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Wednesday, December 11, 2013

The horror that is Bitcoin and its libertarian dream

by David Atkins

Bitcoin is the biggest thing going in Libertarian-land. A currency that goes unregulated and untaxed by federal governments, it's the grand new hope of the cyberlibertarian community. Because Bitcoin operates under the regulators' radar, life on Bitcoin provides a pretty decent sense of what a purely libertarian world would look like, free of economic regulation and taxation.

Of course, it's an absolute disaster:

Bitcoin is most useful to criminals.
Currently, for ordinary people, cash and credit work just fine. While some mainstream businesses do take Bitcoin, there is no compelling reason — yet — for ordinary people to use it. If you're a criminal, however, there are very compelling reasons to use it: you can transfer vast sums of cash completely anonymously. Cash transfers are a real problem for criminals. When you can't use bank accounts, lugging around vast sums of cash gets old pretty quickly. Bitcoin solves that. So Bitcoin is very, very empowering for criminals.

There is a Bitcoin crime wave going on right now.
Given that Bitcoin is good for criminals, it should not be surprising that those criminals are targeting other Bitcoin users for thefts. The most spectacular theft so far is the Sheep Marketplace robbery, in which one hacker appears to have emptied a massive Bitcoin marketplace of up to $220 million in Bitcoins. Note that Sheep Marketplace was basically a trading post for drug dealers. Bitcoin exchange and account thefts are very common. Here's a potted history of recent Bitcoin capers.


Bitcoin as a currency is horribly unstable.
This chart (above) tells you all you need to know. One day you're rich, when Bitcoin approaches $1,200; the next day half your wealth is wiped out as it plummets to $700. Bitcoin isn't backed by any government's bonds or central bank gold. It's literally an asset without an underlying asset. So its price is determined entirely by its flows.

Bitcoinistan makes the Weimar Republic look sedate. Even if you could live with the crime, the instability makes transactions wildly unfair to the party on the downside.

Bitcoin has produced comical wealth inequality.
Libertarians don't care about inequality, of course. They see it as a reflection of individuals' natural talents, and as an incentive to work harder. But even the most hardcore free marketeer ought to blanche at the incredible level of inequality already endemic to Bitcoin. Just 47 individuals own nearly one-third of all Bitcoins. About 927 people control half the entire currency. There are just over 1 million Bitcoin holders — the vast majority of them own mere crumbs.

Bitcoin hoarding could produce a cartel that controls all Bitcoin.
A study from Cornell has claimed that if Bitcoin miners cooperate, they could end up controlling most Bitcoins and thus control the currency's price. The cartel could beggar or enrich all Bitcoin holders overnight, depending on how they trade it.
There's much more in Jim Edwards' article, including mass instability and assassination cartels.

And this, ultimately, is where the far extremes of the political universe mirror one another and fail. Human beings evolved to be selfish animals--if not purely for themselves, then at the least on behalf of their little in-groups. Both libertarian and communist paradises fail because people are far too selfish to make either one work, and because human life and dignity are incredibly cheap when put either on the unfettered free market or in the hands of unaccountable politburos.

The primary political imbalance we have in the world today is that after the fall of Communism the left generally learned that lesson, understanding the nuances of human nature and the need to allow the public and private sectors to occupy their appropriate roles. Progressives and neoliberals argue stridently over the nature and extent of those roles, but what binds us together under the big tent of the Democratic Party is the understanding that both the public and private sectors of society need to be healthy and in an uneasy detente for human economic systems to work. Human society will never be perfect because the human animal will never be perfect.

The Right never learned that lesson. A huge portion of the Right believes in their Galt's Gulches and the vision of a perfect society without those nasty "others" in it, never had their own ideological chastening, and simply want to destroy the public sector entirely. That's what makes them so radical and dangerous.