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How Bitcoin will enable a low-overhead p2p economy

photo of Michel Bauwens

Michel Bauwens
21st August 2012


Bitcoin’s importance can’t be exaggerated. Encrypted currency has been at the Altair stage of development. If Bitcoin isn’t actually the Apple II – and it may not be – we’re very close to it. If Bitcoin isn’t the Messiah of the darknet economy, at the very least it’s John the Baptist preaching its immanent arrival.

Excerpted from Kevin Carson:

“Despite my reservations, I consider Bitcoin to be grounds for enormous excitement. Pirate Party founder Rick Falkvinge calls it “the Napster of Banking” (May 11, 2011).

As Falkvinge argued, it’s usually not the most feature-rich version of a new technology that achieves the critical mass needed for popular acceptance. Rather, it’s the most user-friendly. “…It takes about ten years from conception of a technology, or an application of technology, until somebody hits the magic recipe in how to make that technology easy enough to use that it catches on. And when it does, boy, does it catch on.”

Technologies for sharing digitized music had been around for ten years when Shawn Fanning launched Napster. Video sharing had been possible for geeks for a decade when YouTube came along. Falkvinge thinks Bitcoin will do the same thing for encrypted e-currency. Bitcoin will do to banking what BitTorrent is doing to the music industry.

Here’s how Falkvinge describes the ramifications:

“The governments of the world are on the brink of losing the ability to look into the economy of their citizens. They stand to lose the ability to seize assets, they stand to lose the ability to collect debts. No application of force in the world is going to help: everything is encrypted, and destroying a computer with any amount of police firepower will accomplish zilch.

All the world’s weapons in all the world’s police hands are useless against the public’s ability to keep their cryptographic economy to themselves….

….The decentralized, uncontrollable economy where one lifetime employment is no longer central to every human being is something I’ve called the swarm economy, and I predict it will redefine society to an immensely larger extent than the ability to get rap music for free.”

This is vitally important to a central theme in my work: the emergence of non-state spaces within which the low-overhead informal and household economy can function, outside the state’s ability to create entry barriers, impose artificial capitalization and overhead costs on low-overhead producers, and collect rent on artificial scarcity rents. It’s the enforcement of their iniquitous “laws” that prolongs the corporate dinosaurs’ feeble grip on life, and enables the usurers, landlords and proprietary content owners to collect tribute from us.

There are all sorts of possibilities for the alt economy, with a major part of economic activity taking place via an encrypted e-currency.

Until now, patents have been enforceable largely as a result of the low transaction costs involved when a handful of oligopoly producers in a given industry (who’ve often exchanged or pooled the patents) market a limited number of models of goods through mass-distribution retail chains. What happens when a garage micromanufacturer produces knockoffs of patented mass-production goods – much like the Shanzhai job shops today running knockoffs on the third shift, but with only 10k worth of homebrew CNC machinery that can be bought for three or four months’ factory wages – and there’s no verifiable record of the purchases?

What happens when the unemployed and underemployed start taking advantage of the technical possibilities for low-overhead household microenterprise, in defiance of zoning and licensing and bogus “safety” and “health” standards whose real purpose is to impose artificially high capitalization and overhead costs and make it impossible to stay in business without a sufficient revenue stream to amortize them? Say hello to household micro-bakeries using ordinary kitchen ovens, home-based cab services using the family car, household daycare and beauty salons, raw milk and meat from animals without RFID chips, etc. — all bartering with each other and with those above-mentioned garage manufacturers in an encrypted darknet economy. And all while the state, aka the executive committee of the ruling class, blindly gropes in the dark to prevent it.

The biggest effect of file-sharing was to destroy all the artificial scarcity rents of the content owners and cause an entire sector of the economy to implode to marginal reproduction cost. As Chris Anderson said, atoms also want to be free — they’re just not as pushy about it.

Bitcoin’s importance can’t be exaggerated. Encrypted currency has been at the Altair stage of development. If Bitcoin isn’t actually the Apple II – and it may not be – we’re very close to it. If Bitcoin isn’t the Messiah of the darknet economy, at the very least it’s John the Baptist preaching its immanent arrival.

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7 Responses to “How Bitcoin will enable a low-overhead p2p economy”

  1. Jeff Bassett Says:

    I watch Falkvinge’s talk, and I thought it was great. A lot of good insights. The only potential downside I see with a dark economy is that it may become more difficult to enforce contracts or prosecute fraud. Bitcoin may force a rethinking of how these are done. I wonder what a p2p judicial system might look like?

  2. mikeriddell62 Says:

    Bitcoin heralds an age of e-money that’s for sure. I’m not convinced it’s the second coming though. There are lots of community currencies under construction around the world, all of which will need to be electronic if they are to survive beyond birth.

    If they do, like Bitcoin, they will be exchangeable with other currencies in the marketplace.

    The value of Bitcoin like the value of anything else, will depend on what the market is prepared to pay for it. What will be Bitcoin’s brand value?

    The trouble with Bitcoin is that it encourages, incentivises and rewards the wrong kind of behaviour – money laundering, drug peddling, people smuggling and so on. In that regard, it’s no better than money.

    It thus leaves its flanks exposed to an altogether truer currency that encourages, incentivises and rewards behaviour that makes the world a better place.

    Such a currency will i suspect be more demanded than Bitcoin – at least by governments seeking a more effective/efficient (productive) p2p economy. I suspect they will be prepared to accept a community currency in exchange for local taxes if in it’s issuance it can be proven to build community, regenerate the local economy and reduce crime/pollution and so on.

    The ‘darknet’ economy is one thing where shady deals can done, but it isn’t the real economy where honest and good people do their business for the benefit of the many and not the few.

    Capitalism needs to be put to the sword, and Bitcoin ain’t gonna do that. Is it?

  3. Michel Bauwens Says:

    thanks Jeff, I’m starting to collect material on this, but more on the law than the judiciary so far, here at http://p2pfoundation.net/Category:P2P_Law. Any material you find would be welcome!

    Michel

  4. Michel Bauwens Says:

    Hi Mike,

    I agree with the overall sentiment and I personally like to frame p2p/horizontal developments within a distributed capitalism vs. commons-oriented economics polarity. Bitcoin is mostly the former, but nevertheless, distributed capitalism gives more legroom for developing commons oriented economics than centralized monopolistic capitalism. The fact that it is the first socially sovereign currency, that it is peer produced and that it works and can scale is a very important signpost. In my view, the best thing to do would be to take the bitcoin code and tweak it for a commons logic,

    Michel

  5. Daan Claes Says:

    This statement proves that you dont understand Economics or how Bitcoin works. You cant ‘tweak’ how forces of nature work, and economics is a force of nature; it is not something that you can arbitrarily apply your philosophy to and expect it to work correctly. Its analogous to saying, “Lets stich some bird wings to our shoulders so we can fly and save the environment”. Real life simply doesn’t work like this. Birds have wings and fly and men have legs and walk.

    You cannot make up your own set of spurious logical precepts, apply them to Bitcoin and then expect the product to succeed. The market always wins; this is something the capitalists understand, and that the people who cannot even define that word do not.

    There is a group of people trying to create a fork of Bitcoin that employs demurrage; these people are going to fail spectacularly in terms of uptake because they dont understand what money is. No one wants to have their value stolen from them because of a pet theory. To understand why this is so, you need to study Austrian Economics and Praxeology:

    http://www.youtube.com/watch?v=MoNU_-__LlQ

    Through these two disciplines, which deal only with the reality of the motivations and facts of money, property and human interaction, you will understand why Bitcoin, exactly as it is, is perfect from an economic and property standpoint.

    All of this of course, does not mean that you cannot do whatever you like with your Bitcoins or other property. You can donate it to your Commons, or design a software service that takes away a small percentage per day or transaction or full moon to put into a community pot that you control; all of this is up to you and your ability to write software and sell your ideas. What you cannot do however, is force other people to bend to your peculiar understanding of how the world works, and poison the Bitcoin network with your ideas by force.

    I am not saying that you are suggesting force right now, but it is inevitable that as Bitcoin begins to take over, there will be cries of ‘unfairness’ from the usual suspects who seek to impose their flawed ideas on others by force. Bitcoin makes this impossible, as the article states. It will be impossible for you to impose Socialist taxes, demurrage, a Commons or anything else that you believe in on other people in a Bitcoin economy and that is very exiting to people whose motivation is Liberty.

  6. Michel Bauwens Says:

    Dear Daan,

    Your comment is obviously directed to the author Kevin Carson, but I’d like to pitch in. Just to make it clear: Kevin knows Austrial economics in=depth, and it is a big part of his book on the Political Economy of Mutualism.

    where to begin?

    first of all neither economics, which is a system of social relations, not bitcoin, which has been explicitely designed, are ‘forces of nature’ (except in the sense that we are all part of the broader natural ecosystem). Markets, which have never been the dominant mode of human interaction before capitalism, are very dependent on institutions for their workings, and they are in fact, constantly being tweaked and fought over, as certain rules benefits certain players more than others. If men had listened to your advice, and just let nature takes it course, I guess indeed they would still be just walking, instead of designing airplanes and submarines. Stone Age ‘economics’ were quite different from feudal economics, the economics of the Smithean era were different from those of the Fordist era and from those of today. Between countries, economic systems are organized very differently giving different results. There can be no purely objective economics, because economic policies create winners and losers. Austrian economics, which I personally don’t know very well, are routinely criticized by most classical and heterodox economics. The belief that they are a holy grail to which everyone should submit is unlikely to be warranted.

    I’m not sure if demurrage will work in current circumstances, but it is not a ‘pet theory’, it was the dominant form of money for ages (including in Ancient Egypt, and the very prosperous period of the European Middle Ages (10th to 13th cy). The most recent experiments, like in Worlg, Austria, were in fact spectacularly successful.

    Bitcoin is certainly an interesting currency, and I applaud its emergence as proof that a socially sovereign currency can be made to work and can be globally scalable. But in my own experience, no human-made system can hope to be perfect.

    Michel

  7. Kevin Carson Says:

    Daan: I’ve read Bohm-Bawerk, Mises and Rothbard, and had plenty of dealings with Austrian goldbugs and hard money types.

    I think it’s you who don’t understand what money does. It *can* be a store of past value, but it’s not just that alone — and it doesn’t have to be that at all. It can also function as a denominator of value for the exchange of present against present value, or present against future value. Economic communities and trust networks need a denominator of value for facilitating the exchange of value between those who have present skills and needs to exchange, in an environment where there’s “no money” in circulation in your sense of a store of value. And Greco’s credit clearing system is exactly the kind of expedient people have hit on in the past in such situations, as in colonial America where there was little specie in circulation in some communities. People will develop such expedients in the face of felt need, regardless of whether the fucking ghost of Herr Doktor Professor von Mises approves or not.

    I’ve read the Austrians. You read Greco.

    And FYI, people tend to respond better to disagreement when you’re capable of disagreeing without being an asshole about it.

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