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May 03, 2014 4:36 PM Hold on to your wallet: Doug Henwood on the Bitcoin scam

By Kathleen Geier

Doug Henwood’s cover story for The Nation this week concerns the cyber-currency known as bitcoin. Bitcoin gets taken seriously by many people who should know better. Take, for instance, this inane propaganda video about bitcoin on Vox. The film, which is narrated by Ezra Klein, and was written by Klein and Tim Lee, disses the boring, old-fashioned regulation that credit cards are subject to — I mean, who wants that, right? By contrast, bitcoin is compared to “the internet in the 1980s” and touted because it enables people “to do cool things without any central authority being able to tell you no.” Yes, that’s a verbatim quote. The accompanying explainer cards are not as ridiculously boosterish as the video, but they’re not good journalism, either.

By contrast, Henwood’s piece is learned, politically astute, and fun to read. It touches on everything from the economist’s definition of money to meet-ups of libertarian bitcoin enthusiasts to the insights of a Marxist-feminist professional dominatrix named Mistress Magpie. He makes a lot of interesting points, but I will draw your attention to what I think are among the most important ones.

Henwood notes that some on the left are fans of bitcoin. However, the cyber-currency’s greatest proponents are libertarians. Bitcoin gives them a thrill up their leg because it is unregulated. No doubt some of them dream of using it to hide their assets to avoid taxes. And of course, whenever the right and money are in close proximity to one another, the straight-up cons and frauds can never be far behind:

The US government seized funds from Mt. Gox, then the largest Bitcoin exchange, in May 2013, and just this past February, Mt. Gox collapsed from an undetermined mix of theft, fraud and mismanagement, leaving hundreds of millions of dollars in losses in its wake. There have been many other reports of thefts, frauds and hackings, which Bitcoin partisans dismiss as mere growing pains. But with no regulator, no deposit insurance and no central bank, this sort of thing is inevitable—it’s just tough luck. Introduce regulators and insurance schemes, though, and Bitcoin will lose all its anarcho-charm.

It’s not just the dreams of easy money or illicit gain that attract many on the right to bitcoin. There’s also an ideological project behind bitcoin and competing money systems. Writes Henwood:

There’s a limit on how many bitcoins can be produced, and it gets more difficult to produce them over time until that limit is reached. [snip] … in a Bitcoin economy, creating money to ease an economic depression would be impossible.

Henwood notes that the dream of a competitive currency is an old one on the right:

Competitive currencies that would end the state’s monopoly over money have long been a dream of the right. In a 1976 paper, Friedrich Hayek argued for allowing multiple currencies to circulate within individual countries; competition would lead to the use of the soundest—meaning most austerity-friendly—currency and put a check on the attempts by governments to inflate their way out of trouble. That would mean no fiscal or monetary stimulus in an economic crisis—just let things run their purgative course. In this view, the New Deal lengthened the Great Depression; had the bloodletting continued after Roosevelt’s inauguration, things would have righted themselves sooner or later. And we should have done the same in 2008 and 2009. Cryptocurrencies would be an advance over the idea of competitive currencies—improvised money systems that could challenge the state monopoly itself.

There’s a catch-22 inherent in bitcoin and other cyber-currencies, in that it’s hard to see how they could become established without becoming more regulated. And yet, as Henwood, notes, if they were regulated, “it’s impossible to imagine that states would tolerate” them for long. The main takeaway here appears to be that unregulated currencies provide enterprising con artists unusually promising opportunities for fraud. Among other things, it bears repeating that unlike FDIC bank deposits, bitcoin and other cyber-currencies are not protected by federal government. Unless you enjoy losing money you’d be safer if stored your hard-earned dollars under your mattress than if you exchanged them for their bitcoin equivalent.

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee

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