China creates a Bitcoin buy opportunity

When governments seek to inhibit, retard or ban a grassroots movement, it almost always has the opposite effect. Official acts of suppression tend to fuel publicity and growth by shining a light on the activity or venue that some wish to suppress.

The US government apparently knows this. Perhaps that is why a Justice Department official said on November 18 that Bitcoins can be a “legal means of exchange” at a U.S. Senate committee hearing.

  • Mythili Raman, acting assistant attorney general at the department’s criminal division, told the Committee on Homeland Security and Governmental Affairs “We all recognize that virtual currencies, in and of themselves, are not illegal”.
  • Federal Reserve Board Chairman, Ben Bernanke, told the Senate committee that the U.S. central bank has no plans to regulate the currency. He wrote to lawmakers: “Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market”.

Of course, as with any monetary authority, the US government needs to preserve public faith in the dollar, and also avoid an exodus to digital currencies, even if used only for online transactions. But rather than attempting to ban individuals from investing in Bitcoin or using it as a currency, the US subtly discredits Bitcoin by placing fear and doubt in the minds of would be traders. For example, in this interview, former fed chairman, Alan Greenspan, explains with remarkable clarity why he believes it is foolish to accept Bitcoin as a currency.

Dr. Greenspan is smarter than me and I am certain that he believes what he says. But I respectfully disagree that trust comes only from the Aristotle doctrine of intrinsic value. Even without the backing of a trusted government or bank, investment value can arise from a combination of provable scarcity and widespread recognition.

Short term investment?  —  or
Long term exchange medium?

I prefer to study Bitcoin as an emerging global currency rather than as an investment vehicle. But even as an investment, its potential is inextricably linked to the likelihood that it will catch on as a currency—at least in some sectors or in some countries. So, let’s look at this possibility…

The long term viability of Bitcoin as a currency depends upon sustained trust by a large number of vendors and consumers. That is, buyers and sellers must feel that there will be broad or growing audience to accept the coins that they accrue, and that the value of their savings—or even of daily receipts—will not be eroded by inflation or a sudden lack of faith. (I am not too concerned with wild swings in exchange value during early adoption. These tend to be overlooked by “bleeding edge” adopters or at least the significant fraction of them that have a strong stomach).

Why is Bitcoin falling?

Bitcoin_pullbackThe short answer: it’s not falling for long. It is adjusting in response to politics, but it almost certainly will return to its historical trend.

The upward path of Bitcoin is already the stuff of legend. The exchange rate with the US dollar rose from nothing to $12 in the first 2 years of trading. This year, it peaked at $1240 on Thanksgiving Day in late November, but then pulled back as low as $650 over the next week. The fall was precipitated by a warning from the Chinese government to its citizens. Their announcement did not ban owning or trading Bitcoins, but it warned citizens that it was a very risky investment and also that it must not be used as currency in any transactions.

After pausing at around $700 for a day, it returned to a range of $850~1050 for most of December. But there was another sudden drop last night, on December 17. It pulled all the way into the high fours before settling between $550 and $600. (This posting was written on Dec 18).

But what happened last night? What caused the second nosedive in this graph?


Answer: China is at it again. It is using direct engagement rather than subtle persuasion in an attempt to block gradual adoption of a decentralized, uncontrollable phenomenon. Last night, China’s biggest Bitcoin exchange was barred from accepting new Yuan deposits. But it was not shut down. Citizens can continue to sell and trade Bitcoins that are already in their account and the exchange can still accept cash from outside the country.

Some would say that the downward pressure is a natural response to law and public policy. Wild Ducks augment this argument by pointing out that the fall is a temporary and technical effect. More to the point—we see it as a buying opportunity.

Of course, I acknowledge the short term risk and I continue to downplay the role of Bitcoin as an investment. But I can’t shake the notion that early adoption leads to appreciation over the course of a maturing commodity. I also can’t shake extreme excitement over a property of Bitcoin that places it head-and-shoulders above government and bank-backed currencies: The supply is capped. It simply cannot be printed, inflated, or used as a political tool. It also resists efforts of governments to attack personal wealth as the basis for mandatory redistribution, at least without full and wholehearted consent of the governed.

Given the choice of using it as currency later or owning it earlier, why not do both?

Further reading:

Ellery Davies is acting technology editor for AWildDuck. He dabbles in law, economics, and public policy and has been fascinated with Bitcoin for years.

Can USA Assert Jurisdiction Over Assange?

Most Wild Ducks are aware that WikiLeaks is a rogue distributor of classified and secret documents from anonymous news sources, news leaks and whistle blowers. At the helm is the very charming self-promoter, Julian Assange. This man attracts controversy like honey attracts flies. Dozens of governments, banks and NGOs would gladly substitute honey with “horse manure” in that simile.

In the past 2 years, WikiLeaks has threatened—and then followed through—on the release of information troves containing copious numbers of memos, orders, private communications, and tactical analyses by governments, banks, charities, NGOs, and what-have-you. To generate buzz and prevent sabotage while they vet and compile controversial disclosures, WikiLeaks occasionally pre-releases an encrypted stash of secret documents that they call an “insurance file” or, more accurately, an information bomb. Once out there, it can never be defused—The contents can be remotely detonated by anyone with an encryption key. (This can be a short phrase that is easy to remember).

During the past 2 years, WikiLeaks has been doing exactly what it has threatened (or promised, depending upon your perspective). They have disseminated enormous troves of sensitive and sometimes embarrassing documents, phone calls, faxes, emails, and other private communications without permission from those who were party to the data. Among the infringed parties (think of this as the data ‘owner’ or originator) are the US Government, Bank of America and just about anyone else that claims domain over sensitive material. WikiLeaks justifies its acts as a 21st century watchdog agency with a calling higher than any government. Their PR spin conveys an ethical rudder that pushes for transparency in all affairs. The United States points out that outted documents sometimes reveal names of spies, endangering agents and their families. Other documents reveal the number and location of weapon systems, or data about the capacity and range of weapon systems. But that’s not all…

For WikiLeaks, it doesn’t matter that a telephone transcript reveals personal information unrelated to the government or business affairs targeted for disclosure. For example, parties arranging a phone call reveal that a premier is delayed because he is with a young mistress or a Deputy of State can’t take a call, because she is in the midst of a fierce hangover. In effect, WikiLeaks says “Hey! These are public officials supported by their subjects or constituents. Transparency is always better than secrecy, no matter what’s in the pudding. Just throw it all out there and let the chips fall as they may.”

Of course, the US Government, it’s allies, and many public and private organizations don’t see it that way! Just because a disgruntled employee or consultant has access to sensitive documents shouldn’t mean that a 3rd party organization can air it all on the bathroom wall. And so, Julian Assange is a wanted man.

For the past two months, Assange has been holed up at the Ecuadorian embassy in Great Britain. I mention “Great Britain” as a geographic footnote and not to imply ownership or jurisdiction. An embassy is sovereign territory no matter whose land surrounds it. Right?

…Well, not according to the British.

Today, Ecuador’s foreign minister announced that the country is granting asylum to Assange. But now, the British government threatens to storm the Ecuadorian Embassy and forcibly extradite Assange to Sweden, where he is wanted for questioning in cases of alleged rape and sexual molestation.

The US government seeks Julian Assange for trial in a US court on charges related to his role in the massive WikiLeaks disclosure of confidential documents and communications. Of course, the US considers these documents to be sensitive and they are each labeled at various levels of “Secret”. The US has laws that govern access, copying and disclosure. It’s safe to assume that the charge would be treason, conspiracy, theft, aiding the enemy, or something related to willful interference with process.

US Jurisdiction: How Can it be Asserted?

I understand all of that. But I have never seen an explanation as to how the US could assert jurisdiction or request extradition. Assange is a foreigner and his acts related to WikiLeaks took place in foreign countries. Does the US assert that anything labeled as “secret” by its military is automatically secret everywhere on Earth? That would be a tough argument, because it would require a bilateral reciprocation agreement. Assange has lived in Nairobi since 2007. Does the US protect documents and extradite individuals over everything that the Nairobi government considers to be a secret?

Of course, the United States is pursuing enablers within or serving in uniform, but Assange is not among them. His actions may have harmed US interests (this is certainly debatable)—but how can the US claim that it has domain over the legality of his acts or his capture and punishment? Having an extradition agreement doesn’t mean that you can demand any individual that you seek. There has got to be a reasonable basis for the extradition. Doesn’t a bench warrant need a viable basis in law?

We Just Want to Try Him for Rape

The Swedes interest in Assange is ostensibly to charge him with a sex crime. That certainly sounds like a legitimate interest that is unrelated to the beef with Uncle Sam. But the Swedish government refuses to guaranty safe passage to a region that is not party to a US extradition treaty. They claim that they are bound by law to turn Assange over to the US. The solution to this quagmire is not simple, but it is achievable. Assange claims that he is willing to face that charge. Why not try him in Ecuador (or the country that becomes his safe harbor from American extradition). If he refuses, he could be tried in abstention by a Swedish court and the court sentence could be negotiated with authorities in the safe harbor country.

WikiLeaks: Is the Wholesale Release of
                   Secret Communiques Ethical?

What about the 900 pound elephant in the room? Can WikiLeaks claim that its mission is moral or ethical (carried out in the current fashion) morality of what Assange has done vis-à-vis WikiLeaks. My own readers at have pressed for an editorial opinion on the whole affair. Has Assange harmed US interests? Does it matter outside of the US? Did he break an “international” law? Should he be held accountable?  Should he be turned over to American authorities to stand trial?

I won’t weigh in on these issues here. The purpose of this posting is to question US jurisdiction and earnestly seek information & opinions on the basis for extradition. If you have knowledge of the law, the basis or the justification for that request, I invite your analysis and comment.

Could the Brits Really “Storm an Embassy”?

I certainly can’t imagine that the Brits would “storm the Ecuadorian embassy”. Good God, man! Regardless of treaties and acts, it is a sovereign country. In fact, I would think that the Ecuadorian could, at their discretion, grant Assange citizenship and then confer diplomatic status. This would compel a host country to guaranty safe passage to the Airport. Isn’t that the whole idea of ambassadors and the exchange of territory? Storming an embassy would place the UK in the unenviable and undistinguished company of Egypt (2011) and Iran (1979~1981). Who can forget the hostage taking? That event spawned a nightly TV show in the US and the career of Ted Koppel.

         Ellery Davies clarifies the intersection of Technology, Law and Public
         Policy. He is a contributor to Yahoo, CNet, ABC News, PCWorld and
         The Wall Street Journal. He is also Chief Editor of A Wild Duck.

Photo Mural—Sam Spratt, Gizmodo

Does “Buy American” expand USA jobs or manufacturing?

Today, I received a chain letter from a relative and very close friend. She rarely forwards mail that ends with an urgent and passionate demand to “pass it along”. That’s just one step above the ones that tell you about the misfortune that will visit those who fail to pass it along.

But this individual is wiser than me and always speaks the truth. She is not given to scams, and so I carefully read the chain letter. You may have seen this one. It has already caught fire…

In a spasm of patriotism and economic self-determination, the letter implores every American to Buy American. It doesn’t go into the reason. After all, it’s self evident that buying goods made in your own country will expand jobs and manufacturing in your country. Right? Instead of justifying the urgent advice, it describes how consumers can find the origin of consumer products by inspecting the UPC code. The author includes a small table. It shows the relationship between the first digit of a UPC code and the country that manufactured the product.

I won’t include the original email in this post. It’s not that I don’t respect my friend. Rather, my decision is based on these things:

  • Reposting it here does not help to explain my point of view
  • It’s a chain letter! A reliable indicator that it must be wrong
  • I don’t want to attract search engines based on the content of a chain letter


Hi Ruth. There are two issues here:

  1. Do UPC product codes really tell the buyer about the country of origin.
  2. Is “Buy USA” a solution to unbalanced trade and a shrinking manufacturing base?

1.  Do UPC codes show origin ?   Answer: “Not at all !”

I own a block of UPC codes to use on computer products (or whatever I choose to sell). Blocks of unused codes, or more precisely, the manufacturer code prefix is sold without asking about the products that I intend to assign or where they are manufactured. Quite simply, no one ever asked me about the things that I make. I only know that when I began selling network gear and software on Amazon, I needed to buy UPC codes and they told me how to do this.

If a manufacturer or bundler does not need thousands of codes, but needs only a few, the unused subsets are sold between previously authorized parties. Although the issuing organization discourages this practice, it is perfectly legal and there is an active market for codes issued to small vendors. Here too, the story is the same. You can by the code from owners in any country and they don’t ask for what products you intend to use the code.

This may seem contrary to the UPC purpose. If the product and country are not registered, how can the cash register/lookup mechanism know about the product and its value at the point of sale. The answer is simple. That information exchanged between the wholesaler (or mfg) and the retailer whenever a new stock item is contracted.

One final note: You may have seen some internet sites that tell you what product is associated with a specific UPC code. Yet, there is no international registry of code relationships! This information is compiled after the fact from consumers and from sites that advertise the products. It’s easy to do, because many retailers use the UPC code number as their own SKU (the inventory stock number).

2.  Does “Buy American” expand US jobs or manufacturing?

Unbalanced trade and a shrinking US manufacturing base is a very serious threat to our way of life. On this, we agree…

To many, it would seem that the way of re-balancing trade and expanding our own manufacturing base is to persuade consumers to Buy American. Presumably, this argument says that it is more important to be patriotic than to base a purchasing decision on quality, features, value, safety, design, or other aspects.

I am not sure that I agree. While I am very concerned about saving US jobs (including my own!), I see a terrible conflict between this logic and basic economic principles…

In the 70s, the US was caught off guard by expansion in Japan, a strict adherence to quality standards, a very close relationship between vendors and manufacturers, and a just-in-time manufacturing. If Americans had stuck to the principle of buying American, we would have had overpriced cars that fall apart quickly. More importantly, our autos would be rejected by European and emerging nations, because of an artificially inflated demand and very poor quality.  But this didn’t happen. The market turned to Japanese cars (especially new upscale brands, Lexus and Acura. What was the result of the flight from Michigan? In the  80s & 90s, the US rebounded in both quality and cost because of two things: Competition and Free trade.

I am not fully convinced of my own argument, and like many people, I look for products sourced and made in America. But I haven’t found fault with the logic in free and open trade. There are some persuasive argument that claim that we lack a “level playing field” with our trading partners. They pollute, use slave labor, subsidize domestic industries or erect Tariffs to deter our goods from selling into their markets. Some of this reasoning makes sense, but not all of it. It’s rare for me to admit that the “jury is still out” on this one, but in fact, I have not yet formed a bull-nosed, WildDuck opinion about these issues. Perhaps this is why I am more carefully buying American.

Dear reader: What do you think? Might the Buy American campaign have unintended consequences that dilute or contradict the economic goal? I invite your comment.