Good video. Dr. Paul and the host make some good points about cryptocurrency but their admitted lack of understanding does limit the validity of their criticisms.
1) Dr. Paul mentions that when he asks how people buy cryptocurrency, they say with a credit card - this is not anonymous, therefore, the government can chase you down, tax you etc.
It is not necessary to use a credit card to buy cryptocurrency. You can buy Bitcoins with straight cash and there are local sellers that do this. Recent headlines aside, this practice will doubtless continue.
Also, once you have purchased cryptocurrency (with a credit card) you can use a mixing service (like CoinJoin) to anonymize your assets. In addition - a point that is often overlooked - all you really have to do is sweep the initial purchase of coins into a new address generated from a "brain wallet". Now, the government has no way to prove that you actually own these coins anymore. "I'm sorry, I paid the coins to some guy in exchange for services rendered and he moved them to that address - it's not mine." In other words, cryptocurrency gives you a feature that no physical commodity can emulate: unconditional deniability. With deniability, you no longer need strong anonymity.
There are also new cryptocoins, specifically Zcash, that enable unconditionally anonymous on-chain transactions. This kind of anonymity is actually stronger than physical anonymity. To pay you a gold coin, I must see you face-to-face which means I could betray you. Not so with an anonymous cryptocoin. The transaction is anonymous on-chain and you and I can remain completely anonymous to each other, as well, removing the possibility of betraying one another to the authorities.
Lightning Networks and other off-chain technologies are going to move the vast majority of transactions off-chain. The records of these transactions will only exist locally on the devices of the involved parties. While this is not as strong a form of anonymity as Zcash, it's pretty good anonymity. We don't have to see each other face-to-face or even exchange personal information. So, if I burn my receipts, there's pretty much no way for the government to prove I transacted with you at all.
2) Dr. Paul points out that the main cryptocoins (Bitcoin, etc.) are not backed by a commodity
This is one of those "damned if you do, damned if you don't" situations. If Bitcoin were backed by a commodity, the backing would have to be auditable, which means it would have to have a public physical location, which means that the authorities could (and would, cf LibertyDollar, e-gold, etc.) shut it down. But remove the backing, and people will say, "it's the same as fiat."
It's not actually true that cryptocoins can be issued in just any amount. To see why this is the case, you have to understand what is actually "backing" Bitcoin. To see this, you have to understand two points about cryptocurrencies (together):
a) The entire pool of cryptocurrency should not be seen as a competing "market" of monies, rather, it is a single money with many extensions or branches; this is true regardless of whether the cryptos are explicitly linked together
b) There will always be one crypto (or maybe two, a tiny number) that acts like gold to all other cryptos; there will always be a crypto that is acting as a
de facto reserve currency. Today, this is Bitcoin.
From this, we see that the concept of unbacked digital currency is not so crazy after all. Rather than putting a name on it (such as "Bitcoin") and focusing on that name, try zooming out a bit and realizing that, if it wasn't Bitcoin, it would just be something else. The question is whether this "digital gold" really has the features - or quality of money - required to compete with the fiat monetary regime. I think Bitcoin does have these features (due to Lightning Networks, channel factories and other coming enhancements that are already enabled in the blockchain) and, furthermore, I think that even if Bitcoin were to fail, someone else would succeed. In other words, even if Bitcoin simply "drops the ball" on choosing the right basket of features required for a digital currency to compete with the fiat monetary regime, some other cryptocoin would get it right. So, success is inevitable, short of catastrophe or an unforeseeable backlash (e.g. a monetary scorched-earth response from the global fiat regime).
The "backing" of Bitcoin, then, is its userbase. This is often called the "network effect." It's a question of arbitrage. When Bitcoin's userbase is sufficiently large and it is used over wide geographic regions with significant demographic variety and for many kinds of uses, localized collapses in demand for Bitcoin (localized to certain demographics, regions, uses) will simply convert over to arbitrage opportunities for someone else in the Bitcoin ecosystem. "US government bans Bitcoin use; classified as a felony, punishable by lengthy prison term on first offense" is no longer a threat to Bitcoin because it just makes bitcoins held by US persons cheaper for non-US persons to acquire.
The supply of bitcoins really is fixed at 21M and this is not going to change. A change to this limit would constitute a "fork" and the main pool of capital has no incentive to follow a fork that devalues its holdings. So, the main pool is always going to forsake scamcoins that fork off and raise the coin limit. The "brother coin" idea - BCash is a living example of this - misses the point that there is always just one cryptocoin acting as the reserve. BCash might survive, but it will in no way "add coins" to Bitcoin. Rather, if it survives, it will become just another branch in the cryptocurrency pool, of which Bitcoin (with its fixed 21M bitcoins) is the root, the reserve-currency.
3) Dr. Paul points out that the key is to get government out of money
This is very true. I had held the view at one point that if government ever did get out of money, cryptocurrencies would collapse because their only reason for existence is to escape government corruption of any physical-based money. But I no longer think this is the case. Cryptocurrency doesn't need a commodity backing because its supply is fixed. This is in contrast to privately-issued paper banknotes, where the backing was a way to warrant that the number of notes in existence is finite and of some fixed exchange ratio with a known good money (gold or silver). There will never be more than 21M bitcoins, so you don't need a backing for that purpose. This means that the "backing" of Bitcoin is really its userbase, as explained above.
4) Dr. Paul says that cryptocurrency does not yet qualify as money
I think he's right but it is a
potential money, in the same sense that gold also is not money (because it is not used in hand-to-hand transactions), but is a potential money.
5) Dr. Paul says that the ultimate goal is to live in a free society
Preach it, Ron Paul...
Conclusion
Cryptocurrency is a free-market money. It is different than gold and silver in that it cannot exist without a computer network. It offers some advantages over gold and silver in the form of stronger anonymity and potentially unconditional security and deniability (it can't be stolen and no one can prove that you own it). Even if government were to get out of money, cryptocurrrency would still exist and thrive alongside gold and silver. Many people will never "get" cryptocurrency - you can't touch it, see it, hold it, etc. That's perfectly OK. There's no need for cryptocurrency to supplant commodity money in a free-market in money production because cryptocurrency and commodity money can each do things that the other cannot. So, if that free society we're all dreaming were to come during our lifetime, we could see a world where gold and silver are used as they once used to be
and cryptocurrencies are also used, each for the kinds of uses at which they excel.
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