Monday, March 19, 2012
If zeros and ones are outlawed, only outlaws will use zeros and ones.
Cryptography shall always have a place in securing our digital future and most especially in securing our digital value. Advanced public-key encryption for the masses cannot be eliminated nor denied -- the genie is out of the bottle and mankind is the better for it. The unintended consequence of regulating or restricting decentralized cryptocurrencies such as bitcoin is that their use as a currency will have been 'recognized' officially and that usage will be driven largely underground.
"The Shadow Superpower". If aggregated, this $10 trillion global black market is the world's second largest economy after the United States and it is also the world's fastest growing economy. The OECD (Organisation for Economic Co-operation and Development) projects that, by the year 2020, fully two-thirds of the world's workers will inhabit this shadow economy, or "System D." As Neuwirth elaborates, it refers to the entire untaxed, unlicensed, and unregulated cash-based economy:
"System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy."Enter bitcoin. All kind of vibrant economic activity is occurring in this informal economy, which in some regions is between 20-60% of GDP or more, and every economy needs a currency. Essentially, bitcoin is the 'System D' of currencies -- global, decentralized, and non-state sanctioned. It is still early days but as bitcoin bypasses traditional banking and financial institutions, it is a currency off the grid just as System D. To deny the existence of System D is to deny the fact that economic participants find ways to survive even during prolonged times of hardship. According to Neuwirth "it asserts an important truth: what happens in all the unregistered markets and roadside kiosks of the world is not simply haphazard. It is a product of intelligence, resilience, self-organization and group solidarity."
It is inconceivable to think of those in under-developed countries and the developed economies of the eurozone coping without System D activity given the recurring recessions that are exacerbated by the violent central bank-induced business cycles. Despite increasing consumption taxes like VAT (value-added tax), the informal economy can still provide relief through various markets and bazaars. Americans too will need black markets to survive. System D represents the future.
Currently, transactions within the shadow economy have to be made face to face, but an electronic System D currency would enable remote and even cross-border transactions. This could significantly broaden the entire informal ecosystem because consumers would have an international reach and merchants would have vast new choices in selecting suppliers. Not all bitcoin transactions require a standard computer and if the mobile payment prognosticators are correct, the mobile phone equipped with applications like Bitcoin Android could end up originating the majority of bitcoin transactions. Contrary to the thesis of anti-cashist David Wolman, the unbanked and the System D traders will not migrate away from cash unless its replacement offers similar privacy features.
Bitcoin is barely three years young. Any bootstrapped currency initially will have a chicken-and-egg problem due to the fact that a currency's overall success is determined by its network effect and pervasive spread. Critics of bitcoin as a currency are quick to point out that not many merchants accept it as a payment type yet. That will change. And, they also point out that the total available market is severely limited. Oh, how wrong! Bitcoin's first potential mega-market just so happens to be the second largest economy in the world and its sole competitor in that sphere is depreciating government paper cash. Game on.