Source: Catalyst House
Well now a new P2P digital currency, called Bitcoin, may provide the ideal medium to engage in commerce outside the official economy and — it’s decentralized, anonymous, and its supply is moderated by a mathematical formula to automatically deflate it over time. A truly dangerous idea.
So what is a Bitcoin?
Bitcoin is a voluntary digital currency that can be transferred peer-to-peer over the Internet. The open-source cryptographic program secures the electronic transactions without the need for a third party, like a bank or PayPal. There are no transfer fees or centralized clearing house needed for peers to trade Bits. Bitcoins are held in a wallet that carries an anonymous address in the system.
MIT’s Technology Review recently reported on the functionality of the Bitcoin and its “booming” rise to $40 million in circulation:
In 2008, a programmer known as Satoshi Nakamoto—a name believed to be an alias—posted a paper outlining Bitcoin’s design to a cryptography e-mail list. Then, in early 2009, he (or she) released software that can be used to exchange bitcoins using the scheme. That software is now maintained by a volunteer open-source community coordinated by four core developers.
…Nakamoto wanted people to be able to exchange money electronically securely without the need for a third party, such as a bank or a company like PayPal. He based Bitcoin on cryptographic techniques that allow you to be sure the money you receive is genuine, even if you don’t trust the sender.
The report explains what makes the peer-to-peer currency secure and anonymous:
Once you download and run the Bitcoin client software, it connects over the Internet to the decentralized network of all Bitcoin users and also generates a pair of unique, mathematically linked keys, which you’ll need to exchange bitcoins with any other client. One key is private and kept hidden on your computer. The other is public and a version of it dubbed a Bitcoin address is given to other people so they can send you bitcoins. Crucially, it is practically impossible—even with the most powerful supercomputer—to work out someone’s private key from their public key. This prevents anyone from impersonating you. Your public and private keys are stored in a file that can be transferred to another computer, for example if you upgrade.
Nobody is really sure who Bitcoin creator Satoshi Nakamoto is. The name is a pseudonym, and we know that he is from Japan, started work on Bitcoin in 2007 and passed on the reins of the project and stepped down from any involvement in 2010.
Beyond that, the details are scant. He works hard to cover up his real identity: he has used two known email addresses, one from anonymous mail service Vistomail and another from a free webmail provider. Reportedly, he only used these when connected to anonymity network Tor.
Nakamoto included information in the Genesis Block that pointed to The Times article “Chancellor Alistair Darling on brink of second bailout for banks” as a clue to his motivations for creating Bitcoin.
“Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own,” he once said in a cryptography mailing list post. That’s perhaps more telling of his thoughts on economics and politics than anything else.
Eric Blair continues:
Understandably, many readers of this will be leery of a ‘cashless; currency due to the stigma attached to the idea by the global banking cartel’s stated agenda of creating a “cashless society” allowing for total economic dominance. However, the Bitcoin is the antithesis of centralized control. The nature of the peer-to-peer digital transfers of bits is uncontrollable, as we’ve seen with BitTorrents.
The shutting down of Napster back in the day and the DHS’ endless efforts to seize “pirate” websites will never stop peer-to-peer sharing of information. With Bitcoins, the transaction takes place from your personal computer out into a vast network of servers that process the transaction into the recipient’s anonymous wallet located in his computer. This realization that this currency is virtually impossible to consolidate or shutdown would seem to make Bitcoins one of the biggest threats the control system has ever faced.
As evidence of Bitcoins being used to openly defy the system, an underground online drug trade has sprung up, as reported by Gawker. This so-called “Amazon” of illegal drugs accepts only Bitcoins as payment and is virtually untraceable unless the authorities assign massive resources to the endeavor; and even if they shut down the website, another will likely pop up to replace it. It’s probably not the kind of press that the founders of Bitcoin would like, but it underscores the unconquerable nature of voluntary exchange between two individuals and the Bitcoin technology. When an authority tries to prohibit products that people demand, black markets will always pop up. And as we’ve seen with the war on drugs, it is impossible to stop no matter how much they throw at it.
As for how the long-term supply and value is controlled, MIT reported:
Nakamoto’s rules specify that the amount of bitcoins in circulation will grow at an ever-decreasing rate toward a maximum of 21 million. Currently there are just over 6 million; in 2030, there will be over 20 million bitcoins.
Nakamoto’s scheme includes one loophole, however: if more than half of the Bitcoin network’s computing power comes under the control of one entity, then the rules can change. This would prevent, for example, a criminal cartel faking a transaction log in its own favor to dupe the rest of the community.
It is unlikely that anyone will ever obtain this kind of control. ‘The combined power of the network is currently equal to one of the most powerful supercomputers in the world,’ says Garzik. ‘Satoshi’s rules are probably set in stone.’
Concludes Eric Blair:
“It is unlikely any major retailers will sign on to accept Bitcoins because they are deeply entrenched in the establishment economy and are likely saddled with debt to the banking cartel. The Bitcoin economy is more a grassroots opportunity for small businesses and individuals to sell used or self-produced products or services. Look for Ebay or Amazon knock-offs to pop up and allow individuals to sell items. Look for online casinos to spring up for Bitcoin players. Look for local organic cooperatives to implement them. Anything that a consumer desires that can be facilitated online can conceivably be done with an anonymous Bitcoin transaction in this emerging peer-to-peer barter market.
“Nothing could be a more genuine example of a free market than two people voluntarily bartering for an item without a middleman or big brother snooping the transaction. The banks serve no purpose in online commerce except that most people pay for things from money in banks.“
Now, their role will seem to be diminished should the Bitcoin economy take off. Bitcoin seems like the ideal online currency to support if one wishes for freedom and anonymity, or to protest the centralized power of the banking cartel and their revenue-starved client nation-clients.