Thursday, 30 June 2011

The Future...

Will it work? Former derivatives trader and bond manager Detlev Schlichter has a good essay on Bitcoin up at his place. It is early days yet, but the possible consequences of Bitcoin, or that of some similar digitally distributed currency, successfully taking off might be... somewhat eventful.

Update: One of the key things to be wary of in any future use of Bitcoin, is the the kind of people running the exchanges. In Britain for instance, the exchange "Britcoin" is apparently being run by people who want to be regulated by the government. FFS. The same is true for Mt Gox. If the exchanges will comply with government regulation in order to rat out people involved in say, the drug trade for instance, then it is simply a matter of time before they start ratting people out for things like "tax evasion" or, in principle, anything else (e.g. incandescent lightbulbs). I think they are shooting themselves in the foot long term in order to avoid trouble with the government now, although you could say that that was a likely cost of them setting up Bitcoin at this early point. There will have to be a proliferation of exchanges in the future perhaps with their trustworthiness rated via some third party. The whole point and value of something like Bitcoin to someone like me is that it allows people to trade free, not only from currency debasement concerns, but also free from the command and control diktats and taxation of a predatory State. I think these stories give further weight to my argument that a digitally distributed currency will not take off in a major way until we begin to see runaway inflation. For the time being, even though I wouldn't be buying anything illegal (except maybe lightbulbs), I would nontheless be reluctant to use a major exchange like Mt Gox.


  1. Very nice post. It has a problem though of not seeing where it might really go.

    Let's talk about phones. Now anyone 35 or older from the US knows how expensive phone service used to be. In university, it was cheaper to call across the country than it was to call the next county. The Sunday phone call tradition was more due to cost than free time. Now I wouldn't even think twice about calling another country, back then I'd fret over calling another county.

    Then these great inventions came along of cellphones. People in the developing world bought them up and used them as cost went down and service and product quality and features increased, but it didn't really change much except for making it cheaper. The real revolution in cellphones came about in the 3rd world. No longer would you have to be a slave to some govt monopoly, you could for the first time not only communicate freely with someone outside of your range, but you could also buy things, trade goods, and pass information on easily and cheaply. All things we take for granted in first world countries but revolutionary in 3rd world ones.

    Bitcoin will/needs to come up through the 3rd world where the cost of switching currencies is prohibitive and costly. In the first world, it will mostly be used for untraceable things like money laundering and victimless crime purchases.

    The challenges it faces to become mainstream are getting acceptance and support from people who would most benefit from a stable international currency with easy convertibility. I don't think we'll be seeing any NGO or aid agencies helping on this one, just like we didn't really see them helping on cellphones.

  2. I'm broadly familiar with the development of cellphones in Africa having read Michael Jennings' stuff at Samizdata for several years now. In some respects the Africans had a better phone market than either Europe or the States for years.

    "Bitcoin will/needs to come up through the 3rd world where the cost of switching currencies is prohibitive and costly."

    I don't know - I would think the success of Bitcoin in the developed economies might depend on how large the next crisis is and how "well" it is managed by the central banks. That next crisis might just be the tipping point that helps it really take off.

  3. Another thing Bitcoin could help with is the F2P MMO/FPS/Arena computer games. Basically all those small purchases cost companies a lot, but with fractional bitcoins they might be able to save money. It could work just like Gash.

    Only 2 things stand in their way and those are govt intervention and the PR of Bitcoin. I believe virtual currencies are illegal in the US.

  4. "Basically all those small purchases cost companies a lot, but with fractional bitcoins they might be able to save money."

    Agreed; for now the market for Bitcoin will be marginal small timers like me buying stuff like second hand books with one or two businesses dealing in products not easily regulated (i.e. products consisting chiefly of ideas). Oh and trade in legally prohibited items too (drugs and animals).

    "I believe virtual currencies are illegal in the US."

    In the event of hyperinflation few people will even remember that - it just won't matter because everyone will have no choice but to get into Bitcoin or something like it (even the goldbugs).

    I might be as bullish as you are now on Bitcoin...


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