Bitcoin in Egypt? Go directly to Jail?

Do not pass go and do not take any bitcoins.

For those of you not in the loop bitcoin is a new digital currency. There have been many currencies that started on the internet and have survived for a long time. e-gold for instance survived from 1996 till 2009 when the USA government closed them down for money laundering and “operation of an unlicensed money transmitting business”. E-gold was backed by gold, that is for every currency in circulation the company had gold to backup the currency and the price of e-gold moved more or less with that of gold. Of coarse such a currency was a threat to countries that now give people unbacked pieces of paper as wages their hard work, the paper itself is worthless. E-Gold as such was in reality worth more than dollars, and when the company had to close due to the actions of the USA government, the company has started the process of returning money to people as they have on their blog at blog.e-gold.com. It is important to see that the USA did not charge them on counts of fraud which would have been the case if they did not acually have gold to back the e-gold currency. But the “operation of an unlicensed money transmitting business” is clear that the USA does not like non-government currency and I think they especially do not like any parallel currency backed by gold or precious metals since that exposes the real weakness of our current economical system.

Now back to bitcoins, bitcoins is a new currency that is very strange. It is not backed up by gold or anything tangible yet as of 2013 the bitcoins in circulation have a one billion dollar exchange value. Now bitcoin is not backed by gold but by cryptography and computing power. See bitcoin has learned from e-gold, as a digital currency it was easy to close e-gold because it had a central company backing it up, but bitcoin is a peer-peer currency that operates like torrents. If you do not know what a torrent it it will be very hard to imagine this. Bitcoin has no central server, nearly anybody can be a bitcoin server and issue and manage bitcoin transactions!

So how does the supply of bitcoins work if anybody can run a bitcoin issuing server. Well bitcoins are very special “numbers” that you need to discover or as they prefer to call it mine for them. Now if you know anything about the internet you know that there is something called a secure server, such servers are usually used for e-commerce and they have addresses that start with https://. Now the technology that makes https servers run is very close to bitcoins. See the https uses ciphers to make sure that the server you communicate with is actually the server you put in the URL of the browser and that no one in the middle can steal your data or pretend to be the server you want.

These ciphers or magical numbers have to be found, and finding them requires a lot of computing power, and their amount is not huge, the more ciphers you discover the harder it becomes to discover new ciphers, and hence the significance of using them as a digital currency is two fold. First they are in themselves the guarantee of their authenticity that is no normal “numbers” can be used as ciphers, and ciphers only can be used to guarantee authenticity of financial transactions. Second, the very scarcity of these “numbers” and amount of effort it takes from supercomputers to find new ciphers, guarantees that their supply is not too abundant and yet not too scarce.

But the real genius of bitcoin is that it is secure enough even though there is no central server. In reality it will be very difficult for a government to close bitcoin because of that. Also since the people that make money from discovering new bitcoins are not the people that invented it, the ability to persecute people becomes harder.

Still if a bitcoin exchange opened in Egypt, what would you expect will happen. It will be closed very soon after it opens and the people running it will be labeled as frauds.

But this has to lead you to think, what is money ? Why is paper printed by a government more valuable than ordinary paper? Some might sneer at this question but it is a very valid one.  To make a point here are some things in history that might make you think a bit.

1-In WW2 Germany printed counterfeit British Pounds, these pounds where found in Germany after it was defeated, they said it was very good counterfieting. Well the German government had the same technology and ability of the British government to print it, so I guess the counterfeits where amazingly good. The Germans did this to induce inflation in Britain. How much of that currency was actually used, the British say none or so, but I doubts it.

2-After the defeat of Germany it was cheaper to burn German bank notes than use it to buy wood to burn for heating!

3-Even corporations can “print” money, think of it, if the shares of say apple go from 100 to 200 dollars, the total value of the company has doubled. In billions of dollars that previously where not there in the economy!

4-The USA has the largest debt at 16 trillion and moving up every day, that is 16 thousand billions. The USA can not realistically pay back these loans, this simple fact is not being addressed at all by the economic world.

In today’s world value is in the eye of the beholder. Currency is only an illusion as strong as the belief in the illusion. Once people stop believing in the paper they own they loose its value!

In such a world it is dangerous to allow the people rather than the governments to issue currency from the perspective of governments that issue paper that we believe has value.

The true value of a currently is only as strong as the amount of belief you have in it. If you