Sunday, April 5, 2015

Bitcoin as a Plague That Hit the Libertarian Community

By Robert Wenzel

Now that the price of bitcoins has dropped dramatically from over $1,000 to the present range of $250, enthusiasm for Bitcoin has subsided dramatically within the libertarian community,  The declining enthusiasim is a good thing.

Those promoting the "deflationary aspects" of Bitcoin and its potential sky is the limit price move have appeared to have, themselves, moved on to other ventures. To the degree that Bitcoin is mentioned at all by many of these early promoters of Bitcoin as a sky is the limit currency, the focus has seemed to have shifted to the idea that the Bitcoin blockchain may have wonderful uses outside the world of currency, especially as a recorder of property ownership and other transactions. This may ultimately be the case, but as a libertarian, it is as exciting to me as automatic flush toilets. It probably is a good idea, it doesn't always work, but I don't think about it very much and most of all it has very little to do with libertarianism other than as another example of the fact when people are left free and are able to innovate they come up with all kinds of creative products.

But, I don't want to spend the remainder of this post discussing creativity in a free world. I want to discuss the nature of  living in an unfree world, such as the one we have, and attempts to circumvent government laws and regulations, specifically with Bitcoin. It's proven a dangerous game. Bitcoin was promoted by some libertarian fanboys as a method to circumvent government. This was a serious mistake. To the degree that this notion gained a foothold in the libertarian community, it was like a very dangerous virus within the libertarian community. For most who caught the virus, they suffered only money losses, for others, most notably Ross Ulbricht, who faces life in prison, the damage was most certainly much more severe.

Since the shutting down of Silk Road, we have seen the government shut down of Silk Road 2.0 and the shut down, by its owners, of Evolution, not to mention losses, suffered by many, from the collapse of Mt. Gox and other exchanges.

It appears that the same "anonymity" that some libertarians cheered on as  the core attractive feature of Bitcoin, proved to be its undoing.

The operators of Evolution used the anonymity to collect a reported $12 million and then disappear.

But the most important lesson  to be learned comes via the recent indictment of two federal government agents for stealing bitcoins.

The complaint, against former Drug Enforcement Agent Carl Force and former Secret Service agent Shaun Bridges, provides much insight into how the government used the anonymity of Bitcoin to infiltrate Silk Road.

Force used a multitude of aliases, some on behalf of the government and some for personal gain, to learn about the operations of Silk Road, to communicate with the operator of Silk Road (allegedly Ross Ulbricht) and to steal from Silk Road.

Among his aliases were: Nob, French Maid and Death from Above. Force used all these in his communications with the operator of Silk Road and the operator had no clue they were one in the same person.

Talk about using anonymity to infiltrate. It's the Achilles heal of so-called  anonymity, you just never know at what stage you are dealing with the government on the other side or an opportunist bad actor or both. Carl Force was played all the roles, which has caused major, major problems for Ulbricht.

So don't tell me about Bitcoin mixers that mix up the source of your bitcoins. How do you know the mixer, that you are using, isn't run by the government?

Let's now think about the anonymity itself.  It worked well for the government, since the operator of Silk Road had nowhere near the resources to follow up on all the anonymous names that  Force was using when contacting him. But unlike Silk Road's limitations, it was a different story for the government who could put all kinds of agents on Silk Road to look for weaknesses in the anonymity.

Indeed, Force and Bridges were seasoned agents, who took multiple steps, including the use of foreign corporations to shield their theft of bitcoins, but when the resources of the government were turned on them, the government was able to trace all of their money transactions.

The lesson here for libertarians:

Lonely libertarian operator, you have no idea who you are dealing with on the other end of an "anonymous" Bitcoin transaction and you have nowhere near the resources to find out,

On the other hand, if the government decides to single you out, your "anonymity" is unlikely to hold given the resources they can use to focus on a case.

Further, there is also  the problem of government informants ratting you out, even if you know for sure that the organization you are dealing with is not a direct government front.

Thanks to the complaint, we are now learning that  Mark Karpeles, CEO of the now-defunct Mt. Gox, once the world’s largest bitcoin exchange, was reporting, on an active basis, to the U.S. and Japanese governments those who were opening up Bitcoin accounts with fake passports.

The Daily Beast reports:
[A]s early as 2011, Karpeles had proactively contacted U.S. and Japanese law enforcement and attempted to keep them posted on suspicious activity, including the use of fake passports to open accounts. 

Bitcoin fever was a plague, It has passed for now. I hope you are inoculated.  I am forecasting in my EPJ Daily Alert that a major round of accelerating price inflation is ahead. This may result in some strength in the Bitcoin price, but don't get suckered in. The anonymity will for sure be used against you. There are much better ways to protect against price inflation than Bitcoin.

 Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics.


  1. MMM is a community of people providing each other financial help on the principle of gratuitousness, reciprocity and benevolence. We use BITCOIN infrastructure in our transactions.

  2. Isn't it funny how Robert is silent on the bitcoin value these past months.....hmmmm.