Bitcoin: The Inevitable Future of Money?

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I have had a few interesting debates/arguments with other libertarians over the uncertain future of Bitcoin. Mainly, I have argued with libertarians who seem to think that Bitcoin presents some type of short-term threat to the power of the US dollar and the Federal Reserve. These people have claimed that Bitcoin is marching onward and upward into the light of monetary freedom, and will destroy the Federal Reserve and fiat dollar within our lifetimes.

The libertarians who believe this are the philosophical equivalent of hardcore Communist Marxists, in my opinion. According to Karl Marx, the collapse of capitalist societies and rise of the worldwide communist revolution was inevitable. This gave rise to the political terms of “Progressive” and “Reactionary”; the “Progressive” Socialist was in-tune with the coming inevitable developments in society, while the anti-socialist “Reactionary” was a primitive neanderthal sitting on the doomed side of history.  In retrospect, we can see this was a load of crap. The collapse of the Soviet Union in 1991 was the death knell for any remaining shreds of hope that Marx’s theory of history was somehow true. However, throughout the late 1800’s and much of the 1900’s, there were a lot of people who believed this. They believed that Communism was marching onward and upward into the light of history.

In this manner, I see parallels between Orthodox Marxists and hardcore Bitcoin Libertarians. These hardcore Bitcoiners have claimed that Bitcoin is marching inevitably against the Central Banking system and dollar standard. They claim that Bitcoin is going to do what gold and silver cannot, and that precious metals too will be relegated to the dustbin of history alongside the dollar. These people claim that the digital aspects of Bitcoin which make transactions inexpensive and easy, alongside the pruported privacy benefits, will totally outstrip the dollar. They are claiming that this is inevitable, and that anyone resisting the “cyrptocurrency” revolution is on the wrong side of history. Again, not every Bitcoin enthusiast believes this; I am referring to the hardcore Bitcoiners only.

I have said this before, and I’ll say it again: I am sympathetic to the idea of Bitcoin; that is, a currency not controlled by Central Banking. However, I do not believe Bitcoin presents a credible threat to the power of the Federal Reserve. The key, which I have expounded on already, is this: Bitcoin is about dollars, not Bitcoin. The recent mania seen in Bitcoin is not due to some inherent value in the virtual currency which investors have suddenly discovered. The mania is due to investors buying Bitcoin today in the hopes that some fool will pay a higher price in dollars for them tomorrow. I am quite sure that a vast majority of investors holding Bitcoin are doing so only because they see the opportunity to make money in dollars, and not because they actually want Bitcoin for it’s own usage. Bitcoin, far from being an attack on the dollar, is an extension of the dollar. Bitcoin Libertarians advocate the virtual currency as an assault on the Federal Reserve and the banking system. Bitcoin is not an assault on commercial banking, but a derivative of commercial banking.

Bitcoiners claim that the “cyrpto-currency” offers privacy and anonymity not available in the current monetary system. I think this is nonsense. There is no privacy in Bitcoin. How do you buy Bitcoin? With digital dollars from your bank. Does your bank keep a record of that transaction? Yes. Can they see how much you paid, and when? Yes. They may not be able to track directly where the money went from your account, but if it’s at the point where the IRS or other gov’t agency is investigating you for some imagined crime or audit, they’re going to easily track your Bitcoin purchase. On the other side of that transaction is the seller. They have just received digital dollars for Bitcoin. There will be a record of the deposit. There will be a record of how much was deposited, and when. If the IRS is investigating this person, they will see this. There is no privacy going on here. Nothing is being hidden from the government. The IRS has not fully made up it’s mind on whether to tax money made from Bitcoin as income or capital gains, but make no mistake: if you get their attention, they’re going to audit you and they’re going to want to tax you on your Bitcoin transactions. As we already saw, they can access all the info they need from your bank. As soon as Bitcoin is converted back into digital dollars, you lose every ounce of privacy you thought you had.

The only way a Bitcoin can maintain any privacy is to pass from hand to hand as a Bitcoin. Who actually does this? People buying drugs, prostitutes, programming services, and a very small list of legitimate items like novelty tea bags and Bitcoin shirts. The Drug dealers, prostitutes, and small retailers accepting Bitcoin then cash them in for dollars. How is this an attack on the monetary system? It’s not. If anything, Bitcoin is actually strengthening the dollar by facilitating transactions that otherwise might not occur, which of course are ultimately being conducted in dollars at it’s core. When capital markets are being priced in terms of Bitcoin and not dollars, then we can talk about Bitcoin as money. Unless capital markets (bonds, stocks, other securities) are being priced entirely in Bitcoin, the virtual currency is only an extension of the dollar.

My thesis is this: Buy Bitcoin if you want, but don’t expect it to be anything more than a lottery ticket. I do not foresee Bitcoin leading to the collapse of international Central Banking. Bitcoin is an extension of the present Central Banking system. I fully support the notion of people freely buying and selling Bitcoin, but don’t be fooled into thinking that you’re somehow sticking it to Uncle Sam through the use of Bitcoin.

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One Comment on “Bitcoin: The Inevitable Future of Money?”

  1. pcoast December 9, 2013 at 11:51 pm #

    I couldn’t agree more. I think Bitcoin is an interesting concept-currency and highly entertaining to observe from a distance.

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