...something pretty big actually. And I'm feeling pretty silly for having missed it.
A reader wrote in:
Bretigne, you ask "What's the point? What's the point of using Bitcoins, or opening a Bitcoin exchange, if you're going to give up on the goal of anonymity?"
Anonymity - to be precise, pseudonymity, because bitcoin is not truly anonymous - is only one of bitcoin's great advantages over both fiat money and gold. One advantage over fiat money is that the money supply is fixed and cannot grow beyond 21 million bitcoins. Another huge advantage is the ability to transport capital across borders without restriction. The is an incredibly enabling tool for those escaping oppression or simply seeking foreign investment, or charity. When I travel to India, I'm often shocked how draconian their capital controls are. Those controls have no power whatsoever in a world where bitcoin is widely adopted. Travelling into or out of India carrying even a few gold coins is incredibly difficult. Entering or exiting India with the equivalent of millions of dollars of bitcoins is trivial. Furthemore, capital can be transported at great distance in a matter of moments. How does one donate a gold coin to a child in Bangladesh? Sending a bitcoin to them in a world where they might be able to afford a cell phone is very easy.
Being able to move money across borders without restriction is huge. As someone who once had to smuggle her entire life savings (it wasn't much, but a lot to me at the time) out of a country with exchange controls, I should have realized this. And anonymity - while always helpful - is not necessary in order to accomplish this.
When I first read this, my reaction was "well, yes, but that's still just a function of the transaction mechanism, not of the nature of the currency itself." But that's not really true. What separates crypto currencies from other forms of money, quite apart from their capability for anonymous transactions, is their ability to be transported securely anywhere in the world, even across political borders. This is emphatically not the same as being able to transport a deposit certificate or bank account information for money or precious metals, etc. that sit somewhere geographically distant.
To appreciate the significance of this, think of the European Jews trying to flee Nazi-controlled countries. By a certain point in time, Jews were having assets seized, and any Jewish people who emigrated legally were required to hand over all but a small pittance of what they had. Some of those who had seen this coming established secret bank accounts in neutral Switzerland. Others buried valuables in their back yards, or found other creative ways of hiding them. But even those who were able to secure their wealth in Switzerland had to get to Switzerland (or have someone get there for them) in order to have access to it. Imagine how different it would have been for these people had they been able to retain their actual money - not a claim to money held in an account somewhere, but the money itself. They might have used it to purchase a ticket on an ocean liner bound for Shanghai, or to bribe someone to look the other way as they crossed a border. The ability to hold on to actual currency, in a secure way, could have saved a lot of lives back then.
This seems so obvious now that I think about it - it's a tremendous advantage that crypto currencies have over both fiat money (which is subject to capital controls, even when moved electronically) and precious metals. As my reader continues:
As an Austrian, and fan of gold for investing, I think bitcoin is unquestionably superior to gold in its characteristics as a medium of exchange. The one advantage gold has on its hand is thousands of years of history. But technology can overturn historical precedent very quickly.
That's not entirely true. History isn't the only advantage gold has over Bitcoin - there's also the small matter of the regression theorem - Mises' explanation of how money comes to have value, that it must begin as some kind of good that is already valued for some purpose other than as money. Gold and Silver, for example, had uses in society before people started using them for money. Mises' regression theorem shows that only goods that are demanded in the marketplace on their own merits can eventually become money.
So there is a big debate regarding whether or not Bitcoin satisfies the requirements of the regression theorem. There are those who assert that it does, that it does have a value independent of its value as money. And there is an interesting argument for why Bitcoin itself does not need to have a value outside of its money value, because it regresses back through existing currencies, which originally came about by virtue of commodities with independent value. There are also those who just say that the regression theorem is wrong.
I'm just starting to look closely at this debate, so I'm not sure what I think yet about Bitcoin vis a vis the regression theorem. But here's my initial, gut reaction:
Isn't it possible that Bitcoin (or, more accurately, crypto currencies) satisfies the requirements of the regression theorem by virtue of its unique - and valued - characteristics as a secure and (potentially) anonymous means of making transactions, storing wealth, and transporting wealth even across heavily enforced borders and government checkpoints? While these characteristics have arisen as an aspect of Bitcoin as money, they are characteristics separate from its money-ness. (Unless, I guess, you interpret the "easily transportable" quality of money very broadly.)
Again, I'm not very deep into this debate, so I'm kind of just thinking out loud. But I'm curious what others think about this. Is it possible that the unique security aspects of crypto currency are sort of a "good" in themselves, and constitute the part of Bitcoin that is valuable separate from its value as money?
(The real question of course is, regardless of whether Bitcoin and crypto currencies satisfy the requirements of the regression theorem, can it become widely accepted enough and stable enough to become "real" money and ultimately subvert state control of money - and of our lives.)