Bitcoin, the innovative virtual currency, may be a good idea for many reasons, but as it's currently conceived, it cannot really be free from corporate and state control. That's my strong belief after recently talking to Bill Maurer, Professor of Anthropology and Law at UC Irvine, whose specialty is money. (He wrote a very fun paper on Bitcoin and other non-traditional currencies for the July issue of The European Economic Sociology Electronic Newsletter -- click here for PDF link.)
"[I]t's not that they could easily pull the plug on the whole thing," he tells me, "just that they could easily stop the cash-in, cash-out side of Bitcoin, and effectively stop the flow of value into the system." Basically, as Professor Maurer explains, Bitcoin depends on infrastructures that corporations and states already control -- including a little-known protocol that handles financial transactions across the Internet:
"In order to get money into the system, as I understand it you have three options: mail a check (government supported and financed infrastructure), send a wire (government supported and financed infrastructure), or use Dwolla or another third-party payment provider. Dwolla 'rides the rails' of the ACH, the Automated Clearing House, a public-private entity made up of two main networks, with significant support from infrastructure created and maintained by the Federal Reserve. PayPal uses the ACH rails, too. The ACH is the service you use for things like direct deposit and direct bill pay. It's supervised by an industry consortium which sets the rules for it, called NACHA, with representatives from banks and credit unions. But the Fed plays a huge role in supporting, monitoring, and preventing fraud on the ACH."
Even beyond that, however, states and corporations control Bitcoin's underlying substrate. "[That's n]ot to mention Bitcoin's reliance on other existing infrastructures with varying degrees of government support," as Maurer puts it, "the electrical grid; the Internet itself!" As I understand it, for example, "Bitcoin mining" requires excessive CPU consumption, and consequently, lots of electricity. So if Bitcoin was suddenly outlawed, mining operations would likely be easy to tamp down, simply by pinpointing spikes on the power grid.
None of this is to necessarily say Bitcoin is a bad idea, just that it's not as free and independent as it's generally touted to be. To survive and even thrive, it would probably have to play nice with state and corporate authorities, just like Facebook Credits, Linden Dollars, and every other successful virtual currency has learned to do. If it doesn't, and it gained traction anyway, Bitcoin owners would inevitably get a strong lesson in who really controls what, and how. After all, Wikileaks once boasted it could operate on the Internet totally independent from the powers that be, and... we just saw what happened there.