Hugo Rifkind

How Bitcoin could destroy the state (and perhaps make me a bit of money)

30 March 2013

9:00 AM

30 March 2013

9:00 AM

Last time I was here (two weeks ago; how’ve you been?) I briefly mentioned Bitcoin, an emerging internet currency I didn’t understand at all but via which I had nonetheless made a bit of money (£57). Since then, I’ve been reading up and the whole thing has gone supernova, largely thanks to the extent that the EU is dicking around with real money in Cyprus. God, but I’m just bang on trend, aren’t I? Good old me.

So. The first thing you need to know about Bitcoin is that it’s a peer-to-peer, digitised crypto-currency. No, please, don’t stop reading. Just hold that one in your mind while we talk about the second and third things you need to know about Bitcoin, which are far more exciting. For example, you can buy drugs with it! I mean, sure, you can buy plenty of other stuff, too, but I’m really not sure anybody actually does. According to one study, Silk Road, the main ‘buy drugs with Bitcoin’ website, has a monthly turnover of around a million quid. And thirdly — you’ll like this one, you capitalist Spectator types — its value is rocketing. A month ago — out of interest, rather than a desire for heroin, Mum — I bought £100 of Bitcoin. Two weeks ago, like, I said, it was worth £157. Today, it’s worth £213. Interested yet?

Actually, the second and third things aren’t as important as I made out. Mnyeh, drugs, you can buy them anywhere. And, sure, Bitcoin is bullish at the moment, but the value notoriously bounces all over the place (in 2010 somebody spent 10,000 of them on a pizza, a sum which would today make that pizza worth £465,368). So, no, far more interesting than the drugs and riches is the core idea, which is this peer-to-peer crypto business. For the non-tech-savvy among us, this basically means it’s not quite like any other currency we’ll have ever used. It doesn’t have a central bank. Nobody is in charge. A Bitcoin is a thing that simply exists, like gold.


Of course, it’s not entirely like gold because it also, well, doesn’t. You don’t hold a Bitcoin in your hand. It’s a string of code, wibbling around in cyberspace. In theory, though, this does not — should not; probably might not — reduce the whole concept to a tenuous, fragile, corruptible Ponzi scheme. Exactly why is hard to get your head around, but it’s basically maths. A Bitcoin is a number, and you can’t just make up another number, because — bear with me here — there’s a limited number of those numbers. New ones have to be discovered, and only can be discovered at a certain rate. This can be lucrative, but also expensive, because you need a vast computer to do the data crunching. And, being peer-to-peer, the software that makes this all happen is everywhere. You couldn’t switch it off, anymore than you could the internet itself.

At least, that’s the idea. The whole thrust behind Bitcoin is that it removes the need for trust in currency; trust in bankers, trust in governments, trust that the two won’t collude to do you over, like they did with everybody in Cyprus. Whereas actually, because most of us can’t begin to understand the maths that all these very clever programmer types insist is at the heart of the whole project, I suspect the true alternative is just outsourcing your trust to them. Still, there are apparently a lot of programmer types, and everything they do is being scrutinised by other programmer types, because none of them have anything better to do, because they don’t have girlfriends. So I’m not sure that’s necessarily unwise. You might call it the morality of crowds. I think it’s the future.

Bitcoin is endlessly fascinating, in a conspiratorial sort of way. It was invented by somebody who called himself Satoshi Nakamoto (which was almost certainly a fake name) and then disappeared. Most likely he was a group of people, most of whom have probably profited quite nicely. But at heart, this was always a political project, rather than an economic one. Because the truly fascinating aspect of Bitcoin is not the thing itself (which may well get hacked one day, or otherwise collapse and fall apart) but the concept behind it.

Soon, whether via Bitcoin or whatever comes next, it will be possible to strip banking away from bankers, and money away from governments. Anecdotally, many suggest that the recent surges in Bitcoin value have had a lot to do with the seizing of bank accounts in Cyprus, with people in other wobbly eurozone banking systems (chiefly Spain) looking for a cheap and easy way to send their money somewhere else. Whether or not this is quite true (it could just be the result of hype, bollocks and credulous fools like me), Bitcoin is certainly a cheap and easy way to move money around the globe. And sure, when you buy them or sell them, traditional banking and taxation structures can get their claws into you. But what if you didn’t have to?

There’s a whole emerging political philosophy here, similar to the crypto-anarchism of the likes of Julian Assange. It’s about individuals having the power of governments; having their own secrets (the crypto part) that governments can’t crack. It’s appealing for any hardcore libertarian, but it’s going to have its costs. When democracy stops being about the group and becomes about the individual, and when you are literally empowered to pay and get paid without anybody knowing but you, what happens to the state that needs your taxes to survive?

Buggered if I know, but it’s probably bad. Still, at least I’m £113 up. Heroin all round.

 Hugo Rifkind is a writer for the Times.

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Show comments
  • Simon Gibbs

    I heard a credible talk that described Bitcoin as more like a distributed ledger, which means there is really nothing to point at that is a Bitcoin not even a number.

    The difference is important, because it explains why there is no privacy in the system at all, which makes Hugo quite badly wrong in several ways that are mostly unimportant. The most important being that you could still have a Government, through genuine social agreement and peer pressure, because you could easily count anyone’s voluntary tax donations.

    The key benefit of the system for users is that it doesn’t have inflation, at least not money-supply inflation. Which is really a very good thing indeed and something Hugo rightly alludes to.

    • Hugo Rifkind

      That’s true, but I think you draw the wrong conclusion. Yes, transactions are transparent, but the identities behind them aren’t. So, once you have a little information, you can get a lot of information. But starting from none, you can learn nothing useful.

      This would mean that a Government, or society, could only apply any sort of pressure if it knew which wallet addresses belonged to whom. If it didn’t, to whom are they going to apply it? And, if you don’t, how can you count anybody’s voluntary tax donations, unless they first volunteer their Bitcoin address?

      At any rate, the idea of government through “genuine social agreement and peer pressure” seems a bit hopeful to me. Wasn’t that what they used to call the Big Society?

      • Simon Gibbs

        I think there is a big difference between “having their own secrets .. that governments can’t crack” and the picture I linked to in which you would have to be constantly careful not to reveal who you are, either directly or through implication.

        For example, if I earn an “immoral” income in Bitcoin, can I safely have Tescos drop groceries at my door? The Tescos transaction is legit, but the flow of money to my digital identity is transparent. How well did my customers cover their tracks?

        Peer pressure (and state bullying) might also apply to the digitial identity directly. For example, to check balances you download all the transactions since the last checkpoint. So to get going at all you will already have all the information necessary to check that a payment to the tax man was made from the digital identity you are trading with.

        As to whether you could maintain a voluntary Government, I fear we’re unlikely to agree, but take a look at the history of Hospitals and Friendly Societies just for instance.

        • Hugo Rifkind

          Yes, that’s fair. It would become much harder to tax wealth, though, for example.

          And I think money laundering is terribly easy through Bitcoin. First, you can generate limitless anonymous wallets to bounce it around between. Secondly, there are various exchanges to which you can deposit coins and withdraw other coins, thereby rendering any trail near impossible to follow.

          Sure, you probably can’t operate entirely anonymously. But you can make it a right pain in the arse for anybody to figure out what you are doing. The balance of power certainly shifts towards the individual.

      • Kevin Peno

        Yes, transactions are transparent, but the identities behind them aren’t.

        How does the IRS (or similar institutions in other countries) tax you again? Oh right….they give you a tax ID to use…aren’t wallet addresses effectively the same? 😉

        Sure, enforcing them is on thing…but the same could be said for tax ids in the current system. Govt does a pretty good job holding guns to peoples head to ensure it works.

    • Andres March

      I think you are misunderstanding how important the “distributed” part of distributed ledger is. Also like others point out, identity is a completely separate topic.

  • sandywinder

    Remember tulips.

    • paul snow

      Because you could pay someone a tulip over the internet without a bank or credit card. /sarcasm

    • MrVeryAngry

      And bitcoins don’t grow pretty well everywhere, now do they?

  • Frank Koster

    you can also oder pizza with bicoins , and more and more shops are starting to support it and BBC here

  • Bitfora

    You all know what MP3’s did to the music industry around 15 years ago? Bitcoin is going to do the same thing to the financial industry.

    • andagain

      A dramatic, wrenching change to the financial sector. What could go wrong?

      • TrevorLyman

        Actually, Bitcoin will simply bring competition to the financial sector and will stabilize it. Once enough people start leaving central government currencies governments might actually stop printing money for wars, welfare states and other nonsense. The correct question is, what could go right?

        • andagain

          I seem to recall that people who knew that some brilliant new invention had permanently made the financial markets safer got us into the current mess.

          There is far too much certainty in this world for my liking.

          • TrevorLyman

            Honestly I have no idea what you’re talking about. Could you be a little less cryptic?

          • andagain

            The banks thought that all their new math and software would stop them from ever getting into trouble. So they made few preparations for getting into trouble. So when they did get into trouble, it was a disaster.

          • TrevorLyman

            I beg to differ. The banks got into trouble because they knew the government would back them up/bail them out. That’s why they took huge risks. They ignored their math. They win in a crash they win in a boom. After all, the name of the game is privatized profits and centralized losses. It had nothing to do with math and everything to do with power, greed and corruption.

          • andagain

            A lot of people said that after the fact. No one said it in advance. Not even the people who were regulating them, and would have liked an excuse to be given more power.

            For that matter, I have never seen any evidence for that after the fact.

          • TrevorLyman

            No evidence? What about all the banks getting bailed out? How is that for evidence? Ok- anyway- have a good one.

          • connor

            actually there were many austrian economists warning of the crash with the same analysis as above, you just didn’t hear them in the msm

          • blingmun

            Search for posts by jgm2 on Land of Off Topic Posts, at the Motley Fool UK. You will copious railings about the banks and government dating back to at least 2006.

          • Mark Sar

            Absolutley correct Satoshi er I mean Trevor. Well said.

          • TrevorLyman

            Ha! I wish I were smart enough to have invented cryptocurrency. We’re talking serious levels of genius here!

          • UKSteve

            I agree. The banks were smug enough to realise that they could privatise their profits and socialise their losses. The Royal Bank of Scotland was the world’s biggest bank (for a short time), but when it got into trouble, the UK govt. bailed it out and now owns 4% of it.

            Mainly because of the large component of the UK’s GDP being reliant on the banking / finance / invisibles sectors.

    • alan borky

      Even if it isn’t Bitcoin sooner or later and contrary to what they think the megacorporations megastates etc’ll be cut out the loop and out of existence by a truly democratic trading algorithm which’ll facilitate the exchange of goods labour etc through the whole world modelled on the way the body cells and organs cooperate to achieve healthy organisms.

      • Glen Wallis


  • ScaryBiscuits

    Fiat currency is merely nationalised money. Hugo makes the usual lefty mistake of assuming that because something is ordained by the government, it is therefore a good thing.

    The reality of fiat currency is far less benign. It is arguably a worse invention than nuclear weapons – it has certainly killed more people. Legal tender is profoundly illiberal. It forces people to accept government debt notes for their daily business, which gives governments an unfair advantage in borrowing money – a privilege that they have often abused. Perhaps that was necessary evil in the battle against Napoleon but I also suspect they would have been fewer wars, especially in the 20th century, if we hadn’t given the world that invention. We would certainly all be richer.

    Bitcoin is not a new invention based on clever numbers, as Hugo thinks. It is simply a reversion to the status quo ante, to people trusting each other based on a network of relationships. Bitcoin may use new technology but trust, privacy and peer-to-peer are as old as Adam and Eve.

    The reason bitcoin is becoming more widespread is really due to the obsolescence of the Bank Charter Act, which gave the Bank of England a monopoly in producing bank notes. Now that electronic communication is gradually replacing notes, this monopoly is becoming as irrelevant as the BBC’s monopoly of TV. The EU is working on laws to re-establish fiat currency for the internet but until or unless they do…

    The best way to think about the opportunities for bitcoin is to imagine what would have happened if Gordon Brown had called the banks’ bluff and allowed them all to go bust in the credit crunch. The bankers claimed that we would all have starved and the nation would have collapsed into anarchy.

    With goods still arriving at our ports and the distribution infrastructure still in place is it really the case that we wouldn’t – collectively – have been able to work out a system for feeding ourselves? No, more likely, bitcoin or some other system of trust would have been established within days. Instead of still being a crisis five years later, it would all be over, a dim memory of an interesting few weeks, and the economy would be growing again.

    • Hugo Rifkind

      Not sure why you think I assume that. Although I do rather assume that hospitals, police and social services are a good thing. Lefty, that may be.

      • ScaryBiscuits

        What happens to the state that needs your taxes to survive? Buggered if I know, but it’s probably bad.

        Hospitals, police and social services are indeed good things but, as with money, there seems to be little evidence that they are better by being organised by government a fortiori as opposed to voluntary associations. Glad we agree.

        • Hugo Rifkind

          Yes, but that’s not about things ordained by the state, is it? It’s about things paid for by the money the state has the power to gather.

          Do you really think voluntary associations will provide all the hospitals, police and social services we require? Are you David Cameron?

          • MrVeryAngry

            Do you really think voluntary associations will provide all the hospitals, police and social services we require? Yes. Because that’s where they all started. The state, or rather lefty politicians and authoritarians of all stripes, have nationalised them to create a client state to feed their own parasitical rent and entitlement seeking and power – in league with bankers, obviously. Second question. No. He’s trending towards as big a state of twathood as the rest of the numpties that seek to rule us.

          • ScaryBiscuits

            Note that voluntary associations include private, for-profit companies as long as you’re free not to do business with them. Of course they couldn’t do it overnight but as MrAngry says, they did it before. Literacy levels are lower in the UK today than they were before schools were nationalised, for example. I can’t stand David Cameron and his use of big society as a PR window dressing rather than understanding it properly and as the opposite of big state is his biggest error.

          • Andres March

            yes, let’s look at one statistic like literacy and compare to cuba. it’s just as arbitrary as your comparison.

          • ScaryBiscuits

            I don’t have time here to present a full statistical analysis but then I don’t need to, as it is your point that is arbitrary. Just because other governments have done a better job of managing certain things (Cuba, literacy; France, health; Canada, money etc.) doesn’t alter my point, which is that these things are better done by voluntary association for mutual advantage. I posited an hypothesis and presented a fact to back it up. That’s called evidence.

          • Andres March

            my arbitrary fact was in response to yours. you posited a hypothesis and suggested causation in an arbitrary piece of data. there are many reasons that could explain that fact. it also doesn’t mean that voluntary organizations are more effective. In fact history proves just the opposite. Voluntary organizations usually don’t fairly dispense their services so the question is who gets to decide who lives or who dies (in healthcare that is often the ultimate question). It’s an uncomfortable question and I agree that relegating all responsibility to government to answer that question is a horrible idea. But IMHO, it is much worse to assume the same of voluntary organizations. Christian organizations for instance were instrumental in providing the first organized healthcare (in the West). Yet, they have been extremely discriminatory and coercively moralistic in dispensing their services.

          • ScaryBiscuits

            Andres, I said voluntary association, which is not necessarily a voluntary organisation. It could also mean a company or just an associate. Mutual profit makes it more sustainable. Like volunteers, businessmen may not ‘fairly’ dispense their services in your opinion but you are free to choose them or not. You seem to be assuming they are funded by taxes which really just makes them agents of the state. To be independent they must be funded by voluntary donations or purchases only. Only the state can be coercive, as it has a monopoly of force.

          • Andres March

            Only the state can be coercive, really? Never the church or a corporation? I’m not sure what your distinction is between association and organization. An association is an organization IMO. I’m not assuming they are funded by taxes, just the opposite. Because they are not, there is no guarantee that there will be services to help those that cannot help themselves. As we saw during the depression era, the level of need is not always constant or evenly distributed. I do not want to take away from all the great things voluntary organizations provide but they have always been inadequate IMHO.

            Profit (or more generally capitalism) is a great way to efficiently allocate resources, unless the allocation of resources is contrary to the goals of profit. I’m not saying that the UK system is the best, indeed I think there are better. But I know the US system is horrible in terms of cost and quality. I’m also not saying that profit has no place in healthcare or other social needs, just that capitalism is not the answer. The US health insurance industry is a perfect example. Private insurance has it’s place but for very basic and emergency healthcare, all it does complicate and suck resources away from the goal of keeping the public healthy enough to stay working or create new jobs. 60% of all US bankruptcies and nearly half of foreclosures are prompted by healthcare bills.

          • ScaryBiscuits

            How does a church or corporation coerce anybody? If you don’t like their terms, don’t go to them. If you need help and a church you despise is the only one that will offer you that help, you’re still free to turn them down. It’s your life. I think you’re confusing coercion (which means physical force) and proffering. It’s no different to buying a car. I may need one but I don’t have a right to one on any terms I like.
            I’m not sure the families of 1,200 people who died in the most squalid conditions in Stafford would agree that your generalisations about private healthcare are true. The sad fact is that health care, however it is organised, exceeds our ability to pay for it but that no politician is prepared to admit that.

          • Andres March

            To clarify, my example was healthcare insurance not delivery. You only have to look at VA hospitals in the US to see similar tragedies of govt administered healthcare. But unfortunately it is not limited to govt. Any large organization tends to have too much bureaucracy and larger mistakes. For instance Kaiser Permanente sent thousands of people mislabeled medications because of a computer error.

            Regarding coercion, I believe duress (choosing between your life/health and something you don’t want) is a pretty clear case of coercion. However, I think it is easy to find other examples, such as young women coerced into giving up their babies for adoption because they were unmarried or individuals being forced to give up their rights in medical malpractice in order to receive care. The latter has been done by governments as well as private entities.

            My only point is that history is filled with coercion on all fronts not just govt. People will abuse power whether they’re in govt or not.

          • Andres March

            hmm, I think you all need to go back and read some history a bit if you think voluntary associations have done a good job of providing those services. Maybe if you were white, christian, and not poor, they had a good track record but for the rest of us, not so great.

          • MrVeryAngry

            I have gone back through history. Go and look at the self help things like friendly societies.

          • Andres March

            Good point except that leaves out everyone who can’t pay for insurance. I’m fond of these types of arrangements and think they work best in small groups. I just think that there is a huge economic and societal benefit providing a safety net for those who can not afford to provide their own.

          • MrVeryAngry

            Pretty well everyone did pay contributions to friendly societies, except the very poor indeed. So, let’s assume that I am happy to accept that health and education are merit goods so it can be justified that they can be funded by transfer payments to the unfortunate. The question really is, are such transfer payments best administered by a great ‘caste’ of professional and parasitical bureaucrats at the national level or would it better to deal with the administration at local level? All the evidence is that national central planning bureaucracies are woefully inefficient at this and often divert such subsidies to their own pet boondoggles, especially as there is zero cost to them. Whereas if administered locally by local people paying over local taxpayers wealth I think that there is a better than even chance that the whole thing could be run much more cheaply – and in a much more democratic and decent way that the current proto-Stalinist system.

          • Andres March

            I completely agree. And you don’t seem veryangry Mr.

          • ScaryBiscuits

            Andres, and you think the state does a good job today? 1,200 people died in appalling circumstances in Stafford in a far from isolated incident. A welfare bill that is beyond our means to pay and millions of lives wasted trapped in poverty and watching Sky. You’re like a man living on his overdraft who thinks everything’s great. Enjoy the Champagne while you can.

          • Andres March

            Nope, I don’t think they do a good job at all. I just don’t think private enterprise and voluntary orgs are the panacea that I think many people believe that they are. I do think there is a role for govt in areas where the overriding concern is not profit (ie education, healthcare, defense) etc…

          • ScaryBiscuits

            Who said they were a panacea? You’re confusing libertarians and anarchists. It’s not the state having a role that is the problem; it’s it being an unsustainable 50% of the economy that’s the problem.

          • grahaminn

            Most municipal hospitals in the UK existed before the NHS. They were founded by charitable donations, and they served the poor.

          • Hugo Rifkind

            Okay, firstly you’re confusing result with motive, which is a bit tinfoil hat, frankly. But more importantly, you make a wholly theoretical argument. Weaning people and institutions off state control and subsidy is a great idea. But eradicating it? I’m not sure how you can feel that’s a good idea unless you’ve no concept of what poverty means at all.

          • MrVeryAngry

            Erm, it seems that you are the tinfoil hat wearer. I concede that weaning people off state dependency/control (the ‘control’ bit being the main problem) is going to be difficult, and I have not said ‘eradicate’ the state, but reduce it to its core function of defence and law and order. You may also know that there are already more private policemen than state ones. Furthermore you are assuming that the state can eradicate poverty. That’s been tried for 70 plus years, and how has it gone, exactly?

          • Hugo Rifkind

            Well, that’s the crux of it. You seem to think that poverty will largely vanish when the state shrinks, and that people will freely and happily hand over enough money to pay for its remaining core tasks. I think both of those things are pretty unrealistic expectations. It would be nice if they weren’t. But they are.

          • MrVeryAngry

            Erm, wrong again. I have not all said that ‘poverty would largely vanish when the state shrinks’ (I am pleased to note that you accept that it must shrink – so that’s a start). No-one how ever hard they try is ever going to ‘eradicate poverty’, ever. Especially as no-one can agree on an exact definition of poverty. The trouble with the statist spproach to the issue in that in the process of ‘trying to eradicate poverty’ it not only fails to do, but makes it worse and impoverishes other people in the process. Plus destroying liberty, since it funds its attempts by coercion.

            Of course, and rightly so, people will only had over tax money very grudgingly. That is absolutely correct. It would be bonkers to happily hand over wealth to the state and bureaucrats who increasingly have little regard for its efficient use, but seem to view it as a system of funding their own lavish entitlements. So we will still be coerced into handing over our wealth for law and order and defence, it’s just that we will stop being prevented from doing the rest of what the centrally planned state tries to do (and does very badly) by ourselves and locally. And that includes sound money, which is where we came in.

            In regards to the charitable instincts in all of us you are suffering from the ‘other person’ delusion. That is you wish to legislate and tax because the ‘other person’ is not to be trusted as ‘charitable’. Of course to the rest of us you are that other person, so what you are really saying is that you are untrustworthy and uncharitable. Are you untrustworthy and uncharitable Hugo?

          • Hugo Rifkind

            Sometimes, sure.

            But look, come on. A remarkably small amount of our taxation goes on funding the “lavish entitlements” of officials. You must know that. The simple question is whether some people would go hungry and homeless without state help. I’m pretty sure some would. And if the state cannot gather funds to help them (and you seem adamant that it shouldn’t be able to) I think that describing the outcome as “probably bad” is quite restrained, actually.

          • MrVeryAngry

            Nope. You really haven’t thought this through yet. Let’s go back to the beginning. Bitcoin will do for the state. Yes and no. Yes it will do in the ability of the State to raise taxes by stealth and to excess. Since it will take away the state’s monopoly of money. And you will agree that monopolies are a Bad Thing. And it will take away the information needed to track transactions, so it will do in consumption taxes like VAT. Another good thing since VAT is really a tax on production. This means that the State will not be able to raise taxes as easily, another good thing. But it does not mean that the state can’t raise tax revenue at all.

            Bitcoin will also deliver sound money. One of the great poverty creators of the Statist approach has been the stealth destruction of wealth by inflation – inflation being the destruction of the value of money. This has been deliberate and has been multiplied by the officially sanctioned counterfeiting by fractional reserved banks. Both of these, inflation and counterfeiting drive poverty forwards. They are both the result of the rent seeking by politicians, their bureaucratic Satraps and bankers.

            Also you conflate taxation with the alleviation of poverty. On the contrary over-taxation causes poverty. You only have to look at the evidence before your eyes to see how the central planning state has utterly failed to alleviate poverty yet has raised more and more tax in the name of trying to do so.

            On the subject of fat entitlements and the proportion of those employed by the State. The State (i.e. the real taxpayer in wealth creating private business) employs about 8m people. That’s 6m actually directly employed by the real taxpayer and 2m employed by fake charities and fake businesses dependent on the taxpayer teat. Out of those about 2.5m are actually doing something useful. If you want to check the figures go the ONS website.

            So, how does the State raise revenue, and what do we mean by the State? Well probably the likes of bitcoin will do for the central planning Big State. Good. But the thing that the central governemnt does well is defence and a universal and consistent national system of law and order. So it needs money for those. Meanwhile all the poverty allieviation etc is best done at local level and that needs money too.

            So how is this money to be raised if it cannot be done on the mobile factors of production, labour and capital? The answer is obvious, it must tax land. In fact all existing UK taxes are rent, they are rent for living in the UK. So it doesn’t take a huge mental leap to get to levying taxes on the rental value of the land occupied by citizens and businesses. The real beauties of LVT are ‘its in yer faceness’, and it ‘fairness’. And since it would be collected locally and some paid on to central government, not the other way about, government spending (which is the real problem) would collapse. At the same time the administration of the ‘alleviation of poverty’ would fall to local people who would actually know the poeple in receipt of the benefits, would know where the money had come from, and would be bloody careful how it was spent. (it would be easy to track land sale prices as all the State has to do is to prevent conveyances unless a Sterling, say, price is declared and cleared through a lawyers client account).

            In other words your worries about the abandonment of the ‘poor’ because of bitcoin are ill founded, as are your worries about the collapse of the State. But if you are a ‘Big Statist’ then you are right to worry as you are likely doomed. Actually bitcoin, aka sound money, could well do more to alleviate poverty than every other measure ever tried by the Big State.

          • Hugo Rifkind

            Okay, I’m confused now. See, I quite like the idea of taxing land, because it taxes wealth rather than income. But isn’t the whole point of Bitcoin (or rather, one of its functions you’re in favour of – genuine question; maybe I’ve misunderstood your position) that it allows you to shield your wealth from the state? So why is it better to tax land wealth than Bitcoin wealth?

            Or, to put it another way, if I was fabulously wealthy, what’s to stop me from selling my land, renting it back (or living in a hotel) and putting all my wealth into Bitcoins which the state can’t touch?

          • MrVeryAngry

            Bitcoin does not allow you to ‘shield your wealth from the state’ Bitcoin is money. Money is not ‘wealth’. Money is the commodity that enables the exchange economy. To get ‘wealthy’ or stay ‘wealthy’ you have to be somewhere or grow a business (say) and that business has to be somewhere. As it is somewhere (even online businesses are somewhere – look at Amazon’s vast warehouses) they pay ‘rent’ for the land they occupy.

            OK, so there you are having sold your land and put all your ‘wealth’ (actually money) in Bitcoin. Now what are you going to do? Live in a vacuum? If you rent a house or live in an Hotel the’rent’ from the land that they stand on will be taxed, and since all taxes pass through to the least elastic factor of production (in this instance – you) you will pay the LVT. If you buy food, LVT will be in the price of your panini or Penguin (chocolate buscuit not Antarctic amphibian)

            In any event since bitcoin is ‘money’ it is not wealth. Wealth is plant and equipment, a business, investments in financial assets – equities say, or whatever. Bitcoin- aka sound money – is not in itself an investment. Its current appreciation against Sterling is more about the devaluation of Sterling than the appreciation of Bitcoin – probably.

            If you want to read up more on LVT go here or Google Georgism.

            But the essential point is that Bitcoin (or a reversion to gold, say) will not ‘do for the state’, or charity. What it will do for is the Big State, bad money, bad banking and confiscatory taxation and regulationism. Bring it on.

            (You may be interested to know that I have clients who are exiting all currencies as quick as they can. They are going into gold – as the fundamental money, and other non-cash assets like equities and property. You can see the effect of this cash flight in London property prices which are being pushed up by demand from Europeans getting out of the Euro – I mean, why wouldn’t you?)

            So the only way the State has of taxing this wealth (actually LVT taxes rent) is LVT.

            Meanwhile back on planet Zog the witless Osborn is subsidising rent seekers rather than taxing them. It’s bizarre.

          • Wouter Drucker

            Bitcoin could help alleviate poverty once its developers implement a ripple like system. Basically you create a chain of trust. You only pay someone you trust (a family member) and the money ends up at whoever desperately needs it trough a chain of connected people.

            Bitcoin has the potential to make central government obsolete by replacing some of it tasks. Insurance, chains of trust (welfare), mediation (police), competing currency (democracy). Look up some of the Bitcoin conference video’s.

          • ScaryBiscuits

            A remarkably small amount of our taxation goes on funding the “lavish entitlements” of officials. You must know that.
            Care to name a source for that patronising statement, Hugo? Do their unfunded pension funds count as lavish entitlements? Does being virtually unsackable? Does earning on in many cases twice as much as their equivalents in the real world? Does being able to employ people for no other purpose than making yourself more important? These are far from isolated examples and there is no way to distinguish between the ‘lavish’ and the overall pay bill, which everybody agrees is unsustainable. Cut the latter and the former will follow.
            You also seem to be mixing up bitcoin, which will indeed make it more difficult to for governments to hide their taxes through printed money, and the collapse of the state. We had a state (including one that cared for the poor) for many centuries before we nationalised money so the two are not necessarily related. The only threat to the state is if they take the same approach to bitcoin that the music industry had to music downloads. That’s bad for them and us.

          • grahaminn

            Public sector final salary pensions are lavish compared to the pension arrangements of most of the people posting here, and they are *extremely* expensive to the taxpayer.

          • Steffen Søborg

            hello Hugo. I enjoyed your article, very well put. But how can you honestly beleive that hospitals and police cannot come about voluntarily? How can you believe these institutions wont exist, if people arent forced to pay for them? I am wondering what you think about the food supply. It is completely voluntary – bar food regulations etc. – but there is more than enough to go around. places it isnt, is where the state has actually tried to control the food supply, or where the state by means of it monopoly on violence are causing so much instability that simple economic activity like food supply is not possible.

          • Hugo Rifkind

            Hi Steffen, and thanks very much. I’m sure they would exist, yes, but not nearly to the degree or of the size they need to. Indeed, the lesson of the whole Obamacare debate in the US is that some state provision will always be necessary, or else the poorest will go without.

            Regarding the food supply – well, sure. Only you miss out the bit where hundreds of thousands are given money by the state in order that they can eat at all. Without a state, I’m never clear what is supposed to happen to them. Some could survive on charity, but – pessimist that I am – I don’t believe there would be enough charity.

            I’m not -please note – saying this is a good situation. But it is the situation.

          • Bob1893

            At what point are you considered to be poor?

          • grahaminn

            Lol, don’t pretend you understand poverty better than anybody else here, rich kid.

          • Major Plonquer

            The Hong Kong government takes significantly less from its citizens than the UK government does. But in HK the hospitals, police and social services are all run far, far better. This is not a theory and can be demonstrated. Governments are pretty bad at anything resembling management.

          • MrVeryAngry

            They do LVT. Thank you Cowperthwaite.

          • Scaredypants

            I disagree with the state taking so much of my money( of which I toil 60-70 hours per week for) that I cannot pay my bills and therefore will soon need state welfare!

          • grahaminn

            How do you think medical care was provided before the NHS existed?

          • Hugo Rifkind


    • MrVeryAngry

      Just a mo’. What about the State taxing the only thing it can? Land? Now where have I heard that as being a good idea…?

    • MrVeryAngry

      Thinking about it, isn’t fiat money a sort of virtual money?

      • ScaryBiscuits

        Exactly. All money is virtual in the sense that it is a proxy for value. With bitcoin you are replacing a govt guarantee for one from somebody you trust, just like it was before they nationalised it.

      • Wouter Drucker

        Banknotes and gold aren’t virtual. Fiat money on a computer is virtual but differs from bitcoin in that it’s centralized. Fiat money can switch from virtual to physical and back because it’s centralized. Bitcoin is purely virtual.

        A good experiment is to think about issuing your own money, and keeping track of it in your mind. Think about verbally giving some to your sister. Than think about what would be needed if your sister made a verbal transaction with your mother. You would basically all need to be psychic for it to work (or use the phone a lot).

    • Mark_ld

      Good comment but Governments can still Tax point of Sale for Bitcoin usage, though it would be harder to achieve.

  • Michael Suede

    “what happens to the state that needs your taxes to survive?”

    Freedom happens.

    The end of war happens.

    The end of the drug war happens.

    The end of unaccountable police happens.

    The end of racist laws happen.

    The end of bank bailouts and mass counterfeiting by states happens.

    Transactions become voluntary by default, since the use of coercion to obtain Bitcoins is so incredibly difficult.

    • Andres March

      My take is a bit different but IMHO:

      Freedom happens.

      Wars are more frequent

      The end of the drug war happens.

      The end of police happens.

      The end of laws happen.

      The end of bank bailouts and mass counterfeiting by states happens.

      Transactions become voluntary by default, since the use of coercion to obtain Bitcoins is so incredibly difficult.

      If a government adopted bitcoin as currency, maybe I would be more optimistic but the unraveling of government endorsed fiat currency wouldn’t be a pretty thing.

      • Jean-Claude Morin

        lol, Freedom and war can’t be together… the most free country as the best history to stay in peace. King and ruler always want to extend their power and they create the war… not the freeman.

        • Andres March

          Can you explain that a bit more? I have never seen so much peace and stability as in an oppressive totalitarian state. I mean that’s usually the justification. We can’t allow freedom, everybody would want to do things that piss each other off. Anarchy = total freedom and I think there is less war now then there was when governments were weaker.

          • Jean-Claude Morin

            Way back in time of Kings, government was way more stronger and they were in constant war and super restrictive.

          • Andres March

            good point. serfdom is a good example. maybe you are right but you can’t compare against now. you would have to compare against other societies during the time because over time violence has decreased (please dont ask for a citation). Around the same time, my uneducated opinion is that life at the time was just as or even more violent outside of the protection of a king. sure you may not have formal wars but tribal warfare or marauders seem worse imho.

  • uberwest

    Surely if Bitcoin really takes off, the IMF or some other bunch of one worlder socialist control freaks will seize control of it, making the step to one world government that much easier for them.


    What so real money dosnt buy drugs, im sure you will find more dollars are spent on drugs than bitcoin so why keep harping on about it. Bitcoin is money phyisical in the form of real coins and virtual yes u can buy drugs but also food, tv’s and anything else you to spend your hard cash on. But thanks for reminding the world that out of all the good things you can buy you can also buy drugs. If the same money which was given to banks was invested in bitcoin people might actual have seen a return instead of the pitance interest earned by high street banks.

  • Guy G

    I hate to dispute one of your main highlights of the bitcoin but, bitcoin is a little more than “a string of code, wibbling around in cyberspace” it actually takes power and some electrons to do these calculations so they are not entirely non-existent.

    This brings up an interesting correlation: there is a relationship between the value of a bitcoin and the cost of the silicon and electricity which is used to exploit them (not just mine them but to use them too) there’s a sort of bobbling transform of memory bits and cpu flops that spells out an informationaly fundamental value scale.

  • William Kostric

    Perhaps we will finally achieve anarchy, thank goodness.

  • Bishop Hill

    The easy way to buy bitcoin in the UK seems to have been closed down in the last 24 hours. is no longer accepting UK deposits. No explanation as to why.

  • Nick

    Hello everybody….I’m not a money man so I don’t really understand this Bitcoin business.
    Could someone be so kind & explain it to me in laymans terms.Thank you.

  • Deb Daniels

    so wot’s wrong wiv
    “you clean my windows, and I’ll knit you a sock toy” apart from the taxman wants to know

  • yoyoegg

    AFAIK the maths is sound in proving that only a finite number of bitcoins can ever be ‘mined’. The proof that ‘mining’ is computationally hard maybe not so good; supposing every possible bitcoin could be created over a bank-holiday weekend?

    Plus property rights to bitcoins relies on a crypto. As we know, the RIPA Act 2000 allows HMG to send you down for 4 years for refusing to disclose a cipher key. Hmm, a choice between a 40% haircut or 4 years not bending over in the shower…?

  • ReactOSisCool

    Just what we need. More people trading Bitcoin without understanding it. Thanks to you we’ll soon have the biggest crash in Bitcoin history.

  • Hellen

    Up the revolution!

  • Uchuu Keiji Shaider

    There is a low-key online opportunity that lets you cash in on the bitcoin wave and the company is called Bit Billions. You don’t want to miss this.

  • satanacius

    If Bitcoins destroy the state it means Bitcoins is more powerful than any monetary system created by men. Personally I don’t think this will happens because they can print money to the end of the world, they make the laws and they can enforce it. What will happen, the monetary system will correct itself, bringing back perhaps a sense of trust to people. Governments are created to take care people interests not bankers.

  • Jason Mulrone

    The rocketting value of Bitcoin is going to push street heroin prices through the roof!

  • lifeofliberty

    Worst article I have EVER read. Convoluted, contradictory and confusing. Fire the idiot that wrote this.

  • alan borky

    People don’t seem to realise it yet but we seem to be at the same stage the CIA were the day before the Berlin Wall fell – clueless any of it was about to happen.

    So not only’re we probably watching capitalism going the same way as communism but also both national sovereignity/statehood and the New World Order’s dream/nightmare of a unified one world state which’s probably why so many parties’re currently desperately scrabbling to reposition and limit the effect of the internet in the hope of avoiding such developments.

  • Robert Hewett

    “When democracy stops being about the group and becomes about the individual, and when you are literally empowered to pay and get paid without anybody knowing but you, what happens to the state that needs your taxes to survive?”

    It becomes a Republic.

    And note that if the State has power through the privately owned Central Bank to print money, why the f*ck are they taxing us in the first place? Beardsley Ruml brought up this very question in 1946. Beardsley Ruml was the Chairman of the Federal Reserve Bank of New York.

    The article was first published in the January, 1946, issue of a periodical named American Affairs. TAXES FOR REVENUE ARE OBSOLETE

    by Beardsley Ruml,
    Chairman of the Federal Reserve Bank of New York.

    Google it.

    Also note that the 5th Planck of the Communist Manifesto is a Central Bank with an exclusive monopoly on Credit. This is why “Democracies” love Central Bankers. Because:”…democracy is an indispensable condition of the socialist movement.”…
    ~ Rosa Luxemburg


    “The goal of Socialism is Communism”
    ~ Vladimir Lenin
    And this is also why the United Socialist States of America is “making the world safe for Democracy”.
    The United States was founded as a Republic with a small central government with clearly defined powers. Today, it is a “Democracy” with a gigantic bureaucratic government that spies on everybody everywhere, including its own citizens and their “right to privacy” Right from the Old Republic and has a gigantic military arsenal of weapons of nightmare proportions ready to annihilate anybody that gets in the way of the Plutocrats imperialism which owns it.
    This is the NEED for a currency OUTSIDE the control of Central Bankers, especially the Rothschild Banking dynasty.

  • Jose Garcia

    Why do I think that bitcoin is also (like central banks) a scam?

    Easy. The owners create out of thin air the bitcoins so, as central banks owners, they own all the value in the bitcoins or the real money they got selling the bitcoins in the 1st place.

    So, yes, bitcoin is another monetary scam.

    What is the real deal. An honest government which prints its own money so the wealth created with the printing goes to the people.

    To learn about this important topic (your future depends on it) watch the movie Money Masters:

  • Vagn sorensen

    Now that Banks have basically shot themselves in the head, this Bitcoin idea or something like it may be just the ticket.

    The main problem it seems to me is the reliability of the computer networks…better install fiber optic systems rather than rely on satellites or telephone and cable systems.

  • AlexanderGalt

    It all sounds a lot like QE, imaginary money which will end up bankrupting us all.

    By the by there’s a good analysis of that in: “Debasing Britain” at:

  • Janet

    There’s a lot of businesses accepting this… Though nice try with the fear mongering “it’s all about drugs” line. Did the govt pay you to throw that in?

  • seriounsly?

    What happens to the market when the difficulty stops/they’re all discovered? =[

  • ChrisTavareIsMyIdol

    Bitcoin is a clever Ponzi scheme where the con artists have “allocated” the majority of coins to themselves. They also dish out free bitcoins to mug punters to drag them in. As allocation of Bitcoins is on a diminishing basis even constant demand will see prices rise, dragging in more mug punters,which in itself will force prices even higher.

    At the top the con artists will sell off their holdings and disappear. And when the mugs complain, hey no-one was in charge so no-one can be prosecuted.

    Don’t be a mug, avoid them like the plague

  • Roger Hudson

    Isn’t it an internet form of hawala or chinese chop notes? At the heart of any system there must be trust, western central and commercial banking has totally lost it.
    I have been working on TOR open source inter-networking but it is very difficult code, I still hope the open source movement dominates the future. Giving GCHQ/NSA a big headache.

  • Ed Smith

    Lol bitcoins can destroy the state.

  • channel.fog

    It simply means the usual right-wing libertaran dream – the thugs and liars will rise to the top and we’ll have to spend the next two hundred years bringing them down.

  • Andrew Smith

    Not really much new in this. UK privately owned banks were able to issue notes until the State nationalised the right (except slightly in Scotland).

    It is clear that regulation of the money supply and banking, as with most other regulation, is yet another aspect of government which follows the familiar pattern.

    First government get involved in an activity to “help” the existing providers

    Second they significantly increase taxes and spending and cream off big chunks for bureaucrats

    Third the state finds it cannot convince everyone to use their new services so they monopolise it

    Next they limit the cash being spent on the service when they find unlimited demand follows a zero cost at point of delivery

    Fifth they tell the public they really should not have expected the state to do all these things for them “free” and the supply is cut and taxpayers are told to do more themselves. A few state employees and users are berated for irresponsibly doing what the state made law.

    The final stage is not always clear: in the case of many services which were funded by tax payers it is sold to private operators with local monopolies who introduce or raise charges to pay the government license fee. In effect the government steals from tax payers a second time.

    This pattern can be seen in law enforcement, health, education, road and rail transport, radio spectrum, even pathology services. The state has become a racket to fund the lifestyles of the political class and it is rapidly developing an international cartel structure.

    Money and banking are just further examples.

  • Ian Dıck

    Garbage. Crypto means you can’t steal it, or your friends in Wall street. Moron.

  • Squire Western

    “From the high of $260 (£169) for each bitcoin on 10 April, bitcoins are now worth less than $100 (£65) each. The main bitcoin exchange shut down for 12 hours to install hardware to help it cope with trading volumes.”………..Still happy with your bit coin investment Hugo?

  • Mark Tey

    If you still wanna buy Bitcoins in the UK, directly without intermediators on ebay or other middle men (with huge fees) is difficult, I made this guide with a simple process

  • michael gedi

    if you’d like to invest in bitcoins in the UK one of the easiest way is to make a transfer to the exchanges…

    Link here:

    best wishes and make sure you secure your wallet. I found Electrum to be easy to use and feels pretty safe once I got used to how it works 😉

  • Nibinear

    People say that Bitcoin can do away with governments and taxation but I don’t understand that. Surely whichever company pays you will have to strip away the tax before paying you even in Bitcoins? Of course it does stop banks thieving money out of your account every month and it stops the government bringing in other taxes on your saving or inheritance for example. So how would that work?

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