If open-source advocate Scott Nelson is right, banking-industry executives around the world will soon be looking over their shoulders.
What they will be watching, according to the cofounder of Free Geek Vancouver, is an emerging digital currency called Bitcoin. As a peer-to-peer virtual currency, Bitcoin can be created, purchased, and traded in a decentralized manner without the use of a bank or payment processor.
Nelson calls it “a disruptive technology”.
“It causes an existing institution to have to re-examine the way it operates,” Nelson told the Georgia Straight.
Sitting in his East Vancouver office, Nelson said he is “one of the earliest adopters bringing it to this part of the world”. Bitcoin was created in 2009, according to Nelson, by the Japanese equivalent of Banksy—a man named Satoshi Nakamoto, whom hasn’t been seen publicly.
As the Bitcoin website explains, to hedge against inflation and other challenges faced by fiat currencies—those declared legal tender by a government and not backed by gold or another commodity—the number of Bitcoins released will not exceed 21 million. This differentiates Bitcoin from national currencies like the Canadian dollar, which can inflate—or lose real value—if too much is introduced into the money stream. Through cryptography and the decentralized network of tech-savvy people like Nelson, Bitcoin will be self-regulating.
“Peer-to-peer technology has been enormously disruptive to the music and the movie industry, because it overturned the control and the way things had been going,” he said. “I think Bitcoin is the disruptive technology for the banking industry in the same way that BitTorrent was for the music and movie industries, in that it’s really going to force them to change the way that they work.”
Nelson’s motivation for spreading the word is to help distribute the currency, and it stems from what he said is his “deep dissatisfaction with the banking industry and the way it operates”¦and the pickle it’s gotten us into with this economic downturn, and their clumsy attempts to address it”.
When people use centralized payment services like PayPal or Interac, they have no anonymity, Nelson added.
“And of course they use that in multifarious ways,” he said. “Look at the U.S. government telling PayPal to shut down the WikiLeaks. It’s like, all of a sudden, the credit-card companies refuse to process for WikiLeaks....There you have heavy-handed control of centralized services which never gave any anonymity anyways.”
Richard Heinberg, the California-based author of The Party’s Over: Oil, War and the Fate of Industrial Societies, told the Straight he had not heard of Bitcoin. But after hearing about the basics, he declared by phone, “You see, now I think that’s going to be the money of the future.”
The problem with the monetary systems of Canada, the U.S., and other countries, is that banks and governments control it, and it’s all based on debt, and requires economic growth in order to function, Heinberg said.
“But there’s no reason that money has to have those characteristics,” Heinberg said. “There’s no reason it has to be debt-based. There’s no reason it has to be created by banks and no reason that governments and central banks have to make the rules.”
The combination of excessive national debt and stagnating growth means “we are borrowing from our grandchildren”, he added.
“The more alternatives we have to national currencies, the more resilient our system is,” Heinberg said. “National currencies can go south. We saw it in Argentina. We saw it in Germany in the ’20s. Actually there’s a long list of countries that have had major currency problems, like Zimbabwe. Those are the three most famous, but there are lots of others that have had serious currency problems. When that happens, if people don’t have anything else to fall back on, then trade just stops.”
One well-known economist not sold on Bitcoin is Toronto-based Jeff Rubin. He’s the author of Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization and a former chief economist for CIBC World Markets.
“My first question is, what is compelling people to use it and not the Canadian dollar?” Rubin said by phone. “Why would you bother? There already is a perfectly functioning monetary system in Canada.”
Rubin said he does not share Heinberg’s concerns around resilience, due to his belief that “our crisis is not going to be so much financial or monetary. I would think that our crisis will be energy-related.”
This will have reverberations in financial markets and on monetary systems, according to Rubin, but the “essence” of the problems will be energy-related.
Nelson bought his first Bitcoins through a broker in Nanaimo last December at 28 cents. Bitcoins have traded this month at over US$3.50.
A list of sites that accept Bitcoin is available online.
Scott Nelson introduces Bitcoin.
Scott Nelson on Bitcoin's technology.
Scott Nelson on contributing to the Bitcoin network.