Saturday December 15th the grassroots Philadelphia activist organization Truth, Freedom, Prosperity sponsored the first annual East Coast Bitcoin Summit at Underground Arts in downtown Philly. Organized by Mike Salvi and James Babb, the purpose of the event was to educate the local community about the alternative virtual currency known as bitcoin.
Bitcoin is an experimental new digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network. Bitcoin is also the name of the open source software which enables the use of this currency.
I have to admit that I am no expert on Bitcoin, nor am I an economist so I am looking forward to learning a lot today from the real experts.
What I want to talk about.. or rather what Jim Babb asked me to speak about is bitcoin as a currency of the revolution. Let me preface by saying that I am not heavily invested in bitcoin although I do have a few bits.
Neither am I suggesting Bitcoin is a panacea, or the ONLY currency of the revolution. Ideally I think we should be diversifying our agorist portfolios. Id like to see people holding silver and gold, bitcoin, cigarettes, toilet paper, RX drugs, skills, or any other commodity that will hold value in the marketplace.
What would the characteristics of a currency of the revolution be?
Mises wrote of the sound money principle in the early part of the last century
“[T]he sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.”
Bitcoin is not being forced on the market the way state currencies are. National currencies are not functions of the free market, they are determined by government powers. Bitcoin is certainly a free market option. So in that sense it is definitely revolutionary.
Mises argued that sound money was as crucial to freedom as the Constitution or Bill of Rights. I would argue it is even MORE crucial:
“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.”
A few months ago the Euro Central Bank released a report about Bitcoin titled: “Virtual Currency Schemes.”
The title of the report reveals the prejudice we in the Austrian economic school already know exists.
Erik Voorhees who you will be hearing from later on today wrote a great article breaking down the report on bitinstant.com.
Here are some of the points made in the report:
+ At current adoption, virtual currencies do not pose risks to the real world financial system
This depends on how you look at it. Is the world financial system at risk of collapse due to bitcoin? I would say no. Is it at risk of collapse due to its own abuses and misuses? Absofrigginlutely!
As the Keynesians continue to drain value from “real world” currencies people are looking for ways to hold on to value. One of the ways they can do this is through alternative currencies and barter systems. I would have to argue that the very fact that the European Central Bank is doing research and issuing reports about bitcoin and similar “ virtual currency schemes” is because they feel some level of threat.
+ Virtual currencies do pose risks to their users, resulting from instability and lack of regulation
Of course the financial establishment will use fear mongering to keep the status quo from going off the grid. They must keep the majority of people invested in their system or it will collapse. Ron Paul wrote about this in his book End the Fed. If we simply opt out of using their centrally planned system, the central banks will end themselves. Statism relies on the idea that we need a centralized authority to keep us safe whether from physical, financial or virtual threats. Don’t be shocked when you start seeing Homeland Security reports naming bitcoin as a terrorist financial network. They will start sicing every agency they can to shut us down, and that’s when we know that we have something worthwhile.
So what risk do virtual currencies pose? Well certainly any form of currency is subject to market forces, social movements and other human elements. Bitcoin could go out of style, be eclipsed by a superior currency or be made irrelevant by say Cyber-fascism like the Cyber Security takeover of the internet. I hope we will hear through out the day why I am wrong.
+ Virtual currencies can be used by criminals to perform illegal activities
Yes, just like cash… bitcoin could be used by “criminals”, I would venture to say that most of these so called criminals are engaged in non or victimless crimes. Maybe they have been forced underground by prohibition. Maybe they are criminals by virtue of their desire to keep their earnings safe from “legal plunder” by the IRS.
That is a major value to alternative currencies. Aside from the fact that they maintain their value because the value isn’t determined by bankers who will profit from stealing your value, but anonymity is a major factor,
+ Virtual currencies could have a “negative impact on the reputation of central banks”
They certainly could have a negative impact on the reputation of central banks. When poplulations of people realize that they can hold on to more value when they stop using ceasars coin, when they find out that they no longer have to render unto Ceasar they will realize the scam of the central banks and the jig will be up. I think THAT is the REAL fear of the central banks. That people will realize they are not needed, as a matter of fact they are an enemy of stable and valuable currencies. The liability argument that the ECB makes is a straw man.
The ECB betrays its fear in this paragraph:
“In an extreme case, virtual currencies could have a substitution effect on central bank money if they become widely accepted. The increase in the use of virtual money might lead to a decrease in the use of “real” money, thereby also reducing the cash needed to conduct the transactions generated by nominal income. In this regard, a widespread substitution of central bank money by privately issued virtual currency could significantly reduce the size of central banks’ balance sheets, and thus also their ability to influence the short-term interest rates. Central banks would need to look at their existing tools to deal with this risk (for instance, trying to impose minimum reserve requirements on virtual currency schemes).”
Will bitcoin put the central banks out of business? Its more likely they will put themselves out of business with their “real money” schemes.
After the talk Derrick J. Freeman got up to ask a question about the relationship between alternative currencies and peaceful revolution.