A big commotion now surrounds the recent advent of decentralized digital money, thanks to the new peer-to-peer crypto-currency Bitcoin, and rightfully so. Essentially an ultra-efficient and ultra-secure medium of exchange requiring no intermediary to facilitate transactions in a global market (and at little to no cost!), Bitcoin appears to be heralding a potential “paradigm-shift” for the financial-system, finally putting the fiat Dollar in a corner. But is it?
The architecture of Bitcoin isn’t flawless, as some have noted, which makes it a fairly risky investment, but in terms of sheer utility, inarguably the technology’s effectiveness qualifies it as a major contender. Even PayPal and Western Union, long synonymous with money transfer, are not-so-quietly falling under the shadow of Bitcoin’s soaring transaction volume. Add to that the news of coins valuing at over $1000 USD, and you have to wonder if there’s something to it after all.
Let’s look at what Bitcoin brings to the table —
Decentralization | Anyone savvy enough with technology can begin “mining” for coins, eventually completing “blocks”, and making some extra money of their own (though this gets more difficult as more CPUs enter the network–see: pooled mining). This means the issuing of currency is available to all and not only reserved for banks and governments. Additionally, the network itself communicates through a mesh of nodes, each one (user, CPU) relaying the necessary information to complete the work, requiring no central mainframe.
P2P | Decentralization of currency in the case of Bitcoin satisfies efficient transferring of funds from A to B without incurring excessive fees from an intermediary. Yet, it does not truly liberate any of its user base from conventional money-systems because the paradigm of scarcity remains intrinsic to the technology. Unlike the credit-clearing of GETS (see Currency Synergy Pt. 1), a real peer-to-peer currency where denominations are freely chosen is not present here.
Transparency | In the Bitcoin environment, each new transaction is recorded into a block chain, which is effectively a public ledger of all Bitcoin transactions ever made. With block chains being entirely public by design, and each node (CPU) working collectively (but competitively) to verify all transactions, any fraudulent or devious activity becomes virtually impossible, or otherwise immediately exposed (but that’s not to say people can’t be scammed like with any other currency). Where there is transparency, also is the concern for security.
Anonymity | Though transparency, security, and anonymity are indeed maxims of Bitcoin trading, true privacy cannot be guaranteed. Verification of transactions utilizes cryptographic electronic signatures, using pairs of public and private keys. The anonymous public key (an address which is openly known) defines the recipient of the coin, and its private key pair (known only by the owner) is what unlocks the coin, allowing it to be spent. Identity cannot be extracted from the public key, however it is not outright impossible for a skillful individual to make a determination by using what information is available in the ledger.
Open-Source | Perhaps the coolest thing is that Bitcoin is open-source. The code can be examined, copied, adapted, and tailored to one’s liking. Already we can see variations such as Litecoin, Peercoin, Namecoin, Primecoin, and the list goes on. The latter, Primecoin, replaces the original mining algorithm with another that searches for prime numbers, capitalizing (literally haha) on all that CPU power !!
Now let’s consider what people are not talking about —
Scarcity | Modern, Westernized civilization is so entrained by capitalism that it often forgets to question the fundamental concepts of money. The Bitcoin hysteria is much too analogous to the gold-rush, the black-gold-rush (oil), the black-Friday-rush, and every other competition-crazed grab for rare-commodity to be anything but another reiteration of the old money model—scarcity, ownership, and control. At least in the form it’s predominantly being used. Thankfully Bitcoin is open-source and leaves room for modification!
Machines | Removing the conscious human element from the generating and issuing of a deeply social and energetic utility such as currency is precarious at best. Do we really want or need number-crunching CPUs hunting for cryptographic needles in a cold data haystack determining how our value is accessed? How long before The Machines start giving us orders? But they sure do make good calculators, so there may be hope yet.
Vision | Sure, it may be a slap in the face to central banking and debt-based money systems, which is all well and good, but what purpose does Bitcoin serve if we are no more connected with each other in community, connected with the earth, with the cosmos or with ourselves because of it? Many would retort at this comment, at making any association between money and spirituality. And here lies the root of the scarcity problem, the illusion of separation. That anything is separate from anything else in this universe, that there is not enough for all, and that we can endlessly consume and claim ownership and control it all at the expense of others without repercussion are all an utter illusion.
It is time to break the cycle, step out of adolescence, and realize our potential.