The Next Government Buster?

I’ve read a few really interesting stories over the past few days about Bitcoin, a relatively new, decentralized peer-to-peer (P2P) payment ecosystem that avoids any sort of centralized banking oversight and is anonymous between the transacting parties.  Think about these two attributes for a second.  No centralized government oversight means no regulation, no taxation, no monitoring of how and where currency is being spent, no traceability, no monetary policy.  And anonymous between the parties, in combination with no oversight, means you can buy and sell things – any and all things – without anyone knowing what is bought or sold.  While there are other forms of P2P payment systems such as PayPal in operation, none of them meet these two criteria.  How Bitcoin works is fascinating.

Jason Calacanis, arguably one of the most influential web technology voices and certainly one of the most outspoken about new and emerging web technologies, posted a story about Bitcoin yesterday entitled Bitcoin P2P Currency:  The Most Dangerous Project We’ve Ever Seen.  The gist of his message is that this could be one of the most disruptive web technologies since the creation of the Internet itself due to the potential dis-intermediation of governments and the complete decentralization of a globally centralized system (monetary oversight, central banking).

There was an insightful response to Jason’s post by Robert Tercek, a serial innovator in digital media, entitled Is Bitcoin the Wikileaks of Monetary Policy? that is a must-read.  Robert describes how the Internet has decentralized numerous industries, particularly ones where the incumbents were able to previously control their positions with regulation or by proprietary access to data or licensing.  He sums it up with “Bitcoin is to central banking as Gnutella is to music publishing, as BitTorrent is to motion pictures and as Wikileaks is to government secrets.”

Jason and Robert contend the only way this type of innovation is stifled is by governments making it illegal AND actively prosecuting individuals.  And even this type of threat at best forces a migration of innovation into even more diffusion and decentralization until local government incentives are aligned with the innovation.  In the end, centralization and oversight die.  Wikileaks and Napster started revolutions that spawned even more decentralized and ultimately more effective web innovation.

I wonder, is this capitalism at work?  Can we assume that the intersection of innovation and economics will always result in the most efficient, effective equilibrium?  Or are there areas of centralization, policy and oversight that are beneficial to society as a whole?

This will be one technology to watch.