Bitcoin

   I feel it is time to begin the *Bitcoin*[1] conversation. I have known about it for a long time, but have withheld any comment until I could see how it was playing out. The Bitcoin idea has finally begun to generate mainstream articles, touting it of course, and bitcoins have begun experience wide variations in price. So it may be time to add my thoughts to the discussion. First let me say that I am both delighted at the opportunity that Bitcoin provides to investigate money, how it works today, and how we might replace it with something that better meets our needs; and disappointed that it comes with many of the same flaws as central-bank-backed currencies, or worse. Let me also ask, for the sake of keeping this short, that if you are unclear on how Bitcoin works that you do that research first; only then will this post make any sense.

   From the start in 2009, Bitcoin promised it would provide a safe, anonymous, and government-free means to transact trade. None of that turns out to be true. People have lost literally millions of *regular* currency value through raids on Bitcoin safes and troubles with the formula itself. Others have had their wealth confiscated by authorities, either because bitcoins were declared to be illegal, or the business collecting the bitcoins was transacting illegal trade. While the anonymous bit has more or less held true, methods of accessing your stash have begun to appear that rely upon less-than-anonymous ways to use the currency, such as through palm prints, fingerprints, or retinal scans. Of course, any even-obtuse method of encryption cannot hold back a wealthy, determined hacker, especially a certain government agency. The government angle is also very complex; it remains unclear today if the major economies will allow Bitcoin to conduct business in every jurisdiction. And while there is no one governmental body in control of the process, when an issue cropped up in 2013 that required a *tweak* to prevent the whole system from collapsing, a group of *superusers* did take control, call a halt to the entire process, and then allow it to restart once the problem had been remedied. Happens once, not too big of an issue. But it points out that the system is fallible; that some entity has to be responsible, and in the minds of some of us, that is a deal-breaker.

   But even if everything it is touted to be is false to some degree, doesn’t Bitcoin offer a way to ameliorate many of the issues with common currencies? Here again, I see many issues. Backers point out that only 21 million bitcoins can possibly be *mined*. Scarcity: isn’t that one of the big issues our modern economies face already? Scarcity presents many facets:

·         Like gold, if there is only a limited supply of *money* while demand and/or population increase, then the amount available per person becomes less. Gold worked as long as the population remained the same or increased at a very slow rate. Today, though, when the world’s population doubles in 12 or 13 years while gold supplies grow at less than 2% per year, gold cannot work as the sole currency. All of the demands (arising in part from a lack of trust in government control of money) that we back our currency with metal aside, money supply does need to increase as demand increases, at least if you want to avoid inflation. We can’t realistically use gold-backed currency today without fudging the formula at least a bit, and that takes us right back to the argument about who gets to set the formula that we use today with our fiat money.

·         Any commodity that is scarce and yet is treated as money, be it gold, bitcoin, or seashells, is subject to hoarding and speculation. If you can take even a relatively small bit out of circulation by storing it in a vault or under your mattress, you make the remaining currency more valuable. And as we have seen, all markets today are subject to manipulation in part because they are open to hoarding and subject to scarcity. All important markets, food, energy, gold, stock, bond, housing, interest rates; every one that matters has been shown in recent years to have been manipulated to make money for those with the ability to hoard the resource for some period of time. If Bitcoin is limited to 21 million units, what makes you think that it will be immune from this? We have already, in 2013, seen wild price fluctuations. Many commentators, as we have come to expect in every bubble, have begun to ask, “Why are you waiting? Invest in bitcoins; the sky’s the limit!” That it would be subject to speculation is by itself a valid reason to run away from the whole Bitcoin phenomena as fast as you can.

·         And if there ever is any significant gain to be made by hacking the Bitcoin safes or protocol, rest assured it will be hacked, and often.

·         And just to put the mechanics of this in perspective: the global GDP is about $50 trillion dollars. If there are only ever 21 million bitcoins, that works out to almost US$2.4 million per coin. Some of you just had the thought that it might be a good time to invest, even if bitcoins are trading in the $300+ range now. Others have seen how impractical it would be to try to buy a bag of pasta at the local Dollar Store using bitcoin. If you have to pay some financial entity a fee for converting bitcoins to the local fiat money, small transactions are problematic.

·         If your *money* is only stored as electronic bits, I hope I don’t have to remind you about Cyprus or Poland or the possibility of a TPP-inspired attack on all currencies by financial corporations that would eat into your stash.

·         As the recent NSA disclosures have shown, there is no anonymity left on the Internet. If a government or corporation wants to know your business there, they can and likely will. And if dodging taxes is one thought you find attractive about a non-national currency, I fear you will be sorely disappointed as various governments come to terms with trade being transacted outside their own institutions. If any significant trade begins to happen facilitated by bitcoins, you can bet the rent that governments will either prohibit it or tax it.

   Wow. I didn’t realize until I started writing how many problems Bitcoin embodies! And this doesn’t even address the more fundamental, root issues that we should be discussing concerning our money; issues like, how can we redefine *work* so that everyone who contributes to society, through caregiving, volunteer service, creating art, writing or lecturing for free, is able to *earn* a living? Or what about the need of money as currently constructed to grow, thereby requiring consumption despite the damage it causes to our world? Or what about the ways that speculation allows those with resources to profit while those without pay the price? Isn’t that just a redistribution of wealth, one that we see all too often in America today, one that is driving the increasing spread between rich and poor? Or how lending and demanding interest payments on money made from thin air is keeping the vast majority of us in debt-slavery?

   It seems that the issue of Bitcoin and bitcoins is a distraction. I am increasingly suspicious, with every article touting this *new money* that I see, that the powers that be see this as just another system they can use to make money. I don’t have an alternative; nor do I want you to think I am totally against Bitcoin. We need to change our money, and Bitcoin is a start in that direction. I just don’t think it’s ready for prime time, and I don’t think we’re having the right discussion about that.


[1] I will use the convention: capital-B Bitcoin to refer to the method, and small-b bitcoin to refer to the money itself

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