National / International News

Why buying Bitcoin is like stepping into the Wild West

Marketplace - American Public Media - Tue, 2014-08-12 01:00

It’s green lights and blue skies for Bitcoin, baby! The government’s attitude seems to be laissez-faire, states are giving it the thumbs-up, the Fed is shrugging its shoulders and saying it has no jurisdiction.

Which is why the CFPB’s recent memo of Bitcoin is such a buzzkill.

The Consumer Financial Protection Bureau – I know, it even sounds like the nanny state – “We’re here to protect you from your own poor financial decisions…” (whatever) – the CFPB says that using Bitcoin and other virtual currencies is like “stepping into the Wild West.”

CFPB head Richard Cordray probably should have added, “and not in a good way” to that statement, because I’m pretty certain that most Americans would say that “stepping into the Wild West” would actually be totally cool (ten gallon hat, anyone? Fringed hide jacket? … Leather chaps?).

But several economists say that Cordray is right on the money (as it were). Virtual currencies look very similar to the money issued by banks during the Wild West, they say.

So, the Wild West – Buffalo Bill and Jesse James? Seriously?

Exactly. The Wild West is both a geographical designation and a period in time. It’s a romantic name for the American western frontier, created as America expanded in the latter half of the 19th century (1850-1900). In 1850, most of the area west of Arkansas, Missouri and Illinois was still unsettled, with the exception of Texas, and the rapid expansion across those lands to the Pacific Ocean over the next 30 years was something of a lawless land rush.

Did they even have a banking system back then?

Not at first. Congress made several attempts to create a national bank between 1781 and 1836, but without much success. It didn’t help that Andrew Jackson, who was president in 1836, believed that central banks were the spawn of the devil, pretty much, and only gold and silver should be used as currency. Boy, he would have hated Bitcoin.

So, what did they have?

Basically, from 1836 until 1865, they had a free for all. It was actually called the Free Banking period, and pretty much anyone could open and run a bank, so long as you had a certain amount of capital, a security deposit to back any note issuance, and enough silver or gold or whatever on hand to convert a banknote into that metal on demand.   

No wonder Butch and Sundance went into the bank robbery business!

That’s right, hoss. Unlike banks today in the U.S., banks in the Wild West had to keep a fair amount of precious metal in their vaults. If they had vaults, that is. And many did not.

Sounds sketchy.

It was. Not only was there a risk that your bank might get robbed and you’d have to wait a long time to swap your banknotes for gold, there was also the danger that your bank might run out of precious metal because all your neighbors wanted to exchange their notes at the same time. And then there were the wildcats.

What? Wildcats?

Yeah. Wildcat bankers were people who set up banks, often in remote areas “where the wildcats roam,” and then issued notes to the public without ever having any intention of paying them back. These scumbags would then skip town and leave the poor townspeople with a bunch of worthless scrip.

There are some crazy stories of bank fraud from way back then, including bankers displaying boxes of nails and broken glass and claiming they were full of silver dollars to gull the unsuspecting locals.

I bet those guys went to jail.

When they were caught, yes they did.

OK, so how is all of this similar to Bitcoin?

It’s similar because right now, we’re in a Free Banking period for electronic currency creators.

Anyone can set up an electronic currency company, and there are right now no regulations covering these ventures. Anyone can buy Bitcoin or Dogecoin or whatever, and anyone can accept payment in those currencies. Regulatory organizations are signaling their concerns, but so far they’re keeping their hands off. Then there’s the rhetoric that proponents of electronic currencies like to use. It reads a lot like the libertarian rationale behind the Free Banking reforms, which were conceived in part as an escape from a corrupt system dominated by special interests (doesn’t that sound familiar?).

So are virtual currency companies the new Wildcat banks?

Not necessarily. Most virtual currencies appear to have been set up for ethical reasons, and their founders and supporters want them to succeed. But that doesn’t mean they’re safe. If you are a Bitcoin user, you should be every bit as concerned as someone who put his money in an independent bank in 1850. The CFPB notes that virtual currencies are not backed by any government or central bank. This means that is those companies fail, you may not get your money back, you will have no recourse to a regulator, and there is no government organization that has insured your money with that company. If the company goes down, in other words, the chances are that your money will go with it.

What about bank robbers?

They may not wear Stetsons and bandannas, and use dynamite and a long fuse, but robbers exist in the virtual world, too. The CFPB says “if a hacker gains access to a consumer’s Bitcoin “private keys,” which are 64-character codes that unlock the consumer’s funds, the consumer can lose all their virtual currency. Fraudsters are also taking advantage of the hype surrounding virtual currencies to pose as Bitcoin exchanges, Bitcoin intermediaries, and Bitcoin traders in an effort to lure consumers to send money, which is then stolen.”

So, step into the Wild West if you wish. But bring a pair of six-shooters. And maybe a getaway horse.

VIDEO: 'Glorious Twelfth' reignites grouse debate

BBC - Tue, 2014-08-12 00:57
The start of the grouse shooting season has reignited debate over the future of the practice.

VIDEO: UK pork farmers hit by sanctions

BBC - Tue, 2014-08-12 00:52
UK pork farmers will face pressure to lower prices because of Russia's ban on food imports from a number of Western countries, say experts

Killer's escape bid from prison van

BBC - Tue, 2014-08-12 00:51
The man convicted of murdering a waiter in Kirkwall 20 years ago is thought to have made an escape bid while being taken to hospital.

VIDEO: The smart drones of the future

BBC - Tue, 2014-08-12 00:11
How drones are being developed for a wide range of future uses.

Tenement evacuated following blaze

BBC - Tue, 2014-08-12 00:09
Twenty five people had to be led to safety by firefighters during a blaze in an Aberdeen tenement.

It's Sunrise In London And Time For A Rave

NPR News - Tue, 2014-08-12 00:00

The sun is just peeking over the rooftops and the main drink is coffee, not alcohol. But that hasn't kept Londoners from a popular morning rave that's rapidly spread to cities around the world.

» E-Mail This

VIDEO: After hours robots to explore Tate

BBC - Mon, 2014-08-11 23:59
Robots are set to roam the halls of London's Tate Britain Museum, as part of a unique project aimed at allowing art lovers to explore the building after hours.

Search for Yetis from Doctor Who

BBC - Mon, 2014-08-11 23:46
Extras who dressed as Yetis in long-lost episodes of Doctor Who filmed in Wales in 1967 are being searched for ahead of the new series.

Ladbrokes first half profits plunge

BBC - Mon, 2014-08-11 23:41
Bookmaker Ladbrokes has reported a sharp fall in profit despite saying it had had a "good World Cup".

'Action needed' on foreign fighters

BBC - Mon, 2014-08-11 23:26
The US and Australia highlight the threat posed by foreign jihadi fighters returning from Syria and Iraq, amid horror in Australia over a graphic image of a young boy.

Sea meadows 'lost like rain forests'

BBC - Mon, 2014-08-11 23:12
Under sea feeding grounds for young fish are being lost at the same rate as Amazonian rain forests and could damage the fishing industry, scientists in Swansea warn.

Ohuruogu returns from 'break' at Euros

BBC - Mon, 2014-08-11 22:55
World 400m champion Christine Ohuruogu will run at the European Championships starting Tuesday, saying she regrets her break from racing.

VIDEO: Town halls must now open to cameras

BBC - Mon, 2014-08-11 22:45
A change in law means local council meetings can be filmed.

Cash to support victims of sex abuse

BBC - Mon, 2014-08-11 22:35
More victims of sexual violence are seeking help after recent high profile celebrity court cases have given them the courage to come forward, funding is being given to help support services cope.

Should cricket introduce red and yellow cards?

BBC - Mon, 2014-08-11 21:54
Is it time for cricket to follow football and rugby by giving umpires the power to send players off?

Club-by-club guide to the Premier League season

BBC - Mon, 2014-08-11 21:11
Transfers, top stories and expert predictions: BBC Sport runs you through what's happened in the Premier League this summer.

'Please save us' - Iraq on front pages

BBC - Mon, 2014-08-11 21:10
The plight of Yazidi refugees fleeing from Islamists militants in Iraq continues to dominate front pages, while later editions report actor Robin Williams' death.

Liberia to receive Ebola trial drug

BBC - Mon, 2014-08-11 21:04
Liberia will receive an untested experimental drug, Zmapp, to treat people infected with Ebola, the government says following a request to the US.

Major praises 'drive' of immigrants

BBC - Mon, 2014-08-11 21:00
Former prime minister Sir John Major praises immigrants for having what he calls "the very Conservative instinct" of wanting to improve their lives.
ON THE AIR

KBBI is Powered by Active Listeners like You

As we celebrate 35 years of broadcasting, we look ahead to technology improvements and the changing landscape of public radio.

Support the voices, music, information, and ideas that add so much to your life.Thank you for supporting your local public radio station.

FOLLOW US

Drupal theme by pixeljets.com ver.1.4