Since its inception I have always been in opposition to Bitcoin as money. To me the idea of trading one unbacked currency for another was foolhardy. That it could compete against Federal Reserve Notes long-term was wishful thinking. And that it had values in ways silver could not was absurd. I thought Bitcoin was nothing more than an unsound currency and short-term fad destined for failure. I now believe I was wrong.
In the past, every time I had publicly criticized Bitcoin I would get a nagging feeling that perhaps my opinion was one of ignorance. In response to this I set out a few weeks ago to better understand how Bitcoin works. What I came away with was more than I had expected. I had learned not just the internal machinations of Bitcoin, but where the currency derives its backing.
It is interesting how divided the austro-libertarian community is concerning Bitcoin. Mises has been quoted heavily by opponents and proponents alike as legitimacy for their position. Ultimately, the argument that had the most sway in my mind was that value is not inherent but imputed. The subjective theory of value placed all of the decision making on my shoulders whether or not to accept Bitcoin as desirable. And for a long time I simply did not. What I needed in a currency in order to consider it valuable was backing. My ignorance of how Bitcoin works prevented me from understanding how the currency is backed. But no longer is this the case.
Without getting too technical I learned that the Bitcoin miners are not just crunching worthless mathematical equations in order to mine new Bitcoins, but are actually processing the transactions between Bitcoin users to maintain security. This requires computing power and electricity. Without them there could be no transactions and no currency. Now, being backed by electricity, or the consumption thereof, may not be enough for you to convert to the pro-Bitcoin camp. It wasn’t for me, either. I had to do some comparing and contrasting.
I decided to go through the same process I did when I was first contemplating anarchism. Before I became an anarcho-capitalist a couple of years ago I made a list of all of my fears of a stateless society. They included mass murder, theft, rape, trespassing, kidnapping, etc. In making the list it dawned on me that every one of my fears were happening every day, all over the world, en masse by governments. I simply could not imagine things being any worse without the institutionalization of crime by the state. So, I converted to anarchism.
The same rang true with my worries about Bitcoin. Ultimately, my one and only fear in Bitcoin was in losing the purchasing power of the currency. I believed that one day the value of Bitcoin would drop to zero and I would be left holding the bag. However, comparing that to what I know about Federal Reserve Notes I soon realized that my fears were unwarranted. While Bitcoin may not be around forever, neither will government money.
Truth be told I need not hold any large amounts of Bitcoin. If one day it does cease to exist, for any reason, I stand to lose a few hundred dollars worth. I can still put my excess Bitcoins or savings into gold and silver before then. Furthermore, any potential losses incurred by Bitcoin will likely be dwarfed by the amount I save over the course of its life by not paying Paypal fees or taxes.
Taking the time to better understand how Bitcoin works helped to ease my fears in the same way a person frightened of firearms is likely to relax their position towards gun ownership after having been taken to the shooting range. If you, too, are on the fence or currently dislike Bitcoin I invite you to install the Bitcoin software and play around with it. Spend some time learning how the software works and test it out. I think you’ll be pleasantly surprised.