As the euro staggers, it may seem bad taste to examine the possibilities for yet another created or artificial currency. But the Bitcoin is worth a quick look because it makes us think again about the nature of currency and what value consists of. We all know the value of a currency is artificial and rests on nothing but confidence and mutual belief in its reality. There are those who still believe that gold represents real permanent value and should back the currency as it used to when English bank notes promised to be redeemable in gold. A small proportion of US notes are still “silver certificates” redeemable in principle at banks. But these believers know that even gold has only conventional value. True, it is hard to find and hard to imitate but, unlike currencies, its value also rests on non-monetary uses in jewellery, decoration and medicine.
The bitcoin could easily have come from the science and mystery fantasies of Haruki Murakami: and it was indeed created in 2009 by the Japanese Satoshi Nakamoto, though that is almost certainly a pseudonym. The notion combines in a quite original way the elusive concepts of cryptography, computer games, internet hacking, money laundering and anti-government sentiment. Bitcoins are created (or “mined” in the jargon) by a complex set of algorithms close to what is called “public key cryptography”, the most secure kind of coding generally available. When mined a bitcoin is just a number 33 characters long which you own and can pass to other people; all transactions with it are made public on the web but no one can see who you are or who you are giving it to. You might feel this notion of having value by owning a secret number is absurd - after all you do not have any value if you know the number on a banknote. But think back to the numbered Swiss bank account, now it seems in the dustbin of history: with them you had access to whatever riches the account contained simply by turning up and knowing the number. Nothing else, traditionally, was required, presumably because the number was long enough that you could not have made it up. A bit coin is like that except that its number shows it belongs to you alone because it embodies your “public”, but not private, key, and so changes when you pass it on.
There is a strong anti-government strand in the bitcoin movement, one often present in the hacker and computer nerd communities from which the notion comes: the belief that governments are not fit to control currencies and their values. This point of view has traditionally been shared by US Republicans and those who want us back on the gold standard, an odd alliance now being joined by the internet-driven “Occupy Wall Street” movement, an inchoate and leaderless movement that is spreading across western capitals and expressing disillusion not so much with capitalism as with corporate finance, a quite different matter. It is in part a protest about value, and not one a conservative should ignore: British conservatism has never wholly trusted finance, or capitalism, if it threatened social cohesion in its more unbridled forms.
The attraction of Bitcoins is that they offer a way of avoiding government control of currency and value, just as did gold, and just as may the other growing movement to move all currency transactions to virtual phone transactions. These are private, of course, at least until the government and its agencies seek our phone records, but they are not anonymous in the way use of Bitcoins is. Dave Birch, one of Britain’s most acute observers of the internet and social networks, argues that bit coins will not get a mass market because people on the whole want privacy not anonymity for their transactions. Inevitably, the anonymous aspects of bitcoin use have attracted tax evaders and money launderers leading to calls for government regulation of this pseudo-currency. In China, game-based currencies have already been under attack by the government, a move sure to draw support from those who see any sign of anti-government activity in China as a good thing.
The real problem of course, is what government could control the bit coin? Like the internet from which it sprang, it has a sort of supra-national status, like gold again. Its nearest relative is the “Linden dollar”, the artificial currency created for transactions within the virtual world Second Life. It was at the point when properties valued in Linden dollars in that virtual world came up for sale on eBay that a link between Linden dollars and real ones was fixed; from that moment, Linden dollars took on real, not virtual, value. We can be sure international police and national governments are watching all this closely.
Bitcoins can now be bought and sold through a market called Mt.Gox which is what gives them value, and there are now over $100 million worth in circulation. In spite of the claims for the impenetrability of the cryptography, it seems the system was hacked and $9 million of Bitcoins was “stolen “last June; their value fell as a consequence but recovered. Bitcoins days may be numbered for many reasons, but currencies have survived massive frauds before and all modern currencies, especially US $100 bills, are widely counterfeited with no obvious effect on their value. Whether or not they have a future, Bitcoins do focus our minds on a cluster of issues to do with growing distrust of value created by finance industries and governments that print money, along with a growing paranoia about conventional cash itself, brought on by the spread of traceable electronic transfers: it is now thought highly suspicious to take a large sum of money into a bank and the US government must be told if any cash transaction exceeds $10,000. All this is throwing up strange and creative alternatives.