In a post published by the free-market Institute of Economic Affairs, author and professor of finance and economics at Durham University Kevin Dowd is calling for the privatization of the British pound and replacing it with Bitcoin.

In the post, Dowd explains how Bitcoin, or a better cryptocurrency that may replace it in the future, has “the potential to swing the balance of power back from the state toward the individual.”  Since cryptocurrencies are generated and ran using a peer-to-peer network, the government can’t really do anything to shut it down since no single entity controls it.

Down also cited a blogger who stated that he can cross borders with no money on him as long as his Bitcoin wallet exists and there’s an Internet connection to where he’s heading. This will allow him to retrieve his wealth wherever he has Internet access.

A call to privatize currencies

First, let’s define what a ‘private currency’ is.  A private currency is a type of currency provided by a private company or an organization. This is in contrast with currencies that are issued by banks or the government. Think of it like a money issued by some companies to their employees as rewards. The employees can spend these special currencies within the company itself, for example by purchasing perks offered by their employer.

In Dowd’s post, he mentioned two private currencies that were taken down by the government for alleged counterfeiting, fraud, and even money laundering, namely the Liberty Dollar and e-gold. Dowd argued that the Liberty Dollar was not a counterfeit currency as “its purpose was to provide a superior dollar in open competition, not to pass itself off as the inferior dollar it was competing against.” As for e-gold, it was shut down because it was accused of illegally transmitting money despite Dr. Doug Jackson’s, who ran the e-gold system, efforts in explaining that e-gold was a system of payment, not a money-transmitting service.

Dowd pointed out that the government is concerned that private currencies threaten fiat currency, thus it shut them down despite their obvious benefits. He also said this is the reason governments are scrutinizing every aspect of Bitcoin and trying to define it according to something that they can regulate, but the decentralized nature of Bitcoin is making it hard for governments to shut it down, let alone control it.

As for the privatization of the British pound, though it was not clear in Dowd’s post, I believe that what he wants to happen is for the pound to be solely used in the UK and make Bitcoin the standard currency since it can be used practically anywhere you have an Internet connection.

“Let’s suppose that bitcoin became a very prominent currency,” Dowd said in an interview. “[To ensure a level playing field], the government itself would accept bitcoin in tax payments. So, in effect, the government should not be favouring its own currency, or any particular currency, through any of its unique powers. Nor have regulations against them.

“The natural analogy is with some of the old, bad, monopolies like British Gas or British Telecom. Telecom is a very good example: for a long time, we had a government monopoly, which stifled innovation, and the service was poor. Once that got opened up, competition opened, new innovation prospered, and we got all sorts of innovation that we couldn’t possibly anticipate, and we’re a lot better off for it.”

Bitcoin on shaky ground

Though Dowd views Bitcoin positively, he doesn’t deny the possibility of the cryptocurrency failing, but believes that something even better will come along in the future.

“Bitcoin is a wonderful innovation, but the pioneers in any industry are rarely the ones who last. Despite Bitcoin’s success to date, it is doubtful whether being the first mover is an advantage in the longer term: design flaws in the Bitcoin model are set in concrete and competitors can learn from them. The crypto-currency market is also an open one and a considerable number of competitors have since entered the field. Most of these will soon fail, but no-one can predict which will be best suited to the market and achieve long-run success. Most likely, Bitcoin will eventually be displaced by even better crypto-currencies,” Dowd stated.

Dowd maybe right in his concerns over Bitcoin, especially now that a single entity has 51 percent hashing power, an event that has the potential to disrupt the Bitcoin network as we now know it. But as he stated, the flaws in Bitcoin will serve as a lesson for future cryptocurrencies.

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