Editor's note: For more information, view the 30-minute video and links below.
I have to admit that I haven't looked deeply into the growing Bitcoin phenomena. However, Ihave looked very deeply into the fiat currency1 that's issued by our so-called "Federal Reserve System." From what I can tell, there are some pretty big differences between the two currencies:
1. All of the "money" that the FED creates is inextricably tied to debt. Another way of saying that is: The money that the FED creates only exists because a person, business, or government hasborrowed it into existence. If the loan which created the money is repaid, those loaned dollars cease to exist. They disappear from the economy and will not return until another loan is made. This is a debt trap that our society cannot escape and it only grows deeper and more dangerous with the passage of time. (For more information on how the FED's money-creation process works, read chapters 6 & 8 of Dishonest Money.)
Unlike the Federal Reserve System, the Bitcoin system is based on a debt-free form of money. The Bitcoins are created and given to individuals who provide processing power to the Bitcoin network. From there, the coins can be spent (debt free) into circulation. This is a benefit that Bitcoin proponents should make a very big deal out of. It's a huge improvement over the system we live under today.
2. There are no limits to the amount of money / DEBT that the Federal Reserve System can create. This leads to a constant and inevitable destruction of purchasing power.
Bitcoin production, according to proponents, cannot expand beyond a certain number of coins. Imagine a form of money that can actually APPRECIATE over time instead of always losing value. Imagine laying to rest, once and for all, the myth that the number of currency units must grow to serve a growing economy. (One Bitcoin can be worth $1, $10, or $100,000. As long as that coin can be divided into sufficiently small units for less-expensive purchases, it will have no problem meeting the demands of a growing economy.)
3.The Federal Reserve System is controlled by a handful of individuals. This tiny elite use the enormous power of money / debt creation to protect, enrich, and empower themselves at the expense of any who are unaligned with their interests.
There is no such monopolized control within the Bitcoin system. It is an "open source" program that does not allow a small group to "create limitless Bitcoins out of thin air" for their own benefit.
Though Bitcoins are purely digital, they lack many of the downsides of traditional fiat currencies. They're not forced on individuals via legal tender laws, there is no centralized / monopolistic control, and there is no privileged group who can simply "create" what the rest of the population must earn. Bitcoins also provide other advantages like greater privacy (privacy is practically non-existent in the FED-dollar system) and cross-border transactions, even into or out of nations like China, are fast and practically free.
Recently, Bitcoins have exploded in value and there is no doubt that their price will fluctuate a great deal in the coming years. They could become worth a lot more, or they could drop to a fraction of what they're worth today. That said, the real profit to be gained from Bitcoins, regardless of their final purchasing power, might lie in the large-scale, competing-currency experiment that they're sparking around the world.
If we expect to free ourselves from modern monetary slavery, then The FED (and all centralized, coercive, debt-based systems like it) must go. Competing currencies provide us a non-violent,market-based option. Bitcoins fall squarely into the competing-currency category. Even if they're not perfect, they appear to be a step in the right direction.
(1) Footnote: When I refer to Bitcoin as "fiat," I am using the term in its "lacking-intrinsic-value" sense, not in the term's more damning "by-government-decree" sense. -->return to top
Filling in as host of the Peter Schiff Show, bestselling author Tom Woods interviews Erik Voorhees of BitInstant about Bitcoin, and takes listener calls. Visit these sites:http://www.WeUseCoins.orghttp://www.BitInstant.comAnd read Erik's "Bitcoin: A Libertarian Introduction": http://evoorhees.blogspot.com/2012/04/bitcoin-libertarian-introduction.htmlMore from Tom Woods at: http://www.LibertyClassroom.com