In just eight years, Bitcoin and the idea of “virtual currency” have gained acceptance and use both online and in the physical world. Spread by word of mouth and other “viral” means, decentralized virtual currencies have gone from a mere thought experiment to a tangible economic reality.
Today, one can use Bitcoin or other currencies not backed by the U.S. government to buy physical goods and services and online services. Established companies, such as Dell, DISH Network, Microsoft, and Papa John’s Pizza, all accept Bitcoin payments.
As with conventional currencies, participants in Bitcoin trade work for credits. A special program uses computational cycles on a participant’s computer processor to verify and record a vast public ledger of all Bitcoin transactions, called the “blockchain.” In return for their “e-labor,” participants receive a small reward for each successful completion of the blockchain verification process.
The introduction of Bitcoin, by a still-unknown individual using the name “Satoshi Nakamoto,” may have solved the theoretical challenges faced by virtual currency, but too few people know that alternative currencies are a real alternative or trust them enough to use them.
U.S. government policies over the years, starting with the National Banking Act of 1863, a law intended to help finance the Civil War, have established a near-monopoly for the U.S. government over how people may pay for things they want.
By compelling everyone to use the one-size-fits-all government-backed currency, consumers’ options are reduced, neglecting their actual needs. The rise of alt-currencies is an attempt to fill that vacuum.
A recent paper by Kenyon College economics professor William Luther explains Bitcoin and other virtual currencies are already serving consumers better than government-backed money.
“The most likely place for a cryptocurrency to accomplish widespread acceptance would seem to be where the incumbent money is managed poorly since, in these cases, the benefits could be sufficiently high to warrant the costs of switching and coordination,” Luther wrote. “In Kenya, where many are unbanked but have cell phones, Vodafone’s m-pesa system has taken off. If the incumbent money were especially unstable, such users might opt to use their phones to transfer cryptocurrencies instead.”
Allowing alternative currencies to arise and evolve in the United States could have huge economic benefits. In a study on how the Federal Reserve’s money monopoly affects the U.S economy, Thomas Hogan, an assistant professor of economics at West Texas AM University, writes, “Considering that banks issuing private notes in Hong Kong, Scotland, and Northern Ireland earn hundreds of millions of dollars annually, it appears that U.S. banks may be missing an opportunity to earn billions of dollars in annual profits.”
Regardless of whether the currencies are digital or physical, allowing consumers to experiment and try out new currencies offered by private entities ultimately results in a better “product” and a better experience for consumers seeking something different than the traditional government-backed dollar. In time, currencies possessing more qualities desired by consumers, such as reliability, will gain greater consumer adoption, and those currencies will win out over less desirable alternatives.
Ending the U.S. government’s virtual monopoly over the money business and allowing free-market principles to do their thing, both online and in the real world, is an idea that’s sure money.
Hathaway (email@example.com) is a research fellow of The Heartland Institute and managing editor of Budget Tax News.