Bitcoin Explained Like You’re Five: Part 4 – Securing Your Wallet

A couple months ago my friend Amanda was asking about the best ways to store bitcoins to avoid getting them stolen. I figured I would extend my Bitcoin ELI5 series with this post and detail a number of best practices that you can use to avoid this fate. If you are a beginner, it may be helpful to first familiarize yourself with the cryptography used in Bitcoin by reading the previous installment Part 3 – Cryptography or at least the second half on public-key cryptography.

For those who are unfamiliar with the inner workings of Bitcoin you should note that there aren’t actually any bitcoins stored in your wallet. A bitcoin is really nothing more than a balance recorded in a publically shared ledger. Transactions are orders to the Bitcoin network to transfer some of your balance from your bitcoin address to someone else’s. The way you prove to the network that you own the bitcoins associated with a particular address is by signing your transactions with the private key that matches that address. Here’s what they look like:

Bitcoin Address: 12CbHSwuMVxbwdGzCZaiLnXgxFBj3YE2ax

Private Key: L32qYhUt93qg7MWUSYCUaPKS9qeaKEZquV566Qfh7wZfqqmvZZum

Without the private key, you can’t spend your bitcoins. It is this private key (or keys if you use more than one address) that is stored in your wallet. Needless to say, if your keys are lost or stolen, your bitcoins are gone forever. Hence, why you need to take precautions to prevent that from happening.

Plotting Our Escape

The Marketplace of Ideas

How Sticky Are Wages?

Over at EconLog Bryan Caplan has posted a review of Truman Bewley’s Why Wages Don’t Fall During A Recession. Based on the glowing review it seems that it should be well worth the read. In his post, Bryan summarizes a number of Bewley’s arguments and makes a fairly compelling case for the existence of sticky wages.

Sticky wages have been a thorny problem for libertarians. On the one hand, basic economics would suggest that profit maximizing employers will simply lower wages in the face of falling demand. On the other hand, compelling arguments have been presented that suggest that employees may (somewhat irrationally) resist nominal wage cuts or become demoralized and unproductive when they are administered.

Even more problematic is the suggestion that voluntary interactions among adults can cause periodic economic crises and involuntary unemployment.

So what is my take on the issue? While I haven’t yet read Bewley’s book, I am familiar with many of the arguments in favor of sticky wages. Admittedly, I find them to be somewhat compelling though I don’t think it’s appropriate to place anywhere near the degree of emphasis on them that most macroeconomists do.

Throwback: Ethics vs. Economics

Check out this old school debate between David Friedman and George Smith.

I have to say, David’s opening remarks were spectacular. I pretty much agreed 100%.

While I like to think of libertarianism as standing on two legs — economics and ethics, economics clearly has to do the heavy lifting. When I think back to my pre-libertarian days, I can remember being thoroughly unconvinced by ethical arguments. You may have been able to get me to agree that taxation is coercive or even that a perfect world would not have taxation, but I would have never agreed that it was immoral. After all, if civilization will unravel without it, doesn’t that call into question the universality of property rights?

It wasn’t until I realized that civilization would not unravel without taxation that the moral side came into focus. If taxation almost always produces bad consequences than maybe property rights are more universal than I thought. The same thing can be said of left wingers. If it can be shown that capitalism doesn’t produce the horrible consequences they think it does, chances are they will begin to find socialism morally unattractive.

Can We Trust The Inflation Statistics?

In response to my last post calling out the Federal Reserve for engineering grotesque income inequality in America, some commentators have said that the Federal Reserve shouldn’t be blamed since there hasn’t been any meaningful inflation.

Before I continue with this post, let me say that even when relying on the official statistics, there has been massive redistribution. The average inflation rate over the past 20 years has been 2.3% while the average growth rate has been 2.53%. I realize most people who go through an economics program are not trained to think this way, but let’s remember that absent money printing, prices would fall by approximately the growth rate. In other words, if the money supply had simply remained fixed over the last 20 years, prices would have declined by about 2.5% per year (all other things equal).

Now that doesn’t mean business would have been suffering. The whole reason for the decline in prices would have been technological improvements reducing the cost of production and increasing supply. If you sell more at a lower price it’s possible to be more profitable than selling less at a higher price.

Think of what has been happening to prices in the technology sector. Prices have been falling due to production outstripping the growth of the money supply, yet tech businesses are flourishing. The same thing would have applied to the entire economy.

So because prices should have fallen by 2.5% and instead they rose by 2.3% that implies they were inflated by an average of 4.8% each year. What this means is that upwards of 5% of income each year (though probably less on average) has been siphoned away from the middle and working classes to the wealthy. Compound this over 20 years (or longer) and you get a pretty massive number for the amount of wealth that has been redistributed.

So even using the official statistics, I can rest my case. However, my intent with this post is to question the accuracy of the official statistics.

The Fed Orchestrates the Largest Redistribution of Wealth from Poor to Rich, The Left Blames The Free Market

We are finally starting to get some commentary in the financial media about the enormous upward wealth redistribution being engineered by Ben Bernanke and the Federal Reserve. Yesterday on CNBC’s “Squawk Box“, hedge fund billionaire Stanley Druckenmiller said of QE: “This is fantastic for every rich person, … This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”

For anyone who has been paying attention this statement shouldn’t come as a surprise. During this “recovery” the wealthiest 1% have captured 121% of the economic gains. How is it possible they received over 100% of the gains? Simple, everyone else has become poorer. But while income inequality is arguably the worst it’s ever been, it is really just part of an overall trend that has been going on for a couple decades.

Here’s a chart put together by Mish showing the growth rates in real household income.

Welcome Spooks!

Yesterday a left-wing redditor ventured into r/libertarian and stumbled upon my post, A New Libertarian Constitution. He (or she) was shocked to find that there are people who hold political views outside of the Hillary Clinton to Mitt Romney spectrum.

I was told that my post was “the most ridiculous piece of intellectual masturbation I’ve ever seen” and that, unlike myself, he actually “believes in the United States of America and the Republic for which it stands.”

Isn’t it cute when people think they own the government, rather than the other way around?

After a lovely little exchange in which I was reminded that treason is not allowed under the constitution (was that a death threat?), he concluded the conversation with this:

You are crazy. And you actively are trying to destroy the US government. I am forwarding this conversation to the NH State Police and the FBI.

So with that I would like to welcome my new followers! Of course we know the NSA already trolls the internet for “anti-government activity”, now I can add the FBI and State Police as well.

So welcome! Feel free to take a look around. And please do read! If anyone needs to discover the philosophy of liberty it is people like yourself.

The Indignity of Political Discourse

Politics is incredibly poisonous. People get it in their minds that the ideas promoted by their side are right and all others are so completely wrong that they aren’t worthy of serious consideration. There’s an us vs. them mentality that prevents people from objectively evaluating ideas and keeps them in an intellectual stuper.

Case and point here is Salon’s recent article, 11 questions to see if libertarians are hypocrites by R.J. Eskow. This very well may be worst article ever written. I say that because it’s blatantly apparent that Eskow acquired his knowledge of libertarianism from reading one or two blog posts at the Huffington Post or Daily Kos, yet he didn’t let this prevent him from offering up his opinion.

Personally, I would be horrifically embarrassed to publish something in a national outlet without at least first familiarizing myself with the subject, or even doing a Google search for that matter. But not Eskow, who produced gems like this:

Libertarians have a problem. Their political philosophy all but died out in the mid- to late-20th century, but was revived by billionaires and corporations that found them politically useful.

But the libertarian movement has seen a strong resurgence in recent years, and there’s a simple reason for that: money.

It serves the self-interest of the environmental polluters, for example, to promote a political philosophy which argues that regulation is bad and the market will correct itself.

A lot of them don’t like democracy very much. In their world, democracy is a poor substitute for the iron-fisted rule of wealth, administered by those who hold the most of it.

Science Should Hurt