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?