Understanding this can be a little difficult, because for those of us with only a basic practical-use grasp of how computers and the internet work, it seems really absurd to leave something as important as money up to code. We can barely use a credit card on the net without some jackass stealing our identity, and it would seem that someone, somewhere, would be able to figure out how to highlight a Bitcoin, right-click, and scroll down to 'copy'.
Believe me, it's not that easy. It's a crypto-currency, meaning that Bitcoin generation relies on breaking cryptographic codes in a process called Bitcoin mining. You can't replicate them without supreme effort. The actual source code is open, and anyone can take a stab at hacking it, but despite values running around $120 per Bitcoin right now, no one has been able to pull it off. Instead, entrepreneurial computer types are better off throwing resources behind Bitcoin farms and pools, which do the mining. What that means is, non-simply, lots of specialized computers wired into networks hash out, piece by piece, an algorithm-generated block of code with the correct leading bits to work within the Bitcoin system. There's an intense, and intensely competitive, level of computing power going into that right now, with enough natural resources being used to piss off Bloomberg news.
In fact, the entire system is meant to resemble gold mining in its operation. Mining production starts off fast, with coin being easy to come by, and then decelerates. The amount of Bitcoins in circulation is designed to be cut off at 21 million, with only about half that having been produced thus far. And while one expects the mining process to increase the number being produced by sheer effort and resources expended, the algorithms have been designed to adapt to this, with increasing difficulty of mining with every tranche of coin rising in complexity. The anonymous creator of Bitcoin knew what he was doing; there is no way that this currency will be over-produced, and we won't hit that 21 million mark until 2140.
Further reading on some pros and cons of the idea can be found here. The most obvious concern - is Bitcoin a bubble? - is stated with a resounding yes, but there are plenty of reasons not to be so sure, none the least of which is the broad support the currency has in the digital realm, and the ability of it to be subdivided down to eight decimal places; Bitcoin can become much more valuable and still be useable as a currency. The list of supporters for Bitcoin reads almost like a list of cyber-power players, some of whom have invested their entire net worth in it. So long as these people provide services of value, one can expect the currency they prefer to have some strength.
Tears of impotent whining from lefty economist Paul Krugman can be found here. I particularly like the part where a high-profile economist is complaining about the lack of traceability and Big Brother-ish watchfulness that can be imposed on Bitcoin; valuing such a feature, to him, is akin to being "anti-social". Krugman's always been too happy-faced and empathetic to be taken seriously as a thinker; other parts of the article, like about how gold has "non-monetary" uses which justify its value while Bitcoin does not, are complete garbage. No one is putting their money in gold so they can use it for fillings, and it isn't valued at over $1500 an ounce because the jewelry you can make with it is really, really pretty. It's valued because it's rare, finite, and traditionally, it retains its value. In other words, it's valued for its usability as a currency. One must remember that Krugman has explicitly stated his belief in the welfare state, which translates into an disdain for the idea that economic power be granted to those who provide something of value to others. Bitcoin lovers, without a doubt, do not support such ideas.
Half-way into the article, he says that Bitcoins are the ultimate in fiat currency, with "value conjured out of thin air", valuable only because of the self-fulfilling prophesy that people will accept them. In one of the last paragraphs, he then takes all these supposed weaknesses and accurately reports them as facets of all currency while making fun of both gold backers and Bitcoin aficionados who want currency "untouched by human frailty". That's ridiculous, as they want no such thing. What they want is currency not managed by the hands of institutional authority. The pros and cons article up there makes a big deal out of the trust issue, as well, associating Bitcoin with a lack of trust. Well, this is a society that runs perpetual budget deficits and is democratically hog-tied to providing support to unproductive people.
Funny how the media will pounce on every possibly failure coming from authority figures, from cops to corporations to parents to universities to religious institutions, then wonder why people would be unwilling to trust authority, as if their brains were Jell-O and they needed someone to perpetually tell them what they should do.
They need to relax. Bitcoin users are spending their coins, and doing so with tremendous faith in the soundness of the programming associated with it, along with faith in other people that operate in their circle. There's a difference between having trust and blowing off accountability. Bitcoin users are perfectly capable of trust. They just don't trust your people, and I don't blame them.
I'm pro-authority and pro-institution, so you might think I would be on the other side. I'm not. When I say I'm pro-authority, that means that I want authority to have the support of a strong and capable people, not that I want authority to have to support those people. I don't want an authority to have to justify itself to the public through services rendered, creating loyalty through bribery; I want an authority where the people accept and respect standards created by that authority, systematically, to run a smoother, more intelligent, more powerful social machine that they know themselves to be a part of. How pathetic do you have to be to so closely associate trust with dependency?
I don't want an authority that's always watching you. I want an authority that's justifiably confident enough not to care about watching you. I want an authority that presides over a trustworthy society.
There are lots of businesses that seem to like Bitcoin, as can be seen with this list of retailers which accepts them. But the issue of acceptance is still the primary one; Bitcoin value still moves all over the place compared to other, established currencies. If there's any significant problem here, that's it; I expect prices to continue to move with some drama. The hoarding temptation is too strong when Bitcoin value is rising and prices stated in the currency are dropping, although this situation has its pros as well as its cons. Price stability could probably be created by a single act, though, which seems unlikely but which holds very little risk: Wal-Mart or Amazon needs to start accepting it. Even with, say, a 2% premium for exchange cost, it would make the entire Bitcoin love affair more legitimate if one of the major retailers, particularly one selling something as fundamental as groceries, would take the stuff. They're probably just not going to, because right now, it looks a little shadier than it actually is. Perception is everything with currency.
The establishment of a wider network that accepts Bitcoin would, I think, also leave open the possibility of another "run" of Bitcoin after it hits the 21-million mark, not the exact same thing, but a similar currency using the same principles, a silver to the Bitcoin gold, if you will. Simply ceasing to make more currency beyond a certain point very clearly does stifle economic growth by making investment more comparatively expensive, but that in itself is bad only to the point where we associate increasing quality of life with growthsmanship in economics. Such behavior is already catching up to us. Using a currency with serious built-in scarcity seems destined to encourage saving and reduce bubbles elsewhere, like in commodities, which would probably make for a more sustainable system. What exactly would be so wrong with a currency that creates incentives for spending less? Investments in this context would require more care, as the yield might fall short of the increasing value that the currency might have yielded, but is that actually a problem? Are we really so attached to the idea of constantly expanding consumption that we have to have an inflationary currency just to promote it?
Let me put it this way: Bitcoin is a good idea for smart people. Its biggest weakness in becoming a mainstream currency is that people are not smart. Will it ever supplant government-backed money? Probably not, and that's fine. It doesn't need to. Multiple currencies can exist at the same time, obviously, but this might become a specialized one with a broader acceptability than just underground, web-based exchanges. To the degree that it makes tracking and taxing so difficult, the concept will always have a draw, and to the degree that people are getting tired of the government's omnipresence, that draw will likely only grow in strength. The government would have a bitch of a time trying to suppress it, so the odds are against them trying.
I like the idea. Anarchists are still absurd, but at least they're creatively absurd.
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