The Napster of Banking?
Neal Stephenson’s novel The Diamond Age takes place in a future where encrypted currencies and e-commerce have moved most economic transactions into “darknets” beyond government’s capability of monitoring and regulation, causing tax bases around the world to implode and bringing on the collapse of most nation-states.
Encrypted currencies and darknet economies have been promoted by such thinkers as David de Ugarte and John Robb as a real-world model for resilient communities in the impending age of hollow states. 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 Bitcoin 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 Bitcoin is that there’s no central server network to shut down. Bitcoin is traded from one desktop or mobile device to another via public key encryption. Short of catching and prosecuting end-users with harsh punishments — and we all know how well that’s worked out for proprietary content companies versus file sharers — there’s no way to stop it.
There are currently 6 million Bitcoins in circulation, with a total value of $40 million. Bitcoins are generated by a complicated algorithm, with the total to top out at 21 million. After that, increases in exchange of goods and services will be offset by appreciation of Bitcoins in value and deflation of Bitcoin-denominated prices.
This fixed upper limit and requirement for price deflation thereafter is one ground on which Bitcoin has been criticized. Another is that, since it’s not denominated 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 the criticism that 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. Like the many local barter networks that flourished during the Depression, mutual credit is a system for facilitating exchange even when there’s “no money.”
Despite my reservations, I consider Bitcoin 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 still just around the corner from that level of popular adoption. - Kevin Carson - Bitcoin: More Important Than You Realize
There are however, dissenters to the Bitcoin excitement:
I'm sure by now many of you have heard about Bitcoin. The fact that it's called "virtual currency" gives you an idea about its actual value as a real medium of exchange. While many people who are touting it on Facebook are enamored with the fact that it was voluntarily created by the marketplace (i.e., is not forced down our throats by a private central bank), I'm afraid that those people are losing sight of how a real medium of exchange arises in a free market. A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange, i.e., it was also a good being bartered for other goods and services. Over the centuries, the commodities gold and silver won out as the two most preferred mediums of exchange—with gold holding the number one position due to its being more scarce than silver.
What was Bitcoin's prior material use/value? Zero. It is just bits in a computer. And what's with the "fixed" amount of Bitcoins? Who/what determined the "proper" amount of 21 million for Bitcoins to top out at? A computer program? (Next we'll find out what the proper minimum wage should be.) Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.-David Kramer
Charles Schumer, a charter member (along with Lieberman, Hatch and Feinstein) of the US Senate’s authoritarian moral scold caucus, is at it again. Schumer, for those who don’t recall, exemplifies the managerialist heart of darkness of 20th century liberalism. That ideology might be personified, in the colorful phrase of libertarian commentator Joe Stromberg, as “the body of Leviathan and the head of a social worker.” Schumer’s ideal government is a giant nanny that stomps around, like Godzilla in a gas mask and kevlar vest, saying “Momma don’t allow. Momma don’t allow.”
This time, his primary vendetta is against the online black market site Silk Road — but he has plenty of ire to spare for the encrypted e-currency Bitcoin as well, for facilitating such anonymous transactions. Silk Road — whose URL (http://ianxz6zefk72ulzz.onion/index.php) is accessible only through the Tor anonymizer — became a center of media attention after a story at Gawker.com on June 1 revealed that the anonymous marketplace hosts such goods for sale as hashish, weed, ecstasy, heroin and LSD.
Silk Road is a classic example of the kinds of rating and reputational mechanisms that emerge in a free market, absent the regulatory state. Although sellers’ real identities are unknown, their history of quality and reliability is tracked on the same user feedback model as Amazon and Ebay.
Schumer, naturally, is outraged. Besides suggesting legislation to prohibit unauthorized encrypted currencies, he’s called on the Justice Department to shut down Silk Road and seize the website. This last is a favorite strategy of his. In the past he’s co-sponsored legislation authorizing the AG to take the same action against sites engaged in “intellectual property piracy” [sic], and has been foremost among those cheering on the government’s seizure of the Wikileaks domain name.
But his experience with Wikileaks should have taught him this strategy has outlived its usefulness. Wikileaks has a number of domain names, including country-level domains, and is hosted by servers in countries all around the world — many of them beyond the reach of American law. And it continues to be accessible at its numeric IP addresses, which thousands of supporters around the world have defiantly posted and linked to online. Wikileaks is, as Schumer found out — or would have found out if he had more intelligence than an artichoke — simply impossible to shut down without shutting down the Internet.
As for Silk Road, its domain name can’t be seized — there is no domain name. It’s got a .onion URL, for which there is no registry. And what’s the point of outlawing encrypted e-currencies when you don’t know who’s using them and you can’t catch them doing it?
Actually, Schumer’s Barney Fife act could be the best thing that ever happened to Bitcoin. Back in March, an earlier target of Schumer’s grandstanding was Fuzz Alert, a smartphone application that alerts drivers to speed traps, speeding and red light cameras, and sobriety checkpoints. After Schumer drew attention to the app, its sales doubled.
Maybe he can do a similar favor for the darknet economy. The more he vents his impotent rage, the more public attention he draws to the fact that government attempts to suppress Silk Road and Bitcoin are, well, impotent.
A lot of people out there would like to engage in peaceful trade — even in violation of government commands to “touch not, taste not, handle not” — without the state’s permission, surveillance or taxation, who may not yet be aware things like Bitcoin and Silk Road exist. The more and more loudly you protest, Senator Schumer, the more economic activity will move beyond the reach of the corporate state. So by all means, bluster on! Command the waves to advance no further. Show people everywhere, beyond the shadow of a doubt, just how contemptible your so-called laws really are.
We don’t care what Momma don’t allow. - Kevin Carson - Bitcoin: With Enemies Like Schumer, Who Needs Friends?
Sounds like World of Warcraft gold to me.
ReplyDelete