Policy

Digital Cash Sparks Digital Debate

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Writing in Time, of all places, Jerry Brito discusses Bitcoin, the latest alternative currency to capture the digerati's imagination:

It's filled with BITCOINS.

The web has also seen all-purpose digital currencies, from defunct dot-com bubble start-ups Flooz and Beenz, to the slightly more successful e-gold. Unlike cash, however, digital currencies to date have had a third party intermediary monitoring transactions. That's because digital cash is different from physical cash in one very important way: If I hand you a 100 euro bill, I no longer have it. You can't be as sure of that, however, when the cash is just 1's and 0's. So it's been necessary to have a trusted intermediary deduct the amount from the payer's account, and add it to the payee's.

Bitcoin is the first online currency to solve the so-called "double spending" problem without resorting to a third-party intermediary. The key is distributing the database of transactions across a peer-to-peer network. This allows a record to be kept of all transfers, so the same cash can't be spent twice--because it's distributed (a lot like BitTorrent), there's no central authority. This makes digital bitcoins like cash dollars or euros: Hand them over directly to a payee, and you don't have them anymore, all without the help of a third party.

The Bitcoin digital currency also works a lot like cash in that it's anonymous. When you go to a flea market and pay cash for an old Commodore 64, there's no record of the transaction. You don't have to know the seller's name, and the seller doesn't need to know yours. Digital currencies by contrast rely on accounts, and have to collect at least some information about you. Because Bitcoin employs no such accounts and instead relies on public key cryptography, there's no way to know, just looking at the database of transfers, who sent money to whom.

The downside, Brito writes, is that this makes it easier to facilitate activities that ought to be illegal, such as the trade in stolen credit card numbers. The upside is that it makes it easier to facilitate activities that shouldn't be illegal but are banned anyway: "Want to contribute to WikiLeaks or some other politically unpopular organization? No problem. Live under a repressive regime and want to buy a repressed book or movie? Here's how. No wonder the Electronic Frontier Foundation calls Bitcoin 'a censorship-resistant digital currency.'"

Whole thing here. Tim Lee offers some thoughtful criticisms of the concept here and here. Tom Sydnor has some less thoughtful criticisms here. Brito replies to Lee and Sydnor here.

NEXT: PJTV Interviews Libertarian Radio Host Larry Elder About Interviewing Bill Ayers, Wobbly Republicans, & Non-Essential Gov't Workers

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  1. You can be sure that a team of Top Men at DOJ are looking at how to jail all involved.

    1. I think they would be for this one. The technology could help place do away with physical currency. Then every transaction between two private citizens could be observed, audited and scrutinzied for crime.

      1. The technology could help place do away with physical currency

  2. It was probably developed by NSA.

  3. The downside, Brito writes, is that this makes it easier to facilitate activities that ought to be illegal, such as the trade in stolen credit card numbers.

    And paying sales tax. Pirate Bay - what can't it do?

    1. And paying sales tax. Pirate Bay - what can't it do?

      I totally used it to watch the first episode of Game of Thrones.

  4. This allows a record to be kept of all transfers, so the same cash can't be spent twice--

    No, no, we can't have that. We and the rest of the banking system insist on being able to lend and spend the same currency unit multiple times at once. How else can we make any dough.

  5. Yet another worthless fiat currency isn't going to solve anyone's problems.

    1. Our hot checks IOUs are better than everyone else's. Honest.

    2. I'm not done with all the articles but it sounds like more of a medium for exchanging said worthless fiat currencies with the real benefit being no command/control central authority in place to impose regulatory oversight and capricious political horseshit.

      1. disregard. my bad.

        But to go from dollars to bitcoin and back again after your transaction would require passing through a gatekeeper. Still, love the idea of P2P currency.

    3. If the total supply is fixed (and kept fixed through an openly observable P2P system) yet comes in infinitely divisible units, it won't have the printing-presses-gone-wild problems of government fiat money.

  6. I can tell you from doing a fair amount of work with federal law enforcement, they are obsessed with cash. The idea that anyone, anywhere, could spend or move their own cash outside of government control is terrifying to them. They must control and monitor all of the world's cash flow. It is a seriously sick mentality. The idea that an innocent person might want to keep cash or large demonination bills or a VISA gift card is never enters their mind. Everyone who has more than a few dollars in their pocket is automatically considered a criminal.

    1. ^^This^^

  7. It would be nice if this currency could work by bypassing a central authority. I do not think it can, if this really becomes a threat to government currencies, then all Tonys of this world have to do is make an example of one of the main servers. Just like bit torrent can only realistically run by having the big servers running like piratebay.org, the governments will just hunt one of the these down in the name of "social financial justice" or "financial terrorism" or some other bullshit excuse. Once an example has been made, would anyone risk 30 years of jail to hot the bitcoin P2P ?

    1. Just like bit torrent can only realistically run by having the big servers running like piratebay.org, the governments will just hunt one of the these down in the name of "social financial justice" or "financial terrorism" or some other bullshit excuse.

      Perhaps virtual cloud servers might help.

      There is no reason why a server farm could not be dispersed over the whole planet...or even have a clustered system running on home PCs all over the planet.

      Hell you could even pay poeple in virtual money to run a small program on their PCs....or simply give them discounts on transaction fees.

      The biggest threat to such a system described in the article is not the feds. It is hackers.

      1. You've just described bitcoin.

        Download the software, set it to generate bitcoins (by solving math problems that coincidentally also solve the double-spending problem) and you get rewarded with the ability to mine/mint bitcoins as they're created and also to collect transaction fees from everybody else.

    2. you can use an anonymous exchange, such as http://bitcoinexchange.i2p/

  8. I'm on day 12 of the first-ever Bitcoin Roadtrip. Connecticut to California spending only bitcoins. More - http://www.reddit.com/r/IAmA/c.....lars_only/

    1. Oh, yay!

      From one statist utopia to another. Didn't enter your mind to go from NH to WY, did it?

    2. I left Hartford on April 9th; right now I'm at a rest stop in Edison, NJ, trying to find a place to crash for the night. Today is the first day I haven't had sleeping arrangements planned in advance. I expect it'll take me more than a month to get across the country, so my adventures are just beginning.

      Wealthy? Creative job type?

      1. @Bod I want to continue north to Vancouver after hitting the west coast. I'm sad I missed NH, FSP is amazing

        @Paul Nope, I'm an unemployed engineer off on a whirlwind bitcoin adventure

  9. If I hand you a 100 euro bill, I no longer have it.

    Says you.

  10. This plus a P2P/torrent-based DNS system will put us one giant step closer to all being happy disembodied digital beams of light shining on each other in Libertopia.

    I'm dead serious. BEAMS OF LIGHT.

    Now start shining dammit.

  11. I'm amazed nobody at reason has mentioned the thriving drug market based on bitcoin... google "silk road bitcoin"

    1. It'll be a fucking shame if the global international crime syndicates end up being responsible for a more honest currency than governments/central banks.

      I mean, good for the world and all, but a sad fucking reflection on statism.

      1. Well the governments and central banks are the biggest global international crime syndicates, so...

  12. "If I hand you a 100 euro bill, I no longer have it. You can't be as sure of that, however, when the cash is just 1's and 0's."

    Tell that to Ben.

  13. So it's been necessary to have a trusted intermediary deduct the amount from the payer's account, and add it to the payee's.

    Couldn't we really juice the economy by just adding to the payee's account, and NOT deducting it from the payer's? There'd be green shoots everywhere!

  14. If only someone would produce a system like this for secure P2P-facilitated elections. It would be nice to be able to cast a ballot in true secrecy, yet also be able to anonymously verify 1) the official vote count; 2) that one's vote was recorded correctly; and 3) that nobody "overvoted."

    I'm reading the Bitcoin technical paper now and am so far liking what I am seeing.

  15. Bitcoin is a really neat concept, and I'm hoping that more merchants begin to accept payment in bitcoins.

    For those who are interested, be sure to take a look at the Bitcoin wiki at http://www.bitcoinwiki.com for additional information.

  16. This is still really important, reason needs to cover it more. I wrote a blog article about it, let me know if there is anything I can do to help spread the word!

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