Bitcoins

Over the past couple of days, a number of articles have crossed my path regarding a recent technology/economic development: bitcoins. Bitcoins are an anarchic (read: decentralized) digital currency, but unlike most of the digital currencies of the past, bitcoins are already able to purchase things in the real world, not just online things for online endeavors. I'm no technological guru, so for those of you who want to know a bit more about how all of this is possible, I'll direct you to the this article from the economist in the hopes that you can make more of it than I can.

Among its more sinister uses, is the ability to purchase drugs anonymously. While I am a staunch supporter of the legalization of most drugs, I use the word sinister because the ability to buy things anonymously via peer-to-peer networking is easily transferable to things more malevolent than a couple of joints. One wonders about international black market arms dealers for example, and how they could exploit the site for the sale of goods to terrorists.

Of course, in the early stages of the implementation of bitcoins, it was such a small geeky network that it was easy (at least for computer geniuses) to keep track of everything that was going on. But as the bitcoin revolution has reached more and more people, things have started to deteriorate somewhat. Just this week, a hacker stole over $500,000 worth of bitcoins. Poof. Gone. There's no way to get them back. It's not a wallet that can be hunted down by the police, or a credit card that can be cancelled.

The great irony, though, which was pointed out by Adam Clark Estes reporting for The Atlantic Wire about this theft, is that the only reason the dollar amount of bitcoins was so high was that their recent publicity in mainstream(ish) media had shot the demand for bitcoins through the roof. You can check out a chart of their value in dollars over time in Estes's article here.

The larger question, though, is one of economic and political theory. The first question is whether or not the US government will allow for the continued existence of bitcoins. One wonders how they could prohibit their use, but the federal government has its hands than more things than anyone can possibly imagine. NATO forces have used cyber-attacks against Libya already. So it's my guess that the long-term legal existence of bitcoins is questionable.

As far as economic theory is concerned, bitcoins can operate as a small scale model of what doing away with the federal reserve would look like. Right-wing randian-type economists have long decried the federal reserve as interfering in free-market economics. In essence they seek to make "monetary policy" a historical anachronism. Well, the growth of bitcoins could offer some view as to what that might look like.

Regardless of where it goes, the bitcoin explosion is worth paying attention to. It has fascinated me for a couple of days now, and so I thought I'd bring it to the attention of my readers. I hope you enjoyed it.