Why it’s tough being in an altcoin cartel

Cartels come in many shapes and sizes.

There are Colombian drug cartels. Mafia protection cartels. Oil producer cartels. Diamond cartels. Commodity cartels. Central banks. Altcoin cartels. All sorts.

All of them, however, extract value from potentially low-value things by means of organised collusion and discipline.

Columbian drug cartels organise to ensure drug markets are not oversupplied by wiping out the competition. The mafia organises to extract rents from those who would otherwise not be inclined to pay them, mostly by imposing an artificial market for protection. Oil producers organise to ensure oil markets are not oversupplied for the best possible return from oil prices. Diamond cartels do the same , but since diamonds are not an essential commodity they also create fanciful myths about diamonds being a girl’s best friend to create continuos demand. Central banks control the money supply, and thanks to that can corner and support any market they wish for as long as their underlying currency is demand.

But being a member of a cartel can be tough. Often it means depriving yourself of a good opportunity just because it doesn’t suit the interests of your brotherhood, your industry or your tribe. In fact, it constantly requires putting the interests of your cartel ahead of your own.

In that sense it’s strangely un-capitalistic.

Furthermore, the more members a cartel has, the greater the incentive to cheat the system when the cartel demands that you do something you don’t want it to do.

Opec’s battle with discipline has been well publicised through the years.

It’s probably why the most successful cartels tend to be family organised since it’s easier to do your family a no-strings attached favour, than a stranger.

Inevitably, when they’re not family run, you get turf wars, power coups, M&As, buyouts and so forth that end up transforming the cartel system into an even more disciplined monopoly instead.

But then, of course, there are central banks… these are a very special type of cartel/monopoly, and arguably the most successful in the world.

The reason for that, we speculate, is linked to the democratic systems they emerge from. Central banks are cartels, but they’re cartels that represent the interests of the people. Which is why, most of the time, discipline can be very easily maintained.

Trying to disrupt such a cartel — or any cartel for that matter — is thus no easy feat.

Doing so usually requires the formation of an even stronger cartel, with even better discipline and access to alternative or superior supply that cannot be commandeered by the cartel in question. It also usually requires making the product the established cartel is dominating appear undesirable (and thus irrelevant) in comparison.

Altcoins, of course, represent the latest attempt to disrupt the central banking cartel of money, though this time using the scaleability of digital networks to help the organisation process.

Yet, ultimately they’re still a movement focused on rumbling society’s disciplined adherence to central bank money by using exactly the same methods that have always been used to bust cartels.

These methods include: propagating the idea that fiat currency is flawed, creating superior alternative supply — altcoin systems supply e-money which does in fact have an edge over paper central bank paper money in the digital age — applying a scarcity factor of their own, and last and not least, circulating a myth, just like diamond cartels do, that their product has more value than it really does.

The one problem all altcoin systems still face, however, is discipline. None of the above strategies work — even with the benefits of digital social scaleability — if those who join the system are incentivised to cheat whenever the price gets too high or when power concentrates in too few hands.

All of which is well demonstrated by the fact that even Dogecoin, the cutest and most benevolent of the popular altcoin systems — the community sharing its accumulated wealth to send the Jamaican bobsleigh team to Sochi, for example — is having trouble policing discipline.

Though, one does has to admit they’re at least trying to tackle the problem with style, and not — like most cartels — resorting to online intimidation, whacking or slander of competitor systems.

A small flavour of their attempt to protect themselves from “wolves and weasels” from messages posted on the online Dogecoin Reddit:

Hi All, GoodShibe here!

Heads up, this is going to be a long post (sorry!).

One of the things that breaks my heart, especially after having the privilege of welcoming all of these brilliant, wonderful new shibes is the knowledge that just there, on the outskirts – near the edges of the lamplight, Wolves and Weasels are lying in wait.

Predators and Scammers trying to nip in and hurt our Doges.

Sure, we warn new pups. Do our best to prepare them, but you can’t be watching all the time and we shibes… well, shibes want to trust one another. It’s in our nature. Most of us are good people. Which is why this post rattled my cage unlike any other thus far. Sadly, the post content has since been [removed], but basically broke down to this message: Someone tried to scam him.

The User caught them, called them out. And then the scammer outright admitted that they were scamming because they had been scammed before — it was so easy and “you can make a good deal of profit”.

Now we’re somewhat lucky in that a lot of this activity is pushed out of this main thread simply because we have /r/dogemarket. But that doesn’t help the many, MANY, good shibes that have been taken advantage of by unscrupulous people.

I’m a mod on /r/dogecoinscamwatch and I see, almost every day, shibes who show up, angry, frustrated, hurt because they’ve been stolen from. “You can make a good deal of profit” I want to thank whomever you are who wrote this. Because you’ve helped crystalize a problem I’ve been having ever since I started this column: How do we deal with people like this?

Together. As a community.

And herein lies central bank advantage. Whenever power concentrates too heavily in fiat currency threatening discipline, central banks have the means to dilute the concentration and the incentive to cheat with it. They also have the law, the police and a prison service on their side to help apprehend those who may be inclined to cheat regardless.

It is only if and when central banks fail to act in the interests of the common good that they face boycott, indiscipline and the rejection of their own currency.

But of course a central bank’s capacity to dilute concentrated power is not going to be respected by those with power to lose. Which begs the question who really benefits from a move to reject the current system in favour of a new system that prides itself on reconcentrating power and forging a new elite?

This really, we would say, is what Bitcoin, altcoin (and the gold movement, for that matter) is all about. An attempt to save the rentier from his imminent death.

Unfortunately, no matter how much protocol is coded into an alternative system, the incentive for people to cheat or leave the system if and when inequality gets too severe will always be there. Even more so, we would say, if the system’s way of handling indiscipline is based on online bullying, intimidation and threatening behaviour — reminiscent of the behaviour of more common cartels.

Which is why if any altcoin system stands a chance of outwitting the central bank cartel at it’s own game, it’s unlikely to be one obsessed with reconcentrating power and staving off the “oppressive” forces of central banks. No, it will more likely be something like Dogecoin, a system that understands that a benevolent, fun ideology and a good reputation for sharing the wealth is essential to maintaining system discipline.

Related links:
Some altcoin memes are more equal than others – FT Alphaville
In scarcity we trust - FT Alphaville