Bitcoin: Don't look back in anger

Colby Cosh on the downfall of the digital currency

Cool cutting-edge cryptocurrency Bitcoin faces difficult hours as its leading exchange vanishes from the internet in a puff of electrons, leaving investors writhing in terror. I take it as a bad sign that the heads of other Bitcoin exchanges have banded together to express confidence in the currency while distancing themselves from “the tragic violation of trust” and “the failings” of the elusive Mt. Gox.

As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today. We are confident, however, that strong Bitcoin companies, led by highly competent teams and backed by credible investors, will continue to thrive, and to fulfill the promise that bitcoin offers as the future of payment in the Internet age.

And how are you, the Bitcoin hobbyist, supposed to recognize the strong, competent, credible Bitcoin exchanges? A lot of people are regretting their adoption of the “just pick the most popular/famous one” heuristic right now, which led them up to the death zone atop Mt. Gox. This may not be the end of Bitcoin, but it is visible from here.

Bitcoin is popular with libertarians who object to the monopolistic, coercive nature of state-backed fiat currencies. The “Joint Statement Regarding MtGox” is intended to rally that sentiment and, implicitly, to defend the value of Bitcoin—as expressed in units of what the Bitcoiners contemptuously call just “fiat.” By the U.S. dollar standard, each Bitcoin has lost 15% of its value in the last 24 hours.

This is actually quite an impressive performance. In my view, the recent rise of ironic and semi-ironic alternatives to Bitcoin (I can has Dogecoinz?) ought to already have done a lot more damage. Those who are grimly holding onto Bitcoins on not-yet-exploded exchanges are certainly displaying great courage.

Unfortunately, they are displaying the courage of an “ought” conviction in a world that operates on “is”. There ought to be alternatives to fiat currency (although it seems to me that gold works about as well as can be expected; perhaps there are gold-bugs who resisted and castigated Bitcoin all along, but I fear that the gold-bugs and the Bit-heads are mostly the same people). It is quite true that government money is coercive, and that governments often fail financially because they tend to attract the cowardly, the inept, and the power-mad.

But. Is money meant for moral posturing, or is it intended for the purchase of goods and services?

Bitcoiners fling the word “fiat” at dollars and euros and dinars and yen. The lesson slowly being taught by the struggles of the Bitcoin market is this: the fiat of a state is actually a pretty powerful and solid thing to have backing your paycheque, especially when the alternative is the promise of a few unseen individuals, perhaps ones dwelling in Bhutan or the Maldives. The government of Canada will force a creditor to take my Canadian dollars, and has undertaken, by definition, to accept them itself. Moreover, it does so at a rate which an independent agency uses vague, flawed measurements to hold steady in units of non-money stuff. The implicit slogan of every central bank is “Ahem, It’s Not Quite Just ‘Fiat’, Guys”. It turns out this all comes in handy when it is time to eat or pay the mortgage.

It may be wrong for me to avail myself of all this dreadful power by engaging in dollar-denominated transactions, but I am under no personal obligation to trust a particular flim-flam man, or someone indistinguishable from one, who claims to offer a more ethical alternative. His product might be unethical in many other ways. (One possible one: he means to run off to Guadalajara with my filthy fiatbux and leave me hanging.) And, anyway, I ultimately have to pay my own taxes in Canadian dollars.

If we all had to pay our taxes in blood, and don’t think The Man hasn’t considered it, we would probably have circulating notes denominated in pints. There would be critics of the blood-money system. Some, too good for this fallen world, would refuse to accept the blood-money under any circumstances. But it would be for them to choose some other reliable store of value, and at some point the government would track them down, and they would be obligated either to convert their private currency—or to bleed. In the meantime, they might be ruined many times over by incompetence or theft on the unsanctioned, coercion-free exchanges devoted to CleanCoins or Safe-T-Coins or LevitiCoins. It is never easy to be holier than thy neighbour.