If you don’t think people are angry about the control of our financial system by rich people, rapists, and/or central bankers, think again. This weekend’s arrest of Dominique Strauss- Kahn for sexually molesting a chambermaid, on the heels of Matt Taibbi’s latest piece on Goldman Sachs, is the tip of an iceberg, most of which is already in place underwater where it can’t be seen. The aggregation of great wealth in the hands of the few never fails to make the many mad. The slaves will eventually revolt.
And guess who is quietly leading the revolt? The nerds — the only people smart enough to get revenge.
About five years ago, Robert Scoble, Thomas Hawk, Kristopher Tate and I were sitting around talking about Zoomr, and Robert suggested monetizing it with virtual currency. At the time, virtual currency was relatively new, used mostly in Asia and by online games and virtual worlds like Second Life. Even then I liked the idea of virtual currency, because Facebook was also using it for gifts. And then, for no apparent reason, Facebook phased it out and I stopped thinking about it.
Jason Calacanis’ excellent interview with the technical lead of the open source virtual currency project BitCoin brought this subject back to mind. BitCoin is peer-to-peer currency. No government controls it, and it is completely decentralized. Like all currency systems, its value is determined by the belief system held by owners of the currency. You can download BitCoin software and it will allow you to exchange money via your computer. The transactions are not traceable; they are all anonymous. The value of a BitCoin right now is about $6.50 (although it may have fluctuated since I heard about it). You can make Bitcoins on a computer, but it takes a lot of processing power, and for the average Joe to make one would take about five years of continuous computer processing. However, the “professional” makers of BitCoins have bigger, better machines and can turn them out faster. There will, however, always be a limited supply, which is a guarantee of value.
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?
I am told that Bitcoin is already used in drug transactions and other illegal transactions where money doesn’t want to be traced. But there are plenty of other less salacious uses for it. Another proponent of currency innovation, Aaron Greenspan, the creator of Face Cash, has written on Quora in response to California’s new Money Transmission Act, which seeks to control financial innovation in the state:
- We need regulation that controls abuses by large conglomerates, such as international banks, not startups that might compete with those banks.
- The state-by-state money transmission legal infrastructure keeps interchange prices high. Centralization of the infrastructure at the federal level would help encourage competition, thereby lowering prices.
- Visa, MasterCard, American Express and Discover should not be given a government-sanctioned monopoly on electronic payments.
As I start to study what’s possible in terms of currency innovation, I can’t help thinking that this segment of society, too, like the record business and health care, and politics, is due for a dose of transparency and disruption. Peer to peer currency, like BitCoin, is both an old and a novel idea. I will be fascinated:-)
