The Economic Efficiency of Digital Currencies

capital flows

Bitcoin and other digital currencies are new kinds of money and exchange networks that are superior in nearly every way to state-controlled fiat money. Due to the fact that all monies are directly competing with one another as economic units, money create a zero-sum game of competitive economics against one another. When we see the kind of capital efficiency that bitcoin and other digital currencies exude from their near-zero transaction cost, scalablity, security, and most importantly not being controlled by any government, we can see there is no way that fiat money can ever win over digital currencies in terms of their economic efficiency.

Capital Efficiency

Capital EfficiencyBitcoin and digital currencies will always be a cheaper monetary systems to maintain and utilize than a fiat money, partially when we consider the cost of scaling and security over the long-term, and on a global scale. Due to the unique construction of digital currencies from a security stand point, digital currencies create nearly perfectly secure money systems at rest. Out of the box, through cryptographic functionalities built directly into digital currency protocols; they are magnitudes more secure, efficient, and scalable than fiat money. Fiat money must be defended from counter-fitting, banking fraud, note destruction, and physical theft. Fiat money will always be more expensive to service, use, and maintain as a whole monetary system than any kind of digital currency system because of those weaknesses and flaws. Digital currencies have greater security and scalability than their fiat counterparts as well.

Scalability and Security

mobile banking penetrationPayment and storage of value systems are huge social networks of economic acceptance. This is why new, crisp $100 bills are accepted almost anywhere in the world due to the economic hegemony of the U.S. dollar. However, there is nothing in the dollar bills themselves that have true value; just that the next person who gets that bill will know that it is worth $100–a relatively stable value against many local currencies like the Venusalian Bolivar, or the Argentinian Peso, which have both experienced bouts of hyperinflation.

Despite the wide acceptance of the U.S. dollar, it still has the fundamental problem of transportation, security, and counterfeiting that all fiat money has–a huge expense that cost the US economy about $250 billion dollars a year. That expense is imbued into all U.S dollar transactions due to the inherent nature of fiat monetary system. As the size and scale of the U.S. dollar usage increases, so does the degree of fraud, and counterfeiting that occurs. This amount of counterfeiting and fraud is proportional to the total supply of hard money within a fiat money system, and is a fundamental flaw of any kind of state-issued fiat money.

It is this scalability flaw within all fiat money system that digital currencies exploits to be superior money. This allows for digital currencies to be magnitudes more efficient at being a mode of exchange, and a storage of wealth than any money there is today. Digital currencies have the capacity to scale so much more securely and efficiently then fiat money that they will prove themselves to be more efficient then all fiat money.

Capital Competition

capital competition Due to a condition that is similar to undercover interest rate parity, digital currencies will always offer an opportunity for profit over fiat. This is not due to an actual higher interest rate of digital currencies, but due to an increase in the demand for digital currencies over the total available, fixed, known supply. This causes for value appreciation of digital currencies as demand outstrips the limited supply. What gives digital currencies their distinct advantage over fiat is that the networks is that the money supply cannot be inflated at will. This creates an unmailable supply which is nearly impossible to change, unlike all fiat monies.

When comparing whole monetary systems, bitcoin and other digital currencies will always out preform fiat currencies because of how both currencies create their structural value. Fiat money will always be bonded to a state legal system that finds its value in the force of law, not the nature of value. Digital currencies value because the nature of markets and the protection offered by cryptography–people desire cryptocurrencies because of the traits of good money that they exude.

Digital currencies will never have the same legal and economic burdens to service as fiat money does. This means digital currencies will always have a lower systemic transaction cost than any fiat system, which makes them more economically efficient. Sovereign digital capital will always out preform state fiat capital.

Digital currencies are simply better forms of money than state-controlled money.

Conclusion

Funny that he sees that, yet bitcoin is going to destroy his wealth.

Funny that he sees that, yet he seems to be unaware that bitcoin and other DCs are going to destroy his wealth.

Due to the zero-sum nature of how currency competition economics function, bitcoin and other digital currencies present an existential threat to all forms of state fiat money. Bitcoin and other digital currencies have a lower transaction cost and greater security and scalability than fiat money. Over the next decade we are going to see one of the greatest transference of wealth the world has ever seen, and it will be from the failure of fiat money the coming economic hegemony of digital currencies.

Introduction

Over the last several years I have worked on this body of articles in an attempt to create a cohesive Theory of Bitcoin. Here is my abstract:

The Internet is a sovereign territory that exist outside and above the control of all state governments. Due to the international nature, and economic dependence that all states have on the internet; the internet has now become a spectre that is beyond any of their control. This combine with the imperious nature of bitcoin forms a new kind of money and power that can render the state useless. This power can supplant state institutions, and allow for all people of the world to economically and politically unite in 21st century, but only if we struggle to make it so. Using the internet and bitcoin we can create an international digital sydicate that will allow for the free economic and information exchange of all people around the globe as a single political body.

I have divided my writings into three (I, II, III) distinct sections. Part one explores the legal history of money; part two covers the economic functions of bitcoin; and part three covers the radical political, social, and economic ramifications of bitcoin.

Part One

This rather long section is of necessity to understand what exactly money is and how it functions from a legal and historical standpoint. There is a long and complicated legal and economic history of money and we must have some understanding of it in order to see how money is a distinct and separate object from value. We must understand that legal power over a long history has literally striped the intrinsic value from money, and replaced it with a false idol of fiat money. This is a form of theft that is only possible through legal means. This has allowed for all States to steal from their citizenry with great sophistication and guile through their alliance with the bankers. It has been over the course of several generations that money has ever-so-slowly lost its power as an intrinsic vehicle for wealth, and been enshrined in the legalist framework of state-capitalism. It is through the State’s monopolization of the mode of exchange–money itself–which has allowed for the State to divorced fiat money from intrinsic value. This in turn has created the great number of economic issues we face today.

To divorce intrinsic value from money itself is an incredible feat for the state; however, it is not without its problems. The state can only monopolize money through force and ideology, not majesty or science. States will always be unsuccessful with the monopolization of money, and history can testify to that.

This is where understanding the mechanics of bitcoin becomes extremely important. Because of bitcoin’s known, fixed monetary supply, infinite divisibility, and imperious security through cryptography; bitcoin becomes something much more than just money, wealth, or value. Bitcoin creates a totally independent, stateless system of economic and information exchange that is pseudonymous over the internet. This is extraordinarily revolutionary, as it creates the basis for a new economic system built on top of cryptography outside of the mortality and corruption of law. This will usher in an epochal change that happens only a few times each millennial!

Once we understand the mechanics of bitcoin we can see that it is truly digital gold. And just like gold, it will be impossible to eradicate from the world. However, there is one feature that dramatically separates bitcoin from that of other commodity monies: its non-physical nature.

The power of the non-physical nature of bitcoin eludes to what I have taken to calling The Digital Sovereign. This is the real power of the internet to affect and change society from without, as a sovereign force. It is with bitcoin that the internet has an economic mode for itself. This economic mode is what will start to radicalize the internet on a whole. When the internet sees the true power that lies within it to change the world, how it can do it with its own money, there will be nothing to stop it.

Part Two

Section two mainly covers the economic functions of bitcoin. First we will explain the mathematical and cryptographic features that make bitcoin provably better money than any money that exist today. We will go into detailed analysis of the features of good moneys, and how bitcoin exudes and embodies all of those ideals in the most scientific manner. This will allow for us to go into a detailed analysis of current system of fiat monetary exchange as a commodity itself. This commodity is the network that is money. Through treating fiat money in this way, we can directly contrast and analysis it against bitcoin.

It is from this lens that we can drive a wedge between the value of money itself as a network, from the value of the legal force embedded within that money. This is explained in the first section in regards to bonitas intresica, and valors imporium. Once we can see all money as being only a network of exchange, than we can see how that network operates both inside and outside of the hands of governments, and their limited economic control.

When we take classic economic theories such as Grehmsham’s Law, Course’s Transaction Theory, and the works of Keynes, Gesell, Hayak, and combine them with the tenets of anarchism, we are given a radical new understanding of bitcoin. It is once we understand how bitcoin functions economically, and why it is superior to other forms of money, that bitcoin shows itself to be the technological tour-de-force that it is.

Finally, taking Schumpeter’s theory of creative destruction, we can see laid out before us the radical and revolutionary technological power that bitcoin will use to change the world. This is not an opinion, but a fact of economic function. This is given to us by Hayak, who offers us a glimpse into the future with liberated money. In his magnis opus “The Denationalization of Money,” he describes how a world of competitive, non-state currencies would work, and how it can answer the economic and political crises of today.

With the application of understanding bitcoin as a commodity money, we can apply classic banking practices within bitcoin to create a new form of money through transparent fractional banking. This will be the model that will allow bitcoin to become the rails of the financial system, and for bitcoin to build its own debt-based units. This will spell the doom of the contemporary banking and monetary system.

This new form of money is the bridge to the future, and is the core nexus of the ideological development that will be the next epoch of humanity: The Digital Sovereign. It will be the answer to how humans are going to solve all of the monumental and heart-wrenching issues that plague our world today. With the historical and economic ramifications of bitcoin explained from the first two sections, we can now go into the third and most important of the three sections: The political power of bitcoin.

Part Three

Bitcoin is not about money at all… it is about our core values of human-beings and what it means to be free people. Freedom is a condition and identity that is acknowledge through condition alone, and today we are not free, but we can be. Through organizing around the use of bitcoin for ALL of our economic exchange and holding of bitcoin as a form of economic resistance, we can exert true political pressure on a corrupt system through economic means. If just 1% of the world’s population would be militant enough to use bitcoin in this way, as a revolutionary tool to help people organize against the machine, it would be but a week before the system started to seize, and less than a month before it were in cataclysmic turmoil.

This is the power of revolutionary syndicalism on a transglobal scale; we can use the internet and bitcoin to organize ourselves and achieve revolutionary ends. We can organize politically, independent of one another, while having economic solitary together against our respective governments.  Using bitcoin as an economic weapon against the corrupt state-capitalist machine to which we all belong, we can realistically create dramatic change in our world. Pulling from the historic traditions of anarchism, we can ultimately organize around the theory of the general strike. This will cause for a complete collapse of the State-capitalism as we know it so we may transition to a new way forward.

This is only possible if we proactively start building towards a better tomorrow now! We must do this through the formation of a revolutionary political union, and advocate from this seemingly radical stance. Through the use of the internet as an ideological tool, we will create a new class consciousness. This class consciousness will fully contain and represent the international proletariate through the ability of all people everywhere to use, interact and organize with the internet itself; and to use bitcoin as the economic vehicle to bring about change.

Next Section: Sovereign Violence and Legitimacy of Law

The Reappropriation of Our Economic System

What we have been taught about money and the economic system is little more than a collection of lies, and propaganda shoved down our throats at the point of a knife. Our economy is far from being fair, or free; and we are exploited by the whims of capitalist whom have received the seal of approve from all governments. The financialization of the economy by the state started with the creation of the Federal Reserve, and finalized with the abandonment of the gold standard. This was the beginning of the end of money having independent value from governments. When governments of the world discovered at Bretton Woods that they could simply end the convertibility of gold, and all governments could move forwards with only fiat money they were exuberant. This removed the greatest check on government power that has ever exist: the power of the purse.

To Smash the Chains

resist_oppression_communism_greenThe legacy of capitalism is deep, profound, and all encompassing within our society. The reification of everything by capitalism has left no stone unturned, and has sucked every facet of life into the economic sphere. This is not the capitalism that Smith and Ricardo understood; but a distorted, anti-human Deus ex Machina careening toward the destruction of both humanity and Earth. This greatest evidence of this is in the near complete and total environmental destruction that we have experiences all over the world with the sixth great extinction of species from this planet. Indiscriminate of nationality, race, or origin; our oceans, skies, water, and land has all been polluted and raped by the powers that be. The very governments that were empowered with protecting our sacred rights were overthrown by capitalist gangsters; thugs in suits who auctioned everything off for a meager thirty pieces of silver.

The issue is not with the capitalists who only know corruption and theft–this should be expect from them most of all! The issue is with the state, politics, and the corruption that has enveloped all aspects of our social spheres. This system is corrupted and festering to the core; it cannot be saved, nor should it. The men of politics who hold themselves in such high esteem for being the negotiators of the prostitute our political system are the very ones that hold us down to be raped and used, again, and again by the capitalist machine. Our cries of consanguinity are never heard; we are little more than objects to be tolerated by them, while they exploit us to our deaths. If we are to be liberated, and free, as we were promised by our forefathers and the constitutions that govern us, than we must smash the chains of economic enslavement which we keeps us tethered to the destructive machine that we call capitalism.

To Break a Monetary System

We must harness the power of markets and entrepreneurship for the good of all, while dividing ourselves from the parasitic nature of capitalism. We must rip power away from a corrupt state which empowers a very small, exclusive class of people to the right of destroying the world of tomorrow, for a collection of trinkets today. If we are to ensure that we have something to offer to our children other than imprisonment, and a burned Earth, than we must choose to end this system of abuse now, today, and permanently.

This can be done. We have the means to break this totalitarian socio-political-economic system of the old world, and usher in a new era of global development outside of the hands of both the state, and capitalism. We can reappropriate our respective national monetary systems, for new, independent digital ones. Through this single action alone–through the reclamation of our economic power–we shall create a domino effect that shall ripple throughout the economic, political, and social structures of the world. Through using an independent money whose control and power comes from outside of the state, people can reappropriate their economic power for themselves. This will come at the direct expense of the state and capitalist who bleed us like the vampires and leeches they are. By breaking the monopolistic control of the means of exchange by the state, we shall expropriated the system of exchange, and the means of exchange itself back to its rightful owners: the general public.

We see the corruption of their system. Beneath the shimmering veneer of capitalism’s accomplishments and supposed progress, lay the untold billions of shatter lives. At its base we see that the law is nothing more that offical violence–state sanctioned terrorism with propaganda from a capitalist third estate.  To fight their violence we must use the most powerful weapon at our disposal to rid ourselves of this barbaric system:

Non-violent, direct economic action

Through simply using another form of money, we banish the violence and vicious fist of the state from the economic power that each one of us generates. No longer would the state have the ability to rob us, nor would they be able to fund their crimes, or continue their corrupt regimes. To cripple the monetary system would strike at the very heart of the corrupt state-capitalist machine, and would cause for it to come to a grinding hault.

International Money for All

bitcoin-networkEach state is invested into its own system of governance, money, and taxes so that the small powerful elite can rule over all for their own pleasure. They keep their power not through democratic means, but through oppression, division, regulations, controls, taxes, boarders, prisons, levies, and so much more. This is not for protection of the masses, but their oppression. This is not create justice, but to maintain injustice. Governments create these artificial rules and regulations so that they may steal from their people, and keep them divide and silent. We must see their petty tactics for what they are, and see the magnitudes of our own strength which we have in our numbers.

For the first time in human history we can smash these artificial boundaries and false consciousnesses of nationality and statism, and find solidarity in working together through simple rejecting their corrupt economic and political systems. There are billions of people across the global that create trillions of dollars of economic wealth each year; and yet these very same people live a life of poverty and insecurity from the exploitation they face. Through creating a new popular front against capitalist exploitation under the guise of the state, we can create a new economic and political movement that can break the bonds of debt that have enslaved us.

Using digital currencies as a political action, we can reappropriate our economic wealth away from the hands of corrupt politicians and their capitalist allies, while create a revolutionary new way forward. This single action alone can ensure that we will no longer be enslaved to the same system of debt bondage that has created the conditions of the world today. Together, as a single unite body of free people, we can banish the last vestiges of slavery from this planet for all history moving forward.

The crux of power within this system is control of the economy. This control is exerted through the monopolization of the object of exchange: Money. Governments steal fragments of the wealth from each and every person on this planet through taxation and inflation, while also give themselves the power to punish with legal violence and death to anyone who opposes this monopoly. The minders of this monopolies are the capitalist banksters, thugs who strut about in fine suits with no shame of their avarice, or the blood that taints their money. Through the direct expropriation of the system that benefits only the 1% at the expense of everyone else, we will  create better conditions for the great tide of all.

International Direct Economic Action

solidarity

We do not seek to create a party or to organize with titles and salutations; we simply demand direct action. We understand the most significant action we can take is to refuse to participate within the old economic system, while building our own independent one. Through boycotting fiat money and using digital currencies instead, we create a dual power of both economic boycott from the current system, and economic solidarity with the new emerging one.

This new system of exchange is not based upon the false nationalities that have been assigned to us, but upon the permanence of mathematics that applies to all of us. It is a form of money that is inclusive of all peoples, regardless of whatever oppressive state one may be forced to live under. Most of all, bitcoin is a form of exchange that is outside of the control of both statist scum, and capitalist pigs. It is a totally new form of money upon which we can build a new system of exchange, and an independent economic system. If we are ever to liberate ourselves from the chains of capitalism, and the impressment of debt, then building a new and independent economic outside of their control is the only way that we can move forward.

Bitcoin and other digital currencies can be the tools upon which we build this great new economic and monetary union–but only if people are willing to learn and participate. We know that there is a deep people problem with bitcoin, and that we will need to educate and agitate if we are to create a real and substantial change. This is the start of the global economic revolution that will smash down the artificial boarders that separate us, and will economically unite us against our respective oppressors. Bitcoin is the new economic Popular Front against the exploitation of capitalist, and enslavement from tyrannical state governments around the world.

Next: Bitcoin, Economic Resistance, and Justice

Bitcoin is Not About Money

It’s about power

Bitcoiners are part of a new political, economic, and social class. At the core of our tenets is the recognition that bitcoin and digital currencies are powers in themselves, and that they cannot be restricted by the despotic tyranny of States, or their capitalist allies in banking. We are not united by our creed, nationality, or gender, but by our economic objectives and the advancement of our technology. We are the ones that shall force the fiat banks towards their death, and we are the ones that shall make the State capitulate on its monopoly on legal tender and the mode of exchange. It is time for the youth of this world to rise and take their rightful place in history by striking down the awful corrupt governments of the past that have sold us out. No longer do we need to remain subservient to this system of exploitation and alienation. 

The Digital Vanguard

There is nothing that ties any of us together–no names, no identities, no bodies–just Bits of data being sent across the Great Commons of the Internet. Together we have created a multi-billion dollar economy from nothing just five years ago. Those who hodl bitcoin are far past the point of doubting the success of bitcoin–we know bitcoin will be successful. We see its power, we see its efficiency, and we see the world that we are to create with it–and governments of the world and their corrupt allies are not part of it.

We are the Vanguard of bitcoin. We are the ones who shall fight the Goliath of Finance and the Leviathan of the State and watch them fall from the pedestal of human they mounted themselves upon. We shall watch them fall, we shall watch them burn, and we will do nothing but stoke the flames. We will do simply laugh and walk away, disengaging them and continuing to build the new economy that is based upon the values and virtues that has been put into the code.

Over the last few years we have poured our hearts, minds, souls, and fortunes into this project. We have made the market, built the applications, and connected the nodes, and militantly worked on security to ensure our success.

Indeed, detractors will do everything they can to discourage us. Even in that very word, we can see their cowardice; to dis-courage. They lack courage; and are spineless, sniveling, fear-dominated people who couldn’t fight anyways. They only see a world of 9-to-5 enslavement as a favor that we should be grateful for. These people cowtow under the unjust laws of their masters; for anything their masters choose, for them becomes law and justice. We refuse to bend our necks to these men: we know the crime against humanity they have purported, and we shall resist them.

Together, united in the cause of building a better money, we shall also build a better world. We have made ourselves nearly invulnerable to the malice of the state, and rage of the banks though ensuring our Privacy. We know from the code that Privacy is our immutable Law; for privacy is what assures us not only our safety, but our equality in dialog as well. We know nothing of the other parties that participate with us, except for the Solidarity we have with one another. Together we are building an economy that is based upon fairness, equality, and individual sovereignty–and we are not asking for permission to do this.

To Build a Free World

We are the ones that have ensured the success of bitcoin, and we have been and shall continue to be rewarded kindly for such loyalty. No one came to us and said, “You need to invest and support this,” In fact, many of us were mocked and called fools for ever believe in it. But onward and upwards we went, making the long journey from the obscure origins of bitcoin to the multi-billion dollar economy it is today. No one told us we would make 5, 10, or 20 times what we originally invested–we did that.

Famous vulgar philosophers, politicians, investors, economist, and journalist from all around the world have insisted that bitcoin would be nothing. They said it couldn’t be a currency, and that it was only used by drug-dealers and pedophiles. Every single step of the way they laughed at us, mocked us, and insulted us…and yet we are still here, growing, building, and pulling more and more into our sphere of influence, and away from theirs with each passing day. So quietly and seditiously, people are coming to understand the nature of money, and realizing that the banks, and the state are using that to keep them oppressed, and divided from our true political goal:

Freedom-has-meaningFreedom.

True, unadulterated, messy, complex, Freedom.

Freedom that cannot be suffocated because of the fears of pathetic men who need to terrorize us into compromising this most sacred of rights. Freedom that cannot be taken at the whims of the states, or the cries from banks.

Freedom–despite being so thoroughly abused, manipulated, and contorted by men of power for nefarious deeds–is a word that still has meaning. Words will always seek to give themselves means for what they are and what they represent. The word ‘freedom’ will always sound hollow coming from the mouths of oppressors to justify their despotism, which will also make present the need and demand for what ‘freedom’ truly means.

Tragically, we were birthed into a world where the fascist won long ago, and created a sophisticated oppressive apparatuses of nightmares to terrorize us into giving more and more power to the state, and their allies. This manufactured terrorism from our masters has allow for us as a people–fearful, and trembling–to sacrifice our essential liberties, bastardizing our sacred constitutional rights, proving their worthlessness without the force of men, and the will to protect it behind them.

Bitcoin is not about money

It has never been about money, it’s about freedom and what that means for our society today. As we descend into the panopticon the state is erecting at this very time, preparing the gulags in the deserts, and military control of these states, we declare that we shall not go quietly into that dark night. We declare that a government that is marked by every act which may define a Tyrant, is unfit to be the ruler of a free people. Together we are building the mode of resistance that shall cause for the empire of paper to collapse, which will free everyone from the shackles of debt, and the chains of domination.

We shall no longer be force and intimidate us into playing by the corrupt and hollow laws of the state. We see the men of government, banking, and capitalism for the criminals they are, and for the damage they have done to us. We see how they have betrayed their oath, their nation, and their honor. Their words, and their threats are meaningless to us. We are building a better world that they are not a part of, nor will they be allowed to be a part of. We no longer need them.

Next: Revolutionary Syndicalism of Bitcoin

The Legal Politics of Money

Digital currencies are a new form of economic organization that exist entirely outside of the reach of the State. This has far-reaching ramification not just for money and capitalism, but for the ideological super-structure of the world today. Forcing concepts like exchange and economics into a theorem where tangibility is no longer needed causes for an unraveling of the state power structure itself. Institutionalized violence is no longer prerequisite for the monetary and legal system to function.

The ideological structure of capitalism has embedded itself into the state via the legal system. The State then acts as a thug on behalf of capitalist by enforcing laws through means of legalized repression and violence. It is from this proof-of-violence concept that states are able to force people to accept the legitimacy of contracts, the law, and the value of fiat money at the point of a knife. If governments could not the violence of their legal systems to enforce the acceptance of fiat money, or the repayment of debt; the entire international monetary system would collapse overnight.

Sovereignty of Value and Legal Ideology

All contemporary forms of fiat money rely on the physical and legal enforcement of laws, and the monopolization of the payment systems in order to create exchange value. All state money systems operate on maxims of restrictions based in law, enforced with mystical propaganda in one hand, and a clenched fist of enforcement in the other. The propaganda that is used to convince people of the need for the State to control money is far more important than the laws that create that money, or the guns and violence that are used to enforce their value. It is only through the repressive apparatuses of the State, and the cooperation of their capitalist allies that allows for this system of fiat money to continue to hold value.

Legal restrictions create the nominal values of the currency bills from all states. It is the same for the EU’s Euro, the Chinese Yuan, or Malaysian Ringgit–the currencies have nominal, redeemable value for goods and services in those Nation-States (or unions), and not outside them.

The value of these national currencies are created explicitly from the monopolization of the payment systems, and the monopolization of the issuance of legal tender. The monopoly of money itself via legal tender, and the monopolization of the payment system by the banks working with the state, is how national currencies forces themselves into a means of value, unlike commodity-monies like gold, sliver, or bitcoin.

The value of fiat money is unnatural and is only create through legal force. The power to create fiat money exist solely in the legal realm. However, what forces them to have value is the violence in which the laws based around those nominal values function. There is no such law to make commodities into money; they are simply valued.  Mises surmises this in the appendix of “The Theory of Money and Credit,”

Ludwig von Mises

Ludwig von Mises

“Another acatallactic doctrine seeks to explain the value of money by the command of the state. According to this theory the value of money rests on the authority of the highest civil power, not on the estimation of commerce. The law commands, the subject obeys. This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation. Since this cannot be asserted to be the case, the state theory of money is obliged to limit itself to the thesis that the state command establishes only the Geltung or validity of the money in nominal units, but not the validity of these nominal units in commerce. But this limitation amounts to abandonment of the attempt to explain the problem of money. By stressing the contrast between valor impositus and bonitas intrinseca, the canonists did indeed make it possible for scholastic sophistry to reconcile the Roman-canonist legal system with the facts of economic life. But at the same time they revealed the intrinsic futility of the doctrine of valor impositus; they demonstrated the impossibility of explaining the processes of the market with its assistance.”

This difference between valor impositus and bonitas intrinseca: the nominal value of units imposed by the state–such as the dollar or shekel–and that which holds real intrinsic value; such as the metals, minerals, or other storage of value.

The best example of how these two values act against one another would be a gold coin that has a lower face value than what the coin is worth on the open market–it is not the stamping of the metal that creates value, but the amount of gold that it is comprised of.

Mises spoke further of the historical difference between the nominal value of coins, and their weight as metal:

“Nevertheless, in defiance of all official regulations and prohibitions and fixing of prices and threats of punishment, commercial practice has always insisted that what has to be considered in valuing coins is not their face value but their value as metal. The value of a coin has always been determined, not by the image and superscription it bears nor by the proclamation of the mint and market authorities, but by its metal content. Not every kind of money has been accepted at sight, but only those kinds with a good reputation for weight and fineness. In loan contracts, repayment in specific kinds of money has been stipulated for, and in the case of a change in the coinage, fulfillment in terms of metal required. In spite of all fiscal influences, the opinion gradually gained general acceptance, even among the jurists, that it was the metal value—the bonitas intrinseca as they called it—that was to be considered when repaying money debts.” Part 1, Chapter 3

Today because of the structure of late capitalism, where the state monopolizes the currency, and the banks monopolize the exchange of currency, there is no way to demand repayment in anything other than more fiat. It is from the insidious brilliance of forcing all exchanges into legal structures with no alternative payment forms, that fiat money both creates its own value, and also becomes a legal power.

We can see that money today is not valued because of its bonitas intrinseca, but only its valor impositus. This means that the only way that the state can make its money hold value is through explicit legal means, which are reliant on repressive legal enforcement, and nothing else.  

Physical World Against Digital Laws

There is a glaring issue with this mode of money creation when we start to consider for a moment that the world that we live no longer is orchestrated by legal enforcement of the state, but digital communications.

There is no physical footing in this world, no place for the apparatus to establish itself.The repressive violence states use to enforce their laws simply cannot exist here.

If we return to Foucault in Truth and Power he provides us with more hints about the functions of the state and why ‘cutting off the king’s head’ has been impossible until recently:

Moderator: The King’s head still hasn’t been cut off, yet already people are trying to replace it by discipline, that vast system instituted’-in the seventeenth century comprising the functions of surveillance, normalization and control and, a little later, those of punishment, correction, education and so on. One wonders where this system comes from, why it emerges and what its use is. And today there is rather a tendency to attribute a subject to it, a great, molar, totalitarian subject, namely the modern State, constituted in the sixteenth and seventeenth centuries and bringing with it (according to the classical theories) the professional army, the police and the administrative bureaucracy.

Foucault: To pose the problem in terms of the State means to continue posing it in terms of sovereign and sovereignty, that is to say in terms of law. If one describes all these phenomena of power as dependent on the State apparatus, this means grasping them as essentially repressive: the Army as a power of death, police and justice as punitive instances, etc. I don’t want to say that the State isn’t important; what I want to say is that relations of power, and hence the analysis that must be made of them, necessarily extend beyond the limits of the State. In two senses: first of all because the State, for all the omnipotence of its apparatuses, is far from being able to occupy the whole field of actual power relations, and further because the State can only operate on the basis of other, already existing power relations. The State is superstructural in relation to a whole series of power networks, that invest the body, sexuality, the family, kinship, knowledge, technology and so forth. True, these networks stand in a conditioning-conditioned relationship to a kind of ‘meta-power’ which is structured essentially round a certain number of great prohibition functions; but this meta-power with its prohibitions can only take hold and secure its footing where it is rooted in a whole series of multiple and indefinite power relations that supply the necessary basis for the great negative forms of power. That, is just what I was trying to make apparent in my book [“The Order of Things” which was originally titled “Words and Things.”].

To cut off the king’s head we must venture into a realm where a footing for his power cannot be found. A realm where the physical violence, repression, and thus the capacity to physical enforce nationalistic laws cannot exist. The meta-power of the state and their various laws end where they do–in physical territory, in a physical world. There is no need to cut the heads off of false prophets whom we are immune to.

Digital sovereignty departs from the theology of law, and builds a new economic system that operates from a critical bias of math, instead of physical enforcement. These systems are based upon non-physical knowledge alone (knowledge of the private key), which means these systems are built solely around their mathematical soundness. The code upon which these currencies are written is their own sovereign valor impositus. The computer code itself is the legal-mathematical structure that enforces the rules of bitcoin, and other digital currencies–no State or third-party is needed.

Digital Sovereign and The Banishment of Physical Force

Digital currencies are the kernel of power that a new economic and legal superstructure will be built from. Power is no longer something that comes from the sword, but from the pen.

Violence cannot be an explicit tool of enforcement or appropriation in a nearly-anonymous, digital system like bitcoin or other digital currencies. Economic independence outside of the control of the state or the banks is now a real possibility. This severely underminds the power of the State, the banks, and state-capitalism in total. Digital currencies allow for a new frontier of economic freedom and independence, that is not achievable with the current monetary and legal systems. With bitcoin, people are free to choose who they conduct transactions with, without the permission of the state, banks, or the violence they use to enforce their laws.

When we start to critically assess the current money systems of the world, along with the ideological and mythical structures of sovereignty, law, and the state; we find that they quickly break down under scrutiny. We come to understand that the dominion of the ideologies over our lives is not based upon some holy, progressive knowledge that protects us and gives us salvation; rather, it is barbarism wrapped in blanket, upon blanket of lies, obfuscations, and deceptions.

We see that it is not magnanimity or justice that governs the actors of the State; but selfishness, greed, corruption, and cowardice. We come to see the world as Angelus Novus did, and the horrors of what is stacked in front of us and growing with each passing day. To make whole that which has been smashed is possible, but we must wake the dead in our quest for redemption. The gate is strait, and it is our duty to show others the liberation that can come with each passing second.

In the declaration of independence of cyberspace we declared our virtual selves immune to state sovereignty, even as we continue to consent to the subjugation of our bodies. In the mean while we have spread to every corner of the global to ensure that our thoughts cannot be arrested, and so that the crimes of the state and capitalism will be seen by all, for all of history to come.

We now have the means to reappropriate our sovereignty, our economic independence, and ultimately our political organizations and the State itself. This can and will be done to end the era of state-capitalism, and usher in a new era of global digital organization. We are creating a civilization of the Mind in Cyberspace, and using digital currencies to economically unite us is the first step towards this new world.

Next: Bitcoin as a Commodity Money

Bitcoin and The Internet as Ideological Apparatuses

Bitcoin is not about money–it’s about power. Bitcoin is a political force, technological ideal, and mode of economic independence for the internet itself. Using Louis Althusser’s concepts of ideology and ideological state apparatuses from, “On the Reproduction of Capitalism” we can analyze bitcoin and the internet as as anti-state ideological apparatus.

10f96-althusser160x220tHere is an excellent introduction to Althusser’s concepts and an explanation of what exactly is ideology, ideological apparatuses(IA), and repressive state apparatuses (RSA) are.  In his work, Althusser offers a powerful way of understanding the organizations of capitalism. He shows how various ideological apparatuses operate in conjunction with repressive state apparatuses to create, organize, reinforce, and reproduce the conditions of society today to serve the current capitalist paradigm through the state.

For our purposes we can apply this same logic to understand where the internet fits into the capitalist society. From this we will see how paired with the  power of bitcoin, and other digital currencies may develop.

The Internet as an Anti-State Ideological Apparatus

The Internet is a new territory, and today is controlled by States for the use of capitalism; but they are quickly loosing control. This occurred by design as the internet grew from the small U.S. government project it once was; and developed into the global world wide web it is today. Today they internet rivals G7 states in terms of its population, GDP, and most importantly its ideological norms.

Though there are many internet cultural groups today, the original ‘internet culture’ would be the cypherpunks. From the cypherpunks came publications like, “Security without Identification: Transaction Systems to Make Big Brother Obsolete” wrote in 1985.  Even before the world wide web existed, the anti-state principals of the digital movement were already entrenching themselves.

Those involved in the cypherpunk movement would later go on to write the declaration of independence of cyberspace, and would help advance the internet at every new crossroads it came to. This early vanguard of the internet operated on tenacious, uncompromising principals of freedom of information, communication, and the right to privacy. These ideas imbued themselves into the internet and became an ideological backbone that allows for the open web to function.

The Internet is antithetical to the State.In this realm people can create new identities that could not exist within the physical realm.We given the right to developed our voices and identities free from the constraints of the panoptic police state. Our physical bodies no longer constrain our ideals; we have moved beyond being mere sinew and flesh and into the Noosphere. Here exist a mode of communication where we are stripped of our human bodies and become only the political body of the words and information that we convey here. Our names, national identities, religions, educations, and every other form of inscription that we are subjugated within contemporary society are secondary within the internet.

The identities that we are allowed to created for ourselves on the internet, unmolested by the forceful ideology of the various state apparatuses and under the guise of anonymity; we become more than mere objects to be subjugated to the desires of a capitalist society. We are allowed an entire universe where we can choose who to become, and to seek out the information we desire to know. Everything that defines us as subjects, and the territory of physical space that we occupy becomes secondary. Our physical bodies cannot exist within this medium; nor is it definitive of who we are in this space–we are truly free here. These are the murmurs of the new class consciousness that is forming inside of the internet itself, and it cannot be stopped.

Althusser believed that the education was the most powerful ideological apparatus that there was. Education as an institution is a tool exclusively owned by the ruling classes explicitly to control the dialog of what is knowledge and what is education. The so-called fields of factual hard sciences focus their narrow pursuits in the name of capitalism, to the same degree that fields like history, economics, and political science seek to justify the capitalist world we live in. What is considered ‘education’ becomes part of a great dialog that is no longer about facts, critical think skills, and self-empowerment; but learning obedience as truth.

This has profound and far-reaching ramifications when we consider that scientific knowledge is the bases of power in a advance technological capitalist society such as ours. With unrestricted, unfettered access to information, along with the assurance of what one is search for and coming to understand is private; one is freed from the ideological chains of the system that controls every aspect of lives. Here it is possible to develop one’s own truth without the taint of capitalism– we can form truths of the world from our own standpoint without fear from of the panoptic police state watching us.

Education as Ideological Entrenchment of Capitalism

Do as I say, because as I say is correct

The internet stands in direct contrast to the educational establishment and its ideology. The education establishment is reliant on authoritarian knowledge official, state-sanctions communication channels (teachers, libraries, degree programs, etc.). Whereas the internet is antithetical to that. There are no minders or masters to deem what is appropriate ‘knowledge’–only facts that present themselves for what they are.

This implies that ‘education’–or the acquisition of knowledge via the internet–is something that must be done autodidactically. One must disseminate information for oneself, and to compare and contrast sources to discover the difference between what is ideology, and what is fact. This can only be done alone, and using one’s own faculties.

The Internet is an endless well of information for those who seek it. There are no minders or masters to approve of fact which establish themselves by the truth of their being, rather than the sanction from official sources. This destroys the ideological monopoly that education institutes have on the source for knowledge, which can call the paradigm of  classic education institutes, and their relationship with capitalism. The impact of this is not unlike the Protestant Reformation challenging what was the authoritative source for knowledge.

Through the domination and monopolization of ‘what is knowledge’ vis-a-vis educational institutions, there is a wicked contortion of knowledge. Knowledge is no longer fact, but idology. This is reinforced repeatedly incessantly to such an extent that one becomes confused between what they know to be true for themselves, and what one has simply been told so much, that one believe that to be true.

Money as an Ideological Apparatus

So how does this all relate to bitcoin and money? Money as a concept is deeply, deeply embedded into us as a ideology and religion. Due to the constant bombardment of misinformation about how money works, from all ideological state apparatuses (media, school, work, etc.); money becomes a very complex and convoluted topic. Due to all of these various influences, money ends up taking on its own mystical weight, and becomes a powerful ideological component of the current economy paradigm.

Through the education system we are taught that governments are good, and the world works the way it does for good reason. We learn from this system that economist can explain why the economy functions as it does, and why we all must work hard to take home our day’s pay. Included in this ideology is the notion that  our noble business leaders, who lift the world upon their shoulders, are entitled to a king’s share of the wealth for directing his firm to make a profit; even if this is at the expense of many.

This ideology serves to alienate and divorce economics from its original purpose as part of philosophy. Today almost all economist are exclusively modern monetary theorist who are heavily relent upon complex mathematical modules to explain economics. Any economist who does not accept the concept of seigniorage as fact, are simply disposed of as not being ‘real’ economist. From the get-go, we are taught to believe in the righteousness the economic system and to not question it on a fundamental level.

This is how government are able to control the money supply and keep huge portions of the globe under the despotism of poverty without anyone blinking. We have been taught to believe that capitalism in its current form, backed by the state, is the only way to organize the economically and politically. We have been told that money functions perfectly being controlled by bankers and the state, despite all factual evidence against it.

Bitcoin as an Anti-State Liberative Apparatus

Due to the influence of the internet, and the way that people use it to discover information for themselves; there is an autonomous space for an non-state money to exist. Bitcoin is the antithesis of both repressive state apparatuses and ideological apparatuses.

The main purpose of bitcoin is to act as the central bank of the internet. Like the Internet, bitcoin is distributed, decentralized, and ran by a protocol which allows for communication anywhere in the world. Its first and primary economic loyalty is to the internet itself–no internet, no bitcoin. Its secondary function is one that represents the ideology of the internet itself.

Digital currencies are revolutionary because they were built with revolutionary ideology at their core. Bitcoin is money built for the internet, and the internet alone. There were plenty of other digital monies that came before bitcoin, they died because they did not have the capacity to stand against the state. Bitcoin was built on top of strong crypto because Satoshi knew that if any money for the internet were to truly gain traction, it would become the implicit enemy of any and all states.

What I find the most fascinating about this ideological function of bitcoin, is that it uses the logical exploit of capitalism, and how capitalism holds the sanctity of itself (capital) above all else (or as Marx put it, the valorization of value) to turn capitalism against the state. Through removing money from the hands of the repressive state apparatus of banking, bitcoin makes money more effective than it has ever been.

Bitcoin can do this not because of the powerful ideological argument it offers, but because of its economic efficiency over other moneys. Bitcoin and other digital currenices have the capacity to take on all of the economic roles that the states, and can do it for a fraction of the cost.

As we catapult into this brave new world, we will find that other ideological apparatuses will slowly change their perspective about bitcoin. This will not be because there will be some radical awakening to understand money; but rather the reproductive purposes of capitalism will fulfill the role that Althusser predicted it would. The capitalist paradigm will shift from that of being in alliance with the state, to being in conflict with the state. And this will be because the state itself will become inefficient to the service of capitalism via the internet, and thus can be disposed of like everything else that does not serve capitalism.

As bitcoin gains more economic power, it will also gain political, and ideological power. It will utilize this base of power to pull back the veil of corruption and expose the powers that be for the banality that they are. Another world is being build where the State is not allowed, nor any of the ideological apparatuses that serve it.

Next: The Magic of Money, The Science of Bitcoin

The Political Ramifications of Independent Money

Bitcoin is a radical new technology that we do not fully understand the impact of quite just yet, and most likely, we will not for years to come. As this economy grows, evolves, and has more market participants, the itching question is, how will this affect the political situations of the world? At first glance bitcoin may not seem like much at all, but when you look at bitcoin through the lens that it is independent wealth controlled by no nation-state, there are some interesting questions that are called into play.

 Regulation is a moot point

There has been debate about the idea of regulation vs. no regulation and I really think that it is a moot point considering that as private individuals that own bitcoin, we are free to exchange with whom ever we please–no government required. Furthermore, people can protect their identity from any sort of interloping from the State, which means that Bitcoin is a truly free global commodity that cannot be stomped out by any government.

This is not to say that regulation will not effect the market, but rather, the market can exist, and has existed without regulation for the last several years. Moving forward, if there were to be anything that could seriously threatened bitcoin, or their users, there is nothing that is preventing bitcoin users from simply absconding their wealth into the internet, and turning up somewhere else in the world with it. With Bitcoin being recognized as private money in Germany, I see no reason for wealthy bitcoiners to consider tolerating any sort of regulatory intervention and losing a substantial portion of their wealth due to such interloping policies.

Our wealth is assured by math, our freedom is ensured by politics

With the imprisonment of Ross Ulbricht and the discussion of bitcoin red list, there is a very important principal being discussed, it is called a bill of attainder. This is the legal concept of a legislature declaring a group of people criminals or guilt of a crime by virtue of who they are, or how they are identified. What is important to understand is the possibility of having one’s wealth seized in a manner similar to how if you try to spend a forged $100 bill, the merchant won’t recognize the value of that money, they will just take it and turn it in to the authorities–and you will be out $100. By tainted coins that have been used ‘illicitly’ it calls into question the fungibility of all coins–something that would not be tolerated internationally. James Madison explained why bills of attainder are so dangerous in the Federalist #44 stating:

“Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. … The sober people of America are weary of the fluctuating policy which has directed the public councils.  They have seen with regret and indignation that sudden changes and legislative interference, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community.”  —James Madison

This legal question has been answered–tainting bitcoin is illegal and unconstitutional. Bills of Attainder are prohibited on three occasions in the U.S. Constitution and also in all 50 State Constitutions. With that being said, things being illegal or unconstitutional has never stopped the government before, so there is no reason it would stop them now. The question is how far will both bitcoin-accepting business and individuals cooperate when various government agencies start tracking coins, their owners, and showing up at people’s doors, threatening them with grand juries, imprisonment, and violence for not cooperating? As much as I would like to think the government would be stonewalled, I also know that the FBI has a long and robust history of acting outside of the law in very illegal ways, and convincing people that cooperation is the only way. It will be interesting to see how governments treats our physical bodies when they cannot seize our wealth.

State Against State

The most important feature that bitcoin offers in terms of regulation, is how states are going to position themselves in what will eventually become a game of State against State. Most interestingly, the U.S. is the one nation that has the most to lose here, when you start to consider that bitcoin can very realistically challenge the dollar’s global reserve currency status. This is perhaps what we are already seeing with bitcoin’s dramatic rise in China, with their government remaining rather quiet on the issue. Perhaps they are exploring the idea of using digital currencies to weakening the United States Dollar’s death grip global commerce–it will be interesting to see.

The most important fact to bear in mind here is that bitcoin is superior for international commerce in totality. It is faster, cheaper, more secure, and has less oversight than any fiat currency or precious metal. This means that bitcoin is inherently economically superior to the USD as a reserve currency, and challenges the exorbitant privilege of United States. As bitcoin grows and incorporates itself in more and more markets, it is going to seriously challenge the worth of fiat money itself. States like Germany that choose to adopt a sensible policy will do well with their admission that they cannot control the currency, and to simply treat it as a private currency. States try to restrict and control bitcoin are just going to shoot themselves in the foot hamper their own commercial activity.

World Citizens Against States

The most powerful political ramification of bitcoin and digital currencies is that it creates a new class of international world citizens–a people who’s wealth and prosperity is not linked to that of boarders or territories. When we consider that 16 countries have inflation above 5% today, why would people ever choose to hold paper that is losing value everyday? When people discover there is a way to protect their wealth against the tyranny of inflation, I see no reason why they would not.

But this calls into question something that is clear for most bitcoiners today: Fiat money is garbage. The only reason it is useful is because the state forces us to use it. That does not make it better in any way, and perhaps it makes people very spiteful. Keynes understood this point, as we can see below:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.  By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.  The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.  Those to whom the system brings windfalls . . . become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than the proletariat.  As the inflation proceeds . . . all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.

These ‘profiteers’ that Keynes speaks of are the bankers that today are richer than they ever have been, despite having caused the economic turmoil that we are all in today.  As we move into the future, the gap between the rich and the poor is just going to become more extreme. It is clear that the State has failed to protect its citizens from the destruction of state-sponsored capitalism, and it will be up to the people themselves to find the protection they need from both the State, and from their crony capitalist allies.

Once people come to understand that incredible gains they can personally have from using digital currencies, there will be very little reason to continue using fiat currencies. This will then push forward the crisis of confidence that we are already seeing with governments around the world. The final step to ensuring that these governments crumble into nothing, and that something else can be erected in their place, is when their money simply stops being accepted by people. Once that occurs, there is nothing these governments can do–they will have lost.

Conclusion

Bitcoin is not only a revolutionary technology; it is also an incredible empowering technology. For the first time in generations, there is a new tool that allows for people to make the choice if they want their governments to be in control of their wealth. Bitcoin allows for people to refuse to participate in the madness that has become our economic and political system. It offers us an exit from this corrupt system so that we may build a better, more equatable world where we can assure to one another, and our posterity that theft from the state shall never be some we will tolerate ever again.

Bitcoin’s Creative Destruction

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

–Joseph Schumpeter in Capitalism, Socialism and Democracy

The process of creative destruction can be thought of as the evolution of efficiency within the markets. This can take many, many different forms with the core premise being to create new profit through innovation–with innovation being the keyword. Creative destruction is the wedge that divides the entrepreneurs from the capitalist.

Creative destruction generally presents itself as a technologically achievement that creates a greater total utility from the new product or process over the old. It can also take place as non-technical innovation, such as the worker assembly line processes pioneered by Ford, or the development of the just-in-time production strategy. These new innovations ‘destroy’ the older models through direct competition, not through using any sort of oppressive apparatuses of the law or monopolism. Disruption tends to be the contemporary word for it.

Creative destruction causes for a total increase in the utility of what is being accomplished–it is making it better. This question of ‘better’ or ‘more efficient’ is decided by free and fair markets though the greater returns that one receives. Thus, the most efficient actor or technology within a market, if not suppressed, should take the largest market share over time due the the fact that it is more efficient that all other options within the market.

Bitcoin is More Efficient On a Micro, Macro, and International Level

The creative destruction that will come from bitcoin is nothing short of earth-shattering. Bitcoin is more efficient on a macroeconomic, microeconomic, and international level. In almost every way it is better money than money itself.

Macroeconomic

As I explained in The Transaction Cost of bitcoin, when you look at bitcoin as a whole monetary system, it is always going to be more efficient than fiat currencies. This is because of a number of mechanisms that bitcoin uses to automatically establish and manage its own monetary system. The needed laws, legislation, and regulation that are needed for any fiat monetary system are handled automatically by the bitcoin protocol itself–Bitcoin users do not need to pay for the legal support of the system itself. Whereas, because of the nature of fiat monetary system, the users of these systems must bear the cost of the legal and enforcement mechanism of that fiat money system, and that is very, very expensive.

How much do fiat money systems cost?

This is a difficult question to ask because the monetary system is implicitly part of the state, and the state is implicitly funded through taxation and seigniorage, which make is difficult to separate one from another. One cost that we can look at is counter-fitting, which costs between 200 to 250 billion dollars per year. The counter-fitting cost with bitcoin is $0.

These sort of savings are simply too dramatic to be ignored for long, and can help business dramatically reduce the cost they they incur from supporting a monetary system that is inefficient and subject to counter-fitting risks. This is not to include other indirect cost such as the actual printing, distributing, transporting, and securing of fiat money. When you compare the transaction cost between bitcoin and fiat money systems Bitcoin will always have a lower transaction cost because it does not need to pay for the legal and enforcement mechanisms that fiat systems must pay for in order for them to function.

Microeconomic

Once upon a time, storing your money within a bank to offer you the security of knowing that your money was safe and secure. In addition to helping one secure their money, banks also found the opportunity to make the use of money sitting in their vaults through allowing easier access to the funds through services like checks, debit cards, and credit cards. As these services evolved, the banking system started taking more and more ‘convenience fees’ for access your very own money! But what is one to do when all banks are part of the greater monopoly that makes up the various national money systems? Until now, nothing–but now because bitcoin challenges this monopoly, and it is much more efficient than this monopoly, it is going to break this monopoly. The fiat money system just cannot compete–it’s too slow, too prone to fraud, and there are too many fees. This is in addition to inflation that has proven itself time and time again to destroy the savings of all the general public. When one see all of the benefits that bitcoin offers and understands how it works, there simply is no good reason to keep using fiat–it’s just shitty money.

When you compare the amounts that one spends on banking fees, from either a consumer or a merchant perspective, to that of using bitcoin, we again see that using the fiat banking system is much, much more expensive because one is paying people to do what bitcoin does automatically. This is why services like CoinBase can offer 0% processing fee for the first $1,000,000 of transactions–because bitcoin is just that much more efficient. If any non-bitcoin services offered this kind of deal, they would be bankrupt within the month. They just cannot afford to do it because of how expensive it is to move around fiat money. Bitcoin will always have a lower transaction cost than using the banking system because it does not need to pay all of the mechanisms and fees to move around money–that is part of the bitcoin program.

Internationally gain-loss

The world is globalizing at an incredible rate, and is poised to continue to grow in that direction. Since 1995 there has been a dramatic growth in international trade by all countries except for industrialized one (who lost a portion of the international market to developing nations). This indicates that trade is starting to spread more evenly between all nations, instead of the industrialized nations taking up such a large potion of international trade. It is in the field of international trade that bitcoin offers some of its most powerful benefits.

Because bitcoin exist ‘in between’ national boundaries, it is not subject to many of the restrictions that fiat capital is subject to. This means that people and business that are working across boarders can choose to use bitcoin, and avoid national taxes, capital controls, and the intense oversight that is forced onto people and business from governments. Furthermore, when using bitcoin one does not need to deal with changing currencies consistently, and the associated fees and taxes that come with that.

Innovation vs. Crony Capitalism

Bitcoin is clearly a superior currency to its fiat counterparts. This is because Satoshi took all of the best features of both the internet and money and imbued them into one to create the first digital currency: Bitcoin. Bitcoin automates most of the processes that governments, laws, and the banks preform to maintain the money system. This means that the users of bitcoin do not have financially support the very large cost of maintaining a fiat monetary system. The innovative way that bitcoin secures money, protects identity, and allows for transfer to anyone with a internet connection is much more efficient than any monetary system today. With bitcoin, your money belongs to you, and you are the only one with control over it. Hands-down, this makes bitcoin win the economic argument by being more efficient, quicker, and secure.

But the economic argument has nothing to do with what we are talking about though…. because money is NOT about money.

It’s about politics.

Bitcoin is a massive threat to those that are already in political power  and the special interest groups that pay them. We are at this interesting crossroads where we all know that bitcoin cannot be stopped, yet it clearly threatens the current financial and governmental infrastructure. What fascinates me about this is that it forces states into a prisoner’s dilemma against one another that they cannot win.  The countries that have a clear, succinct, and friendly policy towards bitcoin first shall be the one to win the most economic benefits of bitcoin, and the ones that fail to do so shall lose the most. This is on top of the fact that bitcoin is superior to every country’s fiat money–there simply is no way fiat currencies can ever win over bitcoin. States will have to acknowledge and accept digital currencies as real legal tender, or they will have to suffer the consequences of using a money that is more expensive to use, subject to inflation, can be seized at any point in time, and is forced to pay taxes on it, and is subject to banking fees. At the end of the day, bitcoin is just better money, and it will take over the financial system because of that.

Next: The Creative Destruction of Bitcoin

 

The Intrinsic Value of Bitcoin

gold_mining_rocker_boxThere are several features that create the intrinsic value of bitcoin, but the primary one is its production cost. Bitcoin is a commodity money like gold, sliver, or copper which means that the energy cost to extract these raw materials creates their base value. The actual exchange between two people is totally subjective, as the subjective theory of value shows us, but we can assume that practically no one would sell their commodities for a price below what it cost them to extract the commodity. Today, the cost of mining bitcoin is getting to be quite difficult, which is part of the reason for the increase in price we have seen.

The Base Value of Bitcoin

Let us take a moment to think about how mining for bitcoin is similar to mining for gold. If you go into your backyard and try to see how much gold you are going to find, you’ll probably come away empty handed. That’s because you are using a pick and shovel, and it is no longer the 1850s–someone else got that gold (if it was there) long ago.

That just like how bitcoin mining is today–well more like 95 years ago when gold was about $20 to the ounce. Check and see how many bitcoins you could make with this mining calculator. Most likely it’s not a lot. This is because just like with gold mining, someone developed a better way to mine for bitcoins, making mining with a normal computer unprofitable today. This is because the newest bitcoin miners use energy more efficiently to mine bitcoin.

Keep in mind that the commodity value is just the base amount–that is just the production cost. Bitcoin, like gold, is a special commodity–it’s a commodity AND money at the same time. These special commodities are appropriately called commodity money. Commodity monies are special in that they have an inherent value by being a commodity, but because of their traits, they make great money too.

It is this secondary value of being good form of money that creates the secondary social value of bitcoin and other commodity monies. It is both the production cost of bitcoin, along with the properties of good money that it exudes which creates the total value of bitcoin.

Commodity money creates a secondary value as a mode of exchange through the base production value. It is because of this trait of being made from a real commodity that commodity-monies can ‘bootstrap’ their way into becoming a mode of exchange. Once this happens it allows for market mechanisms to decide on the price of the commodity money beyond its production value. This is how commodity monies become more than just commodities, and become modes of exchanges and in some cases a storage of wealth. This is why gold became the most sought after commodity during the mercantilism era: it met the four qualities of good money better than any other object in the world, and was by far the best storage of wealth. This was not because it was shinny, but because it was incredibly rare. This is also why gold and silver have 3,000 years of history as being used as money and a storage of wealth–due to the intrinsic qualities they hold because of their scarcity.

The Value of Fiat Money

Where Fiat money eventually ends up: An arm full of Zimbabwe money that is worth nothing.

So than why is fiat money valued at all? Fiat currencies are not independent, nor is there any value contained in the money itself–it’s just paper. So how do these worthless pieces of paper have value?

Through the governments guarantee that it will accept fiat currency as legal tender, and that all transactions within its economy will meet this basic minimum standard of the law. This is what allows the government to bring violence to anyone who challenges the legitimacy of government’s monopoly on money. The power of fiat money is derived from the government’s legitimacy–that is why they can just make new money up out of thin air.

Statists argue that seigniorage from the state is not only needed, but is desired. For the State is the law, and the law is a means to an end in itself–that is why the state has the legitimacy of violence to decide if a person deserves to live or die. It is through this power of that the State can redistribute, protect, or harm their own citizens–for the benefit of all, or for a few. It is from this base of power that states create the laws to conduct economic transactions within their sphere of influence. This is why fiat money is only valid within particular nation-states own sphere of influence, and not that of other nation-states.

Philosophy of Value

The intrinsic value of bitcoin far beyond its commodity value. What creates its real value is the mathematical assurance that the bitcoin ecosystem cannot be predicated upon force, unlike fiat money. This is because of the cryptography that bitcoin is built on top of allow for two very distinct things:

For this to work, a robber would need to know all of the wallets that you have, and the amounts you have in them.

1. It assures that the vast majority of transactions within the bitcoin economy are based upon voluntary participation, which in turn ensures:

2. Almost all transactions must be non-violent, unlike state-based currencies, where the legitimacy of the currency comes from the state’s ability to bring violence to you for not complying with their laws or legal structure.

These qualities result from the privacy function of Bitcoin. Privacy, within the context of an economy is what allows for a fair, voluntary economic system to be created. Bitcoin exchanges ‘the protection’ of the law, for the mathematical assurance of cryptography.

Bitcoin has made a new economy in which the categorical imperative is not the law; but privacy. We prefer to have no laws, because privacy allows for us to build the voluntarily social contracts without the threat of violence from the state, or anyone else because our true identities are unknown. We understand voluntary transactions ultimately lead to a lower transaction cost for both parties because policing and enforcement does not have to be paid for.

Conclusion

In another age, fiat currencies and national governments were tools that we needed to evolve technologically. This economic mode was an excellent model for the growth and development of an advanced industrialized society, and all that came with it. Today however, both national governments and fiat currencies are anachronism that keeps greater humanity from advancing itself to its next stage of societal evolution: Anarchism.

Next: Understanding The Economic Functions of Bitcoin

Theory of Digital Currencies

It is obvious to me and many of my peers that contemporary models of economics simply do not apply to the brave new world that we are entering into.  With the advent non-state currencies that are based upon decentralized, federated protocols that are guaranteed by cryptography, math, and privacy, we need a new economic paradigm to move forward. In this blog I will attempt to build a theory of digital currencies that can explain their functions and rise within a global economic system of state-based currencies.

Ultimately, it is my hope to thoroughly explain on a economic level the failures of state-based currencies, and the solutions that digital currencies offer. It is also my hope to start a philosophical dialog about economic liberty, what it means in the world of today, and what sort of moral, ethical, and societal expectation come with economic freedom. It is my hope that this will help explain the horrible distorting mechanism of state involvement in economies that entirely destroys the concept of a free market and replaces it with some notion of national socialism.

Please feel free to leave respectful comments and critiques on any theory that I may present in this blog.