What the heck is Bitcoin? A passing fad, or a sign of new Future? Bitcoin, a wild internet experiment, the love child of cutting-edge technology and economic theory, and is something that hardly anybody fully understands, yet it captured the imagination in global consciousness. Bitcoin is an anchoring vision of cashless, eMoney society. With that, media created the Bitcoin buzz, riding a rollercoaster of speculation, now immensely trendy. Bill Gates called it a technological tour de force. Living in this day & age, only thing constant is change, change in thinking, living or doing all things that we do. Within that change realm, Bitcoin, requiring us to recalibrate ourselves to that change. It is free-market's response to central banks gone wild, yet it is not tied to any single nation‘s economy, neither is it a contender in the race to replace any national currency, nor it is pegged to any outside barometer. Bitcoin has the potential separating money & states, parallel thinking like that of State & religion. It brought forth the fact that the bank depositors put their faith and trust in conventional currency, only to see that faith shattered and trust abused for savings are constantly losing its purchasing power. Right there Bitcoin embodies a new hope for the 21st century monetary zeitgeist, Uber-money.
Given its newness, novelty & volatility, bitcoins have passionate fans ( & critics) - high-end Techies, privacyenthusiasts, political anarchists & libertarians, autarchists and voluntaryists, even unsavory scammers, all flock to it with praise & adoration. They see for the first time in human history the people can gain true financial freedom even though it embodies many of the open and virtually ungoverned principles of the internet itself. Some feel Bitcoin will become the choice of tech-savvy new generation, for it is becoming too big to ban & jail for. Implied message: stop blindly sticking to Roman era money, for it is regressive, mother‘s milk to backwardness - embrace a 21st century upgrade. Then there are also a mega size critics in vested interest, who want Bitcoin to remain uncrack-able until all diseases are curable, for their money depends on their not understanding it. Bitcoin, (Sign: ; Code: BTC or XBT), is a revolutionary private, virtual currency, protocol (Software) meant for developing an open Economy. Bitcoin (singular with an upper case letter B) used to label the protocol, software, community & other things, while bitcoins (with a lower case b) to label units of the currency. Bitcoin is a global techno-financial construct, an open source software, a digital currency, a protocol, a distributed & verifiable public ledger, a peer-to-peer (P2P) payment processing network, a triple-entry accounting system, a store of wealth, a crypto-signature creation and verifiable device, a quasi-personal offshore bank account, a distributed timestamp server, a monetized network – and at the end it is internet itself, monetized. With the cryptography; the state, or any protection firm, is largely obsolete…all activity that can be reduced to information transfer will be completely out of the government, or anyone‘s hands, other than the parties involved. Wrapping all these ideas & technologies around a non-political currency, backed exclusively by code, made Bitcoin pregnant with expectations. Bitcoin being all these brings forth the question of where one aspect of it starts and where it ends, or what is overlapping & what is not? What is coders‘ responsibility, what is Merchants‘ or even consumers‘? Anyone developing a Bitcoin client cannot be held responsible for the uses Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? that the client is put to. The client is neutral, just as browsers are neutral. You can use a browser to commit a crime, but culpability for that criminal act cannot be passed to the people who code the browser (Mozilla, Google, and Microsoft). Interestingly Bitcoin proponents consider the system as part of Financial Commerce which to them is indistinguishable from freedom of speech. And this Financial Commerce freedom and political freedom (human rights) are indivisible, for it is two sides of the same coin – you can‘t have one without the other. Bitcoin Primer: A new user can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your Bitcoin addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once. Whenever the address listed in "Your address" receives a transaction, Bitcoin replaces it with a new address. This is to encourage you to use a new address for every transaction, which enhances anonymity. All of the old addresses are still visible through: Settings -> Your Receiving Addresses. A transaction log (with Addresses) & an ‗Address‘ shown below simply for readers‘ look & feel:
Log: Address: ―15VjRaDX9zpbA8LVnbrCAFzrVzN7ixHNsC‖. Evidently digital currency is complex number systems & keys (technical details are beyond the scope of this writing). Bitcoin is digital and that is all there to it; but there are symbolic physical bitcoins illustrating digitals, available for purchasing what they call Casascius coins, and they are sold by Mike Caldwell through his Web site, casascius.com. These coins contain a private key on a card embedded in the coin and sealed with a tamperevident hologram. Confused? You are not alone, the algorithms involved in Bitcoin production are far too complex for most noncrypto-nerds to grasp, it is kind of an odd combination of very advanced, PhD-level computer science, regarding encryption and record-keeping, wrapped around very basic level monetary understanding. Its capitalization/ nomenclature make it both a currency and a protocol. It‘s a new kind of money inbuilt within an innovative payment network that uses peer-to-peer technology to operate outside prying eyes of regulator or any central authority or banks; managing transactions and the issuing of bitcoins, all are carried out collectively by the network. Simply put, Bitcoin is an open source software, an algorithm-based mathematical construct—a unit of measurement invented to quantify value. Its design is public, nobody owns it, and all users collectively control it rather than any central authority like a Bank or a government. That makes its integrity beyond reproach. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system. The way the basic bitcoin system works is both incredibly solid & sophisticated from a technical standpoint, yet inbuilt weakness in wrapping monetary dynamics may profoundly lower its scope & Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? stated potential. Lack of techno-financial knowledge make Bitcoin capitalization process to vast plurality of people difficult to fathom. History bit: The whole thing started on October 31st, 2008 in the teeth of the global financial crisis, a man (could be a group of men) hitherto to unheard of called ―Satoshi Nakamoto‖ posted the Mathematical framework to an obscure cryptography listserv (metzdowd.com) describing the concept & design for a new digital currency system, naming it: Bitcoin. The post, an elegant piece of software engineering and a scathing indictment of the fiscal status quo, outsmarted the ingenuity of all the cryptographers combined. His brilliance afforded to those who can understand it. People around the world started calling him visionary, genius and peerless cryptographer. His idea of this decentralized private, virtual currency, having no central server or trusted parties, whereby Government can‘t debase it, Banks can‘t blow it, is kind of making a currency for a post-trust world. That milked global attention to Satoshi Nakamoto, conjectured to be fake by some. His online profile mentioned, he lived in Japan; his email address was from a free German service, his English is with both British & American style - it is clearly a pseudonym. Anyway, on January 3rd 2009 Nakamoto set in motion the first implementation of his concept of digital, cryptocurrency and minted the first 50 Bitcoins. Though it sounds like an Internet meme, LOL cash; his creation got off the ground like wild-fire. He simply cracked a problem that had stumped cryptographers for decades. The idea of digital money—convenient and untraceable, liberated from the oversight of Government regulators and Banks—had been a hot topic since the birth of the Internet. It's maintained by a globally distributed peer-to-peer network running on open-source software. Idea that Bitcoin software, protocol, peer-to-peer Crypto Currency could self-sustain without Politicians, their appointees & Governmental agencies really what Bitcoin is all about. In close look there is a significant difference between bitcoin and government-issued fiat currencies. Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a "faith-based currency." In other words, its value rests on the belief that the government will not print so many Dollar notes that each one becomes nearly worthless. Bitcoins, like that of world's major currencies - Dollar, Euro, Yen, Franc, Pesos etc. carry no guarantees they can be redeemed for gold or some other commodity at a fixed price. Other significant difference from conventional currencies, it is not legal tender for paying off debts & other obligations. Thus it's not clear to many why the world really needs this grand experiment in virtual currency? Bitcoin is clearly blazing new trails here and lots of question-mark hanging around it? Open-source software means all users have access to all of the source code all of the time. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems. Figuring out the price of these, is all personal and subjective... dare I say priceless. Economics: Those who understand Economics, particularly currency mechanism, know full well that Money in a sense is just a symbolic, mutually shared illusion. It gets acceptability for it is backed by commodity or sovereign government. Bitcoins is not backed by any underlying commodity or sovereign government. There‘s no full faith and credit clause behind them, but bitcoin is inflation-resistant because of constrained supply and can‘t easily be counterfeited either. Traditional currency thrives on two basic ideals: one is a currency that is as stable, reliable, predictable, hedge-able and inert as possible — a universal constant of commerce. The other ideal is a currency that you can actively manage to produce certain economic effects like facilitating trade or other government policy goals. Bitcoin does not serve either of these functions. It is certainly not stable, reliable, predictable and inert. Nor it is a suitable platform for active economic management. In practice, the first ideal, or the ‗Classical‘ ideal of a stable and inert currency was most often realized through a gold standard system. The second ideal, or ‗Mercantilist‘ ideal of an actively-managed currency is realized as today‘s floating fiat currencies. In both cases, the base money supply is adjusted, on a daily basis, to attain the policy goal. In the case of a gold standard system, the base money supply is adjusted via an automatic mechanism similar to a currency board, such that the currency‘s value maintains its defined parity relationship with gold bullion. In the Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? case of the floating fiat, the base money supply is adjusted on a daily basis to achieve whatever economyfiddling monetary distortion goals the government & the currency managers care for. Then we all know money is merely a lubricant. It has no genuine intrinsic value. Problems arise when some areas of the economic engine are excessively or inadequately lubricated. But then how do you bring it to equilibrium – there is no magic switch, for Economics is not a Science, it is merely a discipline. Theory of Money & Credit, in Austrian school of Economics, jives with money & money-substitutes – be it fiat, credit, commodity, token, bank deposit, money certificate or whatever. And traditional legal tender laws encourage the use of a particular currency through three main mechanisms: public receivability for taxes, court enforcement for repayment of debt, and laws requiring use for spot transactions. So far they have not been an impediment to bitcoins‘ gradual adoption as an alternative currency in parallel with the Dollar (& Euro, Yen, Yuan etc.), though no doubt that would change if domestic businesses began refusing dollar transactions en masse. Then if you pick a commodity, say Gold – is it money? Though it is increasingly asserting itself, it can‘t be money due to legal tender laws. Now equate bitcoins as commodity money for it fits the regression theorem precisely because of its unique properties. The value attached to it, is subjective & intrinsic – in other words, no objective reasoning is paramount here. Being composed of Protocol, Cryptography & Networking technology, Math, Accounting, money etc. - multiple areas are there to drive its value from. Yet the detractors compare the value of this intangible object of digital binary code to Peacock‘s tail with magnificent plumage, iridescent colors; less polite circle even go step further calling it binary digits air-brushing in thin air. Withstanding its vulnerability in its interface with national currencies, Bitcoin, as monetary instrument is gaining on legitimacy and acceptance through free and open market mechanism.
Currency stability factor: Bitcoin market price, withstanding its wild fluctuations, is showing promise: on Jan 1, 2013 single Bitcoin was worth about $13.5; in early April, 2013 at $200, and on Nov 22, 2013 it topped $730; 54-fold high. That highlights it as a unique Asset class or investment vehicle devoid of traditional currencies‘ inflation risk. Then anybody who have the slightest sense of currency stability & broader acceptability recognize that there must be some sort of ancillary hedging mechanism in place for Bitcoin to succeed. Long before you know it, first Bitcoin Hedge-fund cropped-up in Malta. Predictious, the Dublin-based prediction market unveiled Bitcoin Option Spreads enabling both long- and short-positions to be constructed on this already extremely volatile 'asset'. Derivatives, Swaps, Future & Options, are now in better leveraged situation to stabilize long-term Bitcoin market by positioning relevant bullish & bearish competing interest. Limited utility of these sophisticated financial instruments still is not enough to make it anything other than speculative. Critics still believe, Bitcoin is destined to have a binary outcome – all-or-nothing. In layman‘s terms, it is like lottery ticket, price you pay for it, is small risk, but its winning would have a sizable impact.
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What the heck is Bitcoin? A passing fad, or a sign of new Future? That rekindles the question: is it a Bubble? Well, bubble or not, this virtual currency is a lot of coin in any realm. . . That being said, yes it is bubble in the same way as the Euro and Dollar are. They only have value in exchange, but have no inherent value. If everyone suddenly stopped accepting Dollars, Euros or bitcoins, "bubble" would burst and their value would drop to zero. But that is unlikely to happen; even in Somalia, where the government collapsed 20 years ago, Somali Shillings are still accepted as payment. Money Supply: Years back Milton Friedman famously called for the abolition of the US Federal Reserve (Central Bank), which he thought ought to be replaced by an automated system that would increase the money supply at a predetermined (3%) rate, meant to keep a lid on inflationary tendency. Some considered that built-in mechanism impractical, if not outright nonsense. Taking Milton‘s control mechanism by heart, Bitcoin was created as a Monetary-cum-Techno-construct in digital space running the economic engine, and strictly sticking to minimal supply regimen. Some call bitcoins is the garlic to central planner vampires. That could be little too strong, but the point is, the alternative is here and making its presence felt. Then its deflationary bias encourages hoarding, and that creates a risk of its early demise. For 2013 it has a nominal inflation rate of 12%. It is decreasingly inflationary (so de-inflationary). By 2017, rate will drop below 5% and by 2021 it will drop below 2%. Yet some would say its inbuilt scarcity provides an assurance of purchasing power arguably safer than any other system yet conceived. Probably we need to let the decentralized market test tell us what is the best money, or monies. Competitive? Bitcoin has the massive potential to disrupt any traditional payment processor such as Amex, Visa, MC, PayPal, Amazon Payments, and Google Wallet. Because it is a vehicle without counterparty risk, which requires a web of trust to work, which comes at a price and imposes central control. This means it can offer a service (transfer funds from A -> B) extremely fast with virtually no fees compared to the "state of the industry" that hasn't invented a single new thing in 40 years, yet charges hefty fees. In financial crisis time when normalness subsided in favor of flying cutlery; Bitcoin brought some sanity, however little, in the expectations that the laptop will become owners‘ Cayman Island. Bitcoin is the beginning of something, not the end. At the very least, Bitcoin is a powerful collective in conceptual theater, an act of fiscal performance art, reminding us how much trust banks and governments demand of us just so we can use money that we already possess. Whether or not it transforms the financial system, Bitcoin has already become something greater, its conscience.
This is it. Today this virtual money is going up & up; the first one ever to reach something like critical mass. Bitcoin enthusiasts are now across the globe, moving out from Techno-Geeky echo chamber to mainstream. A global equal opportunity Monetarist Anonymous, immune to transaction fees or any national borders. Unlike (US Fed Chairman) Bernanke‘s quantitative easing, Bitcoin developer Satoshi is more into supply constraints. Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? The supply is controlled and predictable, the number of bitcoins increases in regular increments, governed by a simple algorithm, slowing and finally stopping at 21 million in the year 2140. As the time progresses more & more people are getting to know about it, more businesses are accepting it. How bitcoins works - like gold, bitcoins is both a currency and a commodity, are in limited supply, have to be ―mined‖ in the parlance using computers to rifle through an enormous Mathematical space for numbers that fit the algorithm‘s requirement. To any average guy, this Bitcoin-mechanism is simply strings of numbers; and Bitcoin's design allows for anonymous ownership and transfers of value. Anyone (with a powerful PC) can mine bitcoins by downloading software, known as the bitcoin client. So bitcoins are basically minted as a reward for contributing to the smooth operation of the system. Validating a block yields 25 free bitcoins, which are currently worth $16,000. One alternate way to get it, is through bitcoin exchange web-sites like Slovenia based Bit-stamp.net, San Francisco based Coinbase & the largest is Tokyo based Mt.Gox, where the currency is traded as a commodity. Philosophical underpinning for Bitcoin-spirit is still evolving. Current line wraps around the nature of money & its system - forever stateless, ungoverned and uncontrolled (to some logical extent). Open-source projects are free and open; Redmond and the rest are closed and controlling. So the philosophy behind Bitcoin is essentially to remain open and free of centralized control. The centralized global banking network has shown that it can easily be used to propagate political ends. Right there separation of state & money rings and it attracts like gold rush – contour of global finance, free to trade and buy stuff even if stakeholders live in any rogue state. Some Facts: Corruption is an integral part of human nature, so all of us care for assurance on systemic integrity. That‘s-why there is a need to address the transparency issue for non-techno skeptics - speaking of protocol, it doesn‘t matter who created this protocol, for it is not an application. There are multiple implementations, all of them open source. Take for instance, the Web - does it matter that Tim Barners Lee came up with the idea? Can Tim Barners Lee somehow make it stop working or initiate a kill-switch? No. Because the Web isn't an application, it's a protocol and many implementations; just like Bitcoin. In close look Bitcoin is more than a protocol, a distributed database that keeps track of accounts in a shared ledger. Looking at it purely as a currency actually narrows down its full spectrum. Being a protocol, a distributed peer to peer network, a payment processor, a way to fulfill contracts without counterparty risks, and that is how it enabled the treatise as a currency or an investment vehicle. On its viability as currency: A bitcoin is divisible into 1/100 millionth of a coin. This is because of the way the protocol is built. The protocol can be updated, so that's no hard limit. It is free of issues of denomination and fungability. Cryptography is well established and a fundamental technology used in online banking. But unlike fiat currency with central banks and online banking; Bitcoin has been able to construct a currency and payment network with open-source software using heavily peer reviewed cryptographic ciphers that removes the need to trust a central authority. Consequently, many people trust Bitcoin because it requires absolutely no trust of any third party. Bitcoin has the prospect to become one of the world‘s hottest investments. It could also be a bubble bit inflated by social media, loose capital in search of the newest new thing and perhaps by bank depositors unnerved by Cyprus financial turmoil. It is essentially ―monetary policy‖ determined by in-built clever algorithms. For alternative crypto-currency, it is technically next to impossible for any government with a central bank and a mint to introduce Bitcoin-like system. However, rumors floating around that Canadian government is looking for Bitcoin like payment network for it would save them 4.5 billion dollars a year. Now all Bitcoin stuff that lies at the intersection of several important academic research areas, including cryptography, distributed computing, graph theory & other – future may bring up with something better than current imperfect internet, or say, a better protocol and that's what generations to come would find useful. It is all about the idea realization. Bitcoin payments are irreversible. Any transaction you issue with Bitcoin cannot be reversed, it can only be refunded by the person receiving the funds. That means you should take care to do business with people or Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? organizations you know and trust. But don't worry, Bitcoin can detect typos and usually won't let you send money to an invalid address. Is it secure? Some say, Bitcoin itself is extraordinarily secure, more secure than typical bank account. Proof is in the pudding: it has stood there out in the open ready to be exploited by anybody who can, and it has not been exploited, despite the fact that there is a very high incentive to do so. Typical transactions are secured if done right. For larger amounts worth US$1000 or more, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction. But then how are you so sure Bitcoin client downloaded over an HTTP link is an honest one, not doctored version served up by a hacker with a malicious intentions – that‘s security-hole need to be addressed. Is it legal? Is it a con?' Well, there are Lawyers and Economists struggling to answer both the question. Think immoveable force meets immovable object. The conundrum of stateless virtual currency is having its field day to somehow gain legal or quasi-acceptance by sovereign states. The central idea behind virtual currencies is the efficiency of disregarding sovereign borders. In stark contrast, the central idea behind what makes a currency ―real‖ is the legal regard for sovereign borders. The problem is that too many people in the Bitcoin market are also thinking the old currency ways as if they are dealing with binary alternative! Understand this, Bitcoin is a new thing that can‘t be compatible with the old financial system. What gold was then, Bitcoin is now – few times high. Going ‗legit‘ essentially gives the state a handle to grab you with. 'Legit' means registered and regulated, doesn‘t it? Legit means submitting to control-freak regulation & get clearance on a dotted line. If you are still barking for a ‗legit‘ framework for Bitcoin, then you didn‘t get it. Perception that all money require some kind of legal relationship is going through test here. Is it a Ponzi scheme? Depends how you look at it. In a Ponzi scheme, the founders persuade investors that they‘ll benefit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A Ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality. On mining? Mining is the activity of performing a proof of work (a hard cryptographic problem) and once performed, attach the queued up transactions to the block. It provides an incentive for the miner to run the infrastructure. However it also creates the infrastructure for everybody to use. Compared to traditional ways to provide a transactional infrastructure (huge proprietary installations) it's an ingenious device running on enlightened self-interest. Mining essentially is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends. Underlying/backing? Bitcoins underlying is the strength of its cryptography, the soundness of the protocol and the network concept. In short it is backed by mathematics. In parallel world, one may say, Dollar has no underlying and backing either. More than 95% of the USD/EURO in circulation is purely virtual. It is not backed by any underlying. It is backed by the US Government/European Union, which could be more Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? manipulatable than mathematics. Regulating Bitcoin? You cannot regulate Bitcoin. That's technically impossible. You can regulate exchanges, but then people just find less traceable means to exchange coins (like ripple). Anonymity? Bitcoin is not anonymous. As soon as you transfer coins to an address (technical) known to a would-be investigator, an investigation can identify exactly the path these coins took and start following the breadcrumb of who handed the coins. It's difficult, but easier than tracking hard-cash exchanges. Governmental crosshairs: Are there any government anywhere spontaneously encourage monetary duality? No. Bitcoins and Banking systems are mutually antagonistic, having no abiding interest. The concept of peaceful coexistence is questionable. Bitcoin proponents argue, this crypto-currency exposes the fraud that is perpetuated by the state banking. Some would call current system, akin to performing surgery without anesthesia. Conversely if you are expecting for politicians and bankers to calmly disappear into the night, you're in denial. Bitcoin is about preventing monetary tyranny. That is its raison d’être. Monetary tyranny can take many ugly forms - deliberate inflation, persecutory capital controls, prearranged defaults within the banking cartel, or even worse, blatant sovereign confiscation. Sadly, those threats are potential in almost any jurisdiction in the world today. States probably will come after Bitcoin, and hard for their money can only exist if there are no competition. Here is a worthwhile quote from Alan Greenspan: "(Under a fiat system), there is no way to protect savings from confiscation through inflation, if there were, the government would have to make its holding illegal, as was done in the case of gold." Saying goes, when Economics turn serious, it becomes political. Right there, US Senate held hearings on Nov 18-19, 2013 with a roster of conscientious public servants from the Treasury Department, Justice Department, Secret Service, Federal Reserve, Department of Homeland Security, Securities and Exchange Commission and so on, all offered very respectful remarks about virtual currencies and their innovative potential. Bitcoin Foundation is sensitive to the fact that the political establishment are understandably paranoid, and so they are working overtime for finding calm amid chaos – earlier they met behind closed doors with federal officials in Washington. Federal agencies in attendance includes the Justice Department, the FBI, the Department of Homeland Security, the IRS, the Secret Service and the Financial Crimes and Enforcement Division (FinCEN) of the Treasury Department, which convened the discussion. Bitcoin advocates warned that excessive regulation could drive innovation in virtual currencies overseas. In political run-up the dichotomy between EU and U.S. approaches to the virtual money becomes apparent when one looks at the uniformity of the EU e-Money and Payment Services. The EU tends to view futuristic payments as a framework opportunity rather than a targetrich environment for arrogant enforcement. Tax angle: Bitcoin income like any other income is subject to income, sales, payroll, and capital gains tax. In August 2013 the German Finance Ministry characterized Bitcoin as a unit of account, usable in multilateral clearing circles and subject to capital gains tax if held less than one year. Para-State polemics: Neal Stephenson‘s famous ―The Diamond Age‖ was set some years after encrypted currencies and e-commerce removed most economic transactions into dark-nets beyond the government‘s capability of monitoring and regulating, thereby caused its tax bases to implode. And it followed the collapse of most nation-states. In the ensuing interregnum, the defunct nation-states were replaced by city-states and by networked global civil societies called ―phyles‖ or ‗para-state‘ in common parlance of ‗special Economic Zones‘. The major phyles/para-state leased enclaves in most major city-states around the world, much as the historic Venetian merchant guilds leased ―Venetian quarters.‖ Membership in the phyles was voluntary, and the provision of the kinds of public services and social safety nets formerly associated with states was generally tied to voluntary membership subscriptions of some sort. This is, incidentally, the model of service-provision in some unions like the Screen Actors‘ Guild. Unemployment benefits and health insurance are covered by a sliding scale premium, paid as a percentage of income when a member is working.
Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? Parallel polemics involving rich & famous are also entertaining. Replicating para-state enclave concept as a real-world model like a dark-net economies and resilient communities, was done by such thinkers as Daniel de Ugarte and John Robb. In their reckoning, the hills are high, and the emperor is far away, so they are playing as the newest player in their newest game - a social-construct, where urbanization, technology, capital accumulation etc. would create those enclaves, like Dubai, with their complex layering of territorial, legal and commercial authority going hand in hand with the second great political trend of the age: devolution. This extreme idea to live in a virtual-state, coupled with virtual business that operate within virtual economy using a virtual currency – you may call it Bit-wealthy, the newest nouveau riche. To talk about the downside, Bitcoin is the harbinger of lot of things. Its qualitative edge is well recognized, but what about quantitative aspects of it – how they relate to attack vectors and their countermeasures. Besides, the appeal of Bitcoin may come from the belief that it enables those who use it to step outside the shaky structures of global finance. Cyber money may have many practical uses and provide an alternative to Government & Banks. But is it always something positive? The privacy of Bitcoin lends itself to criminal transactions like online drug sales, and as bitcoins have gained value, they've attracted hackers bent on stealing them. It can't be a way out from history's intractable dilemmas for how Bitcoin will develop cannot be known. Bitcoin embodies a kind of cyber-anarchism; the idea that the decentralized networks of the internet will enable the ideal of freedom from government, which has eluded so many revolutionaries in the past, to be finally realized. For them the cyber-currency is governed by an incorruptible formula that - like the eternal forms envisioned by Plato, immaterial abstract ideas standing outside of time, is untouched by human error and folly. The whole thing boils down to the breathless abstract. The trouble is that unlike the tranquil spiritual ether imagined by the ancient timer, cyber-space today is all too clearly a human artefact. A site of unceasing warfare, abounding in Trojans, worms and viruses, vulnerable to attack and decay. It also needs scarce resources and energy to operate - the virtual realm of the internet is a projection of the human world with all its conflicts. Practically it's a philosophy that shares the fatal illusion of anarchism in all its varieties, particularly the notion that most human beings actually want freedom from government. Invading personal freedom in times of crisis isn't always unpopular – reality has been far from it. Throughout history, human beings have turned to governments, and often to tyrants, for protection and security. The safety they are looking for may be just a mirage, but that hasn't stopped them wanting it. Academically speaking, anything may happen to Bitcoin, it itself may crash and fail, be supplanted by rival virtual currencies or else shut down by governments because it is succeeding too well. Whatever happens, this will surely not be the last attempt to find freedom in cyberspace. While the freedom Bitcoin promises is an illusion, it's one that will always have a grip on the human mind - the dream of finding some kind of talisman, a benevolent tyrant or a magical new technology, that can shelter us from power & crime, and also protect us from each other. In conclusion, original Keynesian utopian hypothesis that free market will somehow cycle back & forth through boom & burst, but 2008 crisis showed government can‘t simply step in to flatten the erratic economic curve, to dampen the peaks & valleys to reduce the negative effects – politicians with their authoritarian moral scold caucus, having their heavy foot on gas (money) pedal threw good money after bad, grand-standing on false promise without any clue for cause-n-effect; Economists & Bankers, withstanding with their past folly, could only prescribe ineffective corrective-patches; Social scientist-media writers-columnists were bewildered for they knew-not what to do with it. That inevitably created space for alternative thinking – Bitcoin occupied that mental space with enormous chaos and energy. Its invisible figurehead, outspoken evangelists, and its feisty detractors all are making rounds for it can be harnessed for good just as it can be used for bad.
Russell M Baker
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What the heck is Bitcoin? A passing fad, or a sign of new Future? The Bitcoin ecosystem is dominated by speculation & hoarding, and it remains to be seen whether it can transition to a currency that people use in everyday life. Bitcoin world also need to decide whether they want to continue remaining anonymous or go mainstream. They don‘t afford to behave long like impulsive teenage lovers who minimize the downside while maximize the reward, ignoring the reality. If it does go mainstream, it will likely lose its most revolutionary aspects that the cyberpunk scene idealizes. But it can still act as a hedge against the global monetary system, without replacing it, and its potential implications are about as easy to predict as the effect of the Internet during the days of ARPANET. If nothing else, Bitcoin makes for one hell of a story and an interesting test case for the implications of digital currencies in the future.
When future historians debate the chickens-n-eggs genealogy of the Bitcoin advent, one question is inevitable whether Technologists came to finance because of Economic devastation, or that financial crisis erupted because Technologist invaded the financial space. There should be no illusion that the digital currency system were of any superior quality than to all preceding currency system. That, I believe is an unnecessary & uncalled for argument, for civilization is a collective enrichment process. Again for those who were late to the party, or feel left out – don‘t despair! Through mining individual just get rewarded with the money that clearly have value. At its peak bitcoins would max out at 21 million unit (by 2140), today less than 12 million is in circulation in a global economy that is 61 Trillion dollar strong & still growing. Scale of economy matters - 12 million bitcoins with about $7.5 billion capitalization for today‘s 7.5 billion people can‘t be consumer money in any sense of the word. Its built-in structure also inhibiting fluid economy or its given economic model, it is not enough to make big of a dent in that space however way you look at it. Then you are bit-loaded or not, in global perspective Bitcoin is just more than flickers. Optimists may say in ten years, Bitcoin would be spreading exponentially; conversely pessimists may term, Bitcoin is a joke, even with all those techno-usefulness, leave it where it belongs. The fact that no one knows which one it will be, is as good a sign as any that it could change the world. And now, here we are in a world of high technology, global business-street, main-street & mean-street, all are intrigued with the Bitcoin idea – this technology bit requires new thinking, for old business model won‘t cut too long. And parallel could be drawn the same way that the pioneer providers of email did not correctly understand the service they were selling for many years; new thinking will emerge, so that it reaches its full potential and becomes ubiquitous. Politicians ought to be sensitive, power vested in them should not be used as a license stilling the technological pulse of the time. Bitcoin is a puzzle to solve, not an excuse to deny the reality for old monopoly currency doesn‘t cover all sins.
Russell M Baker
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