BITCOIN
MANIA
The recent Senate Homeland Security and
Governmental Affairs Committee’s hearings on the potential of digital currencies
to be used as donations for PACs may be of interest.
We have known virtual currencies that don’t
involve banks: from Monopoly or poker, to more sophisticated video games where
“money” is earned at various stages; likewise, they are used in
closed-communities and resorts.
Detractors believe this to be a short-lived
digital craze, while promoters believe this will become a game-changer. Whether
called “digital currency,” “e-Money,” “electronic cash system,” or “altcoins,” these
innovations push the conceptual and practical limits of what we mean by
“money.”
Money has both value and function, being
exchanged for actual commodities or services according to a certain cultural
logic that legitimates it. Georg Simmel suggested over a century ago that it is
“the most ephemeral thing in the external-practical world; yet in its content
it is the most stable, since it stands as the point of indifference and balance
between all other phenomena in the world.”
Are we all meeting at the public square and
expect the backing of government agencies and banks or rather in virtual space
that allows for anonymity and complete disregard of state institutions. How
long did it take us to trust paying bills virtually?
A group of cyberpunks was intent on
challenging government authority. In 1998, Wei Dai proposed “b-money” as an
untraceable digital currency. Ten years later, Satoshi Nakamoto (a pseudo-name)
released his version of bitcoin. In his manifesto, he says that “what is needed
is an electronic payment system based on cryptographic proof instead of trust, allowing
any two willing parties to transact directly with each other without the need
for a trusted third party.”
A coin is defined by Nakamoto as “a chain of
digital signatures” or “hash.” A cryptographic hash function is an algorithm
that configures an arbitrary block of data and affixes to it a hash value. With
a “timestamp” one knows the time-line of each movement from one user to another,
cannot be reversed, thus avoiding double-counting. Though users remain
anonymous during the exchange, the exchange itself is public. Bitcoin owners
are required to “mine” them: finding a solution to a difficult problem with
high-powered computers and sophisticated programs.
More recent developments include “PeerCoin,”
“Litecoin,” and “anoncoin.” Unlike the recluse originators of bitcoin, Charles
Lee is open about his creation of Litecoin. As a former programmer at Google,
he believes in advancing the future of cyber transactions—why not have more
choices?
The value of one bitcoin has ranged from as
little as $2 a couple of years ago, spiked at $2,000, to over $900 now; total
value in circulation is billions of dollars. Surely this cyber-“ecosystem” is
comprised of earnest cryptographers showing off their expertise, but it also invites
criminals who are looking for ways to hide from scrutiny.
Promoters praise “peer-to-peer electronic
cash system” because it eschews “third party” reliance on governmental central
banks or commercial banks and replaces “trust” with cryptography; this
presumably avoids the collapse of money value because of inflation (without the
gold standard since 1971), and eliminates transaction costs levied by credit
card services or banks.
The issues spawning this movement can be
rewritten as individual freedom, distrust of government, trust in technology as
a neutral and fair method, and distaste for waste. A strong libertarian streak
is evident here!
Altcoins aim to appeal to merchants who trade
through the Internet. What happens once these altcoins are exchanged for dollars?
Will they then become traceable and regulated?
Will altcoins undermine the authority of the
federal mint to print money? With claims to safety and reliability,
trustworthiness and increased use, the bitcoin experiment is limited to about
$20-40 million and will never threaten the status-quo of trillions of dollars
in annual transactions. Are altcoins counterfeit money? Are they new ways to
launder money? What about taxes? Hence the Senate hearings.
Do you recall the so-called Swiss Dinar in
Iraq? Though backed by the Iraqi government before the 1990 Gulf War, it was “disendorsed”
after the war and a “Saddam Dinar” was introduced in its place. The fascinating
fact is that in northern Iraq the Swiss Dinar retained its trading value while
the Saddam Dinar was affected by hyperinflation after the 2003 invasion of
Iraq. No gold reserves and no real value; was it the faith individuals put in the
Swiss vs. Saddam) name of the currency?
Unlike Monopoly money or the coins you get at
all-inclusive resorts, altcoins need to have a moral gravitas that anchors them
in something other than the encryption world of programmers. They need the
sanction of transparency and good faith, and more universal acceptance than by
speculators alone. Till then, let me stay with dollar bills.
Raphael
Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See
previous articles at sassower.blogspot.com
