Bitcoin has become very popular among libertarian monetary thinkers and practitioners, and this is understandable: it is a monetary tool embodying two great Hayekian desiderata: a decentralized, self-designed spontaneous order and a system devoid of government control.
However, bitcoin has became even more than that. It is the newest embodiment of an old notion of modern, technologically savvy libertarianism: a hope in some technological panacea, some new invention that will subvert the power of government and liberate us from its clutches, without the need for us to fight to roll it back by the dirty work of political agitation. Just sit back and relax and wait until modern technology makes obsolete the Stone Age systems of government commands and controls.
This is a very widespread way of thinking. Remember prophesies of just a few years ago that the internet would make government control of information unviable? That dictatorships all over the world would be toast because their citizens now had ways to circumvent their controls (e.g. Arab spring)? How did that work out? It seems that if anything has been demonstrated, it is that powerful and unscrupulous states can easily use the internet and modern technology as effective weapons of propaganda and disinformation, rather than being constrained by them. What used to be a technical tool of liberation quickly gets appropriated by governments as a means of re-subjugation.
Bitcoin mania as an ideological rather than practical stance, a new form of the same technological optimism qua political strategy. Yet it suffers from the same problems as the previous great awakenings of technological millennialism. It takes a temporary government tolerance of a potentially subversive phenomenon as a sign of end times for government’s suzerainty. This time, it will be different…
The only reason why bitcoin still exists is that the US and other governments do not yet perceive it as a sufficiently grave danger to their monopoly of currency and financial manipulation. In spite of its quick and meteoric rise, bitcoin is still relatively insignificant in terms of its ability to undermine the government’s power to control and regulate the monetary system. If and when this changes, the governments will move swiftly to destroy it. Actually some governments are already doing that to some degree (China and Russia), and even some prominent economists in the West, such as Joseph Stiglitz, propose an outright ban on bitcoin.
And this is not very difficult to achieve. In their paper, “Banning Bitcoin," Joshua Hendrickson and William Luther explain that even a small state, if ready to impose high enough penalties, can effectively ban bitcoin on its territory, and that applies even more in powerful states such as the United States. The only reason that so few are even bothering to harass bitcoin at the present moment is that they believe it to be a temporary fad, an insignificant “bubble” that will deflate on its own.
The best illustration of what a government does when it is scared of losing monopoly of money control (a cautionary tale for all bitcoin optimists) is what happened to the liberty-dollar experiment. Bernard von NotHaus coined gold and silver dollars and distributed them to people willing to accept those coins as a medium of exchange. When the federal government arrested him for breaking legal-tender laws, liberty dollars were being used and exchanged in more than 80 cities in the United States.
The prosecutor in the case accused NotHaus of fomenting “domestic terrorism” and striving to “undermine the government”! Whether those accusations were laughable or not, the government's fear was based on the wide recognizability and reputation of gold as real money, the history of gold as money over centuries, and the likelihood that if this “domestic terrorist” were not severely punished (20 years in prison!) for the crime of supplying gold coins to willing customers, others might follow suit.
The morale of this story is that we should not fixate overtly on any particular technical means of advancing monetary freedom (be that gold, digital currency, or anything else) but on defending monetary freedom as such. There is no technical defense against the government, if it does want to destroy our current technical means of monetary resistance. Hence, although less fancy than high-tech conferences on the possibilities of digital currencies, the old-fashioned ideological fights for liberty, in political and intellectual arenas of this world, are the only way to secure any kind of liberty, including liberty to use bitcoin and other digital currencies.
We should not delude ourselves with notions that our small enclaves of devotees of this or that new technological miracle will make us invulnerable to government coercion. They will not.