Article I authored on PolicyMic:
Imagine if we lived in a world where your bank accounts could never be audited, seized or controlled by the state. Imagine if the currency system itself made organized theft impossible. In the future, I predict this is precisely how currency systems will operate. While this may sound like a bold claim, economic analysis demonstrates why my prediction may become reality.
The emergence of new crypto-currencies now means that it is possible to store and transfer wealth in such a way as to avoid any possibility of organized theft. While crypto-currency wallets may still be subject to the occasional hacking theft, they cannot be subjected to organized theft, and this point makes all the difference.
Thiers’ Law states that: “In the absence of effective legal tender laws, Gresham’s Law works in reverse. If given the choice of what money to accept, people will transact with money they believe to be of highest long-term value. However, if not given the choice, and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their possession, and pass on the bad money to someone else. In short, in the absence of legal tender laws, the seller will not accept anything but money of certain value (good money), while the existence of legal tender laws will cause the buyer to offer only money with the lowest commodity value (bad money) as the creditor must accept such money at face value.”
In the case of Bitcoin — a decentralized electronic cash system using peer-to-peer networking, digital signatures and cryptographic proof to enable irreversible payments between parties without relying on trust — legal tender legislation can be effectively bypassed due to the online international anonymous nature of the currency. Because Bitcoin operates on a floating rate exchange and because the number of Bitcoins cannot be arbitrarily inflated by a criminal organization, we should expect Bitcoins to operate under Thiers’ Law and eventually push bad fiat money out of circulation. This situation will arise due to expansionist monetary policies that promote currency devaluation. Inflation, taxation, and black market goods provide the impetus for people to deal with the hassle of a new currency system in order to protect their wealth. Perversely, we can see that the banning of highly desirable products leads to the state undermining its own currency.
Bitcoins are “good” money in the sense that they have all of the advantages of commodity money with none of the downsides. Historically we know that when people are free to choose, they will always choose commodity money over fiat money that is imposed by state decree. If this was not the case, legal tender laws and gold confiscation would not be necessary in order for state issued currency to gain dominance in the market place. While the market for Bitcoins remains rather volatile, this volatility will dampen over time as more and more users begin accepting and transacting with the currency.
The cryptographic and peer-to-peer nature of the Bitcoin currency makes it virtually impossible for the state to stamp out of existence. If it should become necessary, the entire Bitcoin network can be anonymized with utilities such as Tor; thereby making it impossible for the state to track down and prosecute users. Further, wallet files can be hidden anywhere, making confiscation all but impossible. On top of these attributes, Bitcoin also makes it possible to transfer money internationally without any fees or restrictions.
All of these facts point to a future dominated by stateless voluntary currencies, which will leave humanity free from wars, organized theft, violent black markets and the deleterious effects of inflation.
Watch this short video by Reason TV to find out more about the crypto-currency called Bitcoin.