Bitcoin: More Important Than You Realize


by Kevin Carson
http://c4ss.org/?p=7149

Neal Stephenson’s “The Diamond Age” was set some years after encrypted currencies and e-commerce removed most economic transactions into darknets beyond the government’s capability of monitoring and regulating, and thus caused tax bases around the world to implode. This followed, in short order, by the collapse of most nation-states.

Encrypted currencies and darknet economies have been promoted as a real-world model for resilient communities, in the impending age of hollow states, by such thinkers as Daniel de Ugarte and John Robb.

So you can imagine my reaction to recent news of Bitcoin, “a Peer-to-Peer Electronic Cash System.”

Jason Calacanis and his colleagues at LAUNCH describe it as “The Most Dangerous Project We’ve Ever Seen” (May 15, 2011). Not only is it “the most dangerous open-source project ever created,” but “possibly the most dangerous technological project since the Internet itself.” It “could topple governments, destabilize economies and create uncontrollable global bazaars for contraband.”

The beauty of it is there’s no central server network to shut down. Just as with file-sharing, Bitcoin is traded from one desktop or mobile device to another via public key encryption. So short of catching and prosecuting end-users with harsh punishments, there’s no way to stop it. And we all know how well that’s worked out for the proprietary content companies.

There are currently 6 million, with a total value of $40 million. Bitcoins are generated by a complicated algorithm, with the total number to top out at 21 million. After that, increases in exchange of goods and services will be offset by the appreciation of bitcoins in value and the deflation of bitcoin-denominated prices.

This fixed upper limit and the requirement for price deflation thereafter is one ground on which Bitcoin has been criticized. Another is that, since it’s not demoninated in a familiar unit of measure like dollars, it’s confusing as an instrument of exchange for the average person.

As an alternative currency geek, I’d add you can only engage in bitcoin-denominated exchange if you’ve already obtained bitcoins from previous transactions. This is definitely a downside, compared with the kinds of “mutual credit clearing networks” proposed by Tom Greco. Greco’s mutual credit isn’t a store of value from past transactions — just a measure of value for denominating exchanges of present or future goods and services. The backing comes entirely from the goods and services themselves. Even if neither party to an exchange has any credit, one party can incur a debit to her account by purchasing a good or service from another, and then remove the debit by selling a good or service of her own. The floating bank balance works exactly like a checking account, except the system permits limited negative balances for limited periods of time. Like the many local barter networks that flourished during the Depression, it’s a system for facilitating exchange even when there’s “no money.”

Despite my reservations, I consider Bitcoin to be grounds for enormous excitement. Pirate Party founder Rick Falkvinge calls it “the Napster of Banking” (Falkvinge.net, May 11, 2011).

As Falkvinge argued, it’s usually not the most feature-rich version of a new technology that achieves popular acceptance. Rather, it’s the most user-friendly. “…[I]t takes about ten years from conception of a technology, or an application of technology, until somebody hits the magic recipe in how to make that technology easy enough to use that it catches on.”

Technologies for sharing digitized music had been around for ten years when Fanning came up with Napster. Geeks had been sharing videos for ten years when YouTube came along. Falkvinge thinks Bitcoin will do the same for encrypted e-currency. It’ll do to banking what BitTorrent’s doing to the music industry.

Here’s how Falkvinge describes the ramifications:

“The governments of the world are on the brink of losing the ability to look into the economy of their citizens. They stand to lose the ability to seize assets, they stand to lose the ability to collect debts….

“All the world’s weapons in all the world’s police hands are useless against the public’s ability to keep their cryptographic economy to themselves….

“The decentralized, uncontrollable economy where one lifetime employment is no longer central to every human being is something I’ve called the swarm economy, and I predict it will redefine society to an immensely larger extent than the ability to get rap music for free.”

This is vitally important to a central theme in my work: the emergence of non-state spaces within which the low-overhead informal and household economy can function, outside the state’s ability to impose artificial scarcities and entry barriers and collect tribute for the usurers, landlords and proprietary content owners.

Bitcoin is monumentally important. Encrypted currency has been at the Altair stage of development. If Bitcoin isn’t actually the Apple II — and it may not be — we’re very close to it.

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8 responses to “Bitcoin: More Important Than You Realize

  1. So short of catching and prosecuting end-users with harsh punishments, there’s no way to stop it. And we all know how well that’s worked out for the proprietary content companies.

    This seems to me to be typical techno-utopianism. It smacks of that old, rather silly, adage “the internet routes around censorship”.

    Widespread copyright theft has occurred because the response of States and courts has been half-hearted, chaotic and internally contradictory. It has been one set of private citizens (creators) against another (content thieves). The State’s “group mind” has been indecisive as to the appropriate response.

    Nonetheless, egregious thieves, such as The Pirate Bay, have been shut down; “sharing” has remained a difficult activity which many people do not get involved in. You may find the movie you are after on Usenet, if you know which sites to go to generate a .nzb, and can tell the fakes from the real movies, and so on. Many people can do this, but it is not just the “click of a mouse” which is the skill level of many ordinary users. So, copyrught law has not stamped out sharing, but has kept a lid on it. It is still possible to make a living selling content. I know. I do it.

    So, all that may not bother property-haters like Mr Carson, but it does illustrate that States have power and are not overwhelmed by “dark” transactions.

    But there is a better example. A far, far better example. Child pornography.

    Now again, the States cannot stop everyone getting it. But if they find you out… hoooooooo boy. Twenty police will arrive, armed. They’ll kick your door down. Your every item of equipment will be confiscated. They will tear your house apart looking for hidden caches of disks and drives. You will then be hauled into a court where the jury are shown some young looking porn found on your drive, and persuaded that it is underage. You will be thrown into prison. Your ass will be raped. And then, when you get out, you will be put on a permanent State register as undesirable, forever monintored by police, told where you can live, denied the right to look after children. Ever. Your life will be over.

    That’s what the State does when it really wants to stamp something out. It is relentless, and remorseless. That is what you’re up against Kevin, not a bit of downloading of mp3s. Do you really not think that, faced with a threat to the entire money system, the State would not use every repressive power at its disposal? That it would not label you a money launderer, a terrorist, a child abuser, whatever it can? Do you really think it would allow a “dark” financial network?

    It has always been possible to disobey laws. The internet didn’t invent that. There have always been smugglers, black marketeers, individuals passing samizdat printed on secret presses. Laws don’t work by actually preventing every instance of a state-defined crime. They work by destroying those people they catch. They work by terror. That is how it is done. The internet does not change that. If the pornography example is anything to go by, it just makes States even more terroristic in their enforcement.

    Governments aren’t going to let themselves be “toppled” by a handful of geeks. Really, they aren’t.

  2. Ian B:
    What you say is true but partial.
    The State seems to have vast resources to crush lonely transgressors.
    However it can go to town on them only because, as in the case of pedo’s, there are only a few of them. There are prob more file sharers than pedo’s but it is hardly a mass phenomina. Although a few years ago every office had one or more people who could get you the latest (in cinema) movies on a disc–I don’t know what it is like now.
    Look at drugs. The state is just as nasty about them but far, far less succesful at stopping them. It fact, the state has FAILED to stop drugs. Now I don’t fully grasp yet what this “Bitcoin” caper is about but if it can offer a large mass of people benefits at the state’s expense without being widely seen as harmful ( drugs are put forward as a deadly harm but a large number of people don’t buy it:pedo’s are widely hated and would not be popular even without leftist feminists/statists conducting a pedo hate campaign as a method of demonising men in general) then it will spread.

  3. Mr Ecks-

    I think the point is, that any alternative currency has to operate publicly, “overground”. It can’t operate underground. You can smuggle drugs underground, and luckily you can still pay for them because we still have an untraceable currency form called “cash” (which is probably going to be abolished soon). But any form of electronic money has to have an interface somewhere to the rest of the money system, and that will force it overground where- if the government don’t like it- it can be simply banned.

    You can’t beat the system. Really, you can’t.

  4. I also find it kind of funny for somebody to proudly declare it “the Napster of banking”; since Napster, of course, was shut down.

  5. Ian B: It’s “the Napster of banking” in the sense that it may be the first service that’s user-friendly and prominent enough to bring the phenomenon of e-currency into widespread public awareness. After Napster was shut down successive generations of file-sharing systems evolved to eliminate points of weakness like central server networks.

    An e-currency doesn’t have to have a point of interface with conventional currency, if it’s simply an accounting system and unit of denomination for transactions on the Greco model. And if it’s an encrypted transaction directly between two endpoints, there’s no way the state can “not allow” it — at least shutting down the Internet as in Egypt — any more than they can “not allow” PGP.

    I also make money off content. Of course it’s possible to do so. The time and trouble, or transaction costs, of setting up distribution networks with authenticated, complete copies, of setting up books for print, etc., will always be a source of rents from those who want convenience. Free e-books and free music downloads are essentially free advertising for auxiliary services or content venues that can be more effectively monetized. And it’s possible to get a modest, reliable income stream from convenience rents if you don’t get greedy and attempt to mark up your price significantly above the level of the convenient rent. But thanks to competition from file-sharing, content prices are much closer to this convenience rent value than they would otherwise be.

    Your references to “stealing” and “property-hating” simply beg the question of whether IP is a legitimate property right. Cf. Stephan Kinsella.

  6. After Napster was shut down successive generations of file-sharing systems evolved to eliminate points of weakness like central server networks.

    And have each been successfully crippled when they’ve become a severe enough problem.

    An e-currency doesn’t have to have a point of interface with conventional currency, if it’s simply an accounting system and unit of denomination for transactions on the Greco model.

    It’s useless if it can’t interface with the rest of the economy. People need to convert their labour into goods, via currency. They are paid in State currency. For your private currency to have significant penetration, it needs to be convertible. If the State don’t let it, it can only be a niche, like cigarette currency in prison. Perhaps a fun hobby, but not a threat to State currency- in which the overwhelming majority of transactions will continue to be carried out.

    And if it’s an encrypted transaction directly between two endpoints, there’s no way the state can “not allow” it — at least shutting down the Internet as in Egypt — any more than they can “not allow” PGP.

    Sure they can. They make it illegal. As I said above, that’s how the State stops things. Not by literally blocking them, but by draconian punishments for those who are found out. They can’t physically stop me growing cannabis either. It’s the getting caught with it bit that’s the problem.

    I also make money off content. Of course it’s possible to do so. The time and trouble, or transaction costs, of setting up distribution networks with authenticated, complete copies, of setting up books for print, etc., will always be a source of rents from those who want convenience. Free e-books and free music downloads are essentially free advertising for auxiliary services or content venues that can be more effectively monetized.

    Ah, the old “give it away as advertising for something else” argument, normally made by those whose content has no saleable value. Sure, you can give away shit to lure people into a website to buy something else. Or, you can create content with intrinsic value and sell that.

    Me, I want a world where there’s music that isn’t advertising jingles, personally.

    FWIW, I create digital comics and art and sell it on the internet. Not as advertising, but for its own intrinsic value. That’s how markets work. You create something that has value, and you sell it.

    But thanks to competition from file-sharing, content prices are much closer to this convenience rent value than they would otherwise be.

    It’s certainly true that if you steal stuff and give it away, you damage the free market. The same would be true of food. It’s a pity the world is full of thieves. But that’s what we have laws for, after all. To prevent thieves reducing everything to “the convenience rent”, you know.

    Your references to “stealing” and “property-hating” simply beg the question of whether IP is a legitimate property right. Cf. Stephan Kinsella.

    You can’t prove what property rights are legitimate. They are agreements within communities to respect certain things as property, that is all. They can’t be derived from any higher principle. You can say for instance that land is a property right, or that it is not. But if it isn’t, nobody owns the land, you get the tragedy of the Commons. Because markets can only work when there are predefined property rights.

    If you want to abolish creators’ property rights, and you can get everyone else’s agreement, fair enough. But bear in mind that then there is no incentive to create; as with any other product which nobody can own.

    Enjoy your world of advertising jingles. It’s not the one I’d like to live in. I prefer free markets, myself.

  7. Howard R Gray

    Bitcoin will have one potent chance to insert itself into the economy as savior, no more so when the US dollar reaches the Weimar moment which is very likely to be soon. Is Bitcoin real enough to do that?

    What is the point of a fiduciary currency when there is no faith left? Bitcoin, or one of its competitors or co operators, may well create a way to survive a valueless currency when the moment arrives. Legal tender laws could be amended to accommodate novel currencies and money, which may well be the only way a government, can survive a currency melt down without a political meltdown. I suspect we are about to find out soon how all this will work.

    Merely switching one dud currency for another won’t go down well, there will be a need for money backed by value, bitcoin is one entity that might not pass muster on this one but an amalgam of bit-money and bitcoins could make it to the table instead. If there is a unique way to print out cash with an encrypted graphic similar to a bar code then there may be ways to transfer cash outside of the net in the open market in real as well as cyber space. Is any of this possible, you tell me?

    Cyber-ducats, Barter-Bits, Info-Franks or whatever the money may become, the result will be the first stages of removing state monopoly from value exchange. Liberating interest rates and exchange rates from the power of the banking classes would be a huge advance in liberty. Government would have to operate on value of the services it provides rather than the favours it bestows on those it corrupts to support it. Yes they can bust in and arrest the miscreants who use cyber money, which will only work so long as they can pay the black flack suit guys and gals, not so easy when you are playing the Zimbabwe gambit.

    Hayek and his view of private money has laid the foundation of why private or non state money is a good thing. The technology of doing it may just be about to emerge. Now let us imagine how to run a deficit spending Keynesian economy should any of this happen. Hmmmmmm…..

    Evolve, if you will, to a world where there are free market interest and exchange rates, how would that work out? Imagine a wee bit further where there is private money and public or government currency in a situation where the arbitrage between the two might just create a stable monetary system to replace the Breton Woods model. Amended legal tender laws to accept viable money in competition with state currencies would add a deep dimension to the international currency exchange trade. Which way would Gresham’s law operate here?

    Honestification of currencies to ensure that they become more like money would be a real advance. No more coin clipping, printing press or computer key currency fraud, wouldn’t that be nice?

    The SWATistas in the black outfits might be better off if they stay home when this one goes down. An emergent natural monetary order might permit very rapid recovery from a transnational fiscal meltdown. Entitlements will be gone, government grants will be gone, overseas aid will be gone, Keynesian economics would be gone, no IMF or UN and so on and so forth. Then what? Perhaps Mr. “Spooky dude” Soros just might put his feet up and retire.

    None of this is vaguely viable but one can dream!