Bitcoin Is Not Going Away
New York Times editorial
writer Joe Nocera had a field day on
February 28th raging against “The
Bitcoin Blasphemy," which he claimed is libertarian “sacrilege” since it is “unconnected
to any currency or any government.”
is enlightening that the leftist thought police at the Times would admit Bitcoin
is an existential threat to their “full
faith” in the dollar and U.S. government as statist religion. The Bitcoin currency is hyper-competitive
against the dollar, because it operates outside of Congress and the Federal
Reserve’s ability to foster inflation as a scam to pilfer Americans’ wealth. The bankruptcy last month of Mt.
Gox as one of the Bitcoin exchanges demonstrated that no currency is exempt
from criminal theft. But Bitcoin is not
going away, because the dollar and other paper currencies are designed to aid
and abet state-sponsored theft.
Since Congress passed the Federal Reserve Act in 1913, inflation
over 96% of the value of the dollar. This has been accomplished through
the Fed’s policy of fostering excess government debt to devalue the dollar and “negative
real interest rates” to devalue
savings by restricting how much banks pay depositors interest rates that
do not keeping up with the cost of living. As economist John Maynard Keynes said: “By a continuing
process of inflation, governments can confiscate, secretly and unobserved, an
important part of the wealth of their citizens.”
Bitcoin is the name of a group of
peer-to-peer payment networks that serve as an open-source form of crypto-currency
introduced in 2009 by a software developer with the alias of "Satoshi
Nakamoto.” Bitcoin was not the first
attempt at creating an electronic currency, but it became the first digital
tender to gain serious interest and backing by designing a structure that cut
out all middlemen, such as PayPal and Visa, to determine if one party was still
owned money or had previously spent it. The Bitcoin protocol solved this problem by creating
a publicly viewable global ledger, called “blockchain”, showing the
sequential transactions of all accounts using Bitcoins.
Unlike on-line credit cards and PayPal-type systems that
allow buyers to claim their money back, Bitcoin permanently transfers
value. Since there is a limit of 21
million on the total number of Bitcoins ever available, Bitcoins are rare
units of value. There have never been
any problems with the blockchain registration of Bitcoin ownership, and 3,797 merchants currently accept Bitcoin
The value of Bitcoins appreciated by 6,000% to over $1,000 each
in late 2013, before dropping back to about $557 today. In the interest of full disclosure, I
personally passed on the opportunity to purchase 10,000 Bitcoins in 2009 for $2,500;
which at one point late last year would have been worth almost $30,000,000.
The value of Bitcoins has been cut in half over the last two
months due to the collapse
and bankruptcy of the Mt. Gox
virtual-currency trading exchange on February 26th. Mt. Gox was founded in 2009 by American software hacker
Jed McCaleb in Tokyo as a site to trade cards for the game “Magic: The Gathering.”
(Mt. Gox is short for "Magic: The Gathering Online Exchange"). “But McCaleb
the site into a Bitcoin exchange before the selling it 2011 to Mark Karpeles,” a
French citizen operating in Philadelphia.
Karpeles evangelistically promoted Bitcoin and claimed to be
conducting 20,000 trades a day on the Mt. Gox exchange. After filing bankruptcy, Karpeles admits more
than 744,000 Bitcoins ($475 million) are “missing
due to malleability-related theft.” After
the bankruptcy filing stated the company has only $32.75 million in assets and $174
million in liabilities, Mt. Gox was sued for fraud and theft. The missing money is especially suspicious since
all Mt. Gox clients’ were directed by the company to first transfer ownership
of their Bitcoins on the blockchain to Mt. Gox, who subsequently provided “zero-confirmation”
of the time and the counter-party for customer trades.
Even after their value was cut in half, the spectacular
performance of Bitcoin has demonstrated to the world that a currency does not
need to be controlled by a government. The
central idea behind the concept of currency is ownership. Bitcoins are generally stored in a digital
wallet, and transactions are recorded on the blockchain shared public ledger. Members with powerful computers are
encouraged to maintain the transactional register by "verifying the blockchain" -- solving complex mathematical
equations and adding another "block"
of transactions to the existing chain.
The strength of Bitcoin is that it only charges merchants less
than .1%, versus the 2-4% transaction fees charged by credit card operators for
supposed fraud protection. But the fact
that Bitcoin transactions are not reversible virtually eliminates fraud risk. The bottom line is that merchant credit card
fees are on 20-40 times higher than Bitcoin fees.
The “Bitcoin protocol” is
a new technological breakthrough, and it is sparking numerous new applications
in computer science. Venture capitalists
have been quick to invest money in startup businesses that approach Bitcoin
with unique ideas. One company named Bitcoinx wants to “democratize finance” by
coins” as crypto-currencies that represent other physical commodity. Colored coins would then act as surrogates to
trade anything from stocks, bonds, or any other securities at a fraction of
current transaction costs. There is currently
an ongoing movement to get the Securities and Exchange Commission to approve an
exchange-traded fund for Bitcoins.
Libertarians and liberals both profess personal liberty as the
foundation of their philosophical beliefs.
Libertarians consider liberty to be the lawful ownership of property
and any infringement upon that property, such as government sponsored inflation,
is viewed by libertarians as an impediment to liberty. In contrast, liberals believe government must employ
many “tools” to redistribute wealth to create greater liberty.
Bitcoin remains libertarians’
best friend and liberals’ worst nightmare, because Bitcoin is immune from
government’s tools designed to redistribute wealth through inflation. The bankruptcy of Mt. Gox may give the New
York Times and their liberal fellow travelers something to celebrate, but Bitcoin remains a “sacrilege” to the Times' “full
faith” in the dollar and U.S. government as statist religion. Bitcoin is not going away.
<>The author welcomes feedback @ email@example.com
Chriss Street is teaching microeconomic at University of California, Irvine
this spring from March 31 – June 8, 2014. Call Student Services at (949) 824-5414 or visit http://unex.uci.edu/courses to