One day, while I was learning about cipherspace, I discovered BitCoin. BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions. The creator put a great deal of effort into ensuring that the system is secure and reliable. Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either). Thus ends BitCoin.
I can imagine, though, a system like BitCoin that allows people to write promissory notes and sign them with an RSA digital signature (to prevent couterfeiting). These promissory notes could be backed by gold, silver, fiat currencies, stocks and bonds, or pretty much anything. Then, these notes could be transfered from one person to another anonymously.
Couple this with an ebay-like service that allows people to swap these virtual currencies. Say, for example, that I have a gold note issued by a bank in South Africa. Since taking delivery of the gold could be a problem, I trade my notes for notes issued by a bank in U.S.A. Then, I can redeem those notes and have them FedEx me the gold (insured, of course).
This system would be Fed-proof, IRS-proof, FBI-proof and judgment-proof. This system would protect the users against monetary inflation, making it Fed-proof. Since nobody has a bossman ratting out their earnings, it is IRS-proof. It is FBI and NSA proof because all transactions are encrypted and anonymous. And, most importantly, it is judgment-proof because it is perfectly legal.
There are, at present, no laws that could be used to criminalize what I propose. Laws against money-laundering, for example, do not apply because there is no way to prove that the money came from an illegal source, such as drug dealing. Laws against tax-evasion do not apply either, because no taxes have ever been levied on imaginary currency. In addition, if you had your day in court, you could defend yourself on First Amendment grounds. Besides, international free trade agreements also have generous loopholes.
So what we are dealing with is anarcho-capitalism and wildcat banking on a global scale. If not for my non-existant programming skills, I'd be forking a new project off BitCoin right now.
Anybody here know C++?
"As long as there are sovereign nations possessing great power, war is inevitable."
@gabriel: Oh, man, you're begging for a flame-war.... ;-)
Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.
Clayton -
No worries, I'm just being inflammatory. I write C/C++ (C#, and some assembly) for a living, so I have a certain affection for them :). Now if there's any "God that Failed" book that should be written about a programming language, it's Ruby. Not a fan.
You can't automate transactions (especially micro-transactions) using gold or silver. e.g. if this message cost 0.00000001 gold or silver to post (to prevent spam?)
mizerydearia: You can't automate transactions (especially micro-transactions) using gold or silver. e.g. if this message cost 0.00000001 gold or silver to post (to prevent spam?)
No, but you can automate a currency backed by gold/silver.
A large part of this debate is whether or not a currency can gain popular usage and hold it's own just because it's a currency (without backing). There are no good examples of this historically to go off of since all currencies were backed by some good/service historically and the currencies in circulation that are now unbacked got to where they were via backing and it's questionable how long they'll last without backing.
BitCoin has the unique advantage of having a permanently limited amount in circulation which makes it stand apart from all currencies in history.
Clayton:I've thought about this problem in some depth - I even designed my own currency system though it was unfortunately not as distributed as this bitcoin system and started prototyping it. But then I realized the "iron triangle" of State/security/auditing cannot be broken. Any money substitute must have real reserves as backing. But reserves must be audited or the money substitute is infinitely susceptible to inflation
It does not have to be backed in the beginning. You are asking the question "how do we create the perfect substitute currency", but that's not the relevant question at the moment. Rather, the relevant question right now is "what preliminary solution can gain enough acceptance to break the stranglehold of state monopoly currency". And the answer to that is: a fiat currency that could, but won't be inflated. Meaning that it could technically be inflated, but it won't because it is controlled by an anarchist or libertarian group or because the owner wants to see it succeed rather than to kill the golden goose by inflating it early on.
OK, but then you're not offering the general public anything better than the government is offering and when the public is faced with a choice between trusting the government or trusting a private party, they almost invariably prefer to trust the government (that's why governments are so powerful).
A unbacked cryptocurrency wouldn't be taxable. That's why everyone has an incentive to use it.
EmperorNero: A unbacked cryptocurrency wouldn't be taxable. That's why everyone has an incentive to use it.
Anything can be taxed by the government. They tax you for owning a home, they tax you for owning a car, they tax you for having money, they tax you for making money, they tax you for spending money... I see no reason why they wouldn't tax you just because the currency of choice changed.
And it would be unbacked. Which is why no one would ever use it.
People need to learn about the regression theorum before they start fancying this silly stuff.
filc: People need to learn about the regression theorum before they start fancying this silly stuff.
Considering the name of this forum I am probably going to be screamed at for this but I'll post anyway. Mises's regression theorum correctly explains how money has always come into existance previously. However, it also tries to claim that it must always be this way in the future, which is where the flaw in the logic lies.
In order for a theorum to always hold true for all future situations you must account for all variables. This is not possible when dealing with macroeconomics (as Austrians should know better than others) and it becomes even less possible as technology changes with time since even if you could account for all the variables in the past, there are new variables now that didn't exist in the past. Attempting to claim that because you correctly identified the origin of money in the past you can therefore predict all future origins of money is a fallacy because you have not accounted for every possible confounding variable. All the regression theorum can tell us is how money has always come about in the past and that it remains possible for the same thing to occur in the future.
A simple example of how a currency could come about without it begining as something of direct value is the good old 3 guys on an island. If they collude they can devise a system of currency based on pebbles and just all agree that some collection of pebbles (perhaps marked in a special way) is how they will trade amongst each other. The pebbles aren't backed by anything in the traditional sense. After the 3 men have agreed to use pebbles for currency they will then set the prices for their goods and services so the pebbles aren't starting with backing by any of the 3 men.
This is a contrived example but it works if you keep adding men as long as they continue to all collude. Eventually, once you have enough men on the island, not all of them have to collude. If 9 out of 10 men collude on using pebbles for currency the 10th man will eventually join them because that's what is commonly accepted (even if he originally didn't go in on it).
A more real world example could be a coercive government implementing a mandated form of unbacked currency. While I don't agree with this method, the logic works out the same as the colluding men on an island in that as long as enough people use it, it's use will spread.
These examples aren't meant to show how BitCoins could make it to market, they are simple provided for the sake of proving that Mises's regression theorum does not hold true for all future forms of currency. I do believe that Mises's theory of the origin money is the most likely to spontaneously occur in a free market. It's just not the only way a currency can be establish.
Considering the name of this forum I am probably going to be screamed at for this but I'll post anyway. Mises's regression theorum correctly explains how money has always come into existance previously. However, it also tries to claim that it must always be this way in the future, which is where the flaw in the logic lies. In order for a theorum to always hold true for all future situations you must account for all variables. This is not possible when dealing with macroeconomics (as Austrians should know better than others) and it becomes even less possible as technology changes with time since even if you could account for all the variables in the past, there are new variables now that didn't exist in the past. Attempting to claim that because you correctly identified the origin of money in the past you can therefore predict all future origins of money is a fallacy because you have not accounted for every possible confounding variable. All the regression theorum can tell us is how money has always come about in the past and that it remains possible for the same thing to occur in the future. A simple example of how a currency could come about without it begining as something of direct value is the good old 3 guys on an island. If they collude they can devise a system of currency based on pebbles and just all agree that some collection of pebbles (perhaps marked in a special way) is how they will trade amongst each other. The pebbles aren't backed by anything in the traditional sense. After the 3 men have agreed to use pebbles for currency they will then set the prices for their goods and services so the pebbles aren't starting with backing by any of the 3 men. This is a contrived example but it works if you keep adding men as long as they continue to all collude. Eventually, once you have enough men on the island, not all of them have to collude. If 9 out of 10 men collude on using pebbles for currency the 10th man will eventually join them because that's what is commonly accepted (even if he originally didn't go in on it). A more real world example could be a coercive government implementing a mandated form of unbacked currency. While I don't agree with this method, the logic works out the same as the colluding men on an island in that as long as enough people use it, it's use will spread. These examples aren't meant to show how BitCoins could make it to market, they are simple provided for the sake of proving that Mises's regression theorum does not hold true for all future forms of currency. I do believe that Mises's theory of the origin money is the most likely to spontaneously occur in a free market. It's just not the only way a currency can be establish.
Rubbish.
Very informative. I will need to ponder on this. Many thanks for your efforts.
The cryptographic aspect(and its applications for escaping law enforcement, for example, which are already completely usable btw) is the non-monetary value. Similarly to goventments moneys , nonmonetary value being trust of government,here its trust of the cryptographic environment
Micah, the difference that you are overlooking is that bitcoin's taxability would be voluntary and up to the user. A voluntary tax system is ok for libertarians. Your other examples of taxing a house, a car, and a bank account all rely on the ability of the taxation authorities to determine and attribute ownership (or income) to an individual with a social security number, which is not the case with 'careful' bitcoin users.
Jon Matonis: Micah, the difference that you are overlooking is that bitcoin's taxability would be voluntary and up to the user. A voluntary tax system is ok for libertarians. Your other examples of taxing a house, a car, and a bank account all rely on the ability of the taxation authorities to determine and attribute ownership (or income) to an individual with a social security number, which is not the case with 'careful' bitcoin users.
Ah, so you are suggesting that BitCoin is similar to cash in that it doesn't leave a paper trail because it is distributed, unlike today's banking system which does. And if something doesn't leave a paper trail it means you can lie on your taxes and, as long as an audit doesn't show differently, you could get away with it. Is this what you mean by "untaxable"?
Well, it's actually a little different than cash in that it does not require physical presence. The world has never had a mechanism for anonymous value exchange that did not require physical presence. I'm glad you point out paper cash, because cash is anonymous but yet so many people object to anonymity and cash-like properties when it is put into the digital realm. Those same people wouldn't be in favor of fingerprinting and RFID tracking in $100 bills.
However, my main point in the previous post was that at least with bitcoin, users get worldwide digital value exchange without physical presence required or mailing paper cash. Then, with an honour system, it is up to each individual how much of their cash and bitcoin transactions that they would like to claim on their tax returns. Each individual will have a choice to make on how much bitcoin is reported and how much paper cash is reported. The main thing is that each individual has the power to make their own choice, without criticism. Also, you may be jumping the gun a bit, because bitcoin is just an intangible, reusable proof-of-work puzzle. Even if it did fall under barter transactions for taxation purposes, the authorities recognizing bitcoin would give it legitimacy. Taxing a puzzle?? Come on?
--Jon
"Digital cash is to legal tender as BitTorrents are to copyrights."