Bitcoin is the peer-to-peer virtual, encrypted currency not issued by a government authority.
Albert Wenger at USV, the New York VC, had an interesting blog post, "Bitcoin As Protocol". In the post Wenger talks about the possibilities for innovation if one recognizes and preserves Bitcoin as a shared "public ledger". Bitcoin could become the world's bookkeeper or bookkeeping protocol not just for monetary transactions, but also for stock holdings, trusts, etc. This apparently excites Wenger. OK.
What excites me about Bitcoin is that it could possibly "redefine the protocol for trust". When man first started doing commerce around 7-10,000 years ago, the big issue was trusting people outside their immediate community. Trust is the fundamental concept that underlies money, promissory notes, eBay and many other parts and types of commerce. The oldest concepts like money use government backing or some suitable authority to establish the necessary trust. The newest concepts, like eBay, use peer ratings of vendors to establish trust. Somewhere in the middle of this timeline, legal systems became a part of the trust framework.
While some would argue that modern technology made possible the emergence of peer mechanisms to establish trust, I think such an approach misses an important point. The Snowden disclosures of secret NSA information made public the scope of U.S. government surveillance worldwide. I do not condone in any way the Snowden disclosures, but I understand the widespread anger at the scale of the surveillance. Nassim Taleb, author of The Black Swan, was one of the first writers to point out that we are outraged by the federal government’s behavior but no one complains about Google’s collection of so much private data related to our Internet behavior. Effectively, we have more trust and confidence in a Google or a Facebook than in the U.S. government. Whether Google or Facebook warrant the trust may still need to be determined, but they portend a new future.
What Bitcoin may be is an early step in the replacement of government as a mechanism of trust. That is pretty exciting! IT technology provides the basis to reduce or restrict government involvement in our lives. Bitcoin could replace the U.S. Dollar or at least the Argentine Peso. No partisan politics involved. Just a return to the original concepts of Locke and Hobbes initiated by individuals linked by technology.
Can Bitlections or Bitferendums be far behind. They will show up at the local level, where government is most effective and the resources are most limited. Urbanization may be a major contributor to such a change as the scale of social problems overwhelm the politicians to the dismay of "voters". Taxes payable in Bitcoins to Google, acting as a trustee??
Remember: disruptive innovations are frequently classified initially as "crazy".