Bitcoin — A Libertarian Dream Currency?
Did you know that you can buy a tall, dark stout in Germany with Bitcoin? Parts of Germany and early-adopter San Francisco are the only places in the world where you can buy goods and services with the cryptocurrency in meatspace. But the insecurity of government-backed currencies (Euro-crisis, anyone?), an electronic-payment system DYING for competition (5% of purchase price to process a debit card transaction?!), and the ongoing effort to tax internet transactions, has spurred the rise of alternative currencies.
Bitcoin is a completely digital and private alternative currency. Bitcoin has taken the anonymity and lack of fees you get with cash to the internet. It is in some ways superior to cash, which much easier to steal and (more importantly) debase.
Not only is it completely separate from any government, it’s not even under the purview of any one business. New Bitcoins enter the world in a scheduled, predictable, and finite way. This eliminates unpredictable and wealth-eradicating inflation. Want to learn more about what Bitcoin is? There’s are actually at least two Bitcoin courses: Bitcoin 101 course and Bitcoin or How I Learned to Stop Worrying and Love Crypto (both MOOCs, natch).
Many people are interested in BTC as an alternative to state-controlled currencies, which have libertarians have sought for decades. Friedrich von Hayek outlined the problems with currency monopoly, and the promise of competing currencies in the paper Choice in Currency:
Without the conviction of the public at large that certain immediately painful measures are occasionally necessary to preserve reasonable stability, we cannot hope that any authority which has power to determine the quantity of money will long resist the pressure for, or the seduction of, cheap money.
Contemporary thinkers are not just analyzing, but actually trying out the currency. Forbes tech writer Kashmir Hill wrote aboutliving on Bitcoin in San Francisco for a week.
She broke down some of its biggest advantages and drawbacks. The good:
1. It lets you make digital purchases in stores without revealing your identity (by using a credit card with your name and number on it). It would let you do the same thing online. 2. Merchants can avoid paying high transaction fees and don’t have to worry about fraudulent purchases that result in charge-backs. “When a transaction is done, it’s done.” If merchants were to offer discounts to Bitcoin shoppers, that would make the currency more appealing.
3. For spending internationally or while abroad, you don’t have to worry about converting your money to the local currency, and the conversion fees that go along with that.
4. It allows people to make purchases when they are banned by other traditional payment providers.
The bad mostly relates to the currency’s volatility:
The buying power of my little 5 Bitcoin bank has fluctuated wildly since I created it, from a BTC valuation high of $140 USD to a low of $90 USD. I bought 28 mini-cupcakes at the low point for .5896 BTC. They were $56 at the time (which is already crazy). Reevaluating at BTC’s high point, I spent $86 on cupcakes.
These fluctuations make Steve Forbes wary. Writing in Forbes:
Alas, the Bitcoin is not the answer to the Federal Reserve’s depredations against the dollar.
The basic reason: it has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions. Money has only one purpose–it makes doing transactions, that is buying and selling products and services and securities, infinitely easier than barter. All the other purposes of money flow from this basic function.
Money is most optimal when it is fixed in value just as commerce is facilitated when we have fixed weights and measures. When you buy a pound of hamburger you expect to get 16 ounces of meat. An hour has 60 minutes. A mile has 5280 feet. These measurements don’t “float.”
One problem with Forbes’ analysis is that he ignores the fact that currencies don’t maintain fixed values like weights and measures. Currency trading is big business, precisely because the values of all currencies fluctuate.
One interesting question regarding Bitcoin is: Why is it ascending in the places it is?
In the US, a DUMBO, Brooklyn, O’Crepe’s will sell you an organic crepe for Bitcoins. In San Francisco, Cups and Cakes will allow you to trade Bitcoins for a sugar fix. This makes sense, as NYC is the financial center of the world and San Francisco is the early-adopter city.
Bitcoin also blasted off in Cyprus earlier this year, after the government threatened to finance a bailout through confiscating funds directly from the country’s bank accounts. Now Cyprus is slated to be the site of the world’s first Bitcoin ATM.
But one of the most interesting spots for meatspace Bitcoin acceptance is Kreuzberg, Berlin, the neighborhood with the highest concentration of merchants accepting Bitcoin.
The Guardian talked with people there about what attracts them to Bitcoin and why it’s taking off in Kreuzberg:
Joerg Platzer is the owner of a bar, Room 77, where you can get tipsy on BTC. “People are critical towards existing systems,” Platzer said. “People are discussing and looking for alternatives to the existing systems. Therefore Kreutzberg is actually a perfect ground for Bitcoin to arrive, to reach people and to convince them.”
Dennis Daiber is a stockbroker in the bar. “What attracts me to Bitcoin is the opportunity to be in control of my own money and to transfer that money without anybody’s say so across the whole world in split minutes or seconds with zero fees.”
As for why Bitcoin is taking off faster in Germany than in the US, a poster showed briefly in the Guardian video is telling. It says “Hyperinflation… Bitcoin user not affected.”
Cathy Reisenwitz is the digital publishing specialist for Reason magazine. Bitcoin image courtesy of Big Stock Photo.