Bitcoin - the alternative currency that could topple the world as we know it

As far as I can tell there hasn't been any discussion of this here, but do redirect me if I'm wrong.

 

Bitcoin is a new alternative currency taking advantage of P2P networking. It has been buzzing around the internet quite a bit recently, being described by LAUNCH as maybe "the most dangerous technological project since the internet itself". It is a completely decentralised currency - no banks or governments required. Payments made with the currency are transacted directly from person to person, without any intermediary. Bitcoin payments are unhackable and untraceable, but the software supporting the technology is completely open-source and anyone can "mine" bitcoins for themselves - though as this happens more and more, the energy required to run the algorithm that creates bitcoins costs more than the value of the bitcoin itself. (My friend explained this as operating a bit like prime numbers - the more you find the further apart they become.)

 

Here is a great explanatory video:

 

 

Bitcoin has already started becoming popular for facilitating illicit informal economies such as the drug trade, but given the system's anonymity, it will be impossible for governments to stop it by any other means than prosecuting individual users.

 

It's like free market capitalism, only without so much capitalism! 

 

It should be clear to anyone on this forum that this technology will be of immense interest to economic anthropologists. Since the founding member of this forum has dedicated more time than anyone on exploring the interconnections between money, "informal economies" and the internet, it would be great if he could share his thoughts on this exciting new currency.

Tags: alternative, bitcoin, currency, economy, informal, money, technology

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Hi Peter,

I was on the road for the last month and needed a few days at home to gather my breath. Thanks for posting this. I would like to learn more about BitCoins before posting on it. But earlier this week I received a draft paper from Bill Maurer called "Money nutters" (attached below) for a forthcoming issue of the European Economic Sociology Newsletter on Bitcoins and related matters. The EESN is currently edited by Nigel Dodd, a sociologist of money from LSE, and it is well worth keeping up with. In the spirit of open source, I share Bill's piece, encouraged by the fact that he cites unpublished email messages by me.

I also found today a remarkable piece in Open Democracy called "Who needs a bank?" which features Bitcoins as a possible forerunner of a whole new money system without Central Banks or even banks. This draws attention to a free book by Hayek, Denationalisation of Money (1976) which I never knew about before. I know Hayek is demonized as a rightwing economist on a par with Friedman who was beastly to Polanyi and other saints of the centre left. But I have a lot of time for him. Maybe it is the closet liberal in me.

So I hope we can get a thread going on this and sorry for the delay.

Attachments:

Thanks so much for offering all this material, Keith, and I myself must apologize for being so late in replying - I've been knee-deep in exams for the last few weeks.

 

From what I've read about BitCoin recently, the overwhelming impression is that despite the phenomenal increase in the exchange value and the flood of new users into the network, there doesn't seem to be much uptake for the purposes of buying things in the real world - users are instead snapping up what they can of a rapidly rising currency and hoarding it, fearing that it wouldn't be worth spending when the value is only going to double in the space of a week. It will of course plateau at some point - but that's still a long time away. I think if anything is going to make it fail, it will be that, and the solution would be to engineer the mining algorithm so that the coins take a much much longer time to appreciate. I guess you could say it will more likely fail for economic rather than technical reasons.

 

Which is a shame because I myself am very excited about the prospects of this currency - more so than the time-banking scheme discussed in the newsletter. I just can't get past the idea that some time really is valued more than others, and I'm not sure that this is really a problem. I think what would fundamentally be going on in the case of people giving each other their time as the primary unit is that in their heads they would know that time can be valued differently, but because the scheme creates closer social bonds between people exchanging services, they would be less inclined to let that knowledge bother them, perhaps expecting everything to balance out over time. I don't necessarily mean generalised reciprocity though - perhaps something rather more like communism in David Graeber's sense. Which makes me wonder why it wouldn't be worthwhile to treat it more like a gift...

 

In that sense I find BitCoin attractive because it doesn't pretend to impose a new system of value as such, simply a new way of expressing it. Where time banking (when it values all time equivalently) attempts to subvert economic and social relations, BitCoin attacks economic relations more specifically, leaving the social consequences more open and giving people the option of carrying on valuing things as before (only without the parasites of the finance world messing everything up).

 

Sorry for thinking out loud here!

The problem with BitCoins is that they are subject to speculation and theft. No-one wants to use money for routine purposes which fluctuates wildly in value. Recently, on "Digital Black Friday", BitCoins lost 30% in a day and even more recently, a hacker stole $9mn worth and then tried to sell them all at once, temporarily bringing the price down to zero. Obviously what is missing is political regulation of the money's issue and use. The underlying theory is essentially free market individualism and look where that has got us.

Yeah that's absolutely true. I was reluctant to buy in precisely because I was planning on switching my OS and wasn't sure how that would affect my bitcoin wallet - can you just drag a file over or what? Digital technology of any kind is just too unreliable to be the repository of all wealth. And the amount of speculation that has been going on is plainly ridiculous - it's exactly the kind of nonsense that made bitcoin look attractive in the first place.

 

But I think the attempt to decentralise regulation through P2P networking is an exciting prospect and one that will perhaps be better implemented the next time a digital currency is created. I still think that has a fundamental appeal. How it can be decentralised while also disallowing derivative industries and prospecting and the like is beyond me. Perhaps at long last what will be created will resemble an open-source project like, say, Ubuntu linux, where there is guidance from a dedicated team of professionals but most support and development comes from the community who uses it, always with the option of creating one's own version if need be. It's difficult to see exactly how this could relate to currency but it's certainly worth a crack.

An interesting point is the meaningless, futile labor invested in "mining" bitcoins. In Marxian terms, bitcoins dispell a fetishistic illusion entailed with money. In the case of gold, it appears as if investing labor in digging it is justified by its value. Bitcoins, by contrast, reveal explicitly the truth that value actually results from labor, rather than justifying it.

The question that this raises is whether there can be non-fetishistic money.

 

At the risk of plugging a TV serial one too many times, BBC's Adam Curtis three-part All Watched Over By Machines of Loving Grace documents the rise of Californian ideology and machine/market democracy in interesting ways. 

Boris, have you checked out other docus that Curtis has made? I found this one a bit wishy-washy compared some of his other stuff- Century of the self is epic- he was a bit non-committal over his point in the machines one I thought. Still, though, I like his style. He has a lot of other films out if you're interested,

 

Elaine

 


Boris Popovic said:

At the risk of plugging a TV serial one too many times, BBC's Adam Curtis three-part All Watched Over By Machines of Loving Grace documents the rise of Californian ideology and machine/market democracy in interesting ways. 

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