

Bitcoin Has Infected Reddit - bitmaven
http://forums.tagpad.com/questions/16/bitcoin-has-infected-reddit

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boboblong
(Disclaimer: I have a "bitcoin net worth" of about 10 BTC.)

The first thing I thought of when I discovered Bitcoin was micropayments. I
can understand the comparisons of Bitcoin to a pyramid scheme, but I don't
think they're valid.

A better example would be the founders not of a company, but of a state. After
Alexander swept through the middle east, his generals suddenly became
extremely wealthy and powerful due to their positions as de facto rulers of
successor states and their control of the silver mines of Macedonia. Note that
both the precious metal and the authority of the generals were necessary
components of a stable currency: the durability, divisibility, and
malleability of silver made it a superior medium; but a silver coin not
stamped as the general stamped his coins was considered counterfeit at worst
and much less valuable at best (since the new government would not accept any
but its own coins as payment). This was a necessary protection against the
sudden inflation and arbitrary redistribution of wealth that could be caused
by a gold or silver rush.

Much later, King Henry I of England perfected the use of tally sticks as
currency. Without going into detail, his tally sticks were designed to prevent
counterfeit and to minimize the trust between parties necessary to use the
sticks as currency. Just like the idea of using one's military supremacy and
control of a source of precious metals to convert military power to wealth and
financial power, the tally sticks were essentially an information technology.
The paper currencies of today's governments are the current state of the art
in financial information technology.

This is why bitcoin is more like an upstart state than an upstart business.
Businesses don't compete with state currencies. Throughout history, the power
to mint one's own currency has been largely (but not totally) reserved to the
rulers of states. What makes Bitcoin so interesting is that it's taken the
historical requirements of a working currency and attempted to eliminate one
requirement by doubling down on the other. Bitcoin has no political authority
or military might to enforce its use in trade, but it does have a very
innovative information technology foundation. The question is, can a currency
survive on the latter alone?

