Wrestling with Bitcoin. Why even hard-core goldbugs should respect and support cryptocurrencies.

Eugen Leitl eugen at leitl.org
Mon Sep 10 07:55:28 PDT 2012


Wrestling with Bitcoin. Why even hard-core goldbugs should respect and
support cryptocurrencies.

Posted on September 10, 2012 by Julia	

Donbt get me wrong, Ibm not suggesting you sell your gold for Bitcoins. What
Ibm saying is although they may not realize it, Bitcoin is a goldbugs friend.
It has a real chance of changing the way the average person thinks about
money and that is good news for anyone who is not a fan of fiat.

When I first heard of Bitcoin I wasb&unimpressed. Since having discovered the
truth of how fractional reserve banking and fiat function, I have been a
hard-core goldbug. And like most goldbugs, including James Turk, I felt that
bBitCoins are the ultimate currency backed by nothing.b It seemed like a
waste for such clever people to spend their time and energy creating money
that functions wonderfully, but is backed by nothing.

I have since changed my mind. So how can a self-respecting goldbug be in love
with a cryptocurrency?

While Bitcoin may not meet with Misesb regression theorem requiring an object
to have primary use value prior to having value as money, it does possess
many of the same characteristics that make gold a wonderful currency. The
supply of Bitcoin is finite and limited, there will never be a Bitcoin
inflation. Bitcoins may be purely digital, but they are not pulled out of
thin air. Producing or bminingb Bitcoins comes with significant computational

But beyond this, goldbugs should love Bitcoin because it could be the game
changer. When alternatives are accepted, when the status quo is questioned,
the door is opened.

Bitcoin is decentralized, resilient, cheap and easy to use and very difficult
to regulate or shut down. But perhaps even more important is its popularity.

The biggest hurdle that DGCbs face, next to hostile regulation, is their
bweirdnessb and lack of popularity. It is simply not practical to try to
operate using DGCbs when no one knows what they are, let alone accepts them.
And Ibm sure most of us have had the experience of being looked at like
youbre wearing a tinfoil hat when you try to explain DGCbs superiority to

But this is not the case with Bitcoin. The internet is abuzz with Bitcoin. I
run across articles and posts about it at almost 20 times the rate to that of
other DCbs. Bitcoin is almost, dare I sayb&cool!

There have been other DCbs that have gained some impressive numbers, e-gold,
the Liberty Dollar and in Russia WebMoney, but no onebs got it going on quite
the way Bitcoin does. New Bitcoin based businesses seem to spring up every
other day,  Bitcoin Users Org has 242,000+ blikesb on Facebook, on an average
day over US$220k worth of Bitcoinbs are exchanged and there was an entire
episode of The Good Wife about Bitcoin. There is no doubt that Bitcoin is
gaining mainstream traction in the US the way no other alternative currency
has. So, the question isb& why?

I believe there are three big reasons why Bitcoin is winning the DC
popularity contest; Fear of change, political alliances and trust.

Fear of Change.

Much has been said about human issues with change, and while reviewing old
issues of the DGC Magazine, I ran across an interesting article touching on
these topics. Paul Rosenbergbs bThe Truth About Pioneers And Why It Could Be
Different This Timeb from the January 08 Issue, has some interesting

bThe group jumps forward only to the distance that an average member can
handleb&the acceptance of a new idea has very little to do with the merits of
the idea, and almost everything to do with the psychological impact it had
upon the average personb&the pace of change is increasing. And that means that
each jump is longer than the previous.b

I tend to agree, so why then is Bitcoin seemingly jumping faster than other

People may be more comfortable with change, but Bitcoin looks and feels like
a type of change that people have become very familiar with.

Bitcoin sells itself as bnew financial technologyb, and people are very used
to changes in technology. For example, Skype. People are still making long
distance phone calls, but now they use a fancier device than their land line
phone. Theybre okay with that, and expect to do lots of things on fancier
devices in the future.

Bitcoin sells itself as simply a new app for making and receiving payment.
The brevolutionaryb side of it, and what it could do to the status quo, is
not advertised. Its name and its advertising message make it sound like any
other new high-tech product coming out of Silicon Valley. It does not raise
peoples bfrightening new changeb alarm bells.

Political alliances.

Bitcoin is a political blank canvas.

Because Bitcoin has not been aligned with any particular political
philosophy, it is free to be loved by conservative anti-Fed guys, the
bankster hating boccupyb crowd, and libertarian hippies alike. Anyone who is
holding a grudge against banks or government can get a chuckle out of using
Bitcoinb&and thatbs a LOT of people!


Goldbugs will cringe, but itbs true, Bitcoin is easier for some people to

To most people gold bullion is just something that gets stolen out of an
underground vault in an action movie. They have no actual experience, and
zero comfortability with it. And they are certainly not keen to spend money
on an uncomfortable product and then entrust its safe keeping to an unknown

This is the biggest stumbling block that Ibve run across when trying to
explain DGCbs to the non-initiated. bHow do you know they wonbt run off with
your money?b

Giving someone unfamiliar with these topics a lecture about business models,
economic incentives and auditing practices does no good here. Spending money
on an exotic material and then entrusting it to a bunch of foreign dudes in a
foreign place is simply way too big a leap of faith.

Bitcoin does not ask itbs users for this leap of faith. While Bitcoinbs lack
of commodity backing is a negative in my mind, I think it might be the key to
its growing acceptance by the main stream. This thought hit me while watching
an interview on Canadian TV with BitInstantbs chief executive, Charlie Shrem.
When explaining why one should have faith in his service, he explains that
bYou are trusting the laws of math when it comes to Bitcoinb& your trusting
cryptography.b Ibd rather trust gold, but would most people? Is trusting a
new computer program more comfortable for the main stream than trusting a
group of foreigners engaged in semi-legal activities? I think so.


There has been a lot of dramatic Bitcoin news lately. A Bitcoin debit card
may soon be a reality which got BitInstant ba lot of attention from a lot of
regulators.b The secret service and Mitt Romney are now painfully aware of
Bitcoin as Romneybs un-released tax returns are being held hostage for a
ransom in Bitcoin.

Brace for impact, the regulatory onslaught is coming.

But here too Bitcoin has an advantage. How exactly does one attempt to stop
Bitcoin? Unlike e-gold or the Liberty dollar, there is no office or vault to
raid. There is nothing tangible to confiscate, no one person to go after, no
central server to shut down, no main database to erase. Like the internet,
its decentralized nature makes it resilient; Bitcoin does to money what email
did to communication.

Bitcoin is unanticipated and undefined. It exists in a legal grey area. For
the most part authorities have refused to address it or even define it.

Where does Bitcoin currently stand in relation to US law? Well, where do we
start? Ibll just give you the cliff notes, as these issues have already been
thoroughly examined in these two academic papers, Nerdy Money: Bitcoin, the
Private Digital Currency, and the Case Against its Regulation and Bitcoin: An
Innovative Alternative Digital Currency.

    It is unlikely that regulators will go after Bitcoin users or miners.

    Bitcoin will likely not be considered a Bank.

    A contract that specifically requires payment in Bitcoin is legally

    It is not likely that Bitcoin will be attacked in the same fashion as the
Liberty Dollar.

    There is a possibility that Bitcoin could be classified as a Security and
be subject to SEC regulations.

    Bitcoin could be subject to the Stamp Payment Act of 1862 prohibiting
btokensb in values less than $1.

    What will likely happen is that Bitcoin exchanges will be considered to
be Money Transmitters and be required to obtain licenses.

Bitcoin is already on FinCenbs radar, and their new bPre-paid Accessb rules
could be seen as designed specifically to cover DCbs including Bitcoin.
FinCenbs director Jim Freis recently said bFinCEN took a comprehensive
approach in this area revising its regulations one year ago specifically to
cover mobile payments and other innovations.b

In fact BitInstant, a US based exchange, has already registered with FinCen
as a Money Service Business.

Because Bitcoin exists completely outside any banking or legal structure, its
weak points are the bridges between BTC and national fiat, the exchanges. And
the interaction between the exchanges and regulators is what we should be
keeping our eyes on.

For the moment it would seem that regulators have yet to interact with the
exchanges. In fact, many exchanges are reaching out to regulators as they
anxiously await action here.

A few of the Bitcoin exchanges responded to my enquires on these topics.

Mt.Gox is the largest Bitcon exchange and is incorporated as an IT company in
Japan bBitcoin is an entirely novel concept and, as far as we know, has not
yet been defined as a currency by any countries including the USAb& our lawyer
contacted the Japanese FSA and asked them to define if Bitcoin is a type of
currency and what license, if any, should be required. So far, the Japanese
FSA has no answers to these questions as we wait for them to contact us back
with the appropriate answers and guidelines.b

Another exchange is Bitstamp, currently based in Slovenia. bthe US is not our
primary market. b& We are, along with our partners, investigating licensing in
US. Our partner already has money transmitting license for several Statesb& As
goes for Slovenia, we did try contacting government agencybs to get details
on regulations and licencing but did not get any response from them. We are
following regulations to prevent money laundering and financing terrorism.b

Will the exchanges be required to obtain licenses and implement bKnow Your
Customerb rules effectively eliminating Bitcoinbs anonymity?

Will Bitcoin be taxed and regulated like gold requiring disclosure and
capital gains tax?

Time will tell. But until (and if), quantum computing becomes a reality and
encryption is rendered useless, off the books transactions in Bitcoin will
continue to be a viable option.

The decentralized nature of cryptocurrencies make them flexible and difficult
to regulate. But what is most important about Bitcoin, is its ability to get
people to think about money differently. It has the ability to draw the
average Joe into the world of alternative currencies. And as such, any enemy
of fiat should be a friend of Bitcoin.

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