BY Micah L. Sifry | Tuesday, December 3 2013

Bitcoin banknote

Last week, Fight for the Future, the Internet freedom group that played a big role in kicking off the movement that stopped the SOPA and PIPA bills, announced that it was taking on a new cause: Bitcoin. Together with Bitcoin evangelist Jon Holmquist, they put together ">BitcoinBlackFriday.com" as a hub for more than 250 online vendors who are accepting the digital currency, some of them offering special deals through the site. The vendors include OK Cupid, Reddit, CheapAir.com, and the Internet Archive.

In rolling this out, FFTF's co-founders, Tiffiniy Cheng and Holmes Wilson, made some strong statements about Bitcoin's value to people interested in social change, arguing that a) the digital currency was a good way to avoid hidden transaction fees that traditional financial service providers charge, to the detriment of poor people; and b) it makes it harder to profile people based on their purchases.

Personally, I'm still up in the air about whether Bitcoin is going to revolutionize commerce and society in good or bad ways, and I also have concerns about what looks like a classic speculative bubble. On the other hand, people are making some smart arguments for why Bitcoin could actually be a "generative" technology (see this post by Timothy Lee.) So I thought it would be interesting just to hear more of FFTF's reasoning behind this move. Here's what Cheng and Wilson had to say:

First Cheng:

Micah, as you know the financial industry is gigantic. Credit cards have a monopoly on transactions, high fees, and together with Wall Street, they've helped to lower wages (Thomas Geoghegan) and inflated the dollar. Some are a fan, but their mileage programs add around 17 cents (up to 40) on the dollar to everything we buy. So, there is no free ride, we're all paying for those "free trips". Anything that cuts down, is an alternative to the size of the financial industry, I am all for. I don't think it will become a currency of choice for some countries, but maybe. But, on the macroeconomic scale, it's hard to predict but I think it plays a global role as an alternative for now for those who are subject to the richest countries to move past them. And, if everyone had 10% of their money in BTC, then we may get some change to how central banks and other central authorities regulate with each other -- how do you contend with peer money? I do have some concerns about it at that point but it's too much to speculate.

And now Wilson, responding to three specific questions I raised:

Q: How does expanding the cash/Bitcoin economy advance social change if many people will use it to avoid declaring income and paying their fair share of taxes?

Wilson: Well, I agree that skyrocketing income inequality is our country’s biggest problem, and I agree that the rich need to pay their fair share. So, that’s a really important question. When I think about it though, I’m not convinced that Bitcoin changes things very much, in terms of taxes.

It works like cash, after all, so it has a lot of the same strengths and weaknesses. You might get paid in cash under the table but you’re not going to run a whole businesses top to bottom in cash. Same thing for Bitcoin. Any large operation is going to find it cheaper and more convenient to use existing institutions like banks for some things, and to declare their income according to law, even if they do a ton of business in Bitcoin.

The cost of running even a medium-sized business exclusively in Bitcoin plus the cost of breaking the law is going to be higher than what people save on taxes; especially when you consider how common it is for companies and wealthy individuals to evade taxes the old fashioned way. The IRS doesn’t need credit card records to catch businesses that evade taxes or pay employees under the table. And even a small amount of enforcement can be a powerful deterrent. You just have to make it easier to be honest.

On the other hand, Bitcoin is a great way to avoid predatory behavior from financial institutions (which are themselves a powerful driver of inequality). Any worker in the U.S. who sends money to family abroad using Western Union pays 10% or more. And those remittances are over 20% of many poor countries’ GDP!

Q: What makes you think that Bitcoin is a stable currency? Aren't we just watching a bubble? Is it responsible to encourage people to use something that unstable?

It’s important to remember that, if you’re just using it to buy things or send money online, the stability doesn’t matter that much. You keep a safe amount that isn’t a big deal, and use it to buy things. Sellers can cash out instantly, and you can top up whenever you want. You wouldn’t walk around with $10,000 in your wallet either. So if you’re risk averse, buy $100 bucks of Bitcoin just to use when it’s convenient. If the value goes down, it’s like some bills fell out of your pocket. But then again the value could also go up.

The rise in the price of Bitcoin could be a bubble, sure. And it could crash. But increasingly the price is becoming a speculative bet on the future usefulness of the currency. And if Bitcoin is as popular as Paypal someday, that bet could totally pay off. Buying Bitcoin now is kind of like being an early investor in Paypal. It’s risky, but it’s not like investing in tulips— there’s a basis for expecting it to increase in value that goes beyond just past performance.

Nicholas Nassim Taleb (author of the Black Swan and Antifragile) has great investment advice, and it applies to retirement funds as much as it does to Bitcoin: don’t invest money you can’t afford to lose completely. Lots of things (like funds based on home mortgages) seem safe but aren’t. And invest in things that (logically or intuitively) have very high limits to how big they could get.

But you can use Bitcoin every day without investing in it, if you want.

Q: Given that most Bitcoin users still have to trade their Bitcoin for some hard currency at some point, is it really true that using it is that big a blow for free speech?

Yes, absolutely. So many amazing activist movements depend on online fundraising. But online fundraising only works when it’s convenient. If it’s complicated, people won’t do it. So when the U.S. got Amazon, Paypal, and the credit card companies to pull the plug on Wikileaks, it destroyed their ability to fundraise.

Once even a small percentage of people have Bitcoin wallets handy, all that changes. Getting cut off from credit card companies won’t mean losing all your donors. If a group is doing something inspiring enough to garner broad public support, it will be guaranteed some degree of funding. And on the activist's side, they’ll be able to find ways to withdraw money, or people who will work for Bitcoin.

For donations, it doesn’t matter if people are buying that Bitcoin using credit cards or bank accounts, as long as they can easily make a donation with Bitcoin in the moment.