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Law and order
4 July 2013

Bitcoin and the privatisation of currency

You might think that only governments can legally print money (or, these days, create it electronically), but you’d be wrong. Anyone with the technical know-how can do it – as long as they do it in a currency of their own invention.

Several such private currencies are already in circulation – the best known of which is Bitcoin.

In a feature for the Financial Times, Stephen Foley and Jane Wild describe the currency’s rather mysterious origins:

  • “Bitcoin was created four years ago by an unknown computer scientist with the pseudonym Satoshi Nakamoto, who conceived it as an alternative to government-controlled currencies and a means to transfer money quickly, cheaply and anonymously outside the slow, expensive and highly regulated international banking system. Transactions are recorded in the ‘blockchain’, a massive block of code stored across a peer-to-peer network of computers. These computers are called miners because their owners are rewarded for their service with occasional payment in new Bitcoins.”

This isn’t a mere experiment – something like $30 million of Bitcoins are traded every day, which is a rough estimate because the Dollar value of each Bitcoin can vary dramatically in a short space of time:

  • “The price for a single Bitcoin, less than $14 at the start of the year, spiked to $266 before crashing. It now hovers at about $110. The volatility may have set back the currency’s utility as a reliable means of exchange but, as with a previous price spike in 2011, it only appears to have piqued more interest.”

Judging by its past performance, Bitcoin could make you a fortune, but it could lose you one too. In fact, it’s not just crashing exchange rates you have to watch out for. Because Bitcoins exist as data stored on your computer, they can be stolen by hackers – or wiped out by technological mishaps:

  • “Such disasters are legion, with digital wallets failing and exchanges shutting down unexpectedly.”

So, who believes in Bitcoin?

  • “The strongest evangelisers of Bitcoins have always been libertarians. This is broadly the political hue of the Bitcoin Foundation, set up by some of the earliest users and entrepreneurs of the currency to steward its development. But an increasing majority of the people interested in Bitcoin are only ‘libertarianish’, despairing of government rather than opposed to it.”

Britain’s “most prominent Bitcoin evangelist” is Amir Taaki:

  • “A former professional poker player from Kent, Taaki was expelled from school for hacking, and with his quirkily styled hair he cuts an unconventional figure as a spokesman. There is respect for his achievements… But his unapologetic support for using the currency to subvert government controls makes some people uneasy.
  • “‘...it’s very important we try not to look up to the old hierarchy, and build our own system independently. Bitcoin is a decentralised, black market economy where you can buy drugs online and avoid tax and that undermines so much power. Anyone who tries to deny Bitcoin is revolutionary is living in fantasy,’ he says.”

Governments around the world are beginning to pay attention. In particular, they are worried that currencies like Bitcoin could be used by criminals for money laundering:

  • “This is a particular problem with so-called distributed currencies… transactions are processed and recorded across a network of users’ computers and balances are stored on a user’s hard drive rather than in a seizable bank account.”

The authorities are right to be concerned if they can no longer stop criminals (and especially terrorists) moving money around. But perhaps what Governments fear most of all is something else that private currencies could make impossible: Taxation.


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