It’s up, it’s down. It’s the future of commerce one day, just another Internet bubble the next. It’s the end of government-controlled currency and banking … but wait, the US government’s Financial Crimes Enforcement Network has something to say about that. It’s Bitcoin, and you’ve almost certainly been hearing about it, even if you’ve never used it.
As an anarchist, I’m a big fan of competing currencies, especially competing freed-market currencies not issued by, or subject to direct manipulation by, states. The reasons for that should be obvious: If government can’t supervise and control the flow of money, it gets a lot harder for it to steal (“tax”) part of that money and spend it on killing and enslaving people. So Bitcoin made quite an impression on me, and I’m still sold on it.
One issue I’ve come around on is the absence of commodity backing. In the past, I’ve been of the opinion that to be sound a currency should actually represent a pile of some scarce, homogeneous material (e.g. gold) that’s valuable for other purposes in addition to constituting a convenient medium of exchange.
The problem with commodity currencies, though, is that those piles of material have to be physically stored. They’re vulnerable to roving gangs of thieves, including but not limited to government “law enforcement” agencies. More than one commodities-based currency has been shut down, or at least yanked into government regulatory schemes, by the scruff of its neck.
Bitcoin is just bits of data; it’s created by the process of crunching the numbers involved in exchanging it. That drives commodities-based currency aficionados nuts: No pile of gold in a vault. But it also represents a kind of security: No number of jack-booted thugs can break into the vault and take the stuff backing the currency, because there IS no stuff backing the currency. And because the generation and exchange of Bitcoin is distributed and peer-to-peer, governments would pretty much have to shut down the Internet to put a stop to Bitcoin commerce.
Said commerce, however, is not completely immune to government intrusion.
Contrary to popular belief, Bitcoin is not inherently anonymous. In fact, every last Bitcoin transaction is transparent and publicly viewable. You can use Bitcoin anonymously, but it takes a little work: Don’t keep your wallet at one of those vulnerable services, generate new addresses for each transaction, anonymize your IP address or work from public Wi-Fi connections, etc. And help is on the way: The good guys are working on ways to make Bitcoin commerce more private and secure.
So, why the “boom and bust?” The main reason is that Bitcoin’s user base is still fairly small: “Buy low, sell high” traders constitute a large portion of that base and thus have a big effect on price when they decide to take profits, or panic, or sit on their stacks. There are “forex” markets in all currencies, of course and the relative values of those currencies fluctuate, but not as much, because for every day trader bouncing back and forth between dollars and euros and yen, there are hundreds or thousands of people using dollars, euros and yen as money to buy cars, concert tickets and bags of potato chips with. As Bitcoin’s user base grows, and as the proportion of people using it as a medium of exchange grows versus those treating it as an “investment” to grab low and dump high, its valuation will probably stabilize quite a bit.
Is Bitcoin the end of political government? No, but it’s part of the beginning of the end of political government. Hang on. It’s going to be a heck of a ride.