The economic history of the Free Banking Era shows us that a vibrant economy is possible without central banks. It also shows us that people’s natural instinct toward entrepreneurship will fill gaps left by a withdrawal of fiat currency from the market. The primary technical challenges of the era, the widespread counterfeiting of banknotes and the difficulty of determining reputation of banking institutions, can be mitigated by blockchain and networked communication technologies. That said, one big difference between the Free Banking past and the FLO monetary systems of the future is that fiat currencies and alternative ones will coexist, complement and compete with each other.
Just as Hayek and the Austrians anticipated the rise of “private token money”, Samuel Konkin and the “agorists” and “voluntaryists” anticipated the emergence of widespread economic exchange outside the purview of the government. Agorists strive for “a society in which all relations between people are voluntary exchanges” by means of "counter-economics.” People participate in counter-economics through black market, gray market and mutual aid activities. We in the United States tend to view participation in the black market as something akin to drug dealing, but agorists have a much broader view: everything from an unregulated taxi service to keeping chickens in defiance of zoning regulation are counter-economic activities that challenges the nation-state. Producing and using cryptocurrency certainly qualifies. Konkin states that “if everyone abandoned ‘legal tender’ for gold and goods in contracts and other exchanges, it is doubtful that even taxation could sustain the modern state.”
Not only do cryptocurrency transactions undermine the state, they also challenge the validity of long held legal protections enshrined in commercial law since it makes transactions difficult to track, and thus, the roles people play in transactions more difficult to prove. An employer pays for the labor of an employee. An organization pays its staff but not its volunteers. A buyer gives a seller goods in exchange for money. In the eyes of the law, employers and sellers have a lot of responsibilities. They can be sued for lying, for defective products, for accidents that take place, for violating local regulations, and much more.
When a person purchases a cab ride using legal tender such as cash or a credit card, they create a de facto legal contract between themselves and the driver. If the vehicle doesn’t have the appropriate licenses, certifications and insurance, its drivers and owners can be heavily fined because of the commercial nature of the relationship. If the driver tells the passenger to get out the cab because he doesn’t like them, then the passenger has legal recourse against that person and the company from which they bought the ticket. If there is a car accident, it will be the company that’s liable, and its insurance will have to cover the costs. However, if the cab ride is purchased using something other than fiat currency, the option to operate outside the law becomes more accessible. This could lead to lower prices because the seller doesn’t have to spend money on licenses, regulatory compliance and commercial insurance, and significantly more risks for all parties involved and others who aren’t.
As such, we can imagine the market for a wide variety of legal products like transportation and food separating into two different economies: one that uses fiat currency, operates within the frameworks established by centuries of commercial law and provides legal protections to its users; and one that uses cryptocurrencies and other alternative exchange systems to operate outside of commercial legal codes, providing few, if any, legal protections to customers while bringing a myriad of lower cost options to the marketplace. Indeed, this dynamic already exists in black and gray markets, but now they’ll be supercharged thanks to these new high-tech financial systems.
Just because legal protections don’t exist doesn’t mean extra-legal ones can’t. Agorism predicts the emergence of an ecosystem of products and services that make participation in informal and black-markets faster, better and cheaper than our existing, state-based systems. They believe that “free-market (all-voluntary) methods will take care of the few criminals; finding them (investigation), arresting them (delegated protection), trying them (arbitration), and restoring lost value to the victim of the aggressors (restitution).” It’s hard to imagine a non-state based process for dealing with issues of justice in the physical world, but it's less hard to imagine an ecosystem of service providers emerging to offer these types of services to cryptocurrency users. The recent pilfering of tens of millions of dollars from a well-funded crypto-contract-defined investment vehicle known as “The DAO” has brought the question of extra-legal justice to the forefront of the cryptocurrency community. In this case The DAO, which is an acronym of decentralized autonomous organization, had a flaw in its cryptocontract that enabled a user to steal a majority of the investment fund using some clever code. But, since the legal terms of The DAO stipulate that the “The DAO’s code controls and sets forth all terms of The DAO Creation”, the user who took the money is legally protected by the fact that the code allowed them to perform the action. In this circumstance, “there is no real legal difference between a feature and an exploit. It is all a matter of perspective.” Had The DAO investors followed Konkin’s recommendations, they might not have gotten involved in such an enterprise without first acquiring insurance that would protect them from hostile actors. Konkin’s proposed solutions for an agorist future are bound to receive a new wave of attention, even though he died five years before Bitcoin was released.