However, if I am right (and the so-called mining narrative seems to require that I am) then the blockchain has no capital left in it because the only sum available to make settlement to the Bitcoin miner will be the coins they have created. Except that, according to the blockchain, those coins are now still in the system. That can only be explained by the blockchain being a single entry system where the consequence of the capital in the system having apparently already been extracted to pay the Bitcoin miner is ignored. That is concern number one, and logic seems to suggest it must be right. After all, if there was capital in the system continual mining of new Bitcoins to clear transactions would, surely, not be needed? It is because there is no liability that can be cleared through the payment system (as happens in conventional banking, where cash can be and is cancelled on loan repayment, which is a possibility that does not appear to exist in Bitcoin) that requires the continual creation of new debits because there are no credits in the system.

This then presents the second conundrum. This is that the payment system in the blockchain is, if I am right, a continual system of reallocating the debits. Now I accept that it can be argued that this is a debit and credit process, and of course in a sense it is, but subject to the massive overall condition that all the sums must be part of a continually accumulating overall sum of Bitcoins in existence, or the miners would generate no continuing value. This is not then a system of true debits and credits in because net credits are not apparently allowed. This means that the blockchain is not remotely close to a proper banking system where the process of creating simultaneous debits and credits that remain on the balance sheet until loan repayment, giving rise to account offsetting and so cancellation, is the fundamental process that singularly identifies the existence of a credit creating bank.

Ritchie’s just used double entry book keeping to prove that you can’t do fractional reserve banking in bitcoin.

First, the blockchain, about which so much is said when Bitcoin is discussed, does not appear to be a credible accounting system. It seems to be single entry at best and such systems were rightly abandoned many centuries ago because they did not allow proper risk appraisal.

Yup. It’s part of the design Murph, part of the design.

One is that it attempts to mirror the operations of the gold standard, which proved to be little short of an economic disaster during its period of use in the twentieth century.

Yup, part of the design.

It’s not an accounting system. It’s a ledger. A property ledger, that’s all. A list of who owns what.

The consequence is that Bitcoin appears to be a claim on nothing at all.

Yes! you’ve got it!

19 thoughts on “Joyous!”

  1. This post indicates perfectly that I simply don’t have the time, motivation, perseverance or inclination to struggle through Murphy’s turgid prose to try to glean the meaning of it.

    Like (I imagine) wading through waist-deep porridge vomit.

  2. You can have FRB in Bitcoin, just as you can have FRB in a pure cash system. However the banks have to be honest about it. Right now if I open my bank’s app, I can see what looks like my money sitting there: even though it’s actually on-loan elsewhere. With Bitcoin, you’ll see that your wallet is empty; all you’ll have is an IOU from the bank. Understandably that makes people nervous; so it’ll probably never take off.

    More fundamentally, the limited supply of Bitcoin (the gold problem) makes it unsuitable as a currency.

  3. I am open to persuasion

    AhahaHAHAHHAhahAHhAHAHHaHhAHHAHAhAhHAHAHHAhahaHAHHAHhahahahahAHhahAHahhAHAHAHhahAHHAhaHHA…

    …hHAhhahahAHHAhahhHAhahahahhahahAHhahHAhahaHHAhahhahaHAHahhAhHAhahAHhaa….

  4. The times they are a changin……

    http://www.taxresearch.org.uk/Blog/2014/03/04/hmrc-duck-most-of-the-big-issues-on-the-taxation-of-bitcoins/ (Apologies for direct link Tim)

    The first reply here is his most honest admission of the purpose of his agenda:

    ‘I’’d love to say I believe you

    I am having great difficulty doing so

    Somewhat has created a lot of ‘wealth’ here and it looks untaxed’

    Apparently he has moved on from Page 1 of ‘The idiot’s guide to bitcoin’….

  5. steve m said:
    “Why would he think it was an accounting system?”

    Because he’s an accountant. It’s what he knows (or at least has a certificate to say he once knew it) so he wants to see it everywhere.

  6. This is fun; Murphy says that because of:
    “the massive overall condition that all the sums must be part of a continually accumulating overall sum of Bitcoins in existence, or the miners would generate no continuing value. … This means that the blockchain is not remotely close to a proper banking system where the process of creating simultaneous debits and credits that remain on the balance sheet until loan repayment, giving rise to account offsetting and so cancellation, is the fundamental process that singularly identifies the existence of a credit creating bank”

    But surely the whole point of People’s QE and Murphonomics was that banks can perpetually create money.

    Or was that last week?

  7. “miners would generate no continuing value”

    The coins, such as they are, were all created on day one, when Satoshi decided on the algorithm. The mining reward was just a way to bootstrap the system and distribute the coins. When the mining reward reaches zero, miners will just get paid the transaction fees. The value they generate is maintaining the network.

    Technically the miners could club together to change the algorithm but they would all have to agree, and we think they will compete with each other.

  8. Richard

    Yes funny isn’t it, Bitcoin being denounced by the creator of PQE. Hasn’t he ever heard of “out of thin air”? Hasn’t he heard of the Magic Money Tree?

  9. How many fucking Richard Murphys are there? Or is this a Bob Newhart thing? An infinite number of Ritchies…

  10. Just when I thought he could not display more ignorance and stupidity he comes up with this utter horseshite. And this man is a professor at a UK university, teaching students, with no oversight or control. City University at that, where one might think a decent understanding of fintech would be actually useful for students. For fucks sake. For. Fucks. Sake.

  11. Even in an area where he claims prior expertise (it is to laugh…), he’s dead wrong. Double-entry accounting wasn’t adopted to facilitate risk appraisal – it is an error-detection algorithm.
    Imagine being a student in his classroom, never knowing which gob of utter tripe you were expected to swallow today, but always aware that what he said last week could be utterly contradicted by what he says today…

  12. … not to mention a page or so of tedious bilge to come to the obvious-on-the-face-of-it observation that bitcoins don’t represent a claim on anything in particular.
    What a complete moron.

  13. Bloke in Costa Rica

    The idea of Murphy understanding a cryptocurrency is about as plausible as a cocker spaniel writing a groundbreaking paper in string theory.

  14. “One is that it attempts to mirror the operations of the gold standard, which proved to be little short of an economic disaster during its period of use in the twentieth century.”

    The gold standard worked reasonably well from 1944 to 1968ish. Perhaps something other than the standard changed, say in 1963, that disrupted the system. I’d like to see his work that allows him to claim the gold standard ‘proved to be little short of an economic disaster’.

  15. You would assume that even thinking as an accountant he’d have realised its more like t an audit trail, albeit a cryptographically signed trail, than a set of accounts

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