Image courtesy of Steven Depolo

Bitcoin – A digital tax rebellion through technology?

Image courtesy of Steven Depolo

If you could avoid paying tax, would you? Be honest. Few people complain when they see their money being spent wisely. But when they see it going down the chute on Greek bailouts, council non-jobs, and union pilgrims, most hard-working people wouldn’t mind clawing some of it back.

Of course you pay your taxes. You’d be locked up if you didn’t. It’s easy for the government to catch you. But what if avoiding tax was as easy as pirating a film? Would you do it then? Even if you wouldn’t, you’d better bet someone out there would. Swiss bank accounts are for the very very rich. P2P technology (the kind you use to download films) is for everyone.

Say hello to Bitcoin. Here’s the science part.

Bitcoin is P2P currency. Billed as ‘global, untraceable money’, Bitcoin uses P2P technology to circumvent state control — and hand it back to you. It’s a virtual currency that’s distributed between a network of users — and the way it’s distributed makes it virtually untraceable. Money is transmitted using a similar system to PGP encryption and the amount of money in the system is independently verified by users running a ‘proof of work’ algorithm on their computers, rewarded for their efforts by a regular lottery of bitcoins distributed at random to people who take part. If it helps, think of it as a kind of digital cash-in-hand — a shadow economy beyond the reach of prying eyes.

Bitcoin is essentially a barter mechanism for the 21st century — anonymous, practical, secure, cheap. But it has the potential to be much, much more. Don’t worry too much about the science part. What’s really important is that Bitcoin is anonymous, grass-roots, and utterly out of reach of the state. In other words, it’s a currency that’s full of possibilities.

A digital gold standard?

Bad fiscal policy, quantitative easing and continuing uncertainty have seriously wounded currencies such as Sterling and the Dollar. Meanwhile the debt crisis contagion spreading across the Eurozone makes the Euro look more and more like a crash in slow motion. It’s only a matter of time before Greece defaults. And when that happens, all hell will break loose. It’s little wonder investors are switching to gold.

Gold remains the international standard for barter and exchange outside the realm of fiat currencies which are, by definition, only as good as the governments that guarantee them. But it’s slightly impractical to pay for your groceries in gold sovereigns. Last time I checked, Tesco wasn’t accepting the Krugerrand. And unless you live in Fort Knox, it’s probably not safe to stash gold bullion under your bed. Suddenly, Bitcoins are looking much more practical. While they aren’t widely accepted — yet — a growing number of individuals and companies are getting in on the action.

Introducing the digital wallet – and the digital rebellion.

Of course, there’s already a way to pay and be paid that doesn’t involve the bank, cash, or credit cards. But Paypal have already stated they’re not going to be trading in Bitcoins any time soon. Nonetheless, digital wallets such as Paypal, combined with contactless payment technology via smartphones and apps, provide us with both a digital and a real-world model for how a cashless currency system might work in the future. Add anonymity into the mix and it becomes a powerful brew.

Paypal is already running scared. On July 26th thousands of users cancelled their accounts as part of a viral protest against Paypal’s refusal to hand over legitimate donations to Wikileaks. The alternative payment mechanism recommended by the campaign — you guessed it. Bitcoin. The effect was immediate. The share price of eBay, Paypal’s parent company, fell from $34.5 to $33.5 in an hour, wiping over 2% off the company’s value in minutes. Their shares continue to trade lower — over 3% off their July 26th peak at last count.

The numbers are small but the analogy is clear. When users boycott your currency, you become less powerful. Translate that analogy to fiat currency and suddenly the power of Bitcoin becomes apparent. If just 1 or 2 percent of government revenues are lost this emergent technology will have caused a major upset at the exchequer. And the government will have no-one to blame but themselves — for taxing people too much and for wasting the money when they receive it. For blowing our money on foreign bailouts and foreign wars. For pursuing reckless economic policies and expecting ordinary people to pay for it with runaway inflation. Given the ability to choose, people might not choose to pay for it.

Demand more for your money

While a mass tax revolt seems a long way off, technology has finally given us a way to hit the government where it hurts — not at the ballot box, but in the wallet. A government that cannot pay its bills cannot stand. Or else it must use violence and risk open revolt.

I’m not suggesting revolution. Truth be told, I’m a little too conservative for that. It’s unlikely that emergent technology such as P2P money will bring down governments. But it may lead to a brighter, freer future.

P2P filesharing hasn’t killed the entertainment industry. It’s forced studios and record labels to adapt to the demands of their customers, offer newer and better services, and deliver value for money. Perhaps P2P money will force governments to do the same thing.

The government has the ability to demand tax from you and then spend it how it likes. No private company would be allowed to function that way. In the free market, you choose how your money is spent.

In the future, emergent technology like P2P money may give people the ability to withhold payment from the government — forcing it to take greater account of our wishes.

Schools and hospitals or bailouts and foreign wars? In the future, you might be able to choose. But you won’t make your choice through the ballot box. Because whoever you vote for, the government always wins.

With P2P currency, you’ll finally be able to vote with your wallet — and demand real change.

2 Comments

  1. Sophie T says:

    Did you guys see the new yorker article on this as well where they tried to track down the founder? I like the idea of P2P currency, but the volatility of the currency’s worth, makes it pretty unappealing. Not sure we’ll be accepting it on our site anytime in the near future…
    xx
    Sophie
    riseart.com

  2. lux says:

    Walking the bitcoin road right now :)