Editor’s Note: This column originally ran in the November 4, 2014 issue of The Tech.
This past Sunday marked the launch of the MIT Bitcoin Project, a study conducted by faculty and students from the Media Lab, Sloan, and the MIT Bitcoin Club. The study aims to understand how the digital currency proliferates after being distributed to potential users.
The project’s creators have put MIT at the forefront of an effort that they believe has vast innovative potential. But Bitcoin’s fate doesn’t rest solely on the soundness of the currency itself. It will also depend on public perception and proponents’ ability to effectively advocate for it.
The leaders of the MIT Bitcoin Project emphasize the right reasons for trying the currency. They highlight low transaction costs, enhanced security relative to current online payment systems, and the potential to help those who are “underserved” by our financial system. But other Bitcoin advocates are promoting the currency for the wrong reasons, focusing on unjustified fears of the state and central banking systems.
More specifically, some say the widespread adoption of Bitcoin is essential in order to free society from the grip of bureaucrats and central bankers. This same strain of techno-libertarians also incites fear of hyperinflation of the U.S. dollar at the hands of the federal reserve. But inflation has actually slowed since the Fed began the first round of quantitative easing in 2008, and has remained low.
A similar argument for the widespread adoption of Bitcoin is that the collapse of the US dollar is imminent. Observers point to the fact that the dollar, like most other modern currencies, derives its value by fiat — faith in the government that issued it — rather than a commodity with inherent value. Additionally, the sheer quantity of printed dollars in the world has convinced many that the dollar will lose value as a result of excessive supply.
But according to Federal Reserve data, in 2013, roughly two-thirds of the hundred-dollar bills in circulation were held outside the United States, indicating that the dollar is still the global reserve currency. This distinction makes it difficult to believe that the dollar will collapse any time soon. The strength of a currency ultimately depends on the degree to which people trust it, and no other country or credit union can match the track record of the United States when it comes to fulfilling its debt obligations. The European Central Bank has not been around as long as the Federal Reserve, and it is still recovering from a crisis that began in 2009. The Chinese yuan is restrained by stringent and clouded government control.
Another paranoid argument for Bitcoin’s necessity is that it will protect assets when governments inevitably attempt mass seizures of private savings accounts. Those who make this point refer to the recent financial crisis in Cyprus. Faced with the prospect of insolvency, and without assurance of a bailout from the European Union, Cypriot lawmakers proposed the confiscation of six to seven percent of individuals’ private savings accounts. As news of this proposal spread, the price of Bitcoin skyrocketed, quite understandably. But in the face of vigorous public backlash, the Cypriot government backed away from the proposal.
To suggest that the United States could face a similar scenario — and that the government would attempt to confiscate private savings — is as misleading as it is far-fetched. Only a national emergency threatening the very survival of the republic could conceivably prompt the U.S. government to contemplate confiscating property on a national scale — for example, to mobilize resources for a global war effort. Under any such scenario, Bitcoin users would be no safer than ordinary bank account holders. The government could and likely would criminalize the failure to turn over assets needed for our national survival. Anyone foolish enough to hoard assets in Bitcoin form would be no different than tax evaders and others whose attempts to hide assets can be prosecuted.
Nevertheless, just because there are some poor arguments for Bitcoin doesn’t mean MIT students shouldn’t try it out. But Bitcoin supporters like those behind the MIT Project, whose reasons for wanting Bitcoin to succeed are more sound, should be wary of the spread of techno-libertarian paranoia. Paranoid arguments detract from and undermine the arguments that have merit.
The fastest growing political affiliation on American college campuses is Libertarianism. Although much of Bitcoin’s initial rise in popularity can be attributed to speculation, a growing portion of users are attracted to the currency because of their distrust of government. For these reasons, one can imagine that some MIT students who become interested in Bitcoin will do so because of misguided fear of the state.
We should not let this happen. Instead, let’s write a different story about MIT students’ sincere desire to explore the positive potential of an innovative new way to pay and save.