Stripe now
supports it, as
does Square. Gaming behemoth
Zynga is taking notice, while some companies have even
offered to pay staff salaries with it. This thing
even has its own ATM. We’re not talking cash or even gold doubloons though. We’re talking
Bitcoin, baby.
Cryptocurrency
is based on the concept that cryptography is used to manage a
currency’s creation and subsequent transactions, as opposed to the
status quo which sees centralized authorities take the helm. It’s fair
to say that such virtual currencies have soared in recent times, with
Bitcoin very much the poster child of the fledgling peer-to-peer digital
payment system. But what exactly does this new-fangled currency system
mean for everyone? Is it a fad, or can it revolutionize an industry that’s become synonymous with wealth, power and greed?
Meet
Stefan Molyneux, the podcaster, broadcaster, philosopher and host of
Freedomain Radio. Molyneux is one of the
speakers at the
TNW Europe Conference
in Amsterdam next week, where he’ll discuss the shifting sands of
Western political power over the centuries, the rise of centralized
banking, government-controlled currency, and the recent surge in
cryptocurrencies.
Currency was initially a fixed entity – for example gold or silver –
meaning it was inherently limited in quantity. Banks, on the other hand,
have gradually decoupled currency from such fixed commodities to create
a system where money can be printed at will – which not only creates
great wealth and power, but also creates great debt.
So how does cryptocurrency help curb this unsustainable growth in
governmental power? We caught up with Molyneux ahead of his keynote next
week to get some insights into the “self-limiting” nature of Bitcoin
and the implications this may have for society.
Self-limiting
The Next Web (TNW):
Can you explain the
nature of cryptocurrencies in terms of what makes them “self-limiting”?
If demand rises, what is stopping more of them being made available out
of thin air too, just like paper money?
Stefan Molyneux (SM): There are two answers to that question – the first pertains to Bitcoin, and the second pertains to multiple cryptocurrencies.
A new Bitcoin is created by solving a complex algorithm that becomes
progressively more challenging over time – and only 21 million Bitcoins
can ever be produced – this is hard-coded in the architecture.
Other cryptocurrencies
can be produced at will, just as any
store can produce gift certificates in its own name, but they will
generally not become as widespread as currency itself – just as
alternative cryptocurrencies will generally not become as widespread as
Bitcoin. At the moment, for a few hundred dollars, you can create your
own cryptocurrency. It is easy to imagine that bingo halls and poker
parties might do just that, as will mom-and-pop stores who want to issue
their own ‘gift certificates’. The degree of creativity and innovation
in the realm of competing cryptocurrencies is a very positive
development for consumers, and will doubtless produce the very best
possible solutions.
Inter-generational debt
TNW:
To what extent will Bitcoin and other cryptocurrencies even things out, taking power back from governmental bodies?
SM: One of the most important aspects of
cryptocurrencies is the degree to which they deny inter-generational
debt, deficit-financing, and the easy money required for imperialism and
war.
As a species, we generally consider ourselves to be very considerate
and thoughtful towards the young. Unfortunately, that does not find
reflection in our governmental policies, which burden the unborn with
staggering debt, none of which would be possible with cryptocurrencies.
The power of the state to create money out of thin air, control
interest rates, and pretend that it is providing value to the
population, when it is merely debasing their currencies and lowering
them into a chasm of debt, will face a serious challenge from Bitcoin
and other cryptocurrencies.
Tax and regulation
TNW:
We’re starting to see moves being
made to better-regulate cryptocurrencies – won’t this put an end to the
liberating facet of digital currencies? Or is it like pirating music –
it’s impossible to fully regulate?
SM: I view the regulation of
cryptocurrencies as a transition point to their wider adoption. No
government wants to openly attempt to ban these currencies, because it
would be broadcasting a lack of faith in its own currency by pursuing
such a tyrannical action.
The more that governments can gain tax revenue out of digital
currencies, the less they are likely to attempt any kind of crackdown.
However, given the inevitable tendency of taxation and regulatory
control to increase exponentially, many entrepreneurs will find creative
ways to allow people to trade unencumbered by state power.
TNW:
You’ve previously said that
money-printing leads to debt and an unsustainable growth in governmental
power – so what are the limits here? What, in your view, will happen to
make this system crash and burn? What will force a turning point –
cryptocurrencies? Or a combination of many factors?
SM: That which mathematically cannot
continue, will not continue. However, it is impossible for any outsider
to know the truth about how much governments really owe, what their
unfunded liabilities are, and how much money is really being
manufactured.
One beneficial aspect of the modern age is that the growth of massive
dependent classes – in America in particular, almost half of the
citizenry rely on the government for significant portions of their
income – and the growth in the money supply which results in significant
inflation, has traditionally been “solved” by war. [But] the
proliferation of nuclear weapons has rendered modern war unthinkable, at
least between the Western powers, so the traditional method of avoiding
collapse by starting a war is no longer available. It is certainly my
hope that the availability of digital currencies will provide a more
gentle transition between state-controlled currency, and
citizen-controlled value.
TNW: D
o you think some element of regulation needs to be in place to restrict its volatility? We saw just recently Mt. Gox’s bankruptcy issues, it may even be liquidated, while Bitcoin valuations go up and down massively. So surely a lawless currency wouldn’t fix the status quo?
SM: I think that to assume that the word
‘regulation’ must apply to some centralized government agency is a
mistake. Bitcoin, for instance, is very strictly regulated, in that new
rules and procedures must be adopted by the majority of users in order
to be propagated throughout the network. The moment you start talking
about government ‘regulation’, you face the problem of ‘regulatory
capture’, which is when the industries supposedly being regulated end up
running the regulatory agency, donating massive amounts to politicians,
and bending the rules in their own favor.
The failures at Mt. Gox have spurred significant innovations in
security and authentication, specifically designed to prevent a
recurrence of the incompetence or corruption that caused such losses.
It’s important to remember that Bitcoin is only a few years old – how
stable was the US dollar three years after its creation in the
eighteenth century?
Black and grey markets
TNW:
What factors need to align for
Bitcoin and others to properly take off and become a standard form of
currency? How far away are we from this being a fully acceptable,
mainstream monetary system?
SM: It is important to remember that,
depending on how you measure it, between a quarter and a third of the
entire world’s economy operates in the black and gray markets. For these
markets, Bitcoin and other cryptocurrencies are a natural fit. For
developing countries, the high efficiency and extremely low transaction
costs of digital currencies provide an unprecedented opportunity to
develop a financial infrastructure without all of the associated
political corruption. For instance, through Bitcoin, it is possible to
run an entire stock exchange on a cell phone. Entrepreneurs in Africa
can sell shares to investors without having to spend the millions of
dollars required for an IPO through traditional Western stock markets.
It is certainly my hope that the transition from government-controlled
fiat currencies
to truly democratic digital currencies will be rational, knowledgeable
and orderly. However, given how unstable and debt-ridden fiat currencies
are at the moment, it is more likely that digital currencies will serve
as emergency lifeboats as the Titanic of government currencies goes
down – in other words, far from orderly, very messy, but ultimately
life-saving.
Will you be at TNW Conference Europe?
Stefan Molyneux and many other speakers and startups will be taking
to the stage at TNW Conference Europe in Amsterdam, from April 24-25.
You can
grab your ticket now.