Sen. Joe Manchin of West Virginia wants to ban Bitcoin. The Democrat has been making noise on this front dating back to 2011, when he and fellow caucus member Chuck Schumer wrote to the Department of Justice and Drug Enforcement Agency seeking the shutdown of Silk Road. With that task now accomplished and the accused owner of the black market exchange under indictment, Manchin’s latest excuse for tough talk is the collapse of Mt. Gox, the recently bankrupt Tokyo-based bitcoin exchange.
The senator wrote to five federal agency secretaries and the chairman of the Federal Reserve late last week that a worldwide ban on Bitcoin is “inevitable,” citing the collapse of Mt. Gox and the resulting “plummet” in Bitcoin’s price relative to the U.S. dollar. He did not mention in his letter was that Bitcoins were worth less than $32 each a year before the exchange’s demise, and that the worldwide price for Bitcoins had largely recovered within days of Mt. Gox’s collapse – despite the amount of Bitcoin business that was tied up in the exchange.
He also gave a nod to countries like Thailand and China that have banned Bitcoin, without so much as a glance in the direction of the Russian ban on the cryptocoins. Manchin wrote that were the federal government to fail to take action, “Americans will be left holding the bag on a valueless currency.” If it were to appear to you at this point that it would be difficult for these soon-to-be valueless Bitcoins to facilitate the trade of highly valuable illegal drugs, such a thing would be understandable. Besides, Bitcoin may be the big kid on the cryptocurrency block, but taking it out would not be the end of cryptocoins as a real-world phenomenon.
Invented in 2008 and first used to purchase real-world goods (two pizzas for 10,000 bitcoins) in May 2010, Bitcoin has a long way in a short time. Whatever Joe Manchin and his ilk would have the world think about Bitcoin only being used to process illegal trade, as of this year you can use it to pay for your order on Overstock.com, It’s also the preferred donation method for WikiLeaks. What’s more, other cryptocurrencies based on offshoots of its source code have sprung up to create an entire ecosystem of “altcoins.” CoinMarketCap.com, which you might have guessed tracks the value of these small cryptological economies, catalogs 146 of these altcoins at the moment, a number in constant flux these days as coins come and go.
Litecoin was one of the first altcoins based on the Bitcoin source code. Released in October 2011, it differs only in small ways from its parent coin, but it has carved out a $376 million market capitalization, currently the 4th-largest of any altcoin. (WikiLeaks also accepts Litecoin donations.) Its success and open-source nature opened up the floodgates for cloning and further experimentation with new coins, with potential investors and miners deciding which coins to back based on little more than the coin’s technical specifications and the strength and public image of self-organized online communities. Some coins have been little more than scams designed for a quick pump-and-dump, but there are real, completely voluntary economies growing up around other coins.
Dogecoin, based on an internet meme featuring a Japanese woman’s ShibaInu dog, popped up late last year and has a $60 million market cap revolving, at least in part, around tipping fellow users for all sorts of things. (If it all sounds a bit airy, well, welcome to the internet.) Namecoin functions both as a currency and as a decentralized, censorship-resistant Domain Name Registration system. Peercoin attempts to address perceived Bitcoin weaknesses with regard to mining monopolies and deflation. Vertcoin attempts to maintain maximum decentralization by tweaking requirements so that specialized mining systems called ASICs become unusable.
Perhaps most interesting of all these experiments with cryptocurrency is Auroracoin, based on the Litecoin source code. The coin’s site makes it clear on the front page that it evolved as a direct response to the continued negative effects of the worldwide 2008 financial disaster, which hit particularly hard in Iceland and resulted in the government forcing Icelanders to turn over all their foreign currency to central authorities. Half of all the Auroracoins that will ever be mined are being generated ahead of a so-called “Airdrop” on the 25th of this month. This airdrop will distribute 31.8 coins to an account for every Icelander, using information from the government’s national registry of all its citizens. Though they have yet to be used for a single transaction, the 10.6 million Auroracoins in existence are currently worth just over $70 each. If their value were to hold through the airdrop, that would be the equivalent of a $2,250 gift just to kickstart an alternate economy.
Whatever America’s political class eventually does with regard to Bitcoin will likely be ineffective – partly because the unwieldy U.S. government is ineffective at most of what it tries to do, and partly because it’s simply too late to stop a decentralized payment network with an $8.3 billion market capitalization and scores of smaller but growing descendants waiting to pick up the slack. The traditional method of shutting off third-party payment processors simply doesn’t work when one-to-one transactions are the norm. While Washington figures out a plan to tackle this technology, its disruptive effects will continue to ripple and grow, leaving the feds’ solutions a perpetual step behind.
(Disclosure: I’ve been using my PC’s graphics card to mine Vertcoins on a very low hobbyist level for the last few weeks – approximately one coin per day. At a little under $2.00 per coin that’s certainly not a big profit, but it has allowed me to order a bag of coffee from an independent merchant in Oregon who advertised on the Vertcoin subreddit that he was accepting the product of my graphics card’s number-crunching.)