Annuit Bitcoinibus — Novus Ordo Pecuniarum
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On the whole, bitcoins might be called the WikiLeaks of currency, related to financial institutions approximately as the leaks-based investigative-journalism site is to conventional media.
Whether it will turn the financial world on its head and give it a firm shake, as WikiLeaks has done to the five corporations that own the American media, is far from clear. Since this page first touched on the topic, nearly five years ago (in response to this article), a great deal has happened. Bitcoins have undergone fluctuations in value, exploits, thefts, black market peculations and, recently, a prolonged depreciation (although they are still pricey); their obituary has been written by multiple critics, although so far the rumors of their death are much exaggerated. So far. It is altogether possible that, in their present incarnation, they will fail and fade away.
But in this, too, they resemble WikiLeaks: Either or both might perish, but the idea will not; nor will the technology that drives it. And both of these ideas point to a future in which finance and journalism are done very differently. In lieu of corporate print or broadcast media, we will have citizen-journalists publishing on the internet, and using the internet to carry on most of the investigations on which they base their reporting. In place of banks and related private financial institutions, we will have transactions in virtual currency conducted on line: the whole world’s finances, tracked in real time by software in millions of servers.
How bitcoins work is described in some detail on Wikipedia, and if you want to know more, you might begin there. For now ....
“Where the money goes”: This is a simplified diagram of the chain of ownership in a bitcoin transaction. (Not shown: where your bitcoins go* if you lose your credentials or someone hacks them.)
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Do you remember how people paid for things on Star Trek? (If you don’t, no worries; this won’t be on the exam.)
The 23rd-century currency was simply called credits — as in, “That’ll be ten credits for the tribble as long as you’re not a Klingon,” or “I’ll give you fifty credits apiece to take these baby tribbles off my hands. Please.” The payer might flash a card to substantiate the transaction, and then it was complete: Ten or fifty credits were instantly subtracted from the payer’s account and added to the payee’s.
This, in essence, is how bitcoins work. Only instead of a mysterious Federation-wide accounting “system” (which the show for some unaccountable reason never spent much time explaining), there are those millions of servers, and the data processing that powers the accounting network is also the system’s built-in means of earning money from it: the controversial “mining” that has become an evermore-competitive arms race as miners form associations or corporations to afford the server farms necessary to keep up with a difficulty level that increases in proportion to advances in computer technology.
As this system is designed, it is enormously wasteful of electricity: “Even if all miners used energy efficient processes, the combined electricity consumption would be 1.46 terawatt-[hours] per year, equal to the consumption of about 135,000 American homes.”
It also suffers from enormous volatility, with bitcoins rapidly rising and falling in value, sometimes over periods of no more than a few months, and it is uncertain whether this results from their novelty (as would be expected in most such startup enterprises) or are endemic to a predominantly non-tangible medium of exchange lacking a “stabilization mechanism.”
Trends are apparent: Bitcoins have appreciated in price and become less volatile over the past four years.
But are these trends real?*
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As hinted above, there are also other vulnerabilities:
- Such a combined global ledger and set of millions of private “wallets” filled with non-tangible currency will only become a bigger target for criminal exploitation as it grows.
- Increasing scale and mounting demands on computing resources are already locking most ordinary consumers out of earning bitcoins by mining, and this will only become worse over time.
- Illicit and sometimes immoral black markets thrive on the “deep net” that hosts many bitcoin transactions, with buyers and sellers counting on the relative (and largely illusory) anonymity of online transactions to cloak their activities.
- Malware designed to steal bitcoins, or to set up botnets of infected computers to mine for the hackers, is already ubiquitous, even on Mac OS X, making accounts potentially insecure. In an ironic twist, one large black market entity went out of business after hackers purloined some $100 million in bitcoins from its account.
- Not all merchants accept them (although increasing numbers do, and they include some surprising entities, such as Microsoft), and most traditional banks instinctively resist them as potentially subversive.
It has long been apparent that our global financial system is fundamentally inequitable and causes much impoverishment and misery. Not without reason do people of all political stripes agree in despising the abusive banks and related financial “services” that have too much to gain from corrupting our laws so they can steal from us with impunity. This must and will change.
Also, fiat currency comes with its own baggage, including artificial volatility and systematic devaluation in the form of inflation, ensuring that those with the most will gain more and everyone else will be gradually drained of funds.
Whether bitcoins, as such, will be the currency of the future is not at all clear. Certainly, they will continue to meet with challenges that will never really go away: As everywhere on the internet, we will see a perpetual race between criminals finding weaknesses to exploit and sysadmins repairing the weaknesses and building new barriers against intrusion while lawmakers catch up in realistically regulating the online marketplace. None of this is new, or unique to the bitcoin, although the conflict will sharpen. And of course new, more energy-efficient and consumer-accessible methods of computing transactions are necessary. All of this and more falls under the heading of “reforms necessary to the continued existence of the bitcoin.”
But the idea now embodied by bitcoins really is of the future, it is here to stay, and its subversion of a destructive and unfair financial industry can only be welcome news to the billions of people at that industry’s callous mercy. A unified global medium of exchange with decentralized real-time accounting of all transactions is an inevitable necessity in a world of space travel, transnational corporations, international terrorist rings and crime or human trafficking syndicates, environmental contamination from Mount Everest to Mariana Trench, and direct social links between people living in different hemispheres.
We are entering a post-national era (although the nations themselves will be the last to confess it), and our institutions should and ultimately will be global in outlook and scope. They must be designed to serve the needs of a species and a world under its stewardship rather than the wants of those who take what they want and are indifferent to the consequences. But, although global when taken as a whole, they must be at the same time universally and without prejudice accessible at the scale of every individual person; such diffusion of power is essential to any stable free society.
Whether we call our currency bitcoins, credits or Wex, it too will be global, and its infrastructure too will be diffuse and decentralized, for we know that power concentrated is power corrupted. (Should we ever forget this, our bankers are sure to continue to remind us next time they find a new way to hold us to ransom.)
“Capt’n, I need a security detail in Engineering at the dooble! Else me puir bairns willna ha’ th’ pooer tae bring us through alive!*”
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One more thing: How much do you want for that copy of How Not To Breed Tribbles? Actually, just one chapter: “Counterfactual Not-Breeding: How To Make It Retroactive Without Getting Arrested For Animal Cruelty.”
*N.B.: Mouse over images for footnotes.