Stories about Bitcoin seemed to me to be all the rage for a while, having since tapered off. (At least in my own newsfeed...) The digital currency has long been trumpeted by libertarian-leaning types. I mean, what's not to love about a transparent, peer-to-peer currency not affiliated with any state or central bank? What I haven't heard as much about are real-world freedom-enhancing applications for Bitcoin...
Enter Jim Epstein in this week's EconTalk episode. While the conversation includes one of the best explanations of the blockchain technology underlying Bitcoin, the real fascination for me was the ways in which Bitcoin is being used by people to circumvent the state in Latin America. In one of my favorite lines in the conversation, Eptstein says Bitcoin is "turning Socialism against itself."
Take the case of Venezuela. Epstein paints a bleak picture of a city (Caracas) in which literally NO ONE goes outside after dark, where supermarket shelves are empty, and violence rampant. Ironically, the one thing that's cheap in Venezuela, also due to the effects of price controls, is electricity. And that's what makes Bitcoin mining so profitable- and increasingly dangerous- there.* Since it's virtually impossible to acquire enough food to survive, Venezuelans have turned to the black market. But it's even safer to turn to amazon. Miners like "Luis" set up computers to mine Bitcoin, then trade their Bitcoin at sites like e-Gifter for amazon gift cards, which they then use to stock up on consumables. Similar processes have also taken hold in Brazil, where people pay all or in part for items with Bitcoin to circumvent the Brazilian government's protectionist measures.
In Honduras, there has been talk of recording land titles in blockchain. In Mexico, transferring promissory notes to blockchain is apparently under consideration. Roberts and Epstein, while still citing the inefficiencies of the U.S. legal system, do a remarkable job of persuading the listener that Bitcoin may hold more significant potential for freeing up currently less free economies. Even domestically, the possibilities for reducing transaction costs in many other sectors suddenly seems stunning to me. In what other realms do you think this could occur? Check out Epstein's Reason column, which inspired this week's episode, as well as the audio or highlights from this week's EconTalk.
* One of the miners profiled anonymously by Epstein was recently a victim in Caracas of the new trend of "express kidnapping." In Roberts's favorite line, Epstein writes, "Burglars smell the Benjamins as if they were hunting dogs."