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May
20
2017

Fake News, Fake Money
Andreas Antonopoulos

Fake news is a problem, yes. Figuring out the truth behind the smokescreens of both established and alternative media has become no small feat in this Age of Confusion.

But you know what’s an even bigger problem? Fake money.

Fortunately, though, there’s a very simple method for sussing out what money is real and what money is fake. Anyone can do it. And it only takes a few minutes of your time.

It comes down to five simple words: The market discovers the truth.

To explain how to find real money in a sea of shams, we invite Andreas Antonopoulos to the show. Andreas, if you’re not familiar, is a notable mind in the bitcoin space — and, by and large, one of the most eloquent speakers on the subject.

Last night, for your reading pleasure, we took it upon ourselves to transcribe one of his latest talks at the Plug and Play Tech Center in Sunnyvale, California.

He calls it “Fake News, Fake Money.”

Enjoy… Chris Campbell

Fake news has been in the news a lot lately. And you have all of these accusations swirling around.

The established media… the The New York Times, the Washington Post… they’re pointing fingers and going, “These purveyors of fake news.”

Primarily at internet based sites. And Internet based sites are pointing right back, and going, do you remember Judith Miller?

“Yeah, there are WMDs with aluminum tubes in Iraq.”

Bullsh**.

So, fake news happens on both sides, right? And that’s really the perplexing thing. How did we arrive in the world when we can’t even tell what’s true and what isn’t? You see well-established backbones of authority and truth like the Washington Post and the New York Times or even CNN, Fox News and other TV — CBS and ABC. And what are they doing? They’re cheerleading a war based on false premises. And that was just last week. Again!

Not Iraq. Syria this time!

Did we learn nothing? No. We didn’t learn anything.

How do we arrive at this point? Why do we have this debate over fake news? Part of it has to do with the rise of the internet in the early 90s.

Work with me here. Let’s walk through the steps.

The internet didn’t disrupt newspapers and TV companies by stealing their audience for news. That came much much later. First, the internet disrupted their sources of most profitable revenue. And for newspapers, that was the classified advertising section. That was where they made most of their money. Small business advertising in the classified section.

And the internet came along and Craigslisted it. Ah, now you can do all of that free and it’s instantaneous. Boom. Suddenly all of the most profitable revenue disappears and the newspapers have to adapt.

And then it happened again with TV.

They started losing ad revenue to the new popular websites that were getting more eyeballs. They started losing first the local and small advertisers who were able, on the internet, to position ads and target specific demographics and audiences.

Because they could get much more fine-grained information. TV is a one-way thing. You have no idea who is watching.

So what do TV networks and newspapers do? They trim the fat. In newspapers, that’s journalists. So no foreign desk, cut that. Investigative journalism, cut that. What’s selling more papers? Ask Judy, the astrology section, infotainment, cartoons and sensationalist news. If it bleeds it leads… and, inexorably, the long downtrend of the news industry started.

They gutted their foreign desks, they gutted their investigative journalism, they gutted their fact-checking, they gutted their copy editing desk, until what was left was a bunch of interns running around copying press releases from powerful corporations and presenting them as fact. And taking notes when someone who was seemingly important said something, not questioning any of it and just writing it down and publishing it as truth.

Fake news happened because the very basis for producing truth was removed from the very institutions whose job it was to produce truth. And this caused a very weird situation. Because until that time, how do you know something is true? Well, the New York Times said it. The Washington Post said it. It was on CBS. Surely, they have fact checked it, therefore it’s truth.

The fundamental basis for the discovery of truth was to examine the source.

OK, you go to college, you’re writing an essay. They say what are you basing this argument for? Give me citations. Source your argument. Where are the facts? And if you took a headline from the New York Times and sourced it, they’d go, “OK, great. That’s a citation that’s valid.”

We’ve used the issuer to determine the quality of what they issued. We looked at the authority of the news based on the authority of the institution that said it. Because that was a good model. It was a good heuristic. It gave us a good false-positive, false-negative ratio. It was a bet. It was a way to say, “I can’t fact check all of that, but these people have, so… if I read, I will become not only educated but also informed.”

But now we’re in the situation where the people who watch the most TV and read the most newspapers are the least informed part of the electorate. How did that happen? The institutions are still standing. Their authority is still standing in some eyes. The basis of credibility is still there. They still have the big buildings and lots of circulation and big names. But the mechanisms that delivered truth is no longer there. The mechanism that insured quality is no longer there — or is significantly eroded. And what’s their response to that? We’ll try harder?

No. They turn, they look at the internet and go, “You’re fake news.”

And arguably, a lot of the stuff on the Internet is fake news. Because it never had any of these mechanisms for producing truth. But the internet that has none of the mechanisms and the newspapers that no longer have the mechanisms are now producing truth on a relatively equal basis. Every now and then some blogger uncovers some incredible story that nobody’s noticed and it is the truth and the networks pick it up. And every now and then the institutions of traditional truth fall flat on their faces and deliver bullsh** to us, packaged in a fancy name.

And people start questioning whether they should believe anything. What’s the option? Where do you go from here?  How do you go about evaluating every piece of knowledge as fact or fake news?

Well, there’s an easy heuristic. If the esteemed leader of your political party says it’s fake news, then it’s fake news.

Now we outsource fact finding to the tribe that we belong to. If the tribal leader says that those guys are lying, we just go with it. Happens in bitcoin, too. Tribalism is part of the human nature. But what’s really interesting what just happens in news that has left an entire generation of people unable to discern truth from fiction — easily manipulated for propaganda.

And what I’m about to suggest today is that this is about to happen to money.

How do you know money is valuable? I get asked this question every time I do a seminar about bitcoin, especially if there’s people in the audience that are new.

They say, “But bitcoin isn’t backed by anything. This thing I have in my pocket it says Central Bank of Blah Blah. It’s backed by the nation, the Queen, the King, the Parliament, the GDP of my country, or the gold that we have in our vaults.”

You don’t have any gold in your vaults. They still think there’s gold in the vaults. Many people do. It’s a common misconception.

Most of my understanding of money comes from myth. It is just barely removed from the level of myth that is Santa Claus. We have a constructed fantasy about money we’ve received as children. And then, as adults, when we notice inconsistencies, we just shore it up with rusty nails and planks to keep it in place and we try to keep the illusion. And as part of that we adopt these preposterous ideas such as, “Oh there’s gold in the vaults.”

We had a heuristic. And it was if a stable democratic government based on some broadly free principles sanely manages the economy… if they say it has value, it has value. That’s a great heuristic. That removes the necessity for us to independently evaluate every note that comes into our hands.

Will this $20 bill be worth $20 tomorrow? Yeah. It will. And maybe it will buy you $19.80 in a year. But you don’t really notice that, it’s OK. You trust that it’s still going to be there. Unless you’re Greek. Or Cypriot. Or Venezuelan. Or Argentinian. Or Brazilian. Or from Zimbabwe. Or the Ukraine.

You know, keep adding to that list. It happens so many times. One day you wake up and you discover the banks are closed and the bank governor is on TV and they say, “People don’t panic. Everything is under control.”

When government officials say that… panic!

That’s the time to panic. Now it’s about who gets to line up in front of the bank. Because they’re not opening next week as promised. The temporary emergency measure will become a permanent emergency measure. Guaranteed. Every time. So line up and run for your money in the bank.

Suddenly the institution for money has crumbled. And now who do you trust? Now you go back to basics. Things you can examine and evaluate for yourself. Gold, chicken, rice, salt, sugar. Whatever you can get your hands on. Or that other country’s money. The U.S. dollar is hard currency.

So the concept of money is one of those things that primarily holds value because we attribute the value as a direct result of its issuance by a trusted authority and we outsource our own determination of value to a trusted third party. And what happens when that trusted third party stops delivering on that promise? On purpose? By accident? Mismanagement? Deliberately? Who knows?

But one day… that phrase… that seemed so meaningful and strong and satisfying… the full faith and credit of the United States government.  Mm! America! The full faith! Not just some of the faith! The full faith and credit of the entire United States of America!

Satisfying!

OK. Compare it to this one. The full faith and credit of the national bank of Zimbabwe!

Do you cry? Do you laugh? Do you run? What do you do at that point? That sentence no longer has so much weight at that point? That thing that you put all your faith in?

Because they give you their full faith and credit and in return you give all of your full faith and credit. Every time you receive one of those bills you are giving credit. You are giving them a product or a service in return for the bill. You are giving faith. Your full faith and credit. And your full faith and credit is based on absolutely no rational thinking other than you somehow believe in this thing that’s printed on it.

“The full faith and credit.”

I have a prediction. This sentence is going to become increasingly untenable not just in the hotspots. Not just in the backwaters. Not just in the developing nations and in the Third Worlds as we used to call them. But in many places simultaneously. $220 trillion dollars of debt.

That the phrase “the full faith and credit” is ringing hollow all around the world. And what happens when they can no longer shore it up?

Because bitcoin is not going after replacing national currencies. Oh, no. It’s doing something far more dangerous. It’s encouraging people to put their savings outside the system. And that is the worst thing you can do to a system based on full faith and credit.

We’re taking away the credit and the faith by presenting an alternative that some people will find more useful and in some places where the full faith and credit where the national currency has been damaged, they will flock to bitcoin as a valuable alternative. Because they know that it’s safer. And we’re seeing that happen. We saw it happen in masses after November 8 in India when Modi demonetized 86% of the country’s money. Where’s the faith now? No full faith.

Can you print on the money the “14% faith and credit of the National Bank of India”? Doesn’t sound so good.

People flocked to bitcoin.

So just like it wasn’t bloggers challenging the truth of news that created this dichotomy of fake news, it wasn’t better news gathering that undermined the newspapers. It was undermining their advertising revenue, cutting off their feed. Cutting them off at the knees, really. And then forcing them to adjust their news gathering at the new level of income they have.

What happens when bitcoin does that to banks?

Because when they say close all the doors and keep all the money in and there’s one door they can’t close because it’s bitcoin. And the money keeps leaking and leaking.

And they say put the Minister on television. Tell them everything’s going to be fine. The yuan will not be devalued any further. The full faith and credit of the People’s Bank of China is behind this currency. And then a month later, it’s devalued another half percent. And that’s happened eight times in the past year. At some point you’re like, “That doesn’t count any more. I’m taking my money elsewhere.”

And a few people do. And a trickle of billions has fled into bitcoin from the yuan.

And the insidious the damage it’s doing is not in offering a better way for Chinese people to buy things, to invest in companies, to transact with each other. It’s undercutting the very source of revenue and value and stability of a national currency by removing the full faith and credit of the people and putting it into an alternative currency. By taking their savings and instead of putting into a deposit account where it becomes the basis for fractional reserve lending, they’re sucking the liquidity out of the economy. And that’s the worst thing you can do in an economy like that.

So what are they doing next? What the hell can do they now? Drag the finance minister on TV. Dear citizens… drug dealers! Terrorists! Pornographers! Criminals! And most importantly, those really nasty people who live in the country next door are undermining our nation through this fake currency Bitcoin!

The fake money!

They are in a criminal conspiracy to damage our economy! Don’t trust it. Do not invest your money in this bitcoin. It’s fake money. It’s backed by nothing.

Fake money. Fake money. Fake money, they cry. And scream and protest.

You think that’s not happening? It’s happening right now. Watch. Translate, if you like, what Venezuela said about bitcoin just a few months ago.

Fake money. In fact, they said, “It’s the Colombians doing it!”

It’s always the weirdos next door who speak with the funny accent. Soft tacos instead of hard tacos. Abomination! And so the cry starts. Slowly at first.

Bitcoin is considered fake money in a few places in the world. Where do you think it’s considered fake money? Not here in the United States. Nobody’s called bitcoin fake money here. Certainly no official would do that. They would rather it remain in obscurity.

But in Venezuela, bitcoin is fake money. In Zimbabwe, bitcoin is fake money and they write articles about it. In China, they’ve tried it. A few times. Hasn’t played very well with the audience. In the absence of institutional authority, there is no basis for evaluating whether money is real or not. Or is there?

And what is fake money and real money? Who knows?

Are we back in the same conundrum? Are we back in the same situation where we can no longer tell the difference? Is this just like fake news? Do we all have to discover the truth ourselves?

No. Because money has markets. And markets discover truth. That’s what they do. That’s what a market does. So if you want to know if bitcoin is fake money or the bolivar is fake money, you have an easy test. You take your bitcoin and you take your bolivar and you take them to someone on the street and you say, “How much will you give me for this?”

And if the official exchange rate for the bolivar is five times less than the unofficial exchange rate. And if the official exchange rate for bitcoin carries a 20% premium, the market is telling you exactly which money is fake.

The market discovers truth.

And no matter how many pronouncements and currency controls and bank bans and bank holidays and demonetization incidents you do, no matter how big you try to make that wall… that dam… once it’s got a little flow, a little pinprick and water is flowing through, it’ll make that hole bigger.

And the truth will come out. And the truth will be evaluated by the market. And you can call bitcoin fake money and the market will say, “Well, I’d rather take that fake money than your fake money.”

On November 8, in India, the price of bitcoin went up and maintained a 22% premium against the rupee over any other currency in the world. And I was asked when I went to India, “Why is bitcoin so expensive here? Are the exchanges making obscene profits?”

No. They’re not. They’re not allowed to do arbitrage. Individuals are doing the arbitrage.

So, I explained: “It’s not the bitcoin that’s expensive. If I go down the street right now with US dollars and buy bitcoin the price they will give me is the exact same price I can get in San Francisco. Bitcoin’s price is exactly the same. But if I give them rupees, they’ll want 20% more rupees.”

It’s not bitcoin’s price that went up. It’s the rupee discount that went up. The rupee price collapsed by 20%. Because bitcoin could be moved across borders to settle the arbitrage difference and then you’re stuck with rupees and you can’t move them. And the fact that you can’t move them imposes an immediate 20% discount. That money is worth 20% less because it is not portable. And portable is one of the three characteristics of what makes currency. And you just lost one of them. Actually, two, because you just demonetized most of it.

Rupees are trading at a discount against bitcoin. Bitcoin is the stable price.

The market is telling you, “This is more real money than that stuff.”

And so the market discovers truth and it tells us. But be ready, because we’re going to start hearing this again and again and again. As economies collapse, as currencies get into crisis, and it’s happening even in developed nations, it’s happening in the European Union, it could happen here with the dollar, who knows?

The markets are trying to correct the situation. And they’re going to create a flow of money going out to bitcoin. People will start removing their full faith and credit from the system and putting it into safe haven assets — gold, silver, bitcoin, whatever. And as soon as that happens, you’ll start seeing the articles in the newspapers and the news media. You know, the fake news. Telling you about the fake money.

And maybe you can’t tell the truth about what is fake news and what isn’t fake news — but you can always tell the truth about what is real money and what is fake money. And the easiest way to find out is to go out on the street and ask the market.

The market will tell you the truth.

-Andreas Antonopoulos (@aantonop)

Andreas M. Antonopoulos is a technologist and serial entrepreneur who has become one of the most well-known and well-respected figures in bitcoin. He is the author of two books: “Mastering Bitcoin”, published by O’Reilly Media and considered the best technical guide to bitcoin and “The Internet of Money”, a book about why bitcoin matters.

As an engaging public speaker, teacher and writer, Andreas makes complex subjects accessible and easy to understand. As an advisor, he helps startups recognize, evaluate, and navigate security and business risks. Andreas was also one of the first to use the phrase “The Internet of Money”, as early as 2013, to describe bitcoin as part of his speaking business.

As a bitcoin entrepreneur, Andreas has founded a number of bitcoin businesses and launched several community open-source projects. He is a widely published author of articles and blog posts on bitcoin, is a permanent host on the popular Let’s Talk Bitcoin Podcast, and a frequent speaker at technology and security conferences worldwide.

Andreas offers strategic consulting to a small number of crypto-currency companies that are aligned with his interests. He also offers expert witness testimony as an expert in the security, technical details and use of crypto-currencies, worldwide.

antonopoulos.com