Bitcoin is not about making rapid global transactions with little or no fee. Bitcoin is about preventing monetary tyranny. That is its raison d’être.
Monetary tyranny can take many ugly forms. It can be deliberate inflation, persecutory capital controls, prearranged defaults within the banking cartel, or even worse, blatant sovereign confiscation. Sadly, those threats are a potential in almost any jurisdiction in the world today. The United States does not have a monopoly on monetary repression and monetary tyranny.
Once the State is removed from the monetary sphere and loses the ability to define legal tender, its power becomes relegated to direct legislative and enforcement measures that do not immorally manipulate a currency. Taxes for wars and domestic misadventures will have to be raised the old-fashioned way — that is to say government money cannot be raised by simply debasing the currency.
Just as the Second Amendment in the United States, at its core, remains the final right of a free people to prevent their ultimate political repression, a powerful instrument is needed to prevent a corresponding repression — State monetary supremacy. That task has fallen to an unlikely open source project that is based on cryptography protocols and peer-to-peer distributed computing. As the mechanism for a decentralized, nonpolitical unit of account, the Bitcoin project uniquely facilitates this protection.
The timing of Bitcoin’s appearance, and subsequent growth, is no accident either. If one follows the relevant sentiments and trends, it’s evident that society was approaching a breaking point. Essentially, bitcoin is a reaction to three separate and ongoing developments: centralized monetary authority, diminishing financial privacy, and the entrenched legacy financial infrastructure. An alternative money provider that was centralized would probably not survive long in any jurisdiction. The emergence of Bitcoin was baked into the cake already.
We can see from the case against digital money provider e-gold that an efficient challenger to the provision of a stable monetary unit will not be permitted… really. In 1996, a humble oncologist named Doug Jackson bravely built an auditable and verifiable system of transferring ownership rights to gold and silver bullion in an online digital environment. Wired’s Kim Zetter described it this way:
E-gold is a privately issued digital currency backed by real gold and silver stored in banks in Europe and Dubai. Jackson says about 1,000 new e-gold accounts are opened daily, and the system processes between 50,000 and 100,000 transactions a day.
With a value independent of any national legal tender, the electronic cash has cultivated a libertarian image over the years, while drawing the ire of law enforcement agencies who frequently condemn it publicly as an anonymous, untraceable criminal haven, inaccessible to police scrutiny.
Where have we heard that before? Then in December 2005, the U.S. Federal Bureau of Investigation and Secret Service raided e-gold’s Florida offices. Jackson tells Wired, “They basically raped our computers and also took us offline for 36 hours, took all the paper out of our office.” Jackson says that the government also froze parent company Gold and Silver Reserve’s U.S. bank account but the company survived, “only because its euro, pound and yen accounts are maintained outside the United States.” The physical bullion assets were subsequently seized as well.
With the prosecution resting on a civil complaint charging Gold and Silver Reserve, Inc. with operating as an unlicensed money-transmitting business,Jackson finally acquiesced in July 2008 and plead guilty to conspiracy to commit money laundering (a victimless crime) and operation of an unlicensed money transmitting business rather than the alternative threat of 20 years in jail and a half million dollar fine.
Wired magazine, in June 2009, published this excellent account of the e-gold business in the wake of the federal investigation entitled “Bullion and Bandits: The Improbable Rise and Fall of E-Gold”. Also included in the article is probably the most telling photo of all — Doug Jackson sitting on the floor surrounded by file boxes labeled U.S. Secret Service.
Zetter writes, “At e-gold’s peak, the currency would be backed by 3.8 metric tons of gold, valued at more than $85 million.” E-gold founder Doug Jackson wanted to solve the world’s economic woes, “but instead got an electronic ankle bracelet for his trouble.”
Recently, in 2009, Bernard von NotHaus was indicted on counterfeiting charges for manufacturing a private metallic coin that actually contained some precious metals. After 23 years of research and development plus 11 years of operating in the marketplace, Liberty Dollar suspended operations. Following the conviction and for the appeal, the prominent Gold Anti-Trust Action Committee filed an amicus curiae brief in support of acquittal and revolving around the question of whether anyone but the government has the right to issue money. Afterwards, many commentators pointed out the absurdity of penalizing honest money to strengthen the facade of manipulated money.
Further contributing to the disturbing trend against monetary freedom and financial privacy are initiatives like the Foreign Account Tax Compliance Act (FATCA), which has been written about many times on these pages and also in The New York Times. Other countries around the world would not even contemplate such a brazen endeavor that imposes a costly withholding and disclosure regime on sovereign foreign entities and financial assets. Furthermore, they see it as American arrogance and American hegemony run amok.
However, society will not be ready to fully embrace the promises of decentralized nonpolitical currency until it can come to terms with the fact that money in a free society should not be used for the purposes of identity and asset tracking. Banks and governments may be concerned with that goal, but it is not the role of our money.