In a blog post put up today, BitInstant’s Erik Voorhees makes an excellent and very simple argument. People often have an aversion to Bitcoin on the basis that it is purely virtual, but the money you have sitting in your bank account “is virtual already… bitcoins, and other virtual currencies, are no more virtual than the money we’re already using every day.”
“Of the many aversions people have to the new concept of virtual currency, one of the most fundamental is merely an aversion to the fact that it’s “virtual.” This is a curious phenomenon and is worth exploring. As it turns out, the money you’re currently using is already virtual.
We are raised from a young age to understand that money is the shiny round coins placed in our piggy banks for our good deeds, and not long after we learn the value of the green paper we labor to place in our wallets. Coins and bills are money – we can see them, hold them, pass them from one person to another as a payment of value. This tangible money is scarce, has clear denominations ($5, $20, etc), and works quite well for almost all purposes. From childhood, money is physical, money is tangible; we use it to buy other physical, tangible items in this material world, and it is this material attribute which convinces us of money’s realness. It’s a subconscious foundation of our perception of the world.
When we get a little older, we realize physical bills and coins aren’t practical for many transactions, especially those at distance. But society has solved this problem. We place the physical money into our bank accounts, and then we are credited with that amount at that bank. From this balance, we can draw it down with checks or debit cards, or even transfer it directly to others using the banking networks. But in all these cases, fundamentally, there is a belief in a “real” material money sitting in the bank. The numbers we see on the online banking account, then, are just counting the physical money sitting in our corner of the bank’s vault. The majority of people on Earth believe this, either explicitly or implicitly.
Yet, this is utterly false.
Your money is virtual already. Your checking account is not storing anything physical on your behalf whatsoever. If your account displays a balance of $1,000, you cannot go to the bank and see the specific $1,000 of money which belongs to you. To be sure, you can pull out $1,000 in physical bills, but these are more appropriately described as tokens of your virtual balance – they are bearer bonds, to be technically correct, and the bearer is entitled to deposit them for virtual credit elsewhere in the banking system. In other words, people have it backwards. Your bank account is not a virtual representation of your tangible money. Rather, your tangible money is a temporary representation of the virtual value you’ve collected at the bank.
For as long as you’ve been alive, you’ve been working for, saving, and spending virtual currency: rarely in the temporary form of a paper bearer bond which transfers virtual bank credits between bearers, but more typically in pure digital form via cards, checks, and online transfers. Perhaps you think when you receive a physical paycheck that it is real, physical money? All it is, indeed, is an instructive certificate to route virtual currency from your employers digital account to your own.
So the US dollar, and every other government money, are virtual currencies, and they should be known and recognized as such by honest observers. They exist, almost exclusively, in digital form, are transferred digitally over digital communication lines to other digital accounts. They’re produced digitally, stored digitally, and protected digitally. Your bank doesn’t have a vault door to protect piles of physical money so much as to protect the gold watches, jewelry, and family heirlooms entrusted to the safety deposit boxes. Banks used to protect piles of money before money became virtual, but today the amount of bearer bonds (cash) in an average bank is miniscule compared to the size of the virtual money tracked by its servers.
To prove the point, we need only recognize that a bank could double your balance, or halve it, with a few keystrokes. If they doubled your account balance tomorrow, the bank would not need to acquire any physical materials or items whatsoever to do it. If they halved it, there would not be a pile of forgotten money in the vault, needing now to be assigned elsewhere. There is nothing more virtual than your money.
Why then such aversion to new forms of money which are also virtual? Again, the reason is that people have a severe misconception about the money they’re already using. A person who switches to a new virtual currency like Bitcoin is not switching between real money and virtual, but rather simply swapping one virtual specie for another.
To be sure, there are many legitimate aversions to new, highly volatile, not widely-accepted forms of money which have not yet proven themselves over time. That’s fair. But, aversion due to their virtual nature specifically is not legitimate. Such aversion is based in fallacy. That dollars are anything but virtual is a sophism.
We see then that bitcoins, and other virtual currencies, are no more virtual than the money we’re already using every day. More interestingly, while dollars and bitcoins are both virtual, only one of them cannot be created out of thin air. One of them is manifestly scarce, and the other functionally unlimited in supply. One is created by limited mathematical functions – by the scarcity of specific numbers – and the other by the push of a button, by decree of an arbitrary creator. One can be created at whim, and one cannot.
So, while dollars and bitcoins are both virtual, which is actually more real?”