Jon Matonis: Bitcoin $1.9 Billion and Growing; Achieving What No Other Digital Currency Has Before

Fri, Oct 18, 2013 - 10:48am

Jon Matonis, Executive Director of the nonprofit Bitcoin Foundation, explains how Bitcoin has grown by leaps and bounds in less than five years. With a current market cap of $1.9 billion, he makes an extremely compelling case that Bitcoin is here to stay, gaining the attention of the international payments network, SWIFT, and close to earning its own globally recognized currency code.

Here, we present a partial transcript of his recent interview on Financial Sense Newshour with host Jim Puplava.

Jim: What is Bitcoin in easy to understand terms?

Jon: Bitcoin can be thought of as a “giant public ledger in the sky.” Monetary historians will remember the giant stone money of Yap, where the feudal kings would carve their holdings into stone and it never moved. It was there on the public square for display. Bitcoin is similar to that: You have a giant ledger that records all the transactions and everyone’s holdings so you don’t really have Bitcoin in your possession; you have the access rights to move it on the ledger. It’s digital; and the other thing to remember about Bitcoin is that it is both the payments network as well as the unit of account. So if you’re trying to compare it to something like PayPal and Visa, it’s going to be difficult because it is both the network, like Visa and PayPal, then it also has its own unit of account riding on that network, which is called the Bitcoin unit. So, in comparison, to relate it to today’s payment systems, it would be like if Visa or PayPal had their own independent monetary unit.

Jim: What are the advantages of using Bitcoin versus major currencies?

Jon: Right off the bat, the major advantage is that Bitcoin is not going to be subject to any kind of political manipulation or confiscation. That’s the big picture; it’s not managed by a central bank. Bitcoin is a decentralized currency that is supported over a distributed network through mutual consensus. Now that’s at the macro level. At the micro level, people will see advantages related to very low fees for transactions. They’ll see advantages in user privacy, so you don’t have to have all your transactions subject to financial surveillance. Also, at the micro level, Bitcoin transactions are irreversible; so, they’re great for merchants because you don’t have chargebacks associated with them. And there’s no intermediary; Bitcoin is peer-to-peer, point-to-point. You’re not relying on a third-party intermediary for any kind of clearing or settlement function. And, lastly, Bitcoin has no capital or border controls that you would find with dollar, euros, or yen…

Jim: Why would the government allow something like this to succeed? Governments depend on tax revenues and, with Bitcoin operating potentially outside their system, it seems that this would present a direct threat to their authority.

Jon: Right. It’s not a given that the government is 100% in favor of a digital currency like Bitcoin for the exact reasons you mentioned. But, it relates to freedom of transaction for the individual on the personal side. If individuals believe in freedom of transaction and using the money that they want to use or that they choose to use they would logically support Bitcoin. When it comes to taxation, Bitcoin doesn’t change anything or alter anything that’s currently in practice on the law books—the tax laws—for the taxation of cash. We have the structure in place, at least for the US, for reporting barter income and cash transactions. Bitcoin doesn’t change any of that so, with respect to taxation, no new laws are required. What Bitcoin does in effect though is it gives the same attributes individuals would’ve had previously with paper cash—namely, the privacy, irreversibility, and the untraceability—it gives those attributes to users in the digital realm.

Jim: One thing we have seen, especially with the NSA stories hitting the news, is that governments are getting more intrusive into our lives. They want to know more about us: they’re tracking cell phones, emails, who knows what else. With Bitcoin, can they track things that you do through Bitcoin?

Jon: Absolutely. Bitcoin is, as I mentioned, a public ledger. So, it is trackable by nature. It’s really what I define as user-defined privacy. 99% of users will be fine using it in the non-anonymous method. I don’t think that many people would require the bulletproof full financial privacy that Bitcoin potential makes available. So, you’re talking about less than 1% of transactions where people would really demand that level. The key point to remember throughout all this though is that level and where you sit on that spectrum is defined and set by the user. It is defined by the individual. You don’t have to ask permission for how much financial privacy you want to have in your life or your transactions. You set yourself voluntarily on that sliding scale. So there may be some transactions where you have full linkability to your real-world identity; full traceability to your transactions and what they’re for, and that’s entirely possible with Bitcoin. There are several steps though that individuals have the potential to take, and security and privacy is not an absolute—these are relative steps. They would be taking these steps along what I refer to as the “sliding scale of financial privacy,” placing themselves somewhere on that spectrum with respect to the tools and software and the networks that they are using online. (End Transcript)

In the rest of this interview Jon explains why Bitcoin is so unique in accomplishing what other digital currencies haven't, its implications for governments and national currencies if it becomes widespread, what happened with Silk Road and what this means for Bitcoin holders, and a number of other fascinating topics.

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