BITCOIN - IT IS A FRAUD.

Bitcoin – it is a fraud.

By

Koti Ravi Kiran Chalasani.

Email:ravi_kiran13@yahoo.com

Bitcoin is  promoted as a digital currency.  It is promoted as a major financial innovation of recent times.  For the free spirited enthusiasts, it is an unshackling of their hard earned money from the whims and fancies (read control) of the central government.  It provides an escape from the financial controls, imposed by a central bank, controls which might be ethical or unethical, and which controls might be abhorrent to a free market enthusiast. 

Bitcoin can be earned by contributing effort and time at the computer.  The effort and time contributed might not be useful to anybody.  This is akin to mining gold.  The miner gets gold, and she expending effort and time in mining is not useful to anybody.

 

The programme that releases bitcoin does so based on a mathematical formula, to take care of supply constraints and basically with no other social agenda including transfer of wealth.  So, the programme replaces an ideal central bank. 

As people start trading in bitcoin for real goods and services, it has attained a status of currency.  Depending on the demand and supply, its value in fiat (central bank mandated) currencies is determined.

    

Before one concludes bitcoin is a fraud, it is essential to state a few concepts about money, wealth, nation, and central banks.

A nation is a creation of the people constituting it, out of free will and participation or by fiat.  Except for guarantees spelled out in its constitution, a nation abrogates for itself all wealth within its influence.

Every nation mandates a central bank, which is a repository of all monetised wealth of the nation. 

All a central bank does is a trusteeship function.  Through credit formation, the central bank issues currency which is released into the nation to facilitate trade and commerce. 

Currency issued by a central bank is backed by all the monetised wealth of the nation.  A currency is an IOU on the nation. 

When gold standard was in place, the amount of gold held with the central bank is a check on the value of the currency and it acted as a moderator on the profligacy of the legislature.   After the gold standard is done away with, the market determined rate of the currency against other currencies, (assuming that it is an open free market with no monopolistic and other unethical practices in the market), indicates the credit worthiness of that currency and that acts as a check on the profligacy of the legislature.

A well monitored open free market is often shunned by many central banks as inducing volatility in the currency to the detriment of the nation.  But as long as disgorgement offices for unethical trading are in place and efficient, volatility induced by unethical trading practice is minimized or becomes non-existent,  and  then volatility has a direct relation with the actions of the legislature only and it would act as a check on the profligacy of the legislature.

However, many central banks, citing their inability to establish disgorgement mechanisms, favour controlled market to free market for their currency trading.  The opaqueness of a controlled market, increases the risk premium of the currency, and it becomes an unnecessary cost to that nation, which cost is never quantified or accounted for when central banks favour controlled markets. 

Controlled markets are advantageous to unethical legislatures which do not recognize the equality of citizen but believe in their right to mandate legislation, which ultimately benefits individuals at the cost of the society.    

Controlled markets also engender a sense of disenfranchisement of the citizen as at the time of nation formation, all the citizens, especially in a participative formation, have deposited their wealth with the central bank to hold in trust, figuratively speaking.  The controls are mandated legislation, after the nation formation.   

This is akin to a person going on journey having opted to place her wealth for safe keeping with a trusted person and on return find controls placed on her access to her wealth.

It is on this sense of disenfranchisement that phenomena like bitcoin try to cloak itself with legitimacy and provide an alternative to the central bank controls mainly controls on capital flight.

Coming to another aspect of bitcoin phenomena:

A central bank is sort of a credit wholesaler and the financial institutions are the credit retailers and the citizens are its customers. 

Inflation is when the units of currency printed, exceeds the units of wealth created.

From central bank to the ultimate consumer, the citizen, the credit flows through a number of linkages.  Due to information asymmetry, at each linkage as the credit flows, certain risk is assumed and translates into inflation.  It is practically impossible to have perfect information about the fiscal discipline and productivity of the link down in the chain to the consumer that certain risk has to be assumed.  This assumption of risk creates inflation and this inflation is unavoidable.  

Trying to eliminate this unavoidable inflation or theoretical inflation would result in credit freeze and probably collapse of the financial system.    

However when inflation is used as a policy tool, then the central bank is abdicating its trusteeship responsibility.  Inflation is a tax on the society in general, and devalues the wealth of the nation placed with the central bank at nation formation.  This devaluation is beneficial to all who still hold real wealth.  For a vast majority of nations, the government not only holds the largest chunk of the real wealth of the society but usually is also the largest debtor from the central bank.  So, when legislature enters the domain of the central bank, and using inflation as a policy tool, legislates and mandates inflation, the citizen, the original wealth depositor with the central bank, would again feel cheated and disenfranchised.

The traditional hedge against such inflationary policies is to shift the currency to a store of wealth.

For anything to function as a currency, it has to satisfy the property of iid.  In statistics it translates to identical and independently distributed.    Here in this context, it translates to identical and infinitesimally divisible.  Not only should it have the property of iid, it should be in limited supply and be acquired by human effort.  It should also not decay or change over time and withstand rigors of handling and travel. 

If it is freely available, then it would not have any value, and everybody would be currency rich and it would be an absurd situation.  Only by being acquired by human effort, does it make wealth participative.  By having a property of iid, it facilitates trade in any unit desired and by its identical nature would be freely combined, divided and exchanged anywhere.  Noble metals, especially gold fits the bill.  It is not freely available and it is acquired by human effort (mining), and as it is available in pure form, the effort can be expended by anybody to acquire gold.   To acquire gold one has to mine, but have no specific skill or knowledge, to extract it.  A micro gram of gold is identical to another microgram of gold from a kilo gold bar and it is also identical with pure gold across the world.  It does not decay or disintegrate and can very well withstand the rigors of handling and travel.  

 For its value it is compact and weighs a lot less.  It is easy to carry one kilo of gold rather than its value in grain.

So, gold is the traditional and ultimate currency.  It is also a store of wealth.  A store of wealth can, be a piece of art, diamond, any rare object, even secure real estate, and gold is also one store of wealth.

As gold is not only a store of wealth but ultimate currency, the preference to shift currency to gold is predominant at times of inflationary policies.

Bitcoin phenomena tries to imitate gold (can be obtained by human effort, has the property of iid programmed into it, can be carried and handled easily (online accounts), it does not decay or disintegrate with time), and tries to convince that it is also a candidate for the status of ultimate currency. 

But bitcoin differs from gold in one fundamental aspect, gold is controlled by nature (no alchemist ever had success), but a bitcoin is controlled by human.  Man is always fallible.

So, a bitcoin is not supported by the anything, and it is controlled by human.  It takes advantage of the sense of disenfranchisement with the central bank and the inflationary policies of the legislature and cloaking itself with a sense of legitimacy and innovation, while underneath being hollow, is nothing but a fraud.

The central banks role and function is trusteeship.  Its mandate can only be preservation of the wealth deposited with it at the time of nation creation.  It should do this, through having efficient fraud prevention and disgorgement mechanisms, and maintaining inflation at the unavoidable level.  There is no other mandate for a central bank.   

Controls on capital, unless imposed by the legislature with a social justification not related to the mandate of the central bank, are a sign of central banks inefficiency and credibility.  Legislature, by encroaching into the central bank space, to induce inflationary policies or to tamper with the wealth of the nation, or so called, enlargement of the mandate of the central bank, causes frustration in the vast majority of the citizens, and with the sense of disenfranchisement, would seek salvation from frauds like bitcoin.

Bitcoin phenomena is a product of the imbalances in the system created by central bank not sticking to its one and only one true mandate, and legislature entering into the space of the central bank and playing havoc with its policies.

Legislation banning bitcoin is only going to give a very temporary reprieve.  If the imbalances in the system are gone, there would not be any space for frauds like bitcoin.

Samaikyandhra - a poison drop in a milk pot.

Samaikyandhra – a poison drop in a milk pot.

By

Koti Ravi Kiran Chalasani.

Email: ravi_kiran13@yahoo.com

Samaikyandhra is a slogan that came into existence the day after the union home minister representing the central government of India, made an announcement to the effect that the government shall initiate steps for the formation of the Telangana state.   The main partner in the collision government, popularly called UPA (United Progressive alliance), was Congress(I) party,  where the (I) stands for (Indira), but recognized as the successor of the Indian National Congress.    It is the MP of that party representing Vijayawada MP(member of parliament) constituency, that initially spearheaded the Samaikyandhra, which was next adopted by main opposition party, the Telugu Desam party, and later on by all major political parties in the region (then Andhra Pradesh state minus Telangana region), while representatives from the Telangana region continued with the demand for a separate Telangana state. 

So, Samaikyandhra meaning united Andhra (meaning the coastal Andhra Rayalaseema (which seceded from the Madras state), and the Telangana (one part of the Nizam state, with the other two parts being Marathwada (merged with Bombay state, later named Maharashtra), and Kannada speaking part merged with Karnataka), was voiced only by the non Telangana region of the then Andhra Pradesh state.  There was not one voice for Samaikyandhra in the Telangana region.   

One outlier, an MLA of Congress(I) in Telangana, asked that the Telangana movement be used to negotiate with the central government for more central funds for Telangana, but he too never made an emotional appeal for Samaikyandhra (United Andhra). 

The lone MLA of communist party voiced for non separation of Telangana, but the same party spearheaded Jai Andhra movement (separation of Andhra Rayalaeema regions, as the conditional merger of Telangana has become a drain on this region) 40 years back.  As such there is no moral or emotional quotient for Samaikyandhra.

So there was not a single voice for Samaikyandhra from the Telangana region.

With the congress party MP, a party which was in command of both the central (Indian Federal) and Andhra Pradesh government, spearheading the Samaikyandhra movement and the main opposition party joining this movement, it appealed to the people of this region on the emotional level, and clouded the judgement. 

At the same time for a silent majority, a suspicion that both the Telangana and Samaikyandhra movements were mere political creations to divert public attention and gain political control of the united Andhra Pradesh state, from the political uncertainity created by the death of the erstwhile chief minister of Andhra Pradesh and the seemingly political revolt by his son to claim the political legacy of his late father, arose. 

This suspicion was strengthened by the fact, that the same party minister representing the central government made an announcement for the formation of Telangana state and the same party MP took initiative for raising the emotional slogan of Samaikyandhra, while completely ignoring and antithetical to the emotions of the people of Telangana region.  This scenario effectively put people of both the regions on a collision course, with seemingly no space for negotiation. 

This raising of the Samaikyandhra slogan and appealing to the emotions, after the announcement of initiation of steps for the formation of Telangana state, silenced all saner and rational voices that would have opted for a negotiated settlement, which would have been a lot better option to both the regions.  Further, it put the united state of Andhra Pradesh on a path of strife, which diverted public attention, and attendant scrutiny (as it is a participative democracy), to the governments inaction, corruption, and failing if any.  With the main opposition party, and all other political outfits joining in the fray, the strife and raucousness cloaked the government.

One marginal political party in the united Andhra Pradesh state, after a meeting with the Prime Minister on this issue, came out and said, since central government, has made the announcement for initiation of steps for the formation of the Telanagana state, after recording the opinions of presidents of all major political parties in the state as being in favour of Telangana, in the form of minutes, and now going back on that announcement is a matter of prestige for the central government, and the then home secretary also made a statement to a news channel to the same effect, both statements confirming the inevitability of the formation of the state of Telangana.  They were drowned out and the government or the political voices never instilled it in the public mind.  Consequence of which, was the emotional appeal of Samaikyandhra ruled the roost.

The Prime minister out of political imperatives or because of his statesmanship did say that Telanagana shall be formed after a negotiated settlement (consensus) of both the regions (Telangana and the remaining part of Andhra Pradesh).   A committee was constituted and the central government did call for meeting of the political parties to give space for negotiation.  The Samaikyandhra protagonists have already created an atmosphere, which silenced all voices that might have participated in a negotiation, thus killing any hopes for a negotiated creation of Telangana state, which would have been better for the state of Telangana and the residual state of Andhra Pradesh.   The main opposition party and other political voices indulged in an ugly blame game and effectively killed any opportunity for a statesman to emerge.

Samaikyandhra protagonists(so unconvincing as to not have a single voice from the Telangana region) and the political voices of the state, who indulged in such self serving short sighted ugly blame game, effectively placed the state, its division, and the aftermath in complete control of the central government and the central leadership of the congress(I) party.

From the strife and unrest the united state of Andhra Pradesh not only suffered from loss of productivity, emotional scarring (the emotional scarring was so severe for some, that it resulted in hundreds of suicides of young students), but also lack of scrutiny of the government.  Not only the Samaikyandhra protagonists but all political voices were to be blamed for that situation.  But if blame has to be distributed, then largely it falls on the Samaikyandhra protagonists.

There are two major losses for the residual/successor state of Andhra Pradesh for having not participated in a negotiation due to Samaikyandhra appeal freezing all space for negotiation.

The first loss is on account of Cyberabad.  Hyderabad being the state capital from 1956, attracted grants from the state exchequer, and infrastructure developed which was consumed by the state.  The usable life of infrastructure is deemed to be about 30 years, evident from the concession periods for the development of infrastructure projects.  So, not going beyond 1985 (30 years before the division of the state of Andhra Pradesh in 2014), the one major development is the creation and development of Cyberabad on the outskirts of Hyderabada in the Ranga Reddy district, in Telangana region.  Cyberabad, is entirely a state legislative creation and its infrastructure is actively promoted and seeded by the state government.  So, basically it is a state government creation, which was made possible by the state revenues paid by all the residents of united Andhra Pradesh.  

Cyberabad created to cater to the nascent IT industry, was a very successful urban project.  The land value soared and government revenues (through taxes and auction of land holdings), also soared.  It is treated as a state project.  Just because it was physically located in Telanagana, the state contribution is treated as a loan, but not as equity in the project.  By not participating in the negotiation and not seeking equitable division of the value of Cyberabad,  the residual/successor state of Andhra Pradesh lost its investment.   If an atmosphere for negotiation would have existed, public opinion across the country would have forced the equitable division (present value of receipts to the state government from Cyberabad region for the next 15 years or so(30 years being the life of infrastructure and about 15 years have lapsed from the seeding of Cyberabad), based on the population percentage would have been made.  The central government would have advanced the amount to the residual/successor state of Andhra Pradesh as loan to Telangana and over the next fifteen years would have collected it from the state of Telangana. 

It is this loss of value that it the loss, not the loss of job opportunities.  Anybody, can pursue opportunities in Cyberabad or Bangalore or Chennai or anywhere in India, as the state of Telangana is still part of union of India.

It is all the political voices, including the ruling and opposition parties that are responsible for this loss, as they never voiced it, by the excuse created by the Samaikyandhra protagonists.

It is ironical to note that a substantial number if not a majority of the IT workers in the Cyberabad region are from the residual/successor state of Andhra Pradesh.  The infrastructure and legislative support could have been developed anywhere in the united state of Andhra Pradesh.  But a conscious decision to locate it near Hyderabad away from the population qualified (by education and otherwise) to work there, probably by vested interests was made and it resulted in forced migration of these qualified workers. 

It is the responsibility of the political class to answer the allegation of forced migration to cater to the vested interests (mainly land holding politicians, who would profit from the appreciation created out of the wealth generated by the infrastructure),  which supported the then political masters. 

On the second count, it is the right to the flowing river water as a downstream state that has been lost.  

For the very reason, that an upstream region has to let go of the flood waters on to the downstream region at the time of flood, causing distress in the downstream region (nature does not give the power to give a guarantee to the downstream region that it will NEVER release its flood waters onto the downstream region), the upstream region can only claim ownership to the rainwater on its soil, that goes underground or fills up lakes, but cannot claim ownership on the flowing river.

 As such all the legitimate river water usage of the downstream region has to be guaranteed by the upstream region as a matter of right, before it constructs any dams for stoppage of flowing river water.  This has never been voiced by the political voices in residual/successor state of Andhra Pradesh, through the zero negotiation space created by the Samaikyandhra protagonists. 

As such this right has been lost.  The central government in the guise of resolving future disputes through the constitution of the water board, with the deciding vote by its nominee, has effectively taken control of the river waters of the united state of Andhra Pradesh. 

In Indian constitution, river water is a state subject. 

As for Telangana state, the loss from a non negotiated creation of Telangana state, was loss of the state control on law and order in Hyderabad, which is explicitly a state subject as per the Indian constitution, under the guise of addressing the supposed fears of discrimination against the residual state of Andhra Pradesh residents and protection to their properties, expressed by the Samaikyandhra movement.  The central government through its representative the Governor has taken control for the period during which Hyderabad is the joint capital of the two states. 

It may be noted that any agency, (the Indian central government is not immune to it), is always averse to ceding any powers vested with it. 

Making Hyderabad a joint capital, that too for a period of ten years is a rank injustice to all the regions of the united state of Andhra Pradesh.  Hyderabad by virtue of the legislative support and use of state exchequer under the guise of being the capital of the state has committed to imperialistic hegemony over the entire state for the past three generations and killed the local assertion and initiative, essential for dignity of man. 

Continuing with this imperialistic charade in a free and democratic India is a rank injustice to every resident in the united state of Andhra Pradesh. 

Especially for the residual/successor state of Andhra Pradesh, without having any tax share of the Hyderabad region, conducting its affairs from Hyderabad, is subscribing to this imperialistic hegemony of Hyderabad and subjecting itself to it for ten years is an insult and symbol of its subjugation. 

Telangana state and the residual/successor state of Andhra Pradesh have both lost in not disentangling the entailed natural resources of the respective regions, be it coal, or Hydrocarbons.  Both have lost by not negotiating a smooth and peaceful separation. 

As a resident of residual/successor state of Andhra Pradesh, I wish well for Telangana.  With its natural resources, human resources, land, and developed IT services supported by Cyberabad, it bodes well for Telangana future.  If decentralisation of power and empowerment of the citizen and local bodies happens, it would transform Telangana into a very desirable state to live in.

As a resident of residual/successor state of Andhra Pradesh, I believe, with its coast line, educated middle class, entrepreneur class and delta of the continuously flowing rivers, with land and water for industrialization, high exposure to the western world (in terms of NRI’s and students who studied abroad), if it capitalizes on these strengths, with the dead weight of Hyderabad removed from its imagination, would not just prosper but would transform itself into a vibrant economy.

The conditional merger of Telangana with the now residual/successor state of Andhra Pradesh, robbed the state of Andhra Pradesh an opportunity to introspect, find its element, and prosper with a strong sense of its cultural identity and history.  With the merger of Telangana, Telangana with its distinctly different culture (influenced by the north India and Nizam rule), and with the capital having shifted to Hyderabad, the centre of gravity of influence in those socialistic times (where centralization is the norm), shifted out of the region of the residual/successor state of Andhra Pradesh and this region floundered in finding the above.   Now is the time for it to grab the opportunity.

The residual/successor state of Andhra Pradesh needs a leader who:

 is of this region,

is going to wed her future to this region,

has the maturity to organize her own affairs to have no conflict of interest whatsoever and be transparent about it,

have respect and understanding of full disclosure,

have a drive for decentralization and empowerment, and strengthen democratic institutions,

can initiate and implement regulatory frameworks for supporting free market institutions,

have a compassionate all embracing view of prosperity and growth,

create supportive environment for full and meaningful employment,

have a cultural connectedness and deep understanding of the history and culture to be confident enough to welcome diversity and change,

be able to negotiate (including with the central government) with the best interest of this region,

 reassert the local control on the natural resources of this region,

understand and implement the partnership (not subservience) with the central government to preserve the resources and environment of this region for its future generations,

be assertive in preserving the cultural wealth of this region to not be subservient to the dominant culture of India,

to stand up for this region and not to surrender its affairs even at the altar of national interest,

to allow other leaders with the same values to develop in a non competitive environment to secure the future of this region/state.

Until I find such a leader contesting, I am going to vote none of the above. 

If the majority feels the same, let elections be conducted until such a leader emerges.