All Commentary
Thursday, September 26, 2013

Fun and Fascinating Bitcoin

Editor’s Note: FEE is a proud sponsor of the upcoming Crypto-Currency Conference on October 5, 2013.

Bitcoin has revealed many astonishing things, but here’s my top pick: It has taught us that money itself—not just payment systems and not monetary policy, but the money itself—can be improved. Maybe that seems obvious now. But how come few people (if anyone) really thought of it before a few years ago? Monetary economists, central bankers, and government officials have obsessed only about better management of a failing anachronism.

Bitcoin has shown us that money can be improved by the application of the same human energy, creativity, and crowdsourced, real-time information that has made everything else better. This is an epic insight, one that fundamentally shakes up monetary economics, payment systems, and even the involvement of all peoples of the world in the global division of labor.

This phenomenon cries out for explanation, comprehension, and celebration. When I think about why it’s a great time to be alive, the word “Bitcoin” comes first to mind. I admit it: I’m nuts for this little digital good. It has defied every expectation that it would fail and exposed the limitations of the prevailing theory and practice of monetary economics.

And this is the reason for the Crypto-Currency Conference in Atlanta, to be held October 5, 2013, at the post-industrial modernist hotel The Twelve. We are bringing together legal theorists, monetary economists, code-slinging visionaries, banking pundits, libertarian radicals, payment-systems analysts, and dorm-room miners, all for the purpose of making sense of Bitcoin’s rise and foreseeing the next steps.

Bringing together such a diverse group is necessary because Bitcoin—as a money that can eventually intermediate all economic exchange—touches so many aspects of our lives. To really understand it requires knowledge from at least four fields of study, and, even then, aside from every technicality, there is an aspect of Bitcoin that just inspires us to stand in awe.

Plus, its continuing progress will make possible new gains in efficiencies and dramatically extend the reach of global economic integration. How? Well, think about it. In the last 100 years, nearly everything in our economic lives has improved in ways no one imagined possible. Mass distribution of books, medicine, indoor heating, food, cars, flight, refrigeration, clothing—and that digital technology put progress on fast forward is by now a cliché.

But there is one good that has not improved but rather has gotten worse and worse: money itself. It used to be defined by something real—gold—but governments gradually redefined money as paper, precisely so they could fund wars and welfare and run up debt without limit. Collaborating with an industrial cartel called the banking industry, money’s value fell for a hundred years to carry only 5 percent of the purchasing power it once had.

Also in the course of time, the central management of money has become ever less transparent, less stable, and riskier. Vast resources today are expended (and extracted from the people) just to make sense of the system and keep it from breaking down. This is the underlying reason for the trillions in bailouts, the manipulations and corruptions, and the political depredations of the government-financial complex. When the money goes bad, nothing else in economic life really works the way it should.

It’s true that payment systems today have adapted brilliantly, given that the unit of account is of such poor quality. But even so, the credit card system built on top of the government paper-money system is a patch in the age of the Internet. Every digital transaction with government money opens up dangers of identity theft, fraud, and resource misallocation. The costs are egregious and anti-competitive.

Bitcoin takes dramatic steps in two directions. On the one hand, it restores money as a form of property with the assignment of ownership titles. What’s being traded is not a trust relationship but an owned resource. In this respect, Bitcoin recalls the honesty and integrity of the gold-coin standard.

On the other hand, Bitcoin hurls us forward in time by making geographically non-contingent monetary exchange possible between any two individuals on the planet, irrespective of whether they have a bank account or credit card. This is the feature that makes a crypto-standard much improved over any proposed gold standard.

The emerging cryptographic monetary standard entirely bypasses the age of fiat money and the age of central banking. It takes money out of the realm of public policy and central planning and places it in the hands of the people actually using it. Of all the features of Bitcoin, this one is perhaps the most beautiful. It has emerged from within the social order and was not imposed from above.

How long will it take before the full implications reveal themselves? It took email some 20 years to go from obscure to common. Digital phone technology needed about the same swath of time. Bitcoin, however, could be different. Information travels farther and faster than ever before. Adoption could be led by peoples who are currently excluded from the existing cartelized system of privilege. Every currency crisis, whether national or international, could be a catalyst for advances.

We are privileged to be part of the generation that can watch this happen. The point of the Crypto-Currency Conference is to celebrate the moment, meet people with specialized knowledge, arrive at new levels of comprehension, and also to have fun—because, in the end, disruption of the old and the birth of the new is just a fantastic thing to behold. We hope you can join us.