The Republican reaction to bitcoin has been mixed. Some lawmakers have enthusiastically supported it, while others have unequivocally opposed it. Interestingly, many mainstream Republican positions make amiable bedfellows with bitcoin. In this article, each section begins with a quote taken directly from the 2012 Republican Party Platform, followed by a discussion of how bitcoin can address the issue in question.
Small Business and Entrepreneurship
America’s small businesses are the backbone of the U.S. economy, employing tens of millions of workers. Small businesses create the vast majority of jobs [and] are the leaders in the world’s advances in technology and innovation, and we pledge to strengthen that role and foster small business entrepreneurship.
In a world where resources are preposterously precious and margins are extraordinarily thin, every cent counts. An entrepreneur’s livelihood depends upon his or her ability to squeeze out every last proverbial drop. Credit card acceptance, a necessary addition to any modern business model, is accompanied by processing fees averaging 2-3 percent (and up to 5 percent). In addition, merchants bear the cost of chargebacks, which can range from $25 to $100 each.
In addressing these two issues, bitcoin is a dream come true for entrepreneurs and small business owners. Bitcoin processing fees are significantly lower (0-1 percent); this reduces operating costs and allows merchants to pass the lower prices onto consumers, thereby becoming more competitive. Furthermore, since bitcoin obviates the need for third-party confirmation, merchants don’t have to worry about chargebacks.
Homeownership expands personal liberty, builds communities, and helps Americans create wealth…We must establish a mortgage finance system based on competition and free enterprise that is transparent, encourages the private sector to return to housing, and promotes personal responsibility on the part of borrowers.
An increase in homeownership correlates positively with a single word: access. Under the current state of affairs, lack of credit and underwhelming credit scores prevent many people (especially minorities, the young, and those who have simply made mistakes) from realizing the “American dream.” It’s not the banks’ fault, though: they’re just using the best tool available for assessing risk.
Smart property—property contracts enforced by the blockchain—holds promisefor moving us away from trust-based systems. It reduces risk for lenders and eliminates the need for anachronistic credit history reports. For example, imagine a house that locks out its “owner” if mortgage payments go consistently unpaid. Nothing would “promote personal responsibility” more than that. Let’s hope smart property becomes a reality sooner rather than later.
Sound Money and Central Banking
A sound monetary policy is critical for maintaining a strong economy. Inflation diminishes the purchasing power of the dollar at home and abroad and is a hidden tax on the American people. Moreover, the inflation tax is regressive, punishes those who save, transfers wealth from Main Street to Wall Street, and has grave implications for seniors living on fixed incomes.
The Republican Party accurately characterizes the disastrous effects of inflation. At some point, however, it must be understood that “sound money” and “central banking” cannot co-exist either in theory or as policy. So long as control of the currency rests with a central authority, manipulations of interest rates and money supply are meaningless. Inflation and its corollaries will always be present.
On the other hand, bitcoin upends the existing monetary paradigm. For starters, it is a decentralized, peer-to-peer currency, meaning that no central figure (other than mathematics itself) has control over its value or supply. What’s more, bitcoin is inherently deflationary. By design, additional bitcoins introduced into the ecosystem will gradually taper off and be capped in the year 2140. Thanks to a static supply, bitcoin will never be afflicted by inflation.
[O]ur foundations, educational institutions, faith-based groups, and committed men and women of charity devote billions of dollars and volunteer hours every year to help the poor and needy around the world. Limiting [government-to-government] foreign aid spending helps keep taxes lower, which frees more resources in the private and charitable sectors, whose giving tends to be more effective and efficient.
Republicans tend to understand the beneficence of private charity better than other political groups. They correctly point out how state aid often fails to help its intended recipients. Unfortunately, this also occurs with private charity. Horror stories abound of institutional organizations bamboozling well-meaning contributors (remember Kony 2012?). It’s commonplace for only a small percentage of your donation to reach the children of Africa (or wherever it was originally destined).
With bitcoin, monetary resources can be sent wholly and directly to the individuals who need it, regardless of location. Money doesn’t need to travel through thickets of bureaucracy–banks, governments, transmitters, intermediaries of all kinds–to arrive at its destination. With the click of a button on a smartphone or computer, I can send my wealth instantly and directly to a tsunami victim in East Asia. Moreover, in the broader sense of third-world empowerment, bitcoin can enable more robust global exchange by reducing the cost of international remittance, aiding the unbanked, and making the worldwide division of labor ever more complex.
The government and private sector must work together to address the cyberthreats posed to the United States, help the free flow of information between network managers, and encourage innovation and investment in cybersecurity…[W]e acknowledge that the most effective way of combating potential cybersecurity threats is…protecting the free flow of information within the private sector.
Everyday, the private sector spends inordinate amounts of time and money combating cyberthreats. Merchants pay $2.79 on every dollar lost to fraudulence.
Identity theft and security breaches related to commercial transactions are not possible in a bitcoin world. Investor Marc Andreessen writes at The New York Times that, in addition to addressing online security issues, “Bitcoin’s antifraud properties even extend into the physical world of retail stores and shoppers. For example, with Bitcoin, the huge hack that recently stole 70 million consumers’ credit card information from the Target department store chain would not have been possible.”
The professed aims of the Republican Party discussed above—enabling small businesses, increasing homeownership, promoting sound money, improving foreign aid, and enhancing cybersecurity—are things that people of all political leanings care about. Bitcoin is in a unique position to address each and every one of these issues in a positive way.
Watch for my upcoming article “Why Democrats Should Love Bitcoin.”
From Bitcoin Magazine.
Time For Islamic Law to Face The Bitcoin Question
Islamic finance is well-known as a world full of rules and prohibitions that seem strange and foreign to western scholars. Interest rates, excessive risk-taking, and investments in products deemed unethical such as wine, weapons, and pornography are strictly prohibited. In fact, every potential product to be invested in has to be approved by religious board members of Islamic banks. Bitcoin is no exception.
Indeed, the financial climate around investing in Bitcoin is full of shadows in the Islamic world. No fatwa has been issued against the cryptocurrency, yet the final verdict on whether Muslims can invest in the cryptocurrency is still out. The bewildering array of legal systems scattered throughout the Muslim world doesn’t help, either.
There are four fundamental legal schools practiced throughout Islamic countries — Hanafi, Hanbali, Shafi’i and Maliki — each with different approaches to nearly every aspect of Islamic law. Further, each country has its own legal system, connected in different degrees with Shariah. For example, the civil code in Egypt is mostly based on the Napoleonic Civil Code, but some branches of jurisprudence are influenced by Shariah, such as family law. By contrast, Saudi Arabia has a legal system completely Shariah-based, with great importance given to Hanbali’s ideas.
So, is there any hope for the Islamic world climbing aboard the Bitcoin train? Fortunately, several aspects of the cryptocurrency may lend itself to approval by Islamic authorities.
First, Bitcoin is not an inflationary currency like most others. Islamic law scholars have been disappointed by governments’ greedy use of inflation for decades, perhaps positing Bitcoin in a positive position for adoption. Shah Nawaz Khan, Retired Executive Director of State Life Insurance Corporation of Pakistan, has claimed that printing currency without any base is a modern kind of riba — one of the Several heinous sins that include murder, unlawfully taking orphans’ money and polytheism among others.
To quote the scholar Imran Hosein:
Some scholars of Islam argue that mankind is free to use anything, even a grain of sand, as money. They then go on to declare that there is no prohibition to printing paper for use as money and then assigning any value to the paper. Our response is that only Allah Most High isal-Razzaq, the Creator of wealth. Whoever attempts to assume the divine prerogative by creating wealth out of paper, or arbitrarily assigning to grains of sand a value quite different from their natural value, would be guilty of Shirk (Idolatry).
One of the most common objections to Bitcoin is that this virtual currency has no inherent value. The charge is mostly based on the idea that a real currency needs a material good, or an authority, that guarantees the value. However, even governments no longer guarantee the value of money, as is the case in the United States since President Richard Nixon took the country off the gold standard.
Many Bitcoin enthusiasts have explained in great lengths why this charge is not true. There are at least two things which make bitcoin a valuable currency: its small transaction costs and anonymity. Without any kind of authority bitcoins gained value on the basis of these characteristics. Although Bitcoin may not be compliant with Sharia Law to these ends, since they are not gold (or similar material) nor connected with gold, neither are dollars.
Finally, Bitcoin could be attractive to the Islamic world because of its decentralized nature. Muslims have long been uncomfortable with centralized power, as Diane Singerman explains in her book Avenues of Participation. Bitcoin’s peer-to-peer nature fits nicely with this decentralized mindset.
Naturally, every single Muslim country will institute different kinds of laws about Bitcoin because of the legislative variation that exists in the Islamic world. The four different legal schools of thought will provide different answers. However, the fact remains that the Islamic banking market cannot avoid the Bitcoin question much longer. Even if the matter is not crystal clear, it is necessary to face it.
Bitcoin Looks More Like A “Real” Currency Every Day
Opponents of Bitcoin, including governments, both Federal and State here in the U.S., and national governments elsewhere, face a dilemma. They disparage the crypto-currency by claiming that it is not a currency at all, just some artificial creation without worth, but this assertion presents them with a problem. If Bitcoin is not a currency and has no intrinsic value, how do you regulate it and, more tellingly, how do you enforce those regulations?
I discussed last week why I believe attempts to ban virtual currencies are not just fundamentally mistaken but also futile. That leaves governments in a situation of having to regulate the trading and use of them if they are to exert any control whatsoever. I am not one of those who believe that government involvement in anything is intrinsically evil or dangerous, and that any level of control and regulation is therefore, by definition, undesirable. I can accept that the motivation of some may be noble.
The financial world is littered with examples of fraud and theft and governments have a duty to protect, so some legally enshrined protection is probably warranted. That protection can only come, though, once governments make it clear that Bitcoin is a currency, not some crazy speculative game. To be fair, most countries around the world seem to be doing just that. Most of the published verdicts of governments around the world take the form that they do not regard Bitcoin as legal tender, but they recognize its status as a currency. Incidentally, the whole “legal tender” thing can be misleading to some. That a currency is not legal tender doesn’t make it worthless; it simply means that merchants are not obliged to accept it in payment.
In the U.S. there has been little in the way of direct government definition, but the courts are leading the way. Court documents from the recent SEC vs. Trendon Shavers case resulting from a Bitcoin Ponzi scheme included Judge Amos L Mazzant’s assertion that “…Bitcoin is a currency or a form of money…” Apart from the somewhat cynical observation that having its own Ponzi scheme is a definite sign that Bitcoin is gaining ground, this judge’s assertion and other similar comments from the bench are significant. If courts treat Bitcoin as a currency, then the Federal government has little choice but to follow suit. As more and more countries around the world reach the same conclusion, often no doubt motivated by the desire to tax rather than protect their citizens, it becomes harder for the outliers to deny the legitimacy of Bitcoin.
Governments, then, and even some individuals, are being forced to accept that Bitcoin is, at least, a currency. That process will presumably be expedited by the announcement that Circle, touted as the first Bitcoin bank, is opening up to a global customer base. That is interesting and a banking system adds to the acceptance of crypto-currencies as just currencies, but the real news is that Bitcoin balances will be 100% insured. Some still have doubts about the security of a virtual currency and this re-assurance for them is welcome news.
I have maintained for a while that greater acceptance for Bitcoin is inevitable and that one of the first steps towards that is the general recognition that it is a currency just like any other. Now that it is clear that people can be defrauded of it (and the fraudsters punished) and that governments, bankers and insurance companies can all get in on the action, that recognition is looking closer every day.
BITCOIN AND THE MARCH TOWARD A DECENTRALIZED FUTURE
In a brilliant essay on Bitcoin and the promise it holds for a decentralized future (published on the Pirate Party founder Rick Falkvinge’s website), Nozomi Hayase explains the disruptive potential of Bitcoin.