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Counter-economics and Bitcoin

author: Theodore Minick
published: 2011-04-13 17:24:16 UTC

Last week, I explained what Agorism is, and how it works through black- and grey-markets to starve the state and replace it with a truly free marketplace. This week, I'll explore the interactions of such a marketplace with Bitcoin, and how it can be used in the counter-economy. SEK3 coined the term "counter-economics" to describe various voluntary practices, which, while they do not harm others, are often illegal. His precise definition was "the study and/or practice of all peaceful human action which is forbidden by the State." Depending on where you live, this could be anything from illegal drugs, to prostitution, or even underground newspapers.

Bitcoin is ideally suited for use in counter-economic activities, due to its anonymity and security. Once you've transferred funds into bitcoins - and if you have access to enough processing power, you can simply generate them directly - there is literally no way your actions with those bitcoins can be tracked. The only thing that is publicly known is your public key, and the client will gladly generate another for you. There's no way of knowing if any transfer is from you to another person, or simply between two of your wallets. The system is even designed to do this: with every transaction, some is sent back to you, at a new address. This shuffling of bitcoins makes it very hard indeed to track who is paying whom, and how much.

The security of bitcoin is no joke, either. It uses 256-bit hashes to lock down the contents of each block. If even one byte of a block is changed, that will alter the hash of the block, causing it to be rejected by the network. In order to game the system by spoofing the block chain - forcing the network to accept your altered chain of blocks, you'd need over 50% of the network computing power... A figure currently standing at least at 130 Ghash/s, (just in the two pools I've been keeping track of) and steadily rising. Google may not even be able to bring enough heat. And Heat it would be, Since that much computing power would produce an awful lot of waste heat, requiring an extensive cooling system - an added expense. It would, at that point, be more profitable to join the bitcoin network and work with the system, since, with over 50% of the computing power, you'd get over 50% of the blocks, netting at least three prizes every hour. At the current rates, that's 150 BTC every hour. Not a bad incentive to play nice, eh?

It could be argued that use of bitcoin is itself, actually counter-economic. Governments rely on people using their currency in order to get tax revenue, track transactions, and to reinforce the validity of the currency itself. By using bitcoin, you clearly indicate your lack of confidence in the currency you're buying the bitcoins with, deny the government any chance of tracing your transactions, and potentially deny the government tax revenue. Use of any alternative currency, whether species-based (Gold/Silver/etc), or barter, or anything else, has these features, but bitcoin has the added benefit of being digital, with all the convenience that entails.

With bitcoin, you can conceivably set up a private marketplace, accepting bitcoins, and trade anything, anonymously. With the addition of the TOR anonymity network, and perhaps a few other security precautions, users could connect to this marketplace, through the anonymous channel that TOR provides, and buy or sell whatever they wanted. Such a site would be almost impossible to shut down. A system of trust could be set up, with an ebay-like up/down voting mechanism, and merchant reviews. Good merchants would prosper, poor ones would fail. In Alongside Night, the Agoras were physical places. Today, they are digital.

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