More Thoughts on the Bitcoin Crash

It appears that Bitcoin hasn’t hit the floor yet. This news has left many members of the Bitcoin community scrounging for a scapegoat. Reading various Bitcoin communities (although the /r/bitcoin subreddit has provided me with the most entertainment) it seems the recent devaluation of Bitcoin was caused by automated trades performed by bots, fake libertarians (I guess you can only be a libertarian if you invest heavily in Bitcoin), and a secret cabal of central banks. While the last scapegoat sounds the most plausible of the three (those central banks are ruthless bastards) I think the community is ignoring the most likely cause: Bitcoin is a new technology.

Bitcoin really is the first notable crypto-currency. Although previous crypto-currenciies have existed none of them enjoyed the prominence that Bitcoin enjoys today. Most people alive today have lived their entire lives using state controlled fiat currencies. Bitcoin is the opposite of what we call money today. It’s a decentralized currency that cannot be inflated past a certain point (only 21 million Bitcoin will ever exist). The decentralized nature of the currency means no single entity can wield monopoly control over it. It is also the first free-market monetary system that most of us have experienced. In other words, Bitcoin is a revolutionary idea and, like all revolutionary ideas, nobody can predict how it will, or won’t, change things.

Speaking in software terms the concept of Bitcoin (not to be mistaken for the network, clients, or services) is in the alpha stage of development. People participating in the Bitcoin community should understand that they are testers and should expect to find copious amounts of bugs that need to be worked out. Is Bitcoin vulnerable to Distributed Denial of Service (DDoS) attacks? If so, that must be corrected. Is Bitcoin too reliant on single points of failure? If so, that must be corrected. Is it too hard for the average person to acquire Bitcoin or use it in everyday transactions? If so, that must be correct. Growing pains are unavoidable when working with a technology that few, if any, understand the ramifications of.

Instead of playing the blame game I believe the Bitcoin community would be better served by noting the failure and thinking of methods to utilized the currency’s main features to overcome that failure. For instance, I’ve seen a lot of blamed aimed at Mt.Gox, the largest Bitcoin exchange. Bitcoin is a decentralized currency, why was one exchange allowed to gain so much influence over the exchange rate of the currency? Having a single point of failure is always a bad idea. Trusted members of the Bitcoin community should start developing more exchanges. More Bitcoin exchanges would mean more resiliency as it would be difficult for attackers to bring down or manipulate all of them simultaneously. Members of the Bitcoin network should put more work into developing easy methods for the average person to buy Bitcoin. In today’s world people like the convenience of credit cards. Credit cards, due to the ability of a purchaser to perform a charge back and the inability to recover sold Bitcoin, don’t work well for purchasing Bitcoin so some other convenient method must be created. The idea of Bitcoin Automated Teller Machines (ATM) is a good start, but they need to be located in high traffic areas such as grocery stores and gas stations. Until people can acquire Bitcoin as easily as they can buy things with their credit cards they won’t adopt the currency.

Another feature that should be leveraged more is the mostly anonymous nature of the currency. I’ve seen a lot of comments from Bitcoin advocates trying to refute the claim that Bitcoin is most heavily used in the drug trade. Stop that. Embrace it! Expound the fact that Bitcoin is used by drug dealers and purchasers because transactions cannot easily be tied to physical individuals. As the world governments continue to wring more and more money out of their people those people are going to look for a place to hide their wealth. A currency that is outside of the state’s control, can be used to store wealth in a mostly anonymous fashion, and allows individuals to perform transactions in a manner that that state can’t record for taxing or prosecution purposes should be huge and will be necessary as the state’s rate of expropriation increases. By denying that Bitcoin is used for “black” market purchases members of the Bitcoin community are downplaying its most valuable feature. Don’t try to control its image, let its image develop freely.

As an agorist and a crypto-anarchist I want to see Bitcoin succeed. In order to succeed I believe the Bitcoin community needs to understand that Bitcoin is a revolutionary idea, will have growing pains, and must be rid of state dogmas against the “black” market. Trying to shoehorn it into mainstream monetary and political principles will relegate it to always being an interesting idea that never gets widely adopted.