Welcome to our fourth edition for 2021.
In writing this newsletter, it would have been easy to dwell on the huge upheavals South Africa experienced in the last two weeks, not to mention the uncertainty of the Delta variant as the pandemic continues to influence our lives and the economy.
Instead, I came across some interesting content around ransomware being viewed as the informal SARS or tax receiver of Bitcoin.
Allow me to explain: In the USA , their SARS is referred to as the Internal Revenue Service or IRS. Now the argument being debated is that Ransomware is effectively against BTC in the same way that the IRS is pitted against the dollar.
Cyber ransom demands in Bitcoin are the only currency allowed to unlock your computer systems, in the same way that the IRS demands tax payments in USD. To fully understand this analogy, it might be useful to look back at the very rationale for the creation of money in the first place.
Money was created to solve two common problems in ancient times. One was getting rid of the barter system of using widely accepted items such as carved stones, cowry shells or feather collars and the second problem was how to account for debt.
There are thus several theories on the origin of money:
Let us focus on the first theory of creating money, using it as a unit of exchange. Bitcoin has so far been a frustrating currency to utilise when actually buying something in terms of the time and cost of the actual transaction. The primary reasons to use BTC is that it offers the advantage of bypassing money laundering laws, taxes and certain capital restrictions and also allows both parties anonymity. The rest of the planet only utilises Bitcoin as a speculative investment and exchange arbitrage.
If we consider the second theory of creating money, as a unit of account, Bitcoin also has not been successful. Even in countries where BTC is legal tender, such as El Salvador, all prices are set in USD, then converted back to BTC for anyone purchasing in crypto.
The third theory of money revolves around the IRS and has become more popular owing to something that is referred to as MMT or Modern Monetary Theory. The founding principle of MMT is referred to as Chartalism and in essence is an idea that money is worth pursuing because of taxation. A government prints paper money or mints coins and you as a citizen has to return a certain percentage of this each year in the form of paying taxes. So, the tax system (SARS or the IRS) in effect supports the fiat currency.
When ransomware encrypts a computer system and demands payment in Bitcoin it is effectively a combination of tax requirement and SARS enforcement!
So, the argument goes that if Bitcoin becomes the de-facto standard for ransomware payments, it will create a stable demand for others to continue mining it and create a steady supply. The victims of ransomware must either be in the business of mining energy intensive crypto themselves or pay someone else for sets the price based on its speculative future value.
Up until now, cryptocurrency has not been a popular platform compared to the dollar , as the USD is still much easier to utilise as means of exchange and as a unit of account as referred to earlier in the article.
The recent ransomware hack of the Colonial Pipeline on the east coast of America was unfortunately for hackers, an infrastructure threat so serious that the FBI decided to get involved and managed to retrieve nearly half of the ransomware through some undisclosed technology.
Most Bitcoin miners of course, could not give two ticks about monetary theory and mediums of exchange. Like gold, BTC only has value because others think it has value. It therefore performs the same function as gold, in terms of being a store of value only. Certainly, all the “HODLers” out there believe in that regardless of the massive price fluctuations and speculative nature of their investments. Unlike gold, it may not be the best form of protecting your wealth in the long run…
Until next time, be safe in these interesting times and thank you for your continued support!
Warm Regards
Johan de Villiers
CEO
First Technology Western Cape
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