[P2P-F] L020: Is Bitcoin the Wikileaks of Monetary Policy?

Fri May 20 00:07:52 CEST 2011

On Thu, May 19, 2011 at 5:04 PM, Amaia Arcos <amaia.arcos at googlemail.com>wrote:

> And the second.
>
> ---------- Forwarded message ----------
> From: Jason Calacanis <jmc at launch.is>
> Date: 17 May 2011 13:14
> Subject: L020: Is Bitcoin the Wikileaks of Monetary Policy?
> To: amaia.arcos at gmail.com
>
>
>             Friends,
>
> I met Rob Tercek a dozen years ago, and after countless coffees, lunches
> and keynotes, I've always found him to be one of the more considered minds
> in our industry (watch him on a recent news roundtable<http://bit.ly/TWIST-139>on This Week in Startups).
>
> Yesterday I asked him if I was crazy with my assessment<http://lnch.is/L019-bitcoin>of Bitcoin. Here's his response.
>
> best,
> Jason
>
> ----------
>
>
> L020: Is Bitcoin the Wikileaks of Monetary Policy?
>
> By Robert Tercek <http://roberttercek.com/>
>
> Cynics make the argument that complaints about the loss of privacy in the
> digital domain are pointless.  "If you use a credit card or an ATM machine,
> you're already living in the fishbowl," the wags say.
>
> Fair point. Financial institutions monitor where and when you withdraw cash
> and how you use your credit or debit card.   The transition to e-commerce
> has intensified their grip on your consumption pattern.   And the migration
> to the cloud will reinforce the power of financial institutions and the
> government to keep track of you and your data.
>
> But it doesn't have to be this way.
>
>
> Centralization Versus Diffusion
>
> The struggle over the Internet's future can be summarized as a battle of
> centralized control versus radical decentralization.  This struggle has
> already played out across a dozen different industries, from content
> publishing to retail, from brokerage to software publishing.
>
> In each case, powerful incumbents fought hard to maintain control over
> their proprietary information asset.  They faced an existential challenge:
> information asymmetry was their raison d'etre. That's how they controlled an
> entire marketplace.
>
> Without the advantage of inside information, their traditional businesses
> made no sense.  Members of each reigning oligopoly had not evolved to
> compete on a level playing field with hungry rivals who had equal access to
> the same information.   In the end, in industry after industry, the
> incumbents were undone by their overreliance upon centralized information.
>
>
> Truly disruptive Internet companies begin by destroying the information
> asymmetry that favors old-school incumbents.  After the middlemen and
> brokers have been elbowed aside, the profit margin that was previously
> skimmed off each transaction has been returned to the consumer in the form
> of a discounted price.
>
> You experience this every day on the Web.  When you shop for a house or car
> online, when you use a price comparison engine for e-commerce, when you book
> an airline ticket or hotel room online, when you download an MP3, or when
> you read a newspaper article for free on a web site, you are enjoying the
> benefit of the Web's ability to explode proprietary information silos.
>
> As soon as an industry's data silo is breached on the open Internet,
> centralized power is diffused.  Immediately it rushes to the edges of the
> marketplace.   Brokers who seek to control transactions get destroyed, but
> switchboards who facilitate faster transactions often prosper.  Sometimes
> the mere possibility of an alternative is sufficient to break the grip of
> the oligopoly, because buyers immediately hedge their bets and seek out
> alternatives, forcing the incumbents to play by new rules they did not
> create.
>
> And so we've seen music labels, bookstores, travel agencies, retailers and
> software giants undone by the ability of consumers to use new tools to
> browse information by themselves and find better-priced alternatives.
>
>
> What Bitcoin Disrupts
>
> Now Bitcoin and other P2P payment systems have opened a new front in this
> battle, bringing decentralization to money supply.
>
> Bitcoin presents an unambiguous challenge to the government monopoly on the
> power to print money.  In concept, Bitcoin raises serious questions about
> the legitimacy of national monetary policy in a globalized digital economy.
> In practice, Bitcoin could undermine it completely.
>
> Symbolic paper currency requires all participants in the economy to
> maintain a fiction:  that thin sheets of paper represent real value even
> though they lack the intrinsic value of precious metal.  And symbolic paper
> currency is a dwindling percentage of the total money supply.  Increasingly,
> money exists purely as digital information:  no one uses trucks to move
> hundreds of millions of dollars when they complete a transaction.   As long
> as we all agree that those numbers on a glowing screen represent real value,
> the system works.
>
> Since you have no alternative, you have to play along.  But the system
> doesn't necessarily serve you.
>
> Complete control over the monetary system enables governments to set the
> price of money.   And they manipulate the market continually.   In case you
> hadn't noticed, for three years governments all over the world have been
> flooding the market with money in the form of bailouts and fiscal stimulus.
> The result is an inflationary debasement of currency.   National treasuries
> are printing their way out of the crisis.   Your salary and savings bear the
> price.  It's a hidden form of taxation.
>
> In the past, you as a citizen were powerless to stop this type of
> government behavior until the next election cycle.  Governments freely
> manipulate their currency to favor some players and to disadvantage others.
>
> Bitcoin promises to change the way we think about two important aspects of
> money in the digital domain:
>
> 1. It gives participants the option to opt out of their government's
> monetary policy. Bitcoin is immune to government manipulation.
> 2. It restores anonymity to transactions. Bitcoins cannot be tracked. There
> is no central server to take down.
>
> The link between money and identity enables the government to monitor your
> behavior and enforce a range of laws including compliance with tax codes,
> gambling statutes, drug laws, money laundering laws and more. Bitcoin
> presents the option to avoid these regulations.
>
> Big financial clearinghouses like Visa, Mastercard, and American Express
> serve as the government's minions, happy to enforce government policy while
> raking in the profit off of every transaction.  Even PayPal dances to the
> government tune.  These companies won't play nicely with Bitcoin.  In fact,
> PayPal has already shut down the accounts of individuals trying to
> "exchange" bitcoins for real money [ see http://coinpal.ndrix.com/ ].
>
> When the government decides it doesn't like what you are doing, its
> financial minions act swiftly to enforce the rules. In December, PayPal,
> Mastercard and Visa shut down donations to Wikileaks, strangling the
> project's finances.
>
> Last year it was Wikileaks.  This year, who knows what company or web site
> will fall afoul of a sprawling government bureaucracy hooked on secrecy?
>
> This type of centralized control is antithetical to the decentralization
> inherent in the Internet.  From the web's vantage point, money supply looks
> like just another marketplace rigged by a small number of market makers.
>
> We've seen this movie before and we have a pretty good idea of how it will
> end.  Napster upended the music industry, but the central directory of user
> names presented a juicy target for RIAA and the record labels that wanted to
> retaliate by suing their former customers.   So the next generation of P2P
> file sharing programs survived by adapting:  Napster's progeny eliminated
> the need for centralization, making it much more difficult to track down and
> prosecute users.
>
> Wikileaks suffered from a similar flaw:  a rigid centralized structure
> that, perversely, mirrored the governments its founder sought to demolish.
> And that centralization proved to be a fatal weakness. Shortly after the
> U.S. government began to systematically shut down Wikileaks, a new
> generation of leaking sites has emerged, each promising to improve on the
> original design by enhancing diffusion:  Greenleaks, OpenLeaks and even
> Anonleaks.ru.
>
> The same process is bound to repeat itself with digital cash. The opposite
> of centralization isn't more centralization. It's diffusion, anonymity and
> the lack of a digital trail.
>
> Of course, the incumbents won't give up without a fight.  They've already
> introduced legislation that will stifle innovation in online payments. As
> Aaron Greenspan, the founder of FaceCash, pointed out in his Quora post<http://lnch.is/bitcoin-greenspan>,
> California Assembly Bill 2789, which passed in September 2010 and became law
> as of January 2011, effectively protects the incumbent players from
> competition by outlawing innovation. According to Greenspan, even investors
> could face jail time.
>
> That threat, combined with similar legislation in 42 other U.S. states, may
> be scary enough to stifle innovation here.
>
> But that won't spell the end of innovation in digital cash. It just means
> that innovation will migrate to other places where it the local government
> welcomes it. Like money, innovation flows where it is treated best.
>
>
> -----------------
>
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