By Jeffrey Tucker
Every since I started writing about cryptocurrency last Spring, my inbox has become a hub for Bitcoin questions. I completely understand – even to me it’s still the most implausible idea ever that some code-slinging, nameless geek somewhere could somehow invent a new currency made from 1s and 0s, throw it out there on an open forum, and (in a mere five years), it would obtain a market capitalization worth nearly $10 billion.
What does it all mean? Well, it took me some serious study to figure out how all the technologies hang together and why. Understanding Bitcoin requires knowledge of monetary theory, open-source programming, distributed networks, cryptography, and process-oriented software development — and that’s quite a big undertaking. This accounts for why people are so confused as to how a protocol could become the basis of a new global monetary order.
However, I actually don’t think that a lack of technical knowledge really accounts for why even some very smart people are having a hard time making sense of the success of Bitcoin. A hint towards the answer came in an email from a correspondent who asked me a particular question about how contracts and accounting will work once Bitcoin “is implemented as a currency.”
I got stuck on the word “implemented.” That’s the core of the fallacy; and, again, it is completely understandable. Hayek wrote in 1974 that governments have owned and managed monetary systems for many hundreds of years, even back to the ancient world: the coin of the realm has been seen as a government responsibility. In the 19th century, all governments were expected to implement a system that best met the needs of the population.
In the 20th century, government took this idea much further. It would not just print the money, it would not just oversee the system and determine what constituted money, no – it would use ‘science’ to find the optimal money-creation rate and cartelize the banking system to make sure that it was exactly as it should be. Every aspect of the money system — and we are talking about half of every economic transaction — would be overseen by the state in conjunction with private partners in industry.
And so it has been for all these years. No living person remembers a time when money had any existence outside public management. In effect, all governments of the world made money a socialistically owned good. And what happened? It became a tool of politics; it declined in quality, buying less and less in terms of goods and services; in effect, it became the main means of funding the expansion of power over liberty.
The emergence of cryptocurrency smashes that paradigm entirely. “Satoshi Nakamoto” never asked for anyone’s permission to release his code-based model for the ideal currency, he didn’t submit a working paper to the National Bureau of Economic Research, he didn’t meet with Federal Reserve economists, testify to the Senate Banking Committee, or get the ear of the chairman of the Fed. He went straight to the public.
He bypassed the entire structure of power and released it on a distributed network. He invited the world to participate. In other words, he was not proposing a system at all, it is not a top-down plan for monetary reform. We’ve seen scads of those — thousands upon thousands — emerge over the last hundred years. None of them have come to anything. You can talk about monetary rules, policy reforms, audits, and exchange rate fixes all you want, but here is the grim reality: government owns the money and it will use it to serve its ends.
That’s why a totally different approach was necessary: the free market. The free market is not a system, it is not a policy dictated by anyone in particular, it is not something that Washington implements, it does not exist in any legislation, law, bill, regulation, or book. It is what you get when people act on their own, entirely without central direction, and with their own property, and within human associations of their own creation and in their own interest. It is the beauty that emerges in absence of control.
Does that sound like anarchy? It struck Karl Marx that way. What he did not understand was the central insight of the liberal revolution of the 18th century: society can manage itself and create its own beautiful order without any central control. Bitcoin is a paradigmatic example, but only one of a million now emerging all over the world.