The recent news about PayPal’s integration of Bitcoin created a new spark for the world’s first stateless currency. Early last year, Overstock.com became the first major online retailer to accept Bitcoin. Other large merchants like Dell, Tiger Direct and Expedia soon followed their lead. Since its inception in 2010, Bitcoin continues to attract merchants, new adopters and innovators into the network. PayPal’s move is another big milestone for this young decentralized digital currency.
As the buzz spreads, we are only beginning to see the revolutionary force of the blockchain, the underlying technology of Bitcoin. On the surface, it appears that the potential enshrined in this piece of computer code has to do with improving merchant processing. Yet, Bitcoin’s disruption in the payment system is not just about making the shopping experience more efficient and cheaper. Its effect and larger ramifications lie in the complete transformation of payment and monetary systems themselves.
Bitcoin is a new paradigm that fundamentally challenges the way we do finance. It is an open source protocol that enables peer-to-peer distributed consensus at a large scale without any governing center and with no command from above. With its first application as currency, Bitcoin is now used as a public asset ledger to keep track of all transactions and record them for all to see. The life of this system is sustained through computers that are spread around the world, working together to engage in “proof of work”. This proof is to solve difficult mathematical problems. It takes 10 minutes to solve the problem and each time, 25 new coins are issued while all the transactions in that time are verified. This continuous process is called “mining” and is the beating heart that supports the circulation of value and trust in the system throughout the entire network.
The problem that Bitcoin solves is the double-spend. Before Bitcoin, we needed third party ledger reconciliation to prevent double-spending. Bitcoin is a value transfer network without a central authority, something that has always been necessary in any state-issued currency or fiat payment system. Bitcoin eliminates the middleman, thus reducing costs in any transaction. There are no charge backs and no exuberant fees. With Bitcoin, we can also become our own bank by simply downloading open-source software and keeping our private keys in our hands.
This gives us a perspective to examine the existing payment systems. One might ask why Visa and MasterCard charge exorbitant fees, with the 3% that merchants must pay being mostly passed on to the customer. Why do banks take monthly service fees and charge huge penalties for insufficient funds? It is because they have a monopoly that they can act as a cartel.
Bitcoin not only calls us to question the conventional everyday reality of consumers, but also reveals the bias and political values inherent in the existing financial system. In a sense one can only become aware of them once we have a different system to compare it to. This direct peer-to-peer currency enables a new payment network that is a true alternative to the existing financial industry. This came to public attention when WikiLeaks, following the massive release of US diplomatic cables, faced an unlawful financial blockade by Bank of America, Visa, MasterCard, PayPal and Western Union. Bitcoin was used to circumvent this economic censorship. In fact, editor in chief Julian Assange recently noted how their Bitcoin investment helped to sustain the organization at a critical time.
In this instance, we saw how private companies signaled by the US State Department stopped processing transactions for this stateless whistleblowing site. The financial blockade of WikiLeaks is just the tip of the iceberg revealing a force of control behind the Western payment systems. PayPal has a list of countries that they deny services to and the company has the sole power to shut down and freeze any accounts. In May of this year, the White House put sanctions on several Russian banks and Visa and MasterCard complied and blocked transactions.
What values are transferred through this traditional payment network? Bitcoin’s unmediated peer-to-peer exchange and public ledger system exposes the secret code behind the existing operation of the machine, namely central bank control of the supply and flow of money for the creation of the first truly global corporate empire. It also reveals the role of Western financial institutions as a patronage network that sustains the lifeblood of this empire.
In Empire of Capital historian and scholar Ellen Meiksins Wood (2003) argued how the current forms of imperialism work in a different manner from old colonial empires. She described that while empires of the past are characterized by domination of territory and subjugation of people through “means of ‘extra-economic’ coercion, by military conquest and often direct political rule” (p. 12). Yet now “capitalist imperialism can exercise its rule by economic means, by manipulating the forces of the market, including the weapon of debt” (p. 12).
In the last century, with the dominance of oil as a resource engine underlying all societies, those who control oil resources have come to gain massive control of global geopolitics. US domination depends on its control of oil and the world staying dependent on forced transaction for oil with the dollar. Both the central banking systems and the extremely profitable oil industry worked to maintain control of the spigot for both oil and currency that could dictate the markets. The result was creation of the petrodollar, namely the hegemony of one currency to use for worldwide oil trade. This is protected by the U.S. military industrial complex with 1000 bases spread around the world. As Nobel prize-winning economist Paul Krugman correctly put it, U.S. fiat currency is “backed by men with guns”.
The Federal Reserve private banks print money out of thin air and often debase the currency. Credit card and student loan businesses suck consumers into a web of debt. Attorney and author Ellen Brown wrote that credit card companies were “set up by big Wall Street banks and the card-issuing banks get about 80% of the fees” and that through monopoly they became the most profitable pursuit of the banking and payment industry. With hidden fees, usurious debt and interest, and hidden private sales taxes, the US government collusion with financial giants commands the flow for corporate gain without the consent of the governed.
This central control of finance has enabled the US to maintain and further expand its superpower status that it attained after World War II. Economist David Korten (1995) noted that American hegemony was further granted through the creation of global financial institutions to stabilize currencies and facilitate capital investment in so-called developed nations through the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), also known as the World Bank. The IMF has become the world debt enforcer, making sure resources from indentured nations are funneled into the U.S. Treasury, industries and banks.
The regime of central banks with their economic hit-man investors move from one place to the other to create bubbles that can absorb their surpluses until the last one bursts. They create another bubble and perpetuate the attendant colonization and exploitation. With the ongoing debasement of currencies, global ebbing of liquidity and parabolic expansion of debt, major currency crises are now emerging on the periphery. In March 2013, a crisis of forced austerity hit the small Mediterranean island nation of Cyprus and the government closed the country’s second largest bank in return for an international bailout by Eurogroup, the European Commission and European Central Bank. A similar trend is occurring in Argentina. Early this year the national currency, the Peso, fell in steepest loss since the country’s 2002 economic collapse.
These Western patronage networks engage in financial colonization through rent seeking and financial exclusion. According to new World Bank research, 2.5 billion people around the world are unbanked. The system discriminates and takes advantage of those who are marginalized. One instance of this is the remittance industries. In the article “Economics of Trust” Richard Boase pointed out how the remittance industry through monopolies have made profits according to the World Bank report of somewhere between “$400bn and $530bn in 2012”, which is expected to grow to over $680bn in the coming years. Giant money transfer agents like Western Union extract an average of more than 12% of hard work for migrants in their efforts to send money back home.
Bitcoin not only sheds light on the inherent injustice embedded in the existing hierarchical financial systems, but at the same time offers a game-changing solution. Bitcoin adoption is increasing by those who been subprime targets of Western predatory usury. In countries like Argentina and Cyprus where governments steal their money through debasement, Bitcoin is becoming a safe haven. With global decentralized payments, the unbanked or underbanked who have been systematically oppressed can participate in the world’s economic activities on their terms. With this borderless transnational currency, Somali migrant workers can emancipate themselves from the rapacious monopoly of the remittance industry and keep most of their money in their own hands.
In the 2008 financial meltdown and currency collapses we have seen signs of the deep problems of this centralized system. These global institutional crises and endemic corruption are converging with the imminent end-game of the petro-dollar. All empires fall. Amid the initial flaming death throes of this empire, the Bitcoin technology has risen. Now the invention of the blockchain peer-based trust system enables people to create their own money and enter into their own untethered transactions.
Collective divesting from the patronage financial networks of warmongers and corporate patrons brings disruption to the controlled pipeline that funds the dirty resource wars and supports insidious debt peonage. Ordinary people the world over can work together to end this financial colonization and apartheid. We can now walk away from all this unnecessary bloodshed and move toward a new global society where the flow of our common humanity that is kindled in the heart can determine our future.