Free Markets, Free People

The Third Age of Money

The first age of money was the age of gold and silver; your basic metal currencies. The second age was the age of the freely convertible fiat currency.  The third age of money will be virtual, unhackable, and anonymous. So, this is what you call “interesting”:

Bitcoin is an open-source virtual currency generated by a computer algorithm that is completely beyond the reach of financial intermediaries, central banks and national tax collectors. Bitcoins could be used to purchase anything, at any time, from anyone in the world, in a transaction process that it is almost completely frictionless. Yes, that’s right, the hacktivists now have a virtual currency that’s untraceable, unhackable, and completely Anonymous.

And that’s where things start to get interesting. Veteran tech guru Jason Calacanis recently called Bitcoin the most dangerous open source project he’s ever seen. TIME suggested that Bitcoin might be able to bring national governments and global financial institutions to their knees. You see, Bitcoin is as much a political statement as it is a virtual currency. If you think there’s a shadow banking system now, wait a few more months. The political part is that, unlike other virtual currencies like Facebook Credits (used to buy virtual sock puppets for your friends), Bitcoins are globally transferrable across borders, making them the perfect instrument to finance any cause or any activity — even if it’s banned by a sovereign government.

All is proceeding as I have foreseen.

Dale Franks
Twitter: @DaleFranks

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10 Responses to The Third Age of Money

  • How many gallons of gas, loaves of bread, cups of coffee, AK-47’s or dirty bombs can I buy with a bitcoin?  What’s the difference between a bitcoin and a scrap of paper with “ONE DOCJIM DUCAT” written on it?

    There exist websites / exchanges where one can convert bitcoins to other currency and back; it seems to me that this would be where banks and governments could regulate / shut down such a market.

    TIME suggested that Bitcoin might be able to bring national governments and global financial institutions to their knees.

    Time also believes in global warming and the genius of Captain Bullsh*t, which makes their opinion about much of anything else suspect to me.  At any rate, ANY alternative currency or even a barter system has the same potential.  Money is worth what people think it is worth; money is used only when people think that it is worthwhile to use it.  If enough of us decided to use bottlecaps, Monopoly money, or used lotto tickets as currency instead of greenbacks, it would ruin the US banking system without a fancy computer program.  For that matter, if enough of us keep voting democrat, it would have the same effect.

    • Yeah, while the black-market side of it is appealing to keep government out of its regulation the problem will be people wanting to do plain old ordinary stuff. Like buy gas. SO there has to be an exchange and there will be some exchange rate mechanism. Also, if you are going to do ordinary stuff with it then you generally want some tracability for your own security, certainly your average business will want that, which means that the system can’t be totally anonymous. At best this seems like the equivalent of a foreign currency.

      I also was a bit skeptical of the supposed “public algorithm” that would govern money supply. While central bankers throwing money from helicopters is not much use, I doubt this public algorithm is going to be a lot better. Certainly it would probably not last the first attempt gy Soros to game the system, or some unexpected drain or flood caused by external exchange problems.

      As for unhackable… riiigggghhht. Sure they can use unbreakable public key encryption. But even if it was “unhackable” the private keys have to be stored somewhere. What do you do if you lose your private key? If you can’t get it back then all your records and identities are lost. Gone. So in order for Joe Blow to get back his identity he can’t just use some other document or positive ID by some other method like you do now for a lost drivers license. The private key has to be somewhere so that it can be resupplied to the rightful owner. In which case… hacking becomes much more straightforward and anonymity not quite so absolute since the FBI or FSB can come knocking on the door demanding access to the needed keys.

      I firmly believe that commerce will be more and more online, but this particular hype seems to still be in the geek realm of wishful thinking.

  • I’m interested.  I went and read their site.  Not sure how it will really work, but I, at the least, consider it a first step in creating some kind of independent “modern gold standard” where governments lose the ability to run the printing presses full speed.  I don’t dismiss it out of hand.  I hope it works.  Let the market decide.
    That said, I would still prefer a handful of gold and silver to ten thousand Bitcoins.

    • I wonder if that isn’t the real future of money: back to hard currency.

      • One of the financial gurus…can’t remember, but Kudlow seems plausible…said we’d be back on gold in a few years the other day.

  • Ah, it’s like water gentlemen – I don’t have to control the water, I just have to control where and how it flows when you come to get some.
    So, now we’re giving governments the final excuse they need to control the internet – big surprise.
    It’s like the standard action of the banana republic Colonel taking over his country – he takes over the television stations, the radio stations, the banks, the power plant, the water supply.   This isn’t different.  Until you have a mechanism that can distribute and accumulate the bitcoins WITHOUT flowing through someone else’s devices you’re stuck.
    Hasn’t changed – the ‘bitcoin’ resource will flow via mechanism the average person cannot control – so the government will control the path of the flow, and just like the old days, they’ll force you to trim off some of your bits to flow to them, and they’ll get together with each other to control how much the bits are worth.  Sure, you bank on a server in Canada, and Canada is kind and generous and good and doesn’t want any of your bit coins.  Yeah, problem is your wireless tower in Kansas has to pick up your transaction, or your wired routers in Des Moines – all before they flow to Canada.  And THAT is where the control will occur, no matter how good and kind your Canadian server is.

  • There is an econtalk podcast about bitcoin.
    The problem is not many people actually accept bitcoin yet.