What was once considered the monetary tool for anarchists due to its anonymity and fight against fiat currency will soon become just another regulated payment system that will lose its prominence in the world of alternative currencies.
First, please allow me to confirm that I support the ultimate goal of a lot of bitcoiners: a legitimate alternative(s) to the failed experiment of fiat money. As a libertarian and a student of the Austrian School of Economics, I am fully in favor of competing currencies in the free market; gold and silver, bitcoin and litecoin. Anything is better than the greenback or the euro.
Therefore, to all the bitcoiners who will ultimately disagree with my conclusion, please do not bombard me with anger, rage, vitriol and even death threats. Now, onto the point of this piece, which I concede will not gain the favor of bitcoin owners, investors and miners.
Over the past month, I have reported and opined extensively on bitcoin for a handful of publications – I have also been following the digital currency regularly since about 2010 when I first heard about it through the Ridley Report. One aspect that is continually promoted is that the cryptocurrency is anonymous and therefore a perfect tool for those who are described as monetary anarchists.
Perhaps at first it was, but with growing acceptance among both the marketplace and even governments around the world, it shall no longer be. Whether it’s a pump and dump scheme (Robert Wenzel) or a Ponzi scheme (Gary North) is a different story, but the bitcoin is losing one of its most popular characteristics: anonymity.
Earlier this month, the government of China instituted a ban on financial institutions from taking part in transactions that include bitcoin. This led to numerous vendors from rescinding their bitcoin method of payment. It also led to BTC China, the world’s largest bitcoin exchange, to prompt new and old users to provide identification.
“In response to a recent policy shift, BTC China now requires users to submit identification or a passport number. Existing users will need to provide this information upon login. We apologise for any inconvenience,” the company said in a statement.
This could prompt governments from instituting similar prohibitions and cause other exchanges to establish such policies.
This week, bitcoiners were ecstatic that the Swiss parliament is considering a proposal that would make both the government and the financial sector treat bitcoin as a foreign currency. At first, this would make it seem that the cryptocurrency is one step closer to full legitimacy. However, with growing recognition by public officials, comes the erosion of anonymity.
On Thursday, it was announced that Fidelity would be partnering with SecondMarket’s Bitcoin Investment Trust to permit its clients to save for their golden years by allocating bitcoins into self-directed IRAs.
“If you are a Fidelity client, you can now invest in the Bitcoin Investment Trust through an IRA,” said Barry Silbert, chief executive of SecondMarket, in an interview with the Wall Street Journal.
With such a measure, it’s quite certain that eventually the IRS would begin the process of filing paperwork that would regulate bitcoin.
Although bitcoiners in general seem to understand the power that the federal government and central banks hold, they seem to dismiss the possibility of authorities infiltrating bitcoin and being the facilitator of its demise. Former Texas Republican Congressman and three-time presidential candidate Ron Paul understands this as he has said in a few interviews over the past week that the government and central banks would “come down hard” on the virtual currency.
Indeed, according to Paul, if enough people use bitcoin it could very well be one of the perpetrators of the inevitable end of the U.S. dollar. This doesn’t bode well for the state. Paul, who noted he doesn’t own bitcoins nor will he, added that governments and central banks want to have full control and “demand a monopoly” of money and credit.
It’s happened before when the government confiscated the people’s money. During the Great Depression, President Franklin D. Roosevelt issued Executive Order 6102 and made it a criminal offense to possess monetary gold no matter who you were. Some states are attempting to pass legislation that would make it easy to track precious metal purchases.
Federal Reserve Chairman Ben Bernanke issued a letter to Congress stating that the central bank is not in a position to regulate bitcoin, but if the digital currency generates even more momentum on the world stage and becomes a threat then be prepared to see his successor, Janet Yellen, produce policies that would tackle adversaries to the greenback.
In the end, anonymity in bitcoin is an illusion since the government has an unlimited amount of resources to track acquisitions by people who might be considered the enemies of the state.
I shall now apply my virtual armor for defense against the passionate bitcoiners!