A step in the right direction – the path towards self-government

Watch parts 2 – 7 here

 

Expect bitcoin to be “banned” – expect the ban to be ignored

by Anthony Freeman

Man, by nature, wants to be free. He wants to choose how he lives his life. He wants to choose with whom he will associate. He wants to choose with whom he will trade. He wants to choose how his money is spent. Bitcoin gives him a greater ability to do all of these.

In my previous posts (here, here, here and here) I point out the endearing features of bitcoin and the direct threat of bitcoin to governments and central banks. Because bitcoin has the potential to make these institutions obsolete, expect them to attempt to ban and restrict bitcoin anyway they can.

The incentives to use bitcoin are too great. Yes, I expect bitcoin to be “banned” and restricted by central planners in many ways. I also expect these bans and restrictions to be ignored and circumvented. The incentives are too great. Man wants to be free.

Bitcoin: A New Commodity Created To Serve Market Demand

by Anthony Freeman

Proposition: Bitcoin is a new commodity invented to address the market demand for a better medium of exchange.

First some definitions for terms that I will be using in this post:

• Commodity: a) an article of commerce; b) something of use, advantage, or profit; c) economics – an exchangeable unit of economic wealth, esp a primary product or raw material
• Medium of Exchange: a) anything generally accepted as representing a standard of value and exchangeable for goods or services; b) a tool or means of exchanging what you have for what you want
• Hampered Market: a market where the voluntary exchanges between individuals are prohibited or restricted
• Government: a gang of individuals who collectively act to force their opinions and objectives upon everyone else

Background

The great Austrian Economist Ludwig von Mises theorized:

“Before an economic good begins to function as money it must already possess exchange-value based on some other cause than its monetary function. But money that already functions as such may remain valuable even when the original source of its exchange-value has ceased to exist.”

I believe this theory (it’s only a theory) is false for the reasons I will describe below. But first, the elevation of an economic good to monetary status works best in an unhampered market. In this instance I further define the “hampered market” as one that prevents individuals from using their preferred medium of exchange. When individuals are hampered (restricted) from using their preferred medium of exchange they begin to look for alternatives that allow them to operate within the hampered market. In any market a new commodity can be created with its sole purpose being to serve as a better medium of exchange.

Enter Bitcoin

Bitcoin is a new invention, or creation, designed to address this market demand for a better medium of exchange. As a new creation, with its own use value, it becomes a new commodity.

Here is a list of several features and benefits that make bitcoin a highly desired medium of exchange:

• increased privacy – allows people to trade more freely with less interference by third parties
• lower transaction costs – saves money
• person to person payment functionality – bypasses traditional middlemen
• limited supply – may help preserve and even improve purchasing power over time
• compact – incredible wealth can be stored on a small area of disc space or flash drive
• portable – wealth can be transferred across the room or across the globe via an internet connection
• defensible when using encryption and other forms of concealment
• added protection against theft (which includes taxation)
• decentralized – less vulnerable to attacks since there is no central depository. Any seizure of bitcoin only serves to limit the supply further and increase the value of the remaining supply.

Conclusion

Bitcoin is a new invention created to serve the market demand for a better medium of exchange. It derives a great portion of its value from governmental restrictions on voluntary exchange. As long as governments interfere with individual voluntary exchange there will be demand for inventions like bitcoin. In the event of the disappearance of governments, bitcoin (or something similar) is likely to continue as a desired medium of exchange because it makes it difficult, if not impossible, for new governments to gain control of the monetary system.

Bitcoin and the “non-economists” at The Economist

Here are some quick comments on a recent article from The Economist:

In the article the unnamed author makes the following statement:

“Attracting enough users to smooth such volatility seems unlikely in the foreseeable future. Established fiat currencies—ones where bills and coins, or their digital versions, get their value by dint of regulation or law—are underwritten by the state which is, in principle at least, answerable to its citizens. Bitcoin, by contrast, is a community currency that requires self-policing on the part of its users. Most people would rather devolve this sort of responsibility to the authorities.”

Yes, many people prefer to shirk responsibility and succumb to what Rose Wilder Lane described as “the pagan faith in external authority”. We’ve seen the results of abdicating personal responsibility. You cannot have liberty without personal responsibility.

The article also goes on to state:

Moreover, Bitcoin may be useful for trading goods and services but it does not yet allow borrowing or lending. In the physical world this happens through financial intermediaries: you put money in a bank, and someone else borrows it. A virtual Bitcoin bank might spring up but that would create problems of its own. How would a saver be assured that he would get his money back when he wants? If a bank got into trouble, who would be the lender of last resort? The usual answer is a central bank: exactly what Bitcoin is trying to avoid. Bitcoin is technically sophisticated. As a monetary system, it looks primitive.

The Economist fails to acknowledge the “moral hazard” built into the current banking system. This moral hazard is the primary cause of the recent banking crises and the many crises that preceded it. This is the same system where depositors fail to do their “due diligence” on the banks that they entrust their money to because they are lulled into the false sense of security of FDIC insurance. In turn, the banks fail to be wise stewards of that money because they know they are backed up by the central bank and that losses will be socialized. This is the system which The Economist is advocating for bitcoin.

What The Economist faults as a weakness of bitcoin is actually what gives bitcoin one of its greatest strengths. If a depositor knew that his deposits were not guaranteed he would be a little more careful in choosing who he entrusts them to. If the banks were not backed up by the central bank (and the duped taxpayer) they would be much more prudent with their lending policies. There are no risk-free investments. Economist, you can do better than this.

How to deal with price volatility when pricing your goods and services in Bitcoin

If you are like me, you are excited about the whole idea of using bitcoin as an alternative currency. You are motivated to take control of your money instead of leaving it in the hands of central bankers and politicians. The problem you’ve found is that it is hard to price your products and services in bitcoin when there can be dramatic price swings in a matter of days.

To deal with the problem I recommend that you use a price that is based upon the moving average of the last X number of days. Then simply update your prices once a week. I like to update my prices on Mondays and I currently use the 7-day simple moving average. This can smooth out your pricing and help you deal with these swings in a much more serene fashion.

Here is where you can pull up charts and price data where you can calculate the simple moving average:

http://bitcoincharts.com/charts/

You can play with different time periods to see which works best for you. Shorter time periods give greater weight to recent price levels but tend to fluctuate more widely than longer time periods.

If you wish to accumulate more bitcoin then you will want to give your customers a better exchange rate so that they are effectively receiving a discount when paying you with bitcoin vs. dollars. This discount acts like a “coupon” which rewards customers for paying you in bitcoin. If you find that you are accumulating more bitcoin than you can handle simply adjust the exchange rate to favor dollars over bitcoin.

As a young currency we can expect bitcoin’s exchange rates to continue to fluctuate wildly but that will taper down over time if it becomes more widely accepted and exchanges mature. At some point you may decide to drop the dollar entirely and price your products and services only in bitcoin. Imagine that.

Bitcoin And The Virtue of Hoarding and Deflation

By Anthony Freeman

I wanted to take a moment and dispel some of the myths circulating about hoarding and deflation:

What most people don’t understand is that “deflation” (defined in this instance as the lowering of prices compared to bitcoin’s appreciation in exchange value) is a GOOD thing. It means the purchasing power of your bitcoin money increases over time. You are rewarded for saving.

“Hoarding” is simply another word for “saving”. It means that the holder values the item more than the market does. He will only trade it when the market values it more than he does.

Savers of bitcoin are good. Their act of withdrawing their money from the marketplace drives up the value of everybody else’s money. This is another way of limiting supply and increasing value. I elaborate on this in my articles What is Money? And Further Observations on Bitcoin, Digital Currencies, Privacy and Liberty.

Whether or not bitcoin survives the tests of the market remains to be seen but at the present time the dollar (and gold) has crashed against bitcoin. Competition is good and that is why I am cheering for bitcoin.

The Coming Attack On Bitcoin And How To Survive It

By Anthony Freeman

(This article is the third in a series on bitcoin. Read parts 1 and 2 here and here.)

With bitcoin gaining mainstream attention the coming attack on its users is inevitable. In this short piece I will explain how it is likely to unfold and how you can survive it.

First, a little background:

In 1996 E-gold was one of the early entrants to the market with a private, global e-currency. They achieved stellar growth and widespread attention – much like bitcoin today. Accolades came from freedom-lovers everywhere. They were the “Great Gold Hope” that would free the people by freeing the money. Privacy-enthusiasts, libertarians, gold-bugs, autarchists, anarchists, voluntaryists, drug-dealers, and even unsavory types flocked to it with praise and adoration.

Of course, the monopolists of the monetary system didn’t take lightly to this threat to their very existence. They came after the independent exchangers and e-gold with their full force and fury – eventually succeeding in convicting the key players for “conspiracy to operate an unlicensed money-transmitting business” and “conspiracy to engage in money laundering”. E-gold was fairly easy to take down because their operations and data-center were centralized and readily accessible.

Many folks who are now currently acting as currency exchangers for bitcoin will be the first to come under attack. Many will get hurt and possibly even imprisoned but, because of its decentralized nature, bitcoin will survive where e-gold did not.

If any of the large exchangers are operating inside of the US then it won’t be long before they are raided, shut down, or regulated. Individual exchangers will be targeted as well – just to make an example and to scare others out of the community. This will create a giant “wet blanket” on the current enthusiasm for bitcoin and I expect the currency to take a major drop in exchange value when this happens. Not to fear though. Bitcoin will survive due to its decentralized “peer to peer” nature and it will continue to operate as an “alter-cash” resuming its growth albeit at a slower rate during the immediate aftermath.

To protect yourself I recommend the following:

You do not want to be involved as an “exchange service” conducting exchanges in and out of national currencies and you definitely do not want to have your money sitting in the exchanger’s account in the event they are raided and shut down.

Remember, e-gold was shut down for “conspiracy to operate an unlicensed money transmitting business”. Do not store any money in online accounts unless you can afford to lose it. Keep your private keys secured with multiple, encrypted back-ups in various locations.

The safest way to acquire bitcoin is to let people know that you will accept it as payment for your products and services. Avoid exchanging it for national currencies. The point that people miss here is that national currencies are the very problem that freedom-lovers are trying to get away from. Instead, use bitcoin to trade with merchants and individuals who accept it as payment. Offer it as payment to those who are unaware of it and explain the benefits to them. This will help develop the market and create a solid economy outside of national currencies. After the initial attack, bitcoin has the potential to be one of the most powerful and revolutionary tools to bring about more freedom and liberty to humankind.

Further Observations on Bitcoin, Digital Currencies, Privacy and Liberty

By Anthony Freeman

In my previous post The Real Problem of Digital Currencies and Privacy I proposed that there were two, readily observable weak links and one primary problem outside of digital currencies. Namely:

Weak Link #1: The exchange services who convert common currencies into e-currency and vice versa.

Weak Link #2: The e-currency must be defensible and the asset which backs the e-currency must be verifiable (technically this is two more weak links bringing the total to 3; in my haste, I neglected to separate these so I make note of that here).

Primary Problem: The lack of understanding of property rights and individual liberty in a sufficient number of people to enable them to come to each other’s mutual defense.

In conducting further research on Bitcoin it is interesting and encouraging to see how it is addressing these issues. While I am no expert on Bitcoin I will do my best to touch on how it and its users are tackling the issues I describe above.

First let us discuss the qualities of an “ideal money” (see What is Money?):

1. Scarcity – limited supply helps maintain value
2. Durability – the ability to resist wear and decay
3. Fungible & Divisible– divisible into small, interchangeable amounts
4. Portable – a sufficient concentration of value that allows efficient transportation
5. Proven – a history of successful use
6. Use Value – its usefulness
7. Defensibility – the degree that it is capable of being defended

Let us now compare how Gold and Bitcoin stack up against each other in each of these areas:

Scarcity

The supply of gold is regulated by nature. The supply of Bitcoin is limited by its configuration.

Durability

Gold does not decay or rot. With proper back-up and storage, neither can Bitcoin.

Fungible & Divisible

Both gold and Bitcoin can be divided into very small quantities of equal nature but Bitcoin is the clear winner here because its cost of division is close to zero.

Portable

Due to their concentrated value both gold and Bitcoin are highly portable but Bitcoin is the clear winner since wealth can be transferred across the globe with the click of a mouse.

Proven

Gold has a 6,000 year history as a proven form of money but it has also proven its weakness since it has been driven out of the monetary system through many periods of history including the present time. Bitcoin has been in existence only a short time and has yet to prove itself over long periods of time.

Use Value

Gold has many uses in industry – over and above its usefulness as money. Bitcoin’s primary use value is as a medium of exchange. Time may prove that the degree of Bitcoin’s usefulness as a medium of exchange outweighs it’s lack of usefulness in other areas.

Defensibility

Gold, due to its physical nature, is expensive and difficult to store and defend. Bitcoin is easy and inexpensive to store. The degree to which Bitcoin can be defended will continually be tested but the outlook is hopeful. There is no such thing as 100% protection for any asset but one can take actions to minimize risks. The cost to benefit ratio must always be considered.

The assets created and known as Bitcoin have unique qualities in that:

1. They are created electronically and exist in a distributed and decentralized fashion across multiple computers across the internet. With no central storage location they become much less susceptible to confiscation by invading armies. A powerful feature indeed.
2. They are created or “mined” by complex computational problems which regulates the rate of their creation and limits the ultimate supply giving them an anti-inflationary nature which is one of the main characteristics of a desirable money.

Conclusion

Overcoming Weak Link #1: If there is a ready market of willing trading partners, there really is no need for Bitcoin to be exchanged for fiat currencies. Since fiat currencies primarily act as a medium of exchange (a means to trade what you have for what you want), Bitcoin can simply be traded directly for the goods and services of willing trading partners bypassing the need for currency conversion. A growing market of willing trading partners strengthens the value of Bitcoin and reduces the dependency on fiat currencies.

Overcoming Weak Links #2 and #3: There is no asset backing Bitcoin. Bitcoin is itself the asset. Its greatest value is as a medium of exchange. The fact that it is decentralized makes it extremely difficult to confiscate. Hence, it is highly defensible.

Bitcoin is a promising tool in the struggle for individual liberty. In order for life-protecting tools like Bitcoin to have continued success there must be a sufficient number of people who have a clear philosophy of what Liberty is and what it means (see My Philosophy of Liberty) and they must act consistently within this philosophy (see A Way To Be Free). They must respect the property rights of others. This is called Autarchy.

The Real Problem With Digital Currencies and Privacy/Liberty

The readily observable problems with digital currencies is that they have two major weak links. The first is the exchangers who convert cash to e-currency and e-currency back to cash again. “Authorities” target these exchangers and the system fails (see the story of e-gold.com). If the “authorities” do not shut them down they then regulate them and privacy is eliminated (see goldmoney.com).

The second major weak link is that the e-currency must be defensible and the asset that backs* the e-currency must be verifiable. Systems like Pecunix are excellent but if they were to achieve a meaningful size they (and the businesses that store their gold for them) would come under attack by world powers. These power-hungry “rulers” would attack anyone who threatens their control of the monetary system.

The real problem is the widespread lack of understanding of property rights and individual liberty. It is the pagan faith and belief in “external authority” as described by Rose Wilder Lane in her book The Discovery of Freedom. What is needed is a powerful network of individuals who respect property rights and are willing to defend them. This “territory” is where the asset that backs the e-currency would be stored and defended. The individuals of this territory would reject and repel attempts to violate these property rights. The “territory” need not be centralized if it can be defended. E-currencies like Bitcoin have attempted to address these issues but they still face many challenges.

The ultimate territory is in the individual minds and in the actions of the masses who have learned, understand, and appreciate what property rights and liberty are all about. An excellent source for this knowledge is Robert LeFevre’s The Philosophy of Ownership. The ultimate state of individual awareness is described as “autarchy” or “self-rule” (see  A Way To Be Free).

One man alone cannot defend his property but when he and his neighbors have matured to the point where they understand, respect and appreciate property rights; and when they can outnumber (or outsmart) the plunderers, they can then repel the attacks of the aggressors.

The answer is Autarchy (and self-defense tech).

*UPDATES: It has become clear that bitcoin is a scarce and useful commodity in and of itself and therefore needs no “backing”. Title of article has been updated to include the word “Liberty”. The mention of “self-defense tech” has been added as well. I consider bitcoin to be a powerful form of self-defense tech if used correctly.

My Philosophy of Liberty

The following is a loose overview of my personal “Philosophy of Liberty” which I have developed up to the present time. It warrants further refinement and I’m sure I will continue to modify it as I continue my studies of economics and liberty. Those champions of individual liberty that have contributed to my personal philosophy are too numerous to list here but I have provided links below to sources where you will find many of their works. I hope that my philosophical observations may be of benefit to you and give you some ideas in the development of your own “Philosophy of Liberty”.

Simplified Definitions

Liberty: the ability to live one’s life as one wishes while respecting the lives of others.

Property: the goods that man produces or acquires through voluntary exchange and/or gift. Claims of land ownership are included here as well.

Murder: the taking of man’s life without his voluntary consent. This deprives him of his future (and future productivity).  Excluded from this definition is the taking of another person’s life in the act of self-defense against an aggressor (when one believes one’s life is threatened) or in the defense of others when the lives of these others are threatened.

Slavery: the taking of man’s liberty without his voluntary consent. This deprives him of his present.

Theft: the taking of man’s property without his voluntary consent. This deprives him of his past (the time energy and talent that he used to produce this property).

Plunder: The ill-gotten gains from theft.

Foundational Axioms

Man occupies space and consumes energy.

Man seeks happiness (and seeks to remove uneasiness).

In order to live man must consume those things that sustain his life (food, shelter, etc.).

In order for the necessities of life to be consumed they must first be produced.

An infant cannot produce for himself so he must rely on the production of others through charity.

As a child matures he must continue to rely on the charitable production of others until he learns to produce for himself.

In the process of producing for oneself man usually develops a specialization resulting in a surplus that can be traded for the specialized products of others (comparative advantage/specialization of labor). This process of production results in what is often referred to as “the fruits of his labor”.

These products are an extension of man because they are the direct result of his expended time and energy (life).

First Conclusion

Based upon the propositions set forth, anyone who seeks to take another man’s life, liberty or property against that man’s voluntary consent is an enemy to human life. With this understanding I propose to label my philosophy of liberty as “pro-life” as I am vehemently opposed to murder, slavery, and theft. This is not to be confused with the label of “pro-life” as it relates to abortion although abortion is certainly an issue to be considered within this broader philosophy (the issues regarding abortion will not be addressed in this missive).

Further Observations

There are some men who seek to take away the property and liberty of others in order to use this production for personal profit. These men choose this path as they find it preferable to producing for themselves.

This short-term benefit is not only dangerous to the thief but it is detrimental to his long-term well-being because his victims must divert a portion of their resources toward protection services instead of to production. This loss of production reduces the overall societal standard of living as there are less products and services available for trade.

Despite this, the thief is not concerned with the detrimental, long-term effects of plunder as he only cares about the immediate benefit. Therefore, the rest of society must take protective measures if they wish to safeguard their life, liberty and property. It follows then that the degree of man’s freedom is proportionate to the level of protection he has secured.

The Ignorant Plunderers

These are the individuals that participate in plunder as they have not thought through the consequences of their actions. Those in this category are the majority of all plunderers and, unfortunately, a large percentage of society.

The Purposeful Plunderers

These are the individuals who know that their actions are contrary to human well-being and they continue in their plunder anyway. They can be thought of as “anti-life” or “evil”. Those in this category are in the minority of all plunderers.

On Advancing Liberty

It appears then that there are three worthy endeavors that must be undertaken if one wants to enhance life (freedom):

First: One must work to master himself.  Self-mastery.  Self-control.  He must work to adjust his actions so that he is no longer a participator in plunder.  Robert LeFevre referred to this as Autarchy or “self-rule”.  Freedom is self-control, not license to impose on others.

Second: One must work to educate those individuals that are Ignorant Plunderers so that they can recognize the negative consequences of their actions and then, hopefully, change those actions.

Third: One must invest a portion of his resources toward the protection of his life, liberty and property from both types of Plunderers. Harry Browne recognized this when he said that “freedom is self-defense” in his fantastic Rule Your World seminar.

On Self-Defense

There many strategies for defending one’s life, liberty and property which will not be addressed in detail here. Instead I direct you to resources that can easily be found on the internet.

One strategy for dealing with the Purposeful Plunderers that I will call your attention to is the one put forth by Marc Stevens in his book Adventures in Legal Land. His key observation is that the Purposeful Plunderers must maintain a veneer of legitimacy or moral authority in order to continue their plunder. Marc’s techniques for destroying that veneer are powerful and they warrant further study, analysis and practice.

On Education

Thankfully for the internet there are now numerous resources where people can learn the ideas of liberty. My favorite book is Fundamentals of Liberty by Robert LeFevre.

On Self-Rule

On this wise I will refer you to two, short discourses that explain this principle better than I ever could.  The first is Robert LeFevre’s Autarchy.  The second is A Way To Be Free – Epilogue which I feel are some of the finest words ever written concerning the cause of liberty.

Conclusion

With my personal philosophy I can easily be referred to by any of the popular labels: Libertarian, Liberal, Classical Liberal, Voluntaryist, Autarchist, Capitalist, Free-Market Capitalist, Anarcho-Capitalist, Anarchist, Agorist, Counter-Economist, Idealist, Realist and so on but when you really get to the heart of the matter I am ultimately “Pro-Life”.