Bitcoin – Nearing the End?

Earlier this year I touched on Bitcoin, the new electronic money that’s become quite popular.  Two of the key points I hit on were:

  • Bitcoin is definitely money because it can be used for means of final payment, but it’s a poor form of money because it’s not very widely accepted.  
  • Bitcoin is likely to be forced to change because its existence in an untaxed system creates a problem in a society where money is viewed as something that serves public purpose as well as private purpose.  If money exists purely for private purpose (as Bitcoin does) then it cannot be taxed and used for public purpose.  I believe this creates a problem for the US government should Bitcoin ever become too popular and is likely to result in the US government clamping down on the way Bitcoin is operated (perhaps even shutting it down entirely).

So it’s interesting see this cease and desist from the State of California.  In the letter the state says Bitcoin is violating the state’s transmission of money laws.  So, it looks like certain governments are validating point 1 above.  Bitcoin is definitely money.  Now, we’re just waiting on how the various state and federal governments will respond to point 2.  If Bitcoin continues to grow in popularity and creates a money that potentially detracts from the government’s ability to enact public purpose then Bitcoin will either adapt or die.


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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • DanH

    That first bitcoin post was one of my favorites of the year. Is there anything money related that is beyond the scope of your knowledge?

  • Cullen Roche

    Yes. Lots.

  • Rob Jones

    Bitcoin is a standard or protocol. The Bitcoin organization is devoted to popularizing that protocol, but it doesn’t actually do the bitcoin transfers. Those are done by bitcoin miners across the world. The Bitcoin organization could completely disband and the transfers of Bitcoin would not be affected. The Bitcoin organization could not shut down Bitcoin operations even if they tried.

    I don’t own any Bitcoins and never intend to because I believe that the governments of the world will eventually make it impossible to use them for purchases. But the California letter is just stupid and will probably only result in more publicity for Bitcoin.

  • deathbycontrol

    can human beings voluntarily decide who they want to communicate with without fear of having a gun pointed at them by men in costumes?? are humans capable of choosing whether to exchange their labor or possessions without being told what must report? some say yes! others say, impossible! i guess we’ll find out in time but there is only one future end game worth playing for.

  • deathbycontrol

    small edit Cullen-what if gov’t needs to adapt or die? perhaps you are on the wrong side of information theory…

  • Cullen Roche

    I think you’re misunderstanding the design of our monetary system. We have a system where we have chosen to have some level of public purpose. That public purpose is enacted by having all of us pay into the system to move resources from the private to public domain. The design of the monetary system helps us all track who has and has not paid into that system and how the funds are redistributed to serve public purpose. A money system that allows some members to transact in the US economy without paying into the public purpose portion of the system is self serving and not public purpose serving.

    So, yeah, we should have the govt adapt, but it will not likely die unless you want to eliminate public purpose entirely. That’s not realistic in my opinion. So some level of public purpose is inherent. I am not against a smaller and adaptive govt, but the whole “die” part of it is probably unrealistic.

    The problem with Bitcoin is that it doesn’t serve the public purpose part of the above description. And that’s against one of the main purposes of having an organized monetary system in the USA. Bitcoin will either adapt or it will die. The govt will make sure of it if it becomes a problem. You might not like that, but so long as we have a govt it will rely on an organized monetary system in order to enact public purpose. And any competing currency system that endangers that will be eliminated.

  • Guillermo Izard

    Hi Cullen, what do you understand as “public purpose” and why do you see it in opposition to private one?
    I’m very worried when I see elected officials adopting a confrontational stance when people adopt alternative forms of currency rather to trying to understand the underlying reasons of that shift and adapt accordingly, it’s eerily similar to the tactics employed by media companies against internet ones, trying to win in courts what they lost in the marketplace.

  • InvestorX

    Well, large parts of the US and global elites do not serve a public purpose either, but they do not see their activities banned.

  • Eric Reynolds

    Great comment.

    Regardless of what ultimately happens to Bitcoin the experiment has shown that there is a large group of people with deep dissatisfaction with traditional money systems.

  • Kobayachi

    Good luck trying to stop Bitcoin.
    They are trying for years to stop torrents without any success. They can jail people from the foundation but that won’t stop the Bitcoin network from operating. The only way for government to slow it down a bit is to harass the exchange platforms in the US. I have no doubt that other platform will pop up offshore soon enough.
    The problem the government has with Bitcoin is not the transmission of money law. You still will have to pay your taxes in $, so why should the government even bother?
    Because it removes the single most important reason why we all depend on banks: the book keeping function and capital flow restrictions and controls.

    I got my Bitcoins very cheap and there is no way any government will get its hand on them. Btw. I bought them with money I earned from my labor and it has already been taxed.

  • DH

    The order is practically meaningless since the foundation does not deal in money transfer. I get the feeling that they called attention to their selves on purpose for the publicity and to get the conversation going with regulators in the state of their choice, hoping to help fix the outcome.

  • Cullen Roche

    Public purpose is what we want it to be. That might be a large military, a govt that rebuilds roads, firefighters, policeman, etc. But the point is, public purpose exists and it requires a little bit of self sacrifice from us all in the form of taxes. The way we are held accountable for our “share” is by having a monetary system that is organized so that it can be used for private purpose as well as public purpose. Having a money system that doesn’t serve public purpose allows people to benefit from the public purpose that the USA offers without paying into the system. Bitcoin is a conflict for the enactment of public purpose and the govt is beginning to realize it.

  • DG

    Fascinating. Public purpose is, IMO, a willingness to pay taxes for the common good. Hence use of the $US, especially within the designed electronic payments system, is a willingness of users to have their transactions tracable and accountable for taxation. Bitcoin however appears to be an end-run around that mechanism. If it grows large enough then those left paying into the public purse for public purpose will eventually become disgruntled. There is nothing to prevent barter amongst individuals but it too is outside the public purpose sphere.

  • Kobayachi

    We have entered the third industrial revolution where lateral power distribution will be the name of the game. Bitcoin is just one of its facets and it just can’t be stopped by any central power structure.

    First they ignored Bitcoin, then they laughed at it, now they fight it, then Bitcoins wins.

    Bitcoin has reached a size where it can’t be ignored any longer. They used to make fun of those geeks mining Bitcoins. Now they seem to be fighting it. There is just one more stage to go and everybody will realize how stupid we were to rely on those archaic institutions that charged us fees for just holding our own money and using it to gamble. How about a banking sector that would actually pay you to deposit some money and share some of the benefits from redistributing the capital into investments? Sounds crazy right, but why else would anybody trust his money to those corrupted bankers when you can store and transfer it yourself just as easily and safely?

  • Johnny Evers

    That trend toward decentralization by individuals competes with a trend toward government seizing more power.
    While technological advances help us go off the grid, so to speak, or to set up our own non-traditional networks, they also give the government great power to regulate us (health care, for example, and tighter regulations on business activity) and watch our movements (spying on our phone activity.)

  • Eric Reynolds

    This isn’t specific to BitCoin however, for example I live in Italy which, according to common wisdom, has a high rate of tax evasion compared to say, Sweden.

    I don’t know if I could convincingly give a reason as to why, but I would suggest that in large part it stems from a lack of faith in the government and the perception that the taxes being paid aren’t really serving the public purpose.

    So what I’m saying, which is of course nothing new, is that the recourse to alternative stores of value is a symptom of disenchantment and rising mistrust with regards to the traditional institutions.

    From this perspective, the best way to combat BitCoin, which as you point out has detrimental effects to society, is institutional reform, because even if the US govt does succeed in shutting down BitCoin, something else will just pop up in its place. Again, there are lots of parallels with copyright law and file sharing.

  • MikeO3

    I fail to see how bitcoin type of currency resolves the arguments you raise. Banks do pay you back (though minial amounts lately) and also return profits to investors/shareholders. Please explain how you think bitcoins will retunr capital or interest to you? It doesn’t.

  • Matthew

    Interesting discussion here. It would take me some serious research to catch on. From the much I understand of Bitcoins, just basic understanding, this digital currency is here to stay. Given the diminishing trust between people and banks, Bitcoins seems like the solution we all have been waiting for to break free from the tyranny of banks and government cronies.