something is a scam are two very different things.  What makes his argument even harder to understand is his attempt to separate out Bitcoin from the blockchain.

That’s not to say blockchain, the technology behind cryptocurrencies, is also a scam, far from it. In fact, it looks a truly revolutionary technology that is likely to change the world through mass disintermediation — but not disintermediation of government.

 Here’s the thing – the blockchain was developed in order to create a cryptocurrency that didn’t suffer from the double-spending problem. Kohler, however, is more or less correct here – the blockchain is the far more valuable innovation than the cryptocurrency itself. Innovators and entrepreneurs are exploring what this new technology can and can’t do. Some investors will make a lot of money and some will lose money. That is how any market works and that certainly does not make Bitcoin or ICOs a “scam”.

Now Kohler spends a great deal of time debunking the notion that Bitcoin could or should become a global form of legal tender. We have argued here before that Bitcoin doesn’t have all the characteristics of money. Cryptocurrency can be used as a medium of exchange – it can also be used as an investment vehicle that allows for ex post settling up in self-executing contracts.*

The point to emphasise is that “legal tender” is a modern invention – people have used various commodities and conventions as money for thousands of years. Long before the emergence of central banks and fiat currency and the like. Government can pass any law it likes, but it cannot prevent the emergence of alternate exchange media.

Then Kohler appears confused by the notion of mining bitcoin.

And what about the weird mining process, in which algorithms churn through trillions of calculations, burning gigawatts of power. That’s no way to run a monetary system, you would think.

The thing to understand here is that “mining” is a somewhat misleading term. But “mining” sounds so much better than accounting and auditing. If you had a choice would you prefer to say that you’re a Bitcoin miner or a Blockchain accountant? Remember IT-types call themselves web-masters and not server technicians. The blockchain is a distributed ledger – people who maintain that ledger and secure its content are “miners” – but actually what they’re doing is accounting and auditing.

All up Alan Kohler has a long and confused argument against Bitcoin and cryptocurrencies becoming legal tender and not being “money” (he also has some confused, if not contradictory, arguments about what money is and the benefits and costs of the current monetary regime). He doesn’t like the fact that the originators of cryptocurrencies are  anarchists. But innovation is often, if not always, revolutionary.  At the same time he recognises the innovative potential of the blockchain. To my mind the two concepts – the blockchain and cryptocurrency – are interrelated and come as a package.

*My RMIT colleague Jason Potts and I are working on a paper that sets out this argument in greater detail. In the meantime read another of our papers on the topic.

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45 Responses to Alan Kohler on Bitcoin

  1. Roger

    Alan Kohler is one of Australia’s better business journalists…

    ROTFLMAO.

    Oh, Sinclair…you are a card!

  2. Infidel Tiger

    Alan Kohler is one of Australia’s better business journalists

    This along with your pronouncements on Andrew Leigh, Craig Emerson and Malcolm Turnbull lead me to believe your drug use has ceased being recreational.

  3. Neenee

    An excellent article by Sinc. Bitcoin and other cryptocurrencies will become much more acceptable to Alan Kohler and his ilk as soon as they can figure out how to make a percentage on other people’s transactions. Cryptocurrencies are uniquely independent of financial institutions, governments and financial advisors – and they don’t like it.

  4. Infidel Tiger

    “One of our better business journalists”

    “One of our cleaner whores”

  5. manalive

    Alan Kohler is one of Australia’s better business journalists – so this piece on Bitcoin is uncharacteristically bad.

    This is Kohler on Turnbull’s miracle perpetual energy machine using electricity from renewables to pump water uphill to generate electricity on the way down:
    “… And that is the significance of this Snowy Hydro expansion: it marks the end of thermal power. From here the swing to renewables will be fast, unstoppable and eventually complete …” (Australian March 18).
    Bizarre.
    Currently total hydro including Tas. can only supply ~8% of the national energy market.

  6. Bob in Castlemaine

    Alan Kohler is one of Australia’s better business journalists
    hmm…
    As exemplified in this amazing collection of Kohler hyped nonsense. The mass adoption of battery electric cars will be much the same as charging your mobile phone…..simple!
    http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0CDwQFjAF&url=http://benwyatt.com.au/wp-content/uploads/2013/11/Alan-Kohler-on-batteries.pdf&ei=Z1CKVY2OJKPHmwWvpoOoDw&usg=AFQjCNFmGq8V2LbeW7c_kf3DErofGv-xOQ&bvm=bv.96339352,d.dGY

  7. JC

    Kohler is a bolivating twat. The only decent thing he’s ever done is rip off Murduch for 30 million by selling his rag to him.

  8. Alan Kohler used to be one of Australia’s better business journalists. When he was at the Fin writing Chanticleer, for example. In recent times, he seems to have gone, to use that descriptive and colourful phrase, troppo.

  9. Perfidious Albino

    Alan Kohler, ABC regular and former MUP chair. Alan used to be one of our better business commentators, but has long since lost his way.

  10. Art Vandelay

    Alan Kohler is one of Australia’s better business journalists

    Kohler claims that solar is cheaper because:

    the power itself is free

    Clearly he hasn’t got a clue about business, finance or economics.

  11. Cary

    Clearly he hasn’t got a clue about business, finance or economics.

    So some mug somewhere is actually charging for sunshine? Who knew.

  12. Warty

    You must admit Sinc, you put your money on the wrong horse when you simulated the credentials of Alan Kohler. What would be more useful is investigating how and why this bloke became such an ABC icon. My money on the fact that there is some nefarious stuff behind it all.

  13. Sean

    A currency with small exchange fees and the ability to track all transactions. Won’t be liked by the wealthy with things to hide or the banks

  14. John Bayley

    Kohler is an idiot.
    He’s basically an apologist for the statist cause; always.
    Remember, he was all for the NBN – in fact, he was one of its most vocal supporters.
    Until, that is, he was against it. His article in the Australian a few months ago, titled “The NBN is a dud”, brought him a fair bit of derision from commenters there.
    The fact that other journalists are even worse is no excuse.

  15. .

    And having watched it for a while, and considered the matter carefully

    LOL!

  16. DM OF WA

    The thing to understand here is that “mining” is a somewhat misleading term. But “mining” sounds so much better than accounting and auditing.

    Actually mining is a pretty good analogy, it seems to me. Neither accounting nor auditing, on the other hand, although correct, adequately describe this unique feature of the Bitcoin technology.

    Remember IT-types call themselves web-masters and not server technicians.

    I am beginning to suspect your knowledge the technology of the modern Internet in general is both weak and terribly out of date. The vast technological and creative enterprise you describe with the quaint usage “webmaster” has little to do with repairing and maintaining computer hardware as you rather disparagingly suggest.

  17. Harlequin Decline

    Kohler states that the cryptocurrencies are crap then uses the best part of the article saying fiat currencies aren’t so good. Somewhere he forgets to explain why cryptocurrencies are crap.

  18. jock

    [Jock – really? What are you thinking? ]

  19. Sinclair Davidson

    as you rather disparagingly suggest.

    Unless the have extra sensory perception you can have no idea that I’m being disparaging.

  20. Arnost

    Blockchain will drive a paradigm shift in how business is conducted. It will eliminate cheques, Documentary Letters of Credit, and most varieties of negotiable securities… Why? Because it will provide certainty of ownership…

    Bitcoin is a separate issue – it is just like Casino $100 chips that have a far higher value in the black market than in the casino (as a way to wash proceeds of crime). And crime will always be around in one form or another.

  21. Oh come on

    I have nothing to add to the discussion about BTC, but I wonder why so much discord has been generated by the observation that Kohler is one of Australia’s better business journalists? It’s true, he is. That isn’t a high bar to jump, however.

  22. Amused

    Server technician here. I visit data centres in the middle of the night (or whenever servers die) and fix things that webmasters have absolutely no idea about.

    While I’m working, webmasters are sitting somewhere trying to work out the difference between their arse and their elbow.

  23. Amused

    And Alan Kohler – is he that rambling dickhead on ABC news every night?

  24. Zulu Kilo Two Alpha

    And Alan Kohler – is he that rambling dickhead on ABC news every night?

    Indeed. All some of us want to know is how the stock market preformed for the day, and what certain leading stocks closed at, and that’s what we used to get on the A.B.C.. Kohler has swung well away from that format to present the image of well, a rambling dickhead.

  25. Art Vandelay

    So some mug somewhere is actually charging for sunshine? Who knew.

    Where did I say that this was the case?

  26. Baldrick

    Alan Kohler is one of Australia’s better business journalists

    I’m sure you post this as click-bait Doomlord.

  27. Sinclair Davidson

    Sigh.

    So few want to comment on the substance of the story? Is it safe to assume that blockchain is something of a mystery here too?

  28. feelthebern

    Blockchain?
    Reminds me of what Homer said after Lisa said he had no idea what a palate was.
    Homer: There comes a time in a young boys life…

  29. feelthebern

    Sinc, did you see the situation Andrew Leigh got himself into the other day?

    Labor frontbencher Andrew Leigh fluffs craft beer attack

    The economic brains of the Australian Labor Party, Andrew Leigh PhD (Harvard), has done it again. He’s written another newspaper column about the evil corporations that sit there in their corporation buildings, and they’re all corporationey, and they make money.

    And again, his thesis about craft beer (just like the last one on nominee shareholders) is premised upon a host of plain factual errors.

    Dr Leigh paints a picture of craft brewer Phil Sexton, a young man “disheartened by Australia’s beer industry” who created boutique brewery Matilda Bay. “The going was tough. The big players used their market muscle to shut them out of virtually every local pub.” Matilda Bay, apparently, “has since been neutralised – bought by multinational mega-brewer SABMiller”.

    Actually, Matilda Bay was bought by Foster’s in 1990 and it was Sexton who offered the iconic brewer its original 20 per cent stake in 1988 for the minnow’s growth capital. SABMiller didn’t buy Foster’s beer arm Carlton & United until 2011, 23 years after Sexton first trousered a mega-brewer’s mega-loot.

    But “Matilda Bay is not alone”, Leigh bemoaned. “White Rabbit, Little Creatures, Kosciuszko, Knappstein, Furphy and a host of other well-known craft beers have all been bought by the big guys.” No, actually. Sexton established Little Creatures in 2000 with Lion Nathan’s seed money. Lion (which is now fully-owned by Japan’s Kirin) took LC out in 2012 at a valuation of $380 million. White Rabbit was created by LC while Lion was its shareholder and Furphy was created by LC since Lion has been its owner. Leigh describes Lion’s $60 million investment in Little Creature’s Geelong HQ pejoratively as “refurbishing an old carpet factory”. With Ford, Target and BP fleeing the satellite town faster than Gary Ablett Jr, we’re sure Corio MP and (paid) Labor frontbencher Richard Marles sees the facility in a somewhat different light.

    Further, Kosciuszko was the creation of Lion employee and beer scion Chuck Hahn, with Lion capital, before Lion subsumed it. Lion created Knappstein’s brewery while it owned the winery of the same name.

    All this time, Leigh argues, the big players “have struggled to innovate”. Notwithstanding its venture capital and acquisitions in the sector, Lion founded James Squire (also Chuck Hahn’s baby, Australia’s largest and most successful craft label and arguably the brew that paved the way for craft’s demand explosion), back in 1998.

    Leigh’s narrative that “the going was tough” and that “the little beer that Phil once brewed is now produced by the world’s biggest beer manufacturer” seems to skip the key fact that Phil is now royally minted. This was not some barrage of hostile acquisitions. Sexton also sold two wineries, Devil’s Lair and Innocent Bystander, to the big boys. His enterprise – a hobby the ALP holds deep-seated institutional hostility towards – means that (unlike Dr Leigh, whose most effective output must be under general anaesthetic) he needn’t ever work again. And all power to him!

    Bill Shorten’s most junior frontbencher (not a title you’d want to share with anyone, let alone Sam Dastyari) used his epically flawed input data to reach an appropriately laughable conclusion: that market concentration is why we pay too much for a schooner or a pot at the tap. And, of course, that’s a factor. But consumers trading up into more expensive craft beers drive prices up, and higher prices keep Leigh’s beloved craft operators viable. Which way does he want it? And it might’ve been worth mentioning our punitive beer excise regime, second in the world only to Finland, and raised with inflation twice-yearly.

    Shady nominees controlling the economy and now global brewers screwing us all to the wall. Lucky it’s a post-fact world. How else could this bloke ever be a minister?

    Can you tell your mate Andrew to stop getting the pretty young intern with the big norks to write his opinion pieces?
    It’s unbecoming for Australia’s next finance minister to do so.

  30. john constantine

    The lure to get people into bitcoin was that ‘bitcoin makes you rich’.

    Will the lure of the blockchain be ‘the blockchain makes you free’ ?.

    The big financial institutions trying blockchain might be like Murdoch trying out myspace?.

    Why would a government keep bailing out a banking system that has grown too big to fail, when swarms of bank-in-the-wall robots and McDonalds with clean dunnies and blockchain can do the same job?.

  31. Duncan

    Ja well, no fine; but I have thought for some while that Bitcoin is the financial version of kubus*, in that you grow something from virtually nothing and then sell it. But I am not a journalist. How would I know?
    *South Africans will understand

  32. Roger

    Is it safe to assume that blockchain is something of a mystery here too?

    A blockchain is a decentralised electronic ledger which securely records on-line transactions. Any nincompoop can see the potential. Except “one of Australia’s better business journalists”.

  33. H B Bear

    Kohler is a bolivating twat. The only decent thing he’s ever done is rip off Murduch for 30 million by selling his rag to him.

    Uncle Rupe’s Australian business MySpace. Luckily it is only pocket change compared to what Lachlan has evaporated over the years.

  34. tgs

    Kohler is a complete moron. Today he is writing in the Oz that the Phillips curve is dead because of the latest IMF report or some rubbish like that.

    Gee Alan, here I was thinking that the Phillips Curve had been dead since the Lucas Critique and neoclassical revolution of the late 70s. How stupid of me.

  35. Lysander

    Sigh.

    So few want to comment on the substance of the story? Is it safe to assume that blockchain is something of a mystery here too?

    Indeed Sinc. I’ve only seen (warranted) attacks on Kohler here; hardly a word about blockchain and bitcoin. For what it’s worth, blockchain has the potential to massively shake up government services as any authoritative information from government (ATO, ASIC, Land registries etc…) can be decentralised through this technology. For example, you can basically buy a house using blockchain without having to go through any government regulation or registration. That has a direct impact on government spending.

    I’ve been following blockchain technologies for a few months now and it could really stir things up.

    But I’m still “old school” when it comes to bitcoin. Yes, it may well be the global currency of the future, but any currency that doesn’t have a standard (i.e. gold standard) is just a ponzi scheme.

  36. Crossie

    Kohler claims that solar is cheaper because:

    the power itself is free

    Clearly he hasn’t got a clue about business, finance or economics.

    Or physics, most people have at least some rudimentary knowledge while green worshippers only have slogans.

  37. Crossie

    Is it safe to assume that blockchain is something of a mystery here too?

    I knew about bitcoin but this is the first time I have heard of blockchain.

    Would it have anything in common with Black Block of the G20 protest infamy?

  38. Crossie

    This was not some barrage of hostile acquisitions.

    Even if the boutique beer companies were acquired that way, so what? It’s not illegal and the seller can start another company.

  39. DM OF WA

    Sigh. So few want to comment on the substance of the story? Is it safe to assume that blockchain is something of a mystery here too?

    As someone who enjoys learning about all things crypto, finance, Internet and technology for many years I would be happy to join in and comment if there was anything worth commenting on.

    I do not take Alan Kohler seriously about anything anymore; he is shallow, and I am just not interested in reading his article. The Financial Times has had a long running series of articles in their Alphaville column tagged “Bitcoin” and authored by Izabella Kaminska and others as I recall, and the discussion has been considerably more informed than Kohler’s; yet the tenor of FT articles is also strongly negative: that Bitcoin is a joke, a scam, a fad, it is unscalable, etc.

    The snooty comments from you about “webmasters” (whatever they are) being server technicians and Bitcoin miners being accountants and auditors? That is not going to encourage participation by technologically knowledgable people.

    Bitcoin is revolutionary; it is a very clever solution to the cryptocurrency problem; and it is changing finance. It might turn out not to be sufficiently scalable for broad application and if it does not it is likely will be a template for a future successful cryptocurrency. Bitcoin combines several different component technologies to solve different aspects of the cryptocurrency problem. Some of those components come from earlier attempts to create a cryptocurrency and some are original with Bitcoin. One of the new ideas is the blockchain. The blockchain concept seems to be generating the most interest amongst financial technology developers. There is no reason to suppose that the blockchain idea cannot be separated out and reused in other applications than cryptocurrencies; indeed that is happening right now.

  40. Mundi

    Sorry but crytocurrency is a fad, and it’s very easy to prove it can’t scale.

    Let’s assumed everyone wanted to use a blockchain for 50% of their transactions in Australia, about 100 million transactions a day. That works out to a blockchain increasing in size by 50MB per second. Even the wildest dreams of nbn heaven can’t achieve that.

    The entirety of bit coin has just 300,000 transactions per day, and rather than being confirmed by millions of individuals as they lead you to believe, just half a dozen mining groups have well over 50% and therefore rule the currency democratically.

    These few organisations already act as a cartel, which ever fork of the code they pick because the dominate fork, since they have over 50% of market. They have already abused this position countless times.

    Shorting crypotcurrency is a great way to make money, look at the recent etherium boom and currently unfolding bust.

    Blockbusting is useful but at the end of the day whoever has 50% processing power wins. It is largely a political currency.

  41. pbw

    Mining is an appropriate word. New bitcoins are scarce, in the sense that it takes a lot of (computing) effort to find them; more accurately, to find the next valid block in the chain. Adding a block to the chain entitles the miner to a fixed bitcoin reward, which is written into the new block. Blocks can only be mined one at a time, and mining one gives no advantage in mining the next. That is, you have to start looking from scratch. This is a characteristic of the hashing algorithm.

    Mining takes huge computing resources, and burns a lot of power. The harware for solving hashing problems has become more and more specialised, and is dominated by the Chinese. They have cheap power. (does this story begin to sound familiar?) Their only disadvantage is that their network infrastructure is not the best. That matters, because milliseconds are important disseminating the results of mining operations. If two miners find the next block at almost the same time, they both add the block to the chain, but the two blocks have different contents; namely, the bitcoin reward to each miner. This is a fork. If the second miner had detected the first miner’s block on the network, he wouldn’t have wasted time completing his mining, but stated again from the end of the new block. Hence the importance of very fast networking.

    When there’s a fork, each miner has to decide which fork to follow. Almost always, the next one to find a block will cement that fork, and other miners will fall into line–unless simultaneous find occur on the end of each branch. Sooner rather than later, this resolves. One the one (AFAIK) occasion on which forks exploded, it was because Chinese miners were cheating at a time when the software was upgraded.

    Here’s a long but informative discussion.

    There’s a fascinating side-light to all this. China recently announced its first home-grown super-computer. At least, all of the hardware components were indigenous; I suspect the software wasn’t. The rewards of bitcoin mining have driven the development of specialised numerical processing hardware, which has had flow-on effects on the whole industry. Most of this has been happening in China. The two streams of development are probably related.

  42. john constantine

    It does seem that bitcoins cannot be mined with electricity from windmills?.

    Gasp, coal powered bitcoin mining is murdering the planet!.

  43. .

    Sorry but crytocurrency is a fad, and it’s very easy to prove it can’t scale.

    What?!

    If we used gold and it was a fad, even if banks didn’t issue new notes, we’d operate under the internal price adjustment mechanism. Digitisation makes it scalable. They’re not processing payments either. That is outsourced.

  44. OneWorldGovernment

    Alan Kohler is one of Australia’s better business journalists

    I didn’t bother reading any further.

  45. Combine Dave

    So few want to comment on the substance of the story? Is it safe to assume that blockchain is something of a mystery here too?

    Sorry yes.

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