What if money were private?

One very correct answer is, simply: Money already is private. Sure, there’s the old familiar legal tender of the U.S. government, but the idea of money, and the practices that surround it, are not necessarily tied to the greenback. We all know how money works, and other things can certainly be used in the dollar’s place — if a buyer and seller agree. From there, if more buyers and sellers agree, the items they use may become a medium of exchange — a class of things held with the intention of passing them along in the market rather than using them directly.

Today, thanks to cryptography and computer networking, numbers can serve this purpose. That’s the promise of bitcoin, and, incredible as it sounds, it works. Shared verification across the network of users guarantees that no one spends a bitcoin twice. Cryptography means that users’ identities aren’t publicly tied to their purchases. Cryptography also guarantees that no one can generate fake bitcoins, either. Have any doubts? The code is open source. You can examine it for yourself.

But bitcoin isn’t foolproof. There are most certainly inefficiencies, pitfalls for the unwary, and opportunities for fraud, as there are in all known monetary systems. These challenges vary from one system to the next, and the question then becomes — which money is preferable, the public one, or this new private one, or perhaps some other? We would be remiss, as a libertarian publication, not to mention libertarians’ perennial favorite: the gold standard, combined with a regime of free banking. (It too has both advantages and disadvantages, of course!)

This month the Cato Institute’s own Jim Harper writes the lead essay, tackling the question of how private digital money works — and doesn’t. Here to discuss with him are computer security expert Dan Kaminsky, tech policy scholar Jerry Brito of the Mercatus Center, and economics graduate student Chuck Moulton, who is writing his dissertation on related matters.