Thread by @allenf32

I'm sorry but you can't hide behind "you just want the government to clamp down on your competitors!" as an excuse for financial illiteracy.

if I grant that many specific securities laws are stupid, will you grant that the concept of "a security" is a meaningful one?

🧵⏰ ...

there are a lot of dummies on here trying to out-ancap one another by claiming that in a "free market" it's buyer beware and you live and you learn, blah blah blah

they don't seem to realize that they aren't arguing for freedom so much as for the freedom to get away with fraud.

if your sincere philosophical belief is that it isn't or shouldn't be in the purview of the state to enforce contracts, and that the market would solve for this via reputation, etc., then just say that.

I'd have mad respek for arguing that consistently.

unfortunately, I think you'd find that capitalism as you know it becomes impossible. again, if that's a bullet you wanna bite, be my guest. but I doubt most do ...

capitalism requires cooperation between orders of magnitude more people than any individual can know or trust.

credit solves for the coincidence of goods and timing to socially scale barter, and money solves for the interpersonal trust required to socially scale credit.

nakamotoinstitute.org/money-blockcha…

note what I am NOT saying here: I am not saying money evolved from credit (this is a dubious Graeberism the purpose of which is to ahistorically slip statism in the back door)

money did not evolve from credit precisely because it is *better* than credit.

https://twitter.com/allenf32/status/1353281591431323648

money is great if you want to move past credit to unbounded trading of easily produced goods, but there are physical constraints that must be present for it to work, which we have all memorized by now: it must be scarce, durable, fungible, portable, divisible, and verifiable.

but money alone is not great if you want to generate serious wealth via industry. in other words, if you want industrial organization that utilizes tools no single human could produce on their own, in their own time.

in other (other) words: capital.

if you want to move past trading stuff that is really easy to make to stuff that is so complicated to make you need to pool many peoples' money and time to try to make it, you introduce more constraints, this time social rather than physical.

money is (by definition) the most liquid form of capital, but it (by definition) has no return. if you want a return (in money) you require illiquidity and specificity.

and so you have to think about the opportunity costs. if money is a bearer asset ...

... (as it ideally would be), contributing it to capital formation makes its owners' stake substantially more vulnerable to violence across a number of dimensions: the illiquid capital into which it is transformed is likely far more vulnerable to physical attack than money;

and, of course, the deployer of capital could simply have lied about what they plan to do with it and could enrich themselves instead.

with the curious exception of software (to whit, see Bitcoin Is Ariadne) both these risks are unavoidable ...

allenfarrington.medium.com/bitcoin-is-ari…

... for a reason so obvious people seem to forget it in degenerate fiat modernity: making capital more illiquid makes it more physical and more local. there is no such thing as an abstract business. businesses are run by specific people in a specific place doing specific things.

without a basis for credible belief that the illiquid capital will be protected from violence and that those managing the originally liquid capital provided will be subject to enforcement of the contracts into which they entered, NOBODY WOULD EVER PROVIDE CAPITAL FOR ANYTHING 😱

and btw, having provided liquid capital for a specific, local, illiquid, non-abstract, return-seeking economic project, and yet not having done so on trust (the problem for which an effective "money" has already solved) one holds a "security."

and that's what a security is, without getting too into the legal weeds: a promise that the people to whom you entrusted your liquid capital at risk are at the very least going to try to do what they said they were going to do, but in any case are not going to screw you.

if we had a money that didn't constantly inflate away its value, and hence people didn't need to throw liquid capital at any stupid shit just to desperately try to store value, then this opportunity cost would be a lot more obvious.

since we don't, it is perhaps a little more understandable that people seem to have no idea what capitalism is or is for, hence what "securities" are or are for.

but an explanation is not an excuse.

what you are seeing from cosplaying "free-marketeers" is the perverse belief that the innovation of bitcoin is to make everything more digital, and that we need to keep pushing in that direction to get anything boringly physical or analog even more out of the way.

this is nonsense.

the main problem in contemporary capital markets is that everything is *far too digital.*

to be clear, it's not so much a mechanical problem as a social problem: we are so used to financialization that we have lost track of what securities even really are:

securities do *the exact opposite* of enabling digital, short-term liquidity: they enable physical, long-term illiquidity.

they allow for the vast social coordination required to overcome sporadic violence and fraud (i.e. they enable capitalism).

if it bothers you that they achieve this with credible threats of violence as a deterrent, then I really don't know what to tell you. welcome to the real world. violence is real. power is real. at least have the intellectual honesty to go full ancap and bite the bullet.

but even this would be funny because it strongly suggests you don't understand why the innovation of bitcoin is socially important, rather than merely technically:

it uses digital means to solve for deterring theft and fraud *in money.*

it does this by bridging the physical and the digital in a novel and profound way (h/t @dergigi)

dergigi.com/2020/03/01/bit…

but it does nothing of the sort for *capital* because while the constraints on money that enable it to socially scale beyond credit are largely physical, the constraints on capital that enable it to socially scale beyond money are largely social.

hence bitcoin is only coincidentally digital because that enables statistical regularity in proof-of-work and fast achievement of global consensus via the internet.

but the point of it - the real innovation - is that it physically enforces monetary contracts without exception.

one of its major effects will be to interrupt the formation of utterly useless capital that self-referentially makes finance ever more digital, liquid, and short-termist, all just gulping from the fiat spigot.

these markets aren't "free" so much as they are "stupid".

their gung-ho defenders want markets to be so free that you are *free* to lie and steal.

amazing.

so before you answer the question in the first tweet, I warn you, the *correct* answer is a slippery slope to admitting that bitcoin is clearly not a security and that maybe - just maybe - fraud is morally wrong, regardless of whether or not some law says so or how it says it 🙄

p.s. outta control over here with the "fraud is wrong" hot takes again.

I CANNOT BE STOPPED 😱🤪🥳

https://twitter.com/allenf32/status/1395063562813460487