Bitcoin, Bootstrapping, and the Black Market

One of the most powerful features of bitcoin is that it is a simple, and unbiased money.  When I say unbiased, what I mean is that bitcoin is owned by no one, and favors no one state over another–it’s not American money, European money, or Chinese money–it’s just money.

The independence of money is directly linked to the independence of commerce, so when you have a 100% free, uncontrolled money, that means that any and all forms of commerce can be undertaken.  This is everything from the angelic to the satanic–from being able to send activist funds behind authoritarian lines to be used for life-saving medical treatments, to purchasing drugs or other nefarious items–bitcoin includes all of these transactions because it is a non-discriminator money. It does not need the approval of the powers that be in order to work–two parties that want to do an economic transaction is all that is need for bitcoin to work. This is critical to understanding how the bitcoin market managed to bootstrap itself passed a fun hacker currency and into the real world of finance, economics, and commerce.

Black market bootstrapping

One of the questions that has been discussed little is how? How did some anonymous hacker’s pipe dream of a crazy, digital currency living on the web and protect by sophisticated cryptographic algorithms come to fruition? Well, outside of being a very sound mode of exchange, bitcoin can do transactions that very, very few other monies can do at this point in time–create a (almost) totally anonymous transactions between two private parties online. This allows for bitcoin (and other digital currencies) to build markets where others could not do so because of authoritarian restrictions.

It is with this niche area of service (illegal products and services) that bitcoin managed to bootstrap its way from being a play currency to being a real currency. It is specifically the ability to facilitate commerce that could not occur otherwise, or would be very difficult to occur. And thus, because commerce can occur with it, and two or more parties are willing to accept it, it becomes a currency.

Lets think about this for a minute–so bitcoin bootstrapped itself beyond, well nothing, into currency by facilitating black market transactions. Furthermore, the value of bitcoin increased because it was recognized that bitcoin could facilitate the transactions very well, safely, and anonymously. Who else, other than drug dealers could use this?

Well anyone in System D (the unregulated markets of the world) could use bitcoin.  Jon Matonis, the director of the Bitcoin Foundation wrote a great article on bitcoin and what it can offer for those in System D. I would go one step further and even suggest that in the same way that then first black markets of bitcoin (Silkroad) bootstrapped bitcoin towards more acceptance, it’s use within System D will help bootstrap it towards global acceptance.

It is going to be very interesting to see how bitcoin is going to break into developing markets. I personally hope that we will see an adoption curve similar to that of M-Pesa, The Kenyan mobile currency. Having started only in 2007, more than 30% of all commerice is done through Kenyan cell phones! With huge portions of the population being able to easily and quickly adopt bitcoin, I see a bright future for it and the developing world.

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