Bitcoin: The Next Internet?

by Dish Staff

Tim Lee believes the crypto-currency can thrive as a global payment system, even if it fails as a currency. He compares it to another innovation that proved far more influential than anyone thought it would be:

dish_bitcoinHistory suggests that open platforms like Bitcoin often become fertile soil for innovation. Think about the internet. It didn’t seem like a very practical technology in the 1980s. But it was an open platform that anyone could build on, and in the long run it proved to be really useful. The internet succeeded because Silicon Valley have created applications that harness the internet’s power while shielding users from its complexity. You don’t have to be an expert on the internet’s TCP/IP protocols to check Facebook on your iPhone.

Bitcoin applications can work the same way. There are already some Bitcoin applications that allow customers to make transactions over the Bitcoin network without being exposed to fluctuations in the value of Bitcoin’s currency. That basic model should work for a wide variety of Bitcoin-based services, allowing the Bitcoin payment network to reach a mainstream audience.

Henry Farrell is skeptical, predicting that governments would act quickly to shut down such a system if it seemed to be taking off:

Because so many international transactions are (a) settled in dollars and (b) settled across payment systems run by banks and other financial intermediaries that are vulnerable to U.S. pressure, the U.S. can use these systems to exert political control. Now, imagine the likely response of the U.S. (and the E.U., and, for that matter, China) to a payment network which is designed from the ground up to be decentralized, so that it is impossible for any specific intermediaries to really control payment flows from one actor to another. Such a network would be impossible for states to control. The U.S. wouldn’t be able to use it, for example, to squeeze Iran out of the world financial system. If such a network ever showed signs of really becoming established (rather than being a relatively small-scale thought experiment, and money suck for libertarians with more ideology than good sense), the U.S. would ruthlessly act to isolate it from the international financial system.

And that is the story of Bitcoin.

In response, Lee contends that it might be too late for that:

Bitcoin already has more powerful allies than it did two years ago. In 2014 alone, dozens of Bitcoin startups have raised money. Their backers aren’t going to stand idly by while the government destroys their investments. … The Bitcoin network probably can’t be shut down; it can only be driven underground. Doing so won’t prevent serious criminals from using it, but it will make it harder for law enforcement to track down people using the network. And Bitcoin has good applications as well as bad ones. After going before Congress and endorsing these arguments last year, it would be awkward for regulators to do an about-face and declare war on the technology.

In short, if the regulators were going to try to shut down Bitcoin, they would have done it two years ago when it was still a fringe technology with no real support among elites. Now it’s too late.

In an update to his original post, Farrell answers that Lee “seems to me to underestimate the willingness of the US and other major states to pursue their strategic interests, even if it annoys business, and the vulnerability of any payments systems to regulatory action”. Drum agrees with Farrell, stressing that China, for example, won’t give two Bitcoins about making its backers angry:

The evolution of the internet itself provides conflicting guidance as an analogy. Generally speaking, national governments have had considerable difficulty regulating internet content. It’s just too distributed and fast moving. So perhaps digital payment networks similar to Bitcoin will eventually thrive because they pose similar problems to would-be regulators. Like kudzu, they’ll simply be impossible to contain.

On the other hand, countries like China have shown that internet content can be regulated. It merely requires sufficient motivation. And even less authoritarian governments have managed to throw a lot of sand in the gears when they rouse themselves to action. Given that regulating commerce and money is easier than regulating content, this bodes ill for the future of Bitcoin. There’s not much question that it can harried into uselessness if national governments decide to do it.

(Photo by Flickr user BTC Keychain)