Sunday, April 17, 2011

Virtual Money: Bitcoin

Bitcoin is an emerging non-government, non-bank virtual currency that operates without taxes:

Bitcoin, an open-source project created in 2009 by Satoshi Nakamoto, is the world's first distributed and anonymous digital currency....

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.

...Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace....

10 comments:

Anonymous said...

Apart from avoiding sales tax, what would be the advantage of using this?
What would be the risks?

When I'm buying a house or registering a car I don't want to remain anonymous - I require the protection of becoming the legal owner. If I'm running a business and wish to deduct expenses, I require receipts. My wish to report expenses becomes another merchants duty to report income.

Tom Hickey said...

Laura, I posted this as being of interest to MMT since MMT is concerned with monetary systems. Chartalism, to which MMT'ers subscribe, also claims that money gets value from the ability of the state to tax. This also brings up the question of money as debt. So Bitcoin represent an interesting experiment from that point of view.

The value of the system is clearly anonymity, and different people would value that for different reasons. In some cases it may be a matter of necessity rather than convenience or preference. It will be interesting to see what comes of it. But I find it an interesting development and expect more of this type of thing to proliferate from the technology.

Anonymous said...

From an MMT perspective they misunderstand the macroeconomy as it talks about the money supply being printed by the central bank.

BitCoin is only convertible into USD and vice versa when you read on.

Whether bitcoin takes off or not is one end of the story but if it does I foresee a collapse.

I knew about bitcoin a few years ago before I discovered MMT, I didn't foresee it taking off then and I really don't foresee it taking off now.

Anonymous said...
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Anonymous said...

Bitcoin may not be subject to tax, but its users are, unless they are affluent enough to qualify themselves as 'world citizens'. For the most part, Bitcoin will have to be convertible to the currency you pay your income and other taxes with.

An MMT aware government would not be obsessing over lost sales tax 'revenue'.

I suppose drug cartels would welcome bitcoin, laundering large amounts of cash costs them a percentage and carries risk. If virtual money ends up enabling criminality I would view that as a negative development. Being able to transact in cash is not necessarily a good thing for society.

Anonymous said...

Thought you might be interested in this post which virtually says the same thing about Facebook Credits that BitCoin says about Bitcoins

http://emergentbydesign.com/2011/04/04/the-bank-of-facebook-currency-identity-reputation/

Tom Hickey said...

Thanks, Senexx. Important post. I'm reminded of how eBay spawned PayPal, which it eventually acquired. Sounds to me like this digital money & bankiing is getting set to go viral.

“Increasingly as we move later into the decade, physical currency will be harder to differentiate from virtual currencies like Facebook Credits,” said Brett King, author of Bank 2.0. “We’ll start to see a new economy emerging through social media where virtual currencies will be a very real part of the way people trade and sell information, collaborate on ideas and value various products and services.”

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As technology writer Kevin Kelly said, “What we know from our very short history of living online is that community precedes commerce; there’s no commerce without community. What Facebook is doing is sort of blowing up the community to be 500 million or even a billion very soon. When we have a community of a billion, that means that the potential for commerce is enormous, is immense, and we’ve never seen that before.”

MamMoTh said...

Interesting. Is this an example of tax-avoidance driven currency?

Tom Hickey said...

Is this an example of tax-avoidance driven currency?

Probably. Barter scrip was, too, in the early days. Then there was a huge IRS bust.

Noagendamarket said...

You could say bitcoin is backed by mistrust of government and central banks. I dont mind paying through consumption tax for goods and services I actually use but I would like to not support the things I dont morally agree with such as war. When government is forced to provide something that people want to pay for then the world will be a much better place as they will then truly serve the people not the other way around.