Is it time for digital-only dollars?

The nice thing about gold as a currency is that no government can easily and capriciously tax it. Paper money is easy: just print more and spend it however you want. But Gold is relatively stable, and it doesn’t go bad and can be stored easily.

But you can’t fit it in your wallet. You can’t easily break it into smaller pieces or combine pieces to make larger ones. Gold is not the ultimate currency.

Currency backed by gold is more mobile, but you have to trust someone to exchange your paper or digital claim for actual gold. And if that someone happens to be a government, that trust is guaranteed to be betrayed.

We are living now in an information-driven world. Perhaps currency can be encoded as bits. Even a decade ago, this would have sounded impossible. But because of the widespread dissemination of powerful computing and interconnected networking, some new approaches have recently been developed.

One example is called BitCoin, a free, open-source, peer-to-peer, anonymous, network-based currency. Its creator Satoshi Nakamoto calls it a “cryptocurrency” because there is no way for a middleman to intercept, prevent or tax any exchange of money. Even the users themselves don’t necessarily know the real-world identities of who they are dealing with. And there cannot be any inflation or currency manipulation. There is no central database for the police to raid and no way for your bitcoins to be stolen. It’s amazing Nakamoto’s algorithm is able to guarantee all these benefits.

Imagine it on your iPhone. You walk around and pay for whatever you want without any worries. Even if your phone is stolen, there is no way to access your money without you. It is stable, private, untaxable and uninflatable. Pretty good. It will be great once you can buy groceries with it.

Transactions will always require the BitCoin network. You may think we will always have a network. There’s no way the government could interfere with the entire internet, is there? Even China could probably be twarted by an electronic currency network.

Never underestimate the hunger of a politician. They will always think of a way to use brute force to get your stuff. Our senator Joe Lieberman has proposed a plan that would allow the president to shut down the entire internet for “national security reasons.” What could drive a politician to insecurity more than the uneasy feeling that there are some economic transactions happening without his hand in the pie?

The “internet kill switch” has a 120-day limit, after which Congress would rubber-stamp a longer web death. They are all in it together, and when they can’t get their coins, you won’t get your bits.

They will argue — as they did with the Patriot Act, the invasion of Iraq, the health care bill and all the bailouts — that they are doing this for our own good, to protect us from systemic failure. Wouldn’t it be terrible if terrorists could shut down our entire internet? The only way to protect ourselves is to shut it down before they can. Let’s shackle ourselves before they do.

The internet itself is virtually unkillable, based on the brilliant way the internet protocol and the transfer control protocol has worked for decades. It automatically reroutes and recovers. It could strike fear into the leeches that polite society calls our elected officials, by circumventing their monopolistic currency in favor of one that actually works.

How about a political kill switch that shuts down Congress for 120 days, unless extended by an anonymous internet poll?

Dr. Phil Maymin is an Assistant Professor of Finance and Risk Engineering at the Polytechnic Institute of New York University. The views represented are his own.

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