The Politics of: BitCoin

In Satoshi We Bank

It has been a big month for BitCoin. Firstly there was terminal levels of theft against several exchanges (the massive Mt GOX and smaller Flexcoin and Poloniex exchanges as well). In Singapore, a young American founder of a bit-coin exchange committed suicide (conspiracy theories abound) and Newsweek claims to have found and unmasked the mysterious genius behind Bitcoin itself*!

What does The Omnivore think of all this? Let's see ...

What Is BitCoin?
You should read here. Short form: It's a kind of "Internet money" that is uncontrolled by any bank or nation and is right now in its infancy of usage (most places do not take Bitcoin--paying in Bitcoin is often pretty difficult, etc.).

A lot of people trying to exchange conventional money for Bitcoin did so by using "exchanges" (web sites) that were moderately or extremely unprofessionally run (the biggest, which just shut its door, was Mt Gox--that stands for Magic: The Gathering Online Exchange--not exactly a major financial player).

What Does All This Mean?
On the face of it, this means that if you invested speculated in BtC you ran a pretty well understood chance of getting hosed. BitCoin is every bit as real and cut-throat as EVE Online and you are every bit as likely to get hosed when you are too trusting. While it's not like people didn't "know this" it turns out it is like people didn't "know it."

The Politics of BitCoin
The politics (which are also the psychology) of BitCoin is the psychology of smarter-than-thou Libertarians with a decidedly anti-Semitic vein (some wags will say I'm repeating myself--but I'm not) and a liberal dose of conspiracy theory.

BitCoin is a political statement that is tightly bound to a profit engine even moreso than, for example, the post-apocalypse food industry is tied to right-wing media. In the case of BtC the movement is the money. As such, it's far, far more powerful than either would be alone: the more people you get to invest in BtC--the more people you convert--the more you evangelize the more profitable your holdings are.

The Current Issues: Criminality and Instability
BitCoin can be used to buy things on the Internet--illegal things. It's the currency of the "Deep Web" (or "Dark Web") of anonymous encrypted relay servers that offer sites which claim to provide murder for hire and, definitely, do offer mail-order drugs. The infamous Silk Road website was recently taken down and several other digital black markets have sprung up. The payment method? It ain't pay-pal. It's BitCoin.

Just days ago Senator Joe Manchin called for a ban on BitCoin as it is unstable and used for crime. Congressman Jared Polis fired back, calling, tongue-in-cheek, for a ban on the US dollar for the same reasons.

Japan is thinking about regulating BitCoin (it was the home of Mt.Gox) and China has refused it as a payment method.

As an investment it's, let's say, highly volatile--and a lot more people are treating it as an investment than a real, active currency.

That said, these are really the very, very early days. The current political issues are just starting to shake out and the direction (we'll get to that in a bit) is moving away from a way to pay criminals and towards a more commonly recognized form of money.

The Libertarian Currency
There can be no question that if you had to pick one popular category for the politics of BitCoin it would be Libertarian. BitCoin is the perfect-storm of Libertarian currency.

1. It is explicitly out of government control.
2. It is explicitly out of central banking control.
3. It is not fiat-money: you can't "just print more of it." It isn't a gold standard--but it accomplishes the same thing.
4. It facilitates a truly free free-markets (including allowing you to buy drugs over the Internet).
5. You feel like you are smarter than everyone else for being in BitCoin. 

The Demographics of BitCoin
By the nature of the beast we don't have great demographic information but we do have this (from an online poll):

The average BtC user is a 26-32 year old libertarian agnostic or atheist male (95%). They are in a position a lot of excess income and are computer literate (you have to generally be both to play with BitCoin).

The Religion of BitCoin
While the majority of BtC users might not be religious, there is a religious tilt to some of the conversation. If you look on the politics section of bitcoin talk it's all-too-common to find something about "the Jews." While it isn't front and center, there's a strain of Antisemitism that I think bears mention.

This is partly because Libertarians are often associated with some antisemitic positions (whether it be support of Israel, the "Jewish" connections to banking--especially Central Banking--and Wall Street, or the just-leave-me-alone nature of white nationalists) and partly because historically there has (allegedly, anyway) been some connection between white identity politics and a struggling Libertarian coalition.

The Political Impact of BitCoin
It's way too early to tell what will happen -- but here are some directional issues:

1. Governments will want a better way to track who is doing what with BitCoins. Right now all money movement is visible (you see the coins transfer around) but knowing who got them is nearly impossible (read here as two guys track thieves with millions in stolen BitCoins). Governments will want to regulate that.
2. Companies may need a license to trade it. BitCoin could be a tax nightmare if you are paid "off the books" in BitCoin. It's also possible to defraud someone pretty easily since transfers are irreversible and verifying that a recipient is who they say they are isn't possible on the BitCoin network. So means to legally accept BtC and provide relief could happen.
3. BitCoin is highly volatile. It is also subject to market forces that one person can control. This makes it a regulatory issue for "insider trading" and other similar things we try to remove from actual currency markets. While it's not clear what kinds of controls could change this, we might see moves in the direction.

The Disruptive Psychology of BitCoin

Masha: Videodrome. What you see on that show, it's for real. It's not acting. It's snuff TV.
Max Renn: I don't believe it.
Masha: So, don't believe.
Max Renn: Why do it for real? It's easier and safer to fake it.
Masha: Because it has something that you don't have, Max. It has a philosophy. And that is what makes it dangerous.

-- Videodrome 1983 

 BitCoin is a protocol, a currency, a method of transferring value (arguments abound as to whether or not it is a true 'fiat currency'), and, sorta-kinda (but only sorta-kinda) a religion.

The average BitCoin user may be a Libertarian atheist but the belief in the moral virtue and transformative power of BitCoin is well ingrained in the community. Now, let's be clear: there are reasons for this--free movement of anonymous currency across boarders at the speed of computers is potentially a game-changer (if I have 10bn in BitCoin ... can the US Government, you know, tax me? Yes, I'm supposed to file--but if I don't ... can they easily find out? I kinda doubt it).

On the other hand, everything from which computer you use (Mac? Linux? PC?) to which martial art you study, to where you worship can--and does--get treated as identity to some degree. If you don't believe me, ask yourself this: are most people holding, say, Exxon stock evangelizing it? Are most currency speculators excited about the nature of their current holdings?

Conversely, while there are a lot of people who hope to / plan to make a killing in BitCoin, a truly staggering number of investors are believers in the virtue of it alone--in its philosophy.

For many “getting” Bitcoin is a Pandora’s Box that most find themselves hard pressed to ignore. Once you get it – you can’t un-get it. For those already navigating the crypto-currency community, this is all a way of life. Twitter is their newspaper. Reddit, for better or worse, is their Coliseum. For Bitcoiners, the mainstream media’s coverage, rout with misleading headlines, ignorance, and overwhelming hubris, is a laughable distraction to be managed (if possible).

Unfortunately, a significant part of that appeal is that it will be disruptive--it will change the game--and it will make governments uncomfortable.

Now, let's be very clear: you have to have some truly fringe ideas to believe that BitCoin's utility as a currency (and therefore value as an investment or means of exchange) is proportional to its tendency to make governments uncomfortable. Put another way: the more disruptive BitCoin turns out to be, the more likely your investment in it will fizzle out.

Waiting For The BitCoin Singularity
There are a couple of strains of waiting for the 'Time of BitCoin' to be upon us. One is that wide-scale adoption by individuals makes everything moot. As BitCoin ATMs open and more and more things can be purchased with them (even tulips!) the hope of the BitCoin community is that it'll "break out" into the mainstream and become a "standard currency"--an every-day, ordinary people kind of thing. The other is that some economic collapse or quantum transformation happens and BitCoin is the only non-inflationary international, unrestrained currency in existence. Both of these approaches have an appeal--but I think in the reaches of Libertarian / contrarian mind-space the second has a more visceral appeal than is normal for a currency speculation. That shouldn't be surprising: There's a business model in "preparing people for the apocalypse"--even if it just seems it isn't going to happen on time.

Look at this. The article appears on the PeakProsperity blog  (it isn't about BitCoin specifically) and it tells readers they aren't crazy for believing the economic collapse is yet to come. It's true--it's true: 2008 looked really great--but somehow the system kept lumbering on. It just hasn't fallen yet. Don't feel bad--it's a-commin'.

So, don’t feel bad if this colossal armature of folly still stands, and have faith that the blinding light of God’s judgment will eventually shine even unto the watery depths where failed trust has sunk. Sooner or later the relationship between reality and truth re-sets to the calculus of what is actually happening.

The author then tries to sell you Part 2--for real money. The fact is: marketing to the apocalyptic crowd is good business in the 21st century. If BitCoin is relying on this as a significant factor in its appeal (and I think it is--certainly not for everyone--but for many) then it has a problem: the very things that will make it more successful (consumer protections and regulations) will be fought against by the community who are trying to keep it transformational.

The argument that crypto-currencies are transformational by their nature isn't a bad one--but it's possible to have a crypto-currency without the specific Libertarian / serious-business nature of BitCoin.

I give you: DogeCoin. Look at this:

Watch it. I dare you. That's the video from the front page of DogeCoin.com. DogeCoin is a ... competitor to BitCoin in, kind of, the way Mel Brooks is a competitor to Oliver Stone. DogeCoin is another crypto-currency but where as there are billions in BitCoins (in terms of conventional dollar value) there are mere millions in DogeCoins.

What DogeCoin has is momentum, an internet presence, and followers who don't take themselves too seriously. The primary use for DogeCoin, today, isn't as a make-me-millions investment but rather as a way of performing micro-transaction tips over the Internet. Instead of "Liking" someone's awesome Facebook post, if you have their "wallet code" and some DogeCoins, you can tip them .0001 cents--easily.

While that sounds like nothing, it's actually pretty cool (unless it isn't: Link is a request for DogeCoin people to stop "tipping" posters complaining that they lost their life-savings in the BitCoin thefts using DogeCoin).

Again--the DogeCoin is a toy right now compared to BitCoin--and it's unlikely to ever become a tool for large purchases or serious money--but it shows that you can have a crypto-currency--that serves a purpose--but doesn't have the apocalyptic / new-world-order flavor to it.

While having people change crypto-currencies is harder than, say, changing browsers, the penetration level of BitCoin isn't so high yet that a more easily regulated alt-coin couldn't arise and capture more of the business community.

I suspect that one of the very things that makes BtC attractive is also one of the things that may ultimately limit its adoption.

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* Note: Reddit doesn't believe it's really him