If you haven’t already come across one of the multitudinous articles flooding the Internet these days about Bitcoin, I’ll give you a nudge: Bitcoin is the first successful digital cryptocurrency. It is the first viable threat to monopolistic, uncompetitive government-issued money. And it is proliferating.
As the United States stumbles through broken efforts to raise an already lofty debt-ceiling, the country’s obligations mount to historical highs, and its currency continues to plummet. Indeed, despite governmental claims to the contrary, commodity and energy costs have continued to soar in recent years — not so much because of scarcity or demand, but simply because the world’s currencies are failing. Why? Because governments around the world have gone on an unprecedented printing spree, and the results are higher prices; in most cases, commodity prices have doubled in the last 15 to 18 months.
In 2009, an enigmatic figure known only by the (almost certain) pseudonym Satoshi Nakamoto invented an algorithm that would become Bitcoin. Here are the reasons why I believe the new currency (and its offspring) will destroy government fiat currencies forever:
1. The U.S. and other governments will soon make Bitcoin illegal. This is incontrovertible: the Federal Reserve is a semi-private institution whose owners benefit every time a dollar is used. They are self-interested human beings, and there’s no way they’re simply going to let a private currency destroy their monopoly without a fight. Alas, the U.S. can criminalize Bitcoin until the end of time, but it won’t stop anyone from carrying (or sending) it offshore, and using it places where it is welcome. Which brings me to my next point:
2. Never in history has it been possible to put all of one’s wealth in the cloud and walk out of a country. Maybe it’s possible to stop me from using Bitcoin, but that would necessarily entail the purposeful and successful destruction all forms of online (and offline) digital storage, because that’s the only way to prevent me from using the currency. As long as I can find someone willing to take dollars for bitcoins in the U.S., nothing is going to stop me from leaving the U.S. with my Bitcoins. Likewise, maybe it’s possible to criminalize domestic exchange of Bitcoins. But I don’t think so. Governments have tried with limited success to do the same with Marijuana, Heroin, Crack, Cocaine, LSD, assault rifles, Cuban cigars, and prostitutes. It just doesn’t work. Couple that with the fact that bitcoin is a digital ghost that can be transferred anywhere in the world in less than a second… well, you see my point, I hope.
3. Bitcoin is just the beginning. Remember Napster? Remember how everyone freaked out about music piracy? Remember how the government shut down Napster, and all its imitators? Did that stop anyone from getting free digital music? No, it didn’t. If anything, the government — in all its wisdom — made would-be file sharers more savvy; instead of using a centralized model like Napster, these users simply changed the rules of the game — going peer-to-peer. Now, instead of having one monster to fight, the government has millions and millions it has to kill. And it’s not working.
Another example? How about online poker. The wisest in Washington decided to criminalize the online gambling industry — which was, by the way, pumping billions of dollars into a struggling U.S. economy. The response has been bitcoin. Gambling sites are redirecting their energies to offshore servers where U.S. citizens can play poker to their hearts’ content — converting their dollars to bitcoins, and funneling resources out of the country.
4. Some would argue that Bitcoin is nothing more than an unregulated, private fiat currency — backed by nothing. I would argue much differently. Fiat currencies have, to this point, always been issued by monopolistic, bureaucratic governments. Even when those currencies were backed by gold — a policy that all but the rarest governments abolished decades ago — the supplies of such currencies were still subject to the whimsical decisions of only a few. More often than not, the currencies represented mounds of debt, and destructive monetary policies that kept up the illusory trend of growing asset prices through mild inflation.
Because Bitcoin is strictly peer-to-peer, however, it is essentially “issued” by every single human being who transacts in the currency. Only 21 million Bitcoins can ever be minted, and of those, less than half have been minted. What this means is, as the demand for Bitcoins increases, it will appreciate in value — making it a more realistic and accurate deflationary currency. In other words, Bitcoin is finite, and as demand grows, so will its value. And because it is decentralized, this means every Bitcoin is worth exactly what two interested parties agree upon, at the time of the exchange. The currency is owned only by the person who possesses it — there is no bureaucratic third-party government participating in the transaction by manipulating the supply. And what that means is that every single Bitcoin is backed by the assets and/or debt of every single participant in the market. That does not sound like a fiat currency to me.
So while the U.S. (and every other country) is up to its eyeballs in debt, its currency will eventually reflect as much — especially considering that the government can simply print as much as it likes. But Bitcoin is not represented by any such entity or policy. It belongs only to its users, and that is true “full faith and credit.”
5. What happens when the U.S. criminalizes Bitcoin? Won’t the price fall? The answer is yes, probably. But it won’t go away, because it represents something we’ve never seen before. Bitcoin is a way for people to move their wealth without any detection, whatsoever. Never before could you put $1 million dollars on a cell phone and leave the country. But you don’t even have to leave the country; as long as you can find a bank somewhere that will accept Bitcoins — and there are a lot of them — you can send your money anywhere without the transaction being recorded. For the first time in a long time — maybe for the first time ever — your money can actually be yours. Governments can no longer tell you what you can and can’t do with your cash. They can’t make the rules. And that scares the hell out of them.
One can, of course, attach any sort of deontological morality stance to this contentious issue. But we cannot stop people from acting in their own interests, and I question very seriously the government’s ongoing ability to prevent people from hiding their money . They will try, but this time, the authoritarians are out of their element — not because of a lack of sophistication, but because of a lack of resources. Simply put, governments do not have the jurisdiction or manpower to find and destroy bitcoin; it’s too easily hidden, and extremely portable.
Some people say that the advent of the Internet is the biggest achievement in human history. That may be true. But as revolutionary as it has been, nothing is going to change the game like the privatization of currencies. Without control of the money supply, governments cannot dictate anything. This may be the purest form of democracy the world has ever known, and I — for one — am thrilled to be here to watch it unfold.