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Bitcoin and Freedom

May 11, 2014

Bitcoin, Cryptocurrency, Freedom

Bitcoin

On this morning’s run around Lake Merced I noticed a red balloon struggling to gain elevation before reaching the open skies. Suddenly, without notice it was snagged by the branches of a tree, but it struggled valiantly, aided by gentle gusts of wind until it finally managed to free itself and soared away over the water. I thought of Bitcoin.

The ability to pay or donate money anonymously is an important pillar of a free society. WordPress decided to accept Bitcoin because it recognized that credit card companies as well as PayPal, prevent bloggers from using their services if those bloggers choose not to identify themselves, a not unusual wish if you live in a country where your views are politically sensitive. At the end of 2010 WikiLeaks was cut off from using Visa and other credit card companies because political pressure was brought to bear on these companies, despite the fact that WikiLeaks had broken no law. WikiLeaks claims it sustained itself for the following two years only because of anonymous Bitcoin contributions. When senior management at AntiWar.Com discovered that they were under surveillance by the FBI, a number of important donors became nervous and withdrew their support, afraid that the Government would add them to one of their toxic lists. Finally, in the last few weeks we have seen existing payment systems turned into political weapons of mass destruction as Visa and MasterCard complied with White House sanctions and blocked transaction activity at several Russian banks

You know Bitcoin is important because governments around the world are all thinking about how to stop or regulate it. It’s difficult to overestimate the potential benefits of Bitcoin and its associated block chain technology. For the first time in human history it’s possible for anyone to send money to, or receive money from anyone else on the planet, virtually free of charge, with complete safety, and without the permission of any corporation or government.  Think of the benefit to migrant workers and their families who are often charged up to 10 percent to send money home. Think of the benefit to the majority of the world’s population which does not enjoy a modern banking and payments system. Finally, think of the unbanked in the U.S. who can be given access to banking services that they would not otherwise be able to enjoy.

However venture capitalists are betting that even more profound changes will occur in non-currency related space.  There is no reason why Bitcoins could not be linked to real property, whether real estate, cars, or mutual funds, enabling these assets to be used as a medium of exchange for transactions. Bitcoin can also be  programmed to settle contracts based on certain events such as date, proof of ownership, death or other variables.

Given all these potential benefits it’s not surprising that at least one U.S. regulator has announced that he wants to impose regulations on Bitcoin the same way the U.S. Government imposed regulations on banks. After all the regulators did such a good job there. Bitcoin is clearly aimed at the heart of the TBTF banks so you don’t have to be a cynic to realize that the banks will be in the vanguard of those pressing for strict regulation. However, there is reason to believe that regulation and even heavy handed government actions such as the recent Bitcoin crackdown in China, will ultimately fail.

Reflect for a moment on the implications of a currency whose foundation is deeply rooted in cryptography and whose most passionate adherents describe themselves as crypto-anarchists. All you need to protect your wealth with Bitcoin is your private key and that can be reduced to a microdot the size of the period at the end of this sentence.  With this key you can take your wealth anywhere in the world independent of banking rules, laws, and restrictions. For example, Bitcoin undermines the very idea of capital controls. Any government imposing such controls will soon find the wealth of its citizens evaporating into the cloud before the proverbial legislative ink is dry.  A few people already live and work almost entirely within the Bitcoin economy and as usage becomes more widespread it will soon become possible for entire communities to ‘disappear’ from view, particularly from the view of the IRS. Governments around the world are on the brink of losing the power to tax their citizens.

Now, where is that red balloon?

_______________________

“There’s a system approaching perfection just in time for our disappearance. Let there be dark.”

 

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill

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41 Comments on “Bitcoin and Freedom”

  1. cindybruchman Says:

    ‘For the first time in human history it’s possible for anyone to send money to, or receive money from anyone else on the planet, virtually free of charge, with complete safety, and without the permission of any corporation or government.’ Scary for them; wonderful for us. Great article. Oh, that red balloon–I saw it float over here. 😉

    Reply

  2. Bonnie Marshall Says:

    What a thought provoking article, Malcolm. I’m grateful that you wrote it.

    Reply

  3. chr1 Says:

    I really don’t see the people whose lives, careers, and reputations rely upon tax revenue to tolerate such a thing.

    However useful they may be.

    Reply

    • Malcolm Greenhill Says:

      Chris, thank you. Maybe I did not make this point clear enough. The code cannot be broken. If someone chooses to make themselves invisible they cannot be found. They can work, spend and save securely within the bitcoin economy anywhere in the world without being traced. There is nothing anyone can do about it.

      Reply

      • chr1 Says:

        Malcolm,

        I take your point, but I don’t see how such an arrangement can continue in perpetuity, code notwithstanding.

        Either from within or without, it seems an arrangement with a lot of natural enemies.

        Reply

  4. Mikels Skele Says:

    Of course, that same anonymity and leger-de-main serves criminals and money launderers just as well. Do libertarians really believe everyone will be good if only governments would leave them alone?

    Reply

    • Malcolm Greenhill Says:

      Thank you Mikels. Cash also provides anonymity and serves criminals and money launderers but most people don’t want to abolish it. Your question about libertarians is a little off-post but the short answer is ‘no’. Libertarians, at least the anarchist variant of them, simply believe that the functions of the state can be better performed by the institutions of civil society which do not have the inherent disadvantages of a monopoly institution like the state. We already see examples all around us of private courts (London Commercial Court, American Arbitration Society), private police forces (Oakland), private law (tort law, contract law, property law) etc.

      Reply

      • Mikels Skele Says:

        Actually, it’s not off-post at all, since the virtues of Bitcoin you are extolling derive primarily from its freedom from regulation. Interesting that it now seems to be only government that can stop business from trashing net neutrality. But, in any case, that cash can be used for nefarious purposes misses the point, since your whole argument is that Bitcoin is superior in the very ways that would benefit such activities. As for the privatization of essentially public functions, well, I confess it makes me shudder. Can you vote the bastards at Exxon out of office if you don’t like what they’re doing?

        Reply

        • Malcolm Greenhill Says:

          Mikels, thank you. Whenever you comment on one of my posts I am tempted to write an essay in reply (it may not sound like it but that’s a compliment).

          “the virtues of Bitcoin you are extolling derive primarily from its freedom from regulation”

          Actually the virtues of Bitcoin derive primarily from the distributed verification of transactions i.e. no one entity, whether it’s a corporation or a central bank controls the block chain or ledger containing all the transactions. It is not a question of freedom from regulation but freedom from control by a single entity whatever that is.

          “it now seems to be only government that can stop business from trashing net neutrality”

          I’m not quite sure I go along with the argument for net neutrality but my understanding of the recent fracas is that people were angry that the US Federal Communications Commission (FCC) was considering new rules allowing net providers to charge more for access to an online fast lane i.e. it was the FCC that was trashing net neutrality.

          “that cash can be used for nefarious purposes misses the point, since your whole argument is that Bitcoin is superior in the very ways that would benefit such activities.”

          I’m sure we would disagree on what was considered a nefarious activity. Most money laundering involves dealing with the revenues from illegal businesses such as drugs and prostitution, which, so long as they involve consenting adults, I would argue should not be illegal. It’s also not irrelevant to point out that cash has supported black market economies since time immemorial but we don’t generally blame cash for the crimes that it finances. Bitcoin could be the source of untold wealth generation in both the developed and developing world so it would seem unfair to condemn it out-of-hand because of how it might be used.

          “Can you vote the bastards at Exxon out of office if you don’t like what they’re doing?”

          Do you really want to get into a discussion with me about comparing the accountability of corporations as opposed to governments? How about comparing the crimes of corporations to the crimes of governments? Just to complicate matters many left-libertarians would argue that corporate personhood is a state privilege that should not exist. That could definitely be the subject of another post.

        • Mikels Skele Says:

          Not interesting in expanding the discussion, thanks! I take your responses as a compliment, and hope you take my harangues as the same; I wouldn’t bother otherwise. I really only have one comment to your present response. Your characterization of the FCC as the perpetrator of trashing net neutrality is disingenuous, at best. The problem is the FCC caving in to the demands of the carriers, which are private corporations; they still have the opportunity to correct things by regulation. In fact, many of the problems “caused” by government in the US are the result of overweening influence by private corporations, who seem bent on turning the government into their private instrument.

          On Bitcoin and safety from control: how do you know Bitcoin is free from control? Because they tell you it’s so? The famous transparency that everyone wants from government is completely absent, and not just in Bitcoin. It is the height of irony that the international organization that is most associated with demanding openness is not only shrouded in secrecy, but actually calls itself Anonymous.

        • Malcolm Greenhill Says:

          “many of the problems “caused” by government in the US are the result of overweening influence by private corporations”

          I agree with you completely and so did Adam Smith who famously said:

          “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.

          What is less well known is that Smith’s following sentence was:

          “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice”

          The liberal or malleable vision of society is one that insists people and corporations can be educated or otherwise made to act better. The classical liberal vision is one that assumes that human nature will basically stay the same, recognizes the fallibility of individuals, and so designs institutions to minimize the harm that some individuals will always try to cause. So instead of railing about evil corporations the classical liberal (libertarian?) recognizes that corporations will always try to capture the government and use it to obtain special privileges, and so wants to minimize the power of government to lessen the incentive to capture it. The only principle that the classical liberal insists on is that everyone is treated equally before the law.

          “how do you know Bitcoin is free from control? Because they tell you it’s so?”

          No, because you can see for yourself. It is open source code. Anyone can exam the Bitcoin source code line by line, as thousands of software developers have. Furthermore anyone can download the block chain (the online ledger containing every Bitcoin transaction since it started) and view all the transactions. If I transfer some Bitcoin to you I can go online and instantly verify that the transfer has been made. In addition thousands of independent ‘miners’ around the world have an incentive (they receive some Bitcoin in payment for their services) to maintain the block chain and reconcile transactions.

        • Mikels Skele Says:

          Open source does not mean it can’t be manipulated; quite the contrary. Witness the recent kerfuffle in Japan.

          BTW, I do not consider any 18th century writer an infallible source on 21st century issues. Are you saying no one has learned anything of value since then?

        • Malcolm Greenhill Says:

          “Open source does not mean it can’t be manipulated; quite the contrary. Witness the recent kerfuffle in Japan.”

          Well, nothing is impossible but since open source means the code is transparent I can’t see how this could happen. I’m not sure what “kerfuffle” you are referring to in Japan.

          “I do not consider any 18th century writer an infallible source on 21st century issues.”

          The point of quoting Adam Smith was to show that even the founding father of classical liberalism knew about the problem you raised.

          “Are you saying no one has learned anything of value since then?”

          Well, science and technology has progressed but as to moral and social issues, I would reply, “not much”.

        • Mikels Skele Says:

          On Bitcoin: http://www.cryptocoinsnews.com/news/bitcoin-crisis/2014/03/01

          On moral and social issues, I refer you to changing ideas concerning slavery, women, sexuality, and child endangerment, for starters. And, I don’t believe Mr. Smith made ANY mention of prevailing widespread abuse of workers in the early industrial revolution. Apparently, he thought that was ok.

        • Malcolm Greenhill Says:

          Mikels, what happened to Mt. Gox is not a criticism of Bitcoin. The essence of Bitcoin is that each person becomes their own banker. Mt. Gox was a Bitcoin exchange which was successfully hacked as a result of incompetency. Those customers who bought their Bitcoin on the exchange and took delivery suffered no losses. Those who left their Bitcoins with Mt. Gox lost their Bitcoins. The lesson is to not trust anyone else to store your Bitcoins. The open source Bitcoin protocol was not an issue here.

          On moral and social issues may I remind you that it was only a few years ago that leaders of the free world stood up and defended the use of torture.

    • Tony Says:

      Don’t mean to intrude, but this query popped the following sentence into my head, “The sun shines on the just and the unjust alike.”

      Reply

  5. Iris Weaver Says:

    Hmmm, knowing nothing about bitcoin, this was a very interesting read. It makes me rethink my choosing to ignore it.

    Reply

  6. Inion N. Mathair Says:

    Well Malcolm, we always knew you we’re brilliant & this post proves it!! It’s as if you’ve linked minds with us. Hmmm…Three voices One thought?? lol 😉 As you know we’ve been off the grid as of late, finishing the writing of Book #2 of our Perfect 7 series, titled: THE CRAZY 8. Just recently we added this little tidbit to our book. The one you shared here on your blog! BITCOINS. We didn’t know if people we’re aware of them, as most when you bring them up in conversation appear lost in what we’ve said. In our book, the teenage MC is on the run and a leader of a teenage rebellion. His group, communicating by way of computer technology and doing so on the (Computer-black market or the underground computer world) when researching this aspect of our book, we found out that a very real world exists on line with such a real wealth of criminal activity going on that it’s mind-boggling!!!
    Everything from drugs to prostitution, even babies on the black market that can be bought. Ordering Marijuana & having it sent to your home. BITCOINS is the currency with which they do these illegal things. and the “underground” computer land where this happens called: SILK ROAD (which according to the research we did, is now out of business thanks to the federal government.) the best article we read when doing the research, came from Forbes Magazine which said that Silk Road was closed for business but it wouldn’t be long before another sprung up in its place if it hasn’t already. According to them, ghosts transactions could be tagged and followed to the source, but no where else. and although they could shut the underground market down (or the source), they couldn’t stop progress nor the increase in purchases in the underground market. Bottom line was you can’t stop something that’s in such demand!!
    We’ve been immersed in this for months and for the first time today, found someone else who knew what the hell we we’re talking about!!! Kudos to you! 😀

    Reply

    • Malcolm Greenhill Says:

      Inion, thank you and congratulations on Crazy 8. It sounds like a rollicking yarn which is also at the cutting edge of technology. Yes, there is already a Silk Road II up and running and of course the founder of the original Silk Road was Ross Ulbricht who lived here in San Francisco and was finally arrested here in a public library last year. I suspect that in ten years time you will find it hard to find someone who has not heard of Bitcoin.

      Reply

  7. Michael R. Edelstein Says:

    Malcolm, Your blog has been the most readable and informative bitcoin education I’ve had to date. And surprisingly (for me), it was a joy to read!

    To add to my ecstasy, your responses to Mikels are nothing short of succinctly brilliant!

    Your great admirer, Michael

    Reply

  8. NicoLite Великий Says:

    Bitcoin does open rather interesting opportunities. Currently, it is rather volatile, but wwhen the total amount of bitcoins increases, it might also be useful to regular joes

    Reply

    • Malcolm Greenhill Says:

      Yes, Bitcoin is still in its infancy but everyday there are more and more establishments accepting it. There is a useful app called CoinMap which shows you all the places near you accepting Bitcoin. The actual number of Bitcoins will never exceed 21 million and currently about 12 million are in circulation although I suspect a large number of those are just being held for speculative purposes.

      Reply

  9. Michele Seminara Says:

    Wow! A fascinating concept. Thanks, Malcolm, I was not aware of Bitcoin.

    Reply

  10. Dalo 2013 Says:

    Wow, this is an excellent write-up, the best I have read about Bitcoin (and I have read quite a bit about it ~ trying to understand not just what it is, but its advantages). Strange, how being an American who works through normal bank channels my first inclination towards Bitcoin is fear (I don’t want it to upset the current system I am in) and then I am very wary of the black market & those who would exploit such a system that Bitcoin would bring. But then the beauty of what Bitcoin is, and the advantages you mention above, excites me even more ~ this is another branch of freedom that can be offered to the world. Wonderful, insightful and richly concise post. Do you own any?!?

    Reply

    • Malcolm Greenhill Says:

      Dalo, thank you for the appreciative comment. Bitcoin is nothing if not a disruptive technology that has the potential to change the way we do almost everything. If you are interested the easiest way to tip-toe into Bitcoin is to buy some using a company such as Coinbase, a VC funded company started with the aim of making Bitcoin easy to buy and sell. You simply link a bank account and then click to buy or sell. However, even if you buy and sell through Coinbase you should still take delivery of your own Bitcoin (see my comments to Mikels about Mt. Gox). Send me a private email if you want some easy pointers as to how to do this.

      Reply

  11. Shakti Ghosal Says:

    Hi Malcolm,

    Great post, specially the concept behind.

    I may sound like an ignoramus but I would still like to ask you this. If , as is being said, the Bitcoin is virtual currency, with no Treasury backing it, what is the intrinsic value behind Bitcoin?

    Shakti Ghosal

    Reply

    • Malcolm Greenhill Says:

      Shakti, thank you. Bitcoin does have intrinsic value. For example, each bitcoin gives the holder the ability to embed a large number of in-transaction messages in a globally distributed and time-stamped permanent data store i.e. the bitcoin blockchain. This can be used to prove ownership of a document at a certain time far more cheaply than, say, electronic notarization services. Also, while intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins are accused of lacking ‘intrinsic value’ in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than commodity money.

      Reply

  12. DOS Says:

    I enjoy many aspects of this article. However, I remind individuals, “if it is digital it has a signature and will be traced”. The public general ledger nature of Bitcoin lends itself to transparency. I find this an important part of Bitcoin and wish there was more writing about the public ledger.

    Reply

  13. becwillmylife Says:

    Malcolm, where the heck are you? I miss your insight. I hope all is well and that you will be back soon. ~becky

    Reply

    • Malcolm Greenhill Says:

      Becky, thank you. I appreciate your touching comment. I have been through an intense and difficult period over the last five months, but I miss writing and I especially miss my blogging friends. I promise to start posting again very shortly.

      Reply

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