Bitcoin is getting more and more interest from mainstream media but the politics seem to be ignored and it is merely considered as a technological project.
But politics are what this is all about. Here are a few reasons why Bitcoin should be seen as an exercise in politics and not technology:
Monetarist dogma: A fundamental aspect of Bitcoin’s design is the hard limit on the money supply. As such it could prove to be the ultimate test of whether such a system would really eliminate inflation or simply increase the velocity of circulation. (To read about the policy effects monetarism produced in Britain in the early 1980s try David Smith’s Gaining Currency: The Rise and Fall of Monetarism.)
Trust: The “fiat currencies” we use everyday are ultimately secured on governments’ monopolies of force. The pound coin in your pocket has no intrinsic worth beyond the fact that, ultimately, the government can force someone to accept it in payment. Of course, we don’t actually have to have the police accompany us into every shop – the government’s word is accepted as good enough by nearly all of us for the coin to be used. Bitcoin’s fundamental message is that we should not trust the government – but ultimately what is the guarantee that Bitcoins will be honoured? There isn’t one. At least gold makes pretty jewellery or high quality electrical connections. Nor are we likely to see someone with a quantum computer monopolise all the world’s gold supply – as one of the risks with Bitcoin is that someone could gain a brief tecnological advantage and so distort the market. Nobody has an ability to manufacture gold out of base metals, after all.
Escape from tax: The fact that Bitcoin’s promoters prefer it to gold reveals what I think is the deepest motivation – the desire to escape tax. Gold’s physicality means it is not such a great way to avoid tax – it has bulk and has to be stored. Electronic currency can be much more nimble.