This is now the second post in a week about Socialist Action (SA) and its chief honcho, Jeff Mackler. SA claims to be a "Vanguard Party," i.e., a Party that will lead us all to living happily ever after in a socialist utopia. That claim is belied by the fact that the Party has shrunk to minuscule size--indeed, it's arguable that Mr. Mackler is the very last member--the Vanguard Person. Or perhaps he's the Messiah? Who knows?
In the event, SA has become so small and so irrelevant that it's hardly worth paying them any attention at all. They're not even important within the narrow context of American Trotskyism, which this blog is vowed to cover. And yet here we are.
The reason for the favor is that Mr. Mackler attempts to do something important. He is, as far as I know, the first person on my Beat to actually discuss bitcoin and cryptocurrency. For this he deserves some credit. All the more is the pity that he understands absolutely nothing about the space. He's so ignorant that I have no choice but to make fun of him.
Full disclosure: I bought most of my bitcoin back in 2015, when it was very cheap, and sold all of it by the end of 2021--at a very healthy profit. For the moment I own no bitcoin or any other cryptocurrency. That should make me an expert (and compared to Mr. Mackler I am), but I have to confess that until it went bankrupt I had never heard of FTX! I attribute that (in retrospect) to the fact that I never watch sports, am unaware of how stadiums are named, and don't see any of the ads on those channels.
So now it is my sad duty to correct Mr. Mackler's many errors of fact about bitcoin and crypto. His article is entitled Behind Sam Bankman-Fried’s Cryptocurrency Crash.
Mr. Mackler writes
A competitor, CoinDesk, apparently hacked its financial balance sheet and made it public, revealing grave discrepancies between FTX’s claimed worth and the reality of its investment portfolio. All hell broke lose as investors ran for the hills. In a matter of days most of FTX’s $32 billion evaporated.
CoinDesk was not a competitor, but is instead a news site covering the crypto space. They didn't really "hack" anything, but reporter Ian Allison did some good journalism. Mr. Mackler's bad habit is to never cite his sources. In this case we can correct the error: Mr. Allison's piece is here.
Mr. Mackler writes "Cryptocurrency has been largely unregulated; it was only in the IRS’s 2022 tax forms that an item appeared regarding reporting cryptocurrency income." This is not true. Crypto showed up on the 1040 form in 2021, and maybe earlier. The IRS issued guidelines for "digital assets" as early as 2014.
Bitcoin, by construction, is completely decentralized and can't be regulated. This is seen by many people as a feature and not a bug. Indeed, I find it kinda weird that Mr. Mackler supports "bourgeois" regulation. More, the vast majority of bitcoin trading takes place outside the USA, and is obviously not subject to American regulations.
What can be regulated are the on and off ramps--i.e., the process of buying or selling bitcoin for dollars. This is increasingly true in the US. The biggest US exchange, Coinbase, is required to obey all KYC/AML laws (Know your customer/Anti-money laundering). They're also required to submit some information to the IRS. But transactions from one bitcoin wallet to another are impossible to regulate.
Mr. Mackler informs us that
Its touted blockchain technology, powered by tens of thousands of computers, consumed some 0.55 percent of the world’s energy supply. It was said to be impenetrable—free from government oversight and, thus, free from tax obligations. Anonymous crypto speculators, called miners, spent countless hours pouring [sic] over new deals and opportunities. Initially, it was a dreamworld for anti-government-intervention libertarian politicos, who marveled at SBF’s [Samuel Bankman-Fried] gifting NGOs and related altruistic causes millions of dollars.
I'm not sure what the initial "Its" refers to. Is he talking about crypto generally, or is he just referring to bitcoin? I don't think he knows. Crypto coins can be mostly put into two classes: proof-of-work and proof-of-stake. Bitcoin uses a proof-of-work algorithm--and that does consume a lot of energy. Though I'm doubtful it's as high as Mr. Mackler claims--and in any case it's lower now than it was when bitcoin was at its high in 2021. (As usual, Mr. Mackler provides no reference for his data, so it's impossible to check.) Most other coins--notably ethereum--use the proof-of-stake algorithm, which uses much less energy. Both methods have their fans, but you can put me in the bitcoin camp. Mr. Mackler lumps them all together and ends up with confused mush.
The bitcoin network--started in 2009 by "Satoshi Nakamoto"--has proven itself impenetrable. Nobody has hacked it. The on/off ramps have been successfully hacked, and some users have lost their passwords to thieves, but the blockchain itself remains sacrosanct. I'm not sure that's as true with the proof-of-stake coins.
Mr. Mackler clearly does not understand the role of miners. Yes, perhaps some of them are speculators. Few of them are anonymous--bitcoin wallets are only pseudonymous, and once one cracks the pseudonym all trades are a public record. But the main purpose of the miners is to handle transactions. If I send bitcoin to Mr. Mackler (heaven forbid) then it's the miners' job to see that those coins are transferred irreversibly from my wallet to his wallet. That's what they do, and in return they're paid some small amount of newly minted bitcoin. It has nothing to do with "speculation" or "poring over opportunities."
Finally, Mr. Mackler has his history mixed up. The kooky Libertarian influence was strongest shortly after bitcoin was founded--say from 2009 to 2015. Since then bitcoin has entered mainstream consciousness and the ideologues have mostly been sidelined. FTX was founded in 2019--long after bitcoin had matured. Nathaniel Popper wrote a book published in 2015 that I reviewed. Mr. Mackler should read my review (or better yet, the book).
The remainder of Mr. Mackler's piece attempts to show that the whole crypto thing is just a bourgeois plot to destroy the working class, just as what happened during the 2008 financial crisis. I don't have the energy or space to go through it in detail, but it's just as sloppy as his account of crypto.
He keeps referring to the government's response to the 2008 financial crisis as a "bailout," and then asserts that FTX wasn't "bailed out" because it lacked connections with the "ruling class." Of course it is impossible to "bail out" crypto--a bank is not the same thing as a blockchain. That Mr. Mackler can't tell the difference says something about Mr. Mackler.
In any case, the word "bailout" is inappropriate. The Federal Reserve was simply following Bagehot's law (1873) as best it could, which states that "to avert panic, central banks should lend early and freely (ie without limit), to solvent firms, against good collateral, and at ‘high rates’". In other words, all the Fed did was lend money--it didn't give anybody anything. I believe all or most of that money was paid back--at a high rate of interest. It's impossible to lend money to a blockchain.
In my aforementioned book review, I write
So what do Trotskyists think about bitcoin? I have absolutely no clue. My guess is that few of the papers on my Beat would know the difference between a blockchain and a cement block. If you're stuck in a 19th Century timewarp, then new technology becomes a mystery.
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