The Book of the Week is “Digital Gold– Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money” by Nathaniel Popper, published in 2015.
This ebook is about Bitcoin, a bookkeeping system used on various websites that distributes, records and stores the value of units called Bitcoins.
The system was created in 2009 by a computer geek who called himself Satoshi Nakamoto. His vision was to create a worldwide means-of-exchange to be used online that would be:
- a decentralized network of users so that no one central authority has the majority of power over the system– unlike the current situations in the world; in other words, place power in the hands of the users, rather than the economic royalists. (Nevertheless, the irony is that Bitcoin has largely stayed in the realm of the wealthy computer geeks- so there has basically been redistribution of wealth among the wealthy);
- created and maintained by users of the system on a consensus basis rather than by the powers-that-be, whose political campaigns are funded by financial institutions, and who stay in power by doing their will;
- anonymous (like cash– no third parties acquire the information of buyers and sellers);
- secure (no one point of failure would mean vulnerability for the whole system, plus have protections against identity theft, malware, counterfeiting etc.); and
- offered at a lesser cost than the current system (avoiding financial institutions with their fees).
However, no utopian vision is perfect. Various tech-startups around the world have been created to store and exchange Bitcoins. That is all well and good. In the last seven years or so, a “remarkably engaged online community” has sprung up to discuss the ideology and all the different issues attendant to the new system. Even the major American financial institutions, fearing competition, have begun to rethink the security of their online dealings, and so have assembled task forces to research how to harness Bitcoin’s loss-prevention technology.
Bitcoins are acquired by computer users who log on to a specific site on the Internet. The users get the virtual “coins” for free, but might have to pay to store them elsewhere to keep them secure.
Bitcoins are more like a security than a means of exchange like cash because:
- The system distributing Bitcoins is like a combination slot machine and a financial market where instruments are bought and sold, and the value of Bitcoins fluctuates.
- There’s an inherent unfairness in the system in that– technologically astute users of the system have banded together to create devices that mine Bitcoins at a significantly faster rate than individual users.
- People can acquire a national currency such as the American dollar in many more ways than they can Bitcoins, most of them honestly– earning, borrowing, begging or stealing.
Anyway, the purpose of Bitcoins as a means of exchange has yet to catch on among mainstream consumers of industrialized countries. There is no sufficiently compelling reason for consumers to start to buy things online with Bitcoins rather than credit cards. “Why should they trust a digital code that had nothing backing it but the computers of some libertarian nerds?”
Argentina is one country where Bitcoins have been useful. The super-speedy inflation of the peso there has meant people must spend their Argentinian money the minute they acquire it or risk the inability to buy anything because they wouldn’t be able to afford it– even food. In China, Bitcoin is popular because the government regulates the yuan exchange rate in order to stem “capital flight” and sell more of its own goods to the world.
As with all human-created systems that rely on the honor system, ALL users must act ethically. One American Bitcoin-processor in particular created a drug-distribution entity called Silk Road that was deemed illegal according to U.S. law.
Another bad actor hacked into a company called Mt. Gox in Japan. All users of that service suffered. “Bitcoin users eventually went to government authorities that Bitcoin had been designed, at least partly, to obviate.”
Besides, the Treasury Department’s Financial Crimes Enforcement Network has been examining the legal aspects of Bitcoin as a virtual currency. Homeland Security is concerned about the fact that Bitcoins could be anonymously sent to terrorist cells overseas.
Read the book to learn much more about the good and bad consequences of the creation of Bitcoin.