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OPLIN 4Cast #231: Digital currency

Posted in 4cast

A couple of articles and some tweets about Bitcoin came to our attention recently, which led us to do some research into digital currency. Conventional currency (the money in your pocket) is issued by governments, but for some time now there have also been local currencies that serve a specific community. Taking this one step further, there have been efforts to create digital currencies that enable Internet payments without a “middle man.” The open money project, based on LETS (“Local Exchange Trading System”) software is an early effort. Some digital currencies, such as E-gold, have been shut down by governments because they were suspected of enabling money laundering. Now comes the Bitcoin system, virtual coins in the form of encrypted files that are stored on your computer and can be traded for conventional currency on exchange websites. What does this have to do with libraries? Well… we’re not really sure. But if cryptocurrency is about to become the next Internet revolution, we thought we should mention it to you.

  • Money and the sustainable economy (Michael Linton and Angus Soutar, July 1996)  “We act as though money needs to be real—a limited commodity that can drain away. This results directly in unemployed resources—people who want work are not able to find it. Indirectly, and of more damage to the environment, there are also misemployed resources—people doing damaging things simply for the money. Yet MONEY ISN’T REALLY REAL—MONEY IS INFORMATION. Money is just a measuring device, which we use to measure the value of our real exchanges.”
  • Bitcoin: a peer-to-peer electronic cash system [pdf] (Satoshi Nakamoto, May 2009)  “Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
  • Bitcoin P2P currency: the most dangerous project we’ve ever seen (Jason Calacanis and the LAUNCH team, May 2011)  “We are 100% certain that governments will start banning bitcoins in the next 12 to 18 months. Additionally, we’re certain bitcoins will soar in value and a crush of folks will flood the system and start using them. Currently there are 6M coins at $6.70 each for a total economy of about $40M. Bitcoin speculation and hoarding will also cause a massive spike in bitcoin value. For example, if 10M people find out about bitcoins in the next year and want to buy $100 worth, $1B will be infused into the bitcoin economy.”
  • Will work for Bitcoin coder says most people just using it as an investment vehicle (Adrianne Jeffries interviewing Nick Carlson, May 2011)  “If there’s one point I’d like to communicate in this interview it’s the following: Bitcoin may fail for any number of reasons, technical or non-technical. But, cryptocurrency is here to stay. Software evolves quickly. Any technical point of failure in Bitcoin’s adoption will be remedied by the next cryptocurrency, whether that’s Bitcoin 2.0 or an entirely new project. Moreover, I expect to see significant academic interest in this area.”

Control fact:
While decentralized payment systems like Bitcoin certainly have the potential for abuse, some people also see them as a way to avoid unwanted government controls on financial transactions, such as the freezing of donations to WikiLeaks from Visa, Mastercard, and Paypal accounts after the release of U.S. State Department cables late last year.